Legal Definitions - fraudulent misrepresentation

Fraudulent misrepresentation occurs when one party makes a false statement of fact or opinion to another, knowing the statement is untrue or making it with reckless disregard for its truth, with the specific intention of convincing the other party to act (or refrain from acting) based on that false statement. For a claim of fraudulent misrepresentation to succeed, the misled party must have actually relied on the false statement and suffered some form of harm or loss as a direct result.

In essence, it's about intentionally deceiving someone to their detriment through a lie or a statement made without caring if it's true.

Here are some examples to illustrate this concept:

• Example 1: Used Car Sale

  Imagine a car dealership selling a used SUV. The salesperson tells a potential buyer, "This vehicle has a brand-new engine installed last month, and it's never been in an accident." The salesperson knows, however, that the engine is the original one with over 100,000 miles and that the car was involved in a significant fender-bender six months prior. The buyer, relying on these statements, purchases the SUV. A few weeks later, the buyer discovers the original engine is failing and finds evidence of shoddy repair work from the previous accident. Here, the salesperson made false statements (about the engine and accident history) knowing they were untrue, with the intent to induce the buyer to purchase the car. The buyer relied on these lies and suffered financial harm (costly repairs, reduced vehicle value).

• Example 2: Investment Opportunity

  A financial advisor pitches an investment opportunity to a client, claiming, "This new tech startup guarantees a 20% return within the first year, and your principal investment is completely risk-free." The advisor knows that no investment can genuinely guarantee such returns or be entirely risk-free, and the startup is actually in a highly volatile market with a significant chance of failure. The client, trusting the advisor's expertise and the promise of a secure, high return, invests a substantial portion of their savings. When the startup collapses and the client loses most of their investment, the advisor's initial statements constitute fraudulent misrepresentation because they were false, made with knowledge of their falsity (or reckless disregard), intended to induce the client's investment, and led to the client's financial loss.

• Example 3: Commercial Property Lease

  A landlord is trying to lease a commercial space for a new restaurant. To attract a tenant, the landlord tells a prospective restaurateur, "The building's plumbing system was completely upgraded last year, and it can easily handle the demands of a busy commercial kitchen." In reality, the landlord knows the plumbing is old, prone to leaks, and barely adequate for standard office use, let alone a restaurant. The restaurateur signs a long-term lease, invests heavily in fitting out the kitchen, and opens for business. Within weeks, the plumbing repeatedly fails, causing significant damage and forcing the restaurant to close temporarily, resulting in lost revenue and repair costs. The landlord's false statement about the plumbing, made to secure the lease, constitutes fraudulent misrepresentation because the restaurateur relied on it to their detriment.