Legal Definitions - fraudulent representation

Fraudulent representation, often referred to as fraudulent misrepresentation, occurs when one party makes a false statement of a significant fact to another party, knowing the statement is untrue or acting with reckless disregard for its truth, with the specific intention of inducing the other party to act in a way that ultimately causes them harm or loss. For a statement to be considered a fraudulent representation, several key elements must typically be present:

• A false statement was made.
• The statement concerned a material fact (something important enough to influence a decision).
• The person making the statement knew it was false, or acted with reckless indifference to its truth.
• The person intended for the other party to rely on this false statement.
• The other party actually relied on the false statement.
• The other party suffered damages or harm as a direct result of that reliance.

Here are some examples to illustrate this concept:

• Example 1: Real Estate Transaction

  A homeowner selling their house tells a potential buyer that the roof was completely replaced last year and comes with a 20-year warranty, even though they know the roof is 15 years old and has significant leaks. The buyer, relying on this false information about a new roof, proceeds with the purchase. Shortly after moving in, the buyer discovers the extensive roof damage and incurs substantial costs for a full replacement.

  Explanation: The seller made a false statement about a material fact (the age and condition of the roof), knowing it was untrue, with the intent to induce the sale. The buyer relied on this lie and suffered financial harm by having to pay for a new roof.

• Example 2: Investment Scheme

  An individual pitches an investment opportunity to a group of potential investors, claiming their company has developed a groundbreaking artificial intelligence software that guarantees a 30% return within six months. They present fabricated financial statements and testimonials from non-existent clients. In reality, the software is merely a concept, the company has no assets, and the individual intends to use the invested money for personal expenses. Several investors, convinced by these claims, transfer large sums of money to the individual.

  Explanation: The individual made multiple false statements about the company's technology, financial health, and guaranteed returns, knowing they were untrue, to persuade people to invest. The investors relied on these fabrications and suffered significant financial losses.

• Example 3: Professional Services

  A graphic designer applies for a contract to create a new brand identity for a startup company. In their portfolio and resume, they include several high-profile projects and awards, claiming they were the lead designer for these projects. The startup hires the designer based on this impressive (but false) track record. After several weeks, the startup realizes the designer lacks the skills and experience to deliver the promised quality work, leading to missed deadlines, a substandard design, and the need to hire another designer, incurring additional costs and delays.

  Explanation: The graphic designer made false representations about their professional experience and achievements, intending to secure the contract. The startup relied on these deceptive claims and suffered financial loss and business disruption due to the designer's inability to perform as promised.