14.1 Fraud and Misrepresentation

Fraud and misrepresentation in tort law deal with false statements that cause harm. These cases involve intentional deception or careless communication of incorrect information, leading to financial losses or other damages for the victim.

To prove fraud, you need a false statement, knowledge of its falsity, intent to deceive, justifiable reliance, and resulting harm. Damages can include compensation, punitive awards, or contract cancellation. Reliance is crucial in establishing the link between the false statement and the victim's losses.

Fraud and Misrepresentation in Tort Law

Fraudulent vs negligent misrepresentation

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• Fraudulent misrepresentation involves intentional deception where the defendant knowingly makes a false statement with the intent to induce reliance on that statement (lying about a car's accident history to sell it at a higher price)
• Negligent misrepresentation involves careless or reckless communication of false information where the defendant fails to exercise reasonable care in ascertaining the truth, but without intent to deceive (providing inaccurate financial advice due to insufficient research)

Key elements of fraud proof

• False representation of a material fact must be untrue and significant to the transaction (misrepresenting a property's square footage in a real estate deal)
• Knowledge of falsity or reckless disregard for the truth by the defendant (knowingly selling a counterfeit product as genuine)
• Intent to induce reliance on the false statement to make the plaintiff act or refrain from acting (false advertising to encourage purchases)
• Justifiable reliance by the plaintiff must be actual and reasonable under the circumstances (relying on a seller's claims about a product's features without conducting independent research)
• Resulting damage to the plaintiff as a loss or injury from relying on the false statement (financial losses from investing based on fraudulent information)

Damages for misrepresentation claims

• Compensatory damages restore the plaintiff to their position had the fraud or misrepresentation not occurred, including out-of-pocket losses, consequential damages, and lost profits (reimbursement for money spent on a faulty product and income lost due to its malfunction)
• Punitive damages punish the defendant for egregious conduct and deter similar future behavior, generally only available in cases of intentional fraud or malice (high damages awarded against a company for knowingly selling dangerous products)
• Rescission is an equitable remedy that cancels the contract or transaction and restores parties to their pre-contract positions when restitution is inadequate (returning a fraudulently sold property and refunding the purchase price)

Reliance in fraud claims

• Reliance is a key element in proving fraud or misrepresentation where the plaintiff must show actual reliance on the false statement that was justifiable or reasonable under the circumstances (buying a car based on the seller's false claims about its condition)
• Reliance establishes causation between the false statement and the plaintiff's damages, demonstrating the statement's materiality to the plaintiff's decision (proving that false advertising led to purchasing a defective product)
• Factors affecting justifiable reliance include the plaintiff's sophistication and expertise, access to information and opportunity to investigate, and the relationship between the parties and any fiduciary duties (a seasoned investor may have a higher burden to investigate claims than an average consumer)