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What is Fraudulent Misrepresentation

Oct 11, 2022 | Corporate & Business

What is Fraudulent Misrepresentation

For most of us, when we hear the word “fraud,” we think of criminal conduct. But not all misconduct falls under criminal statutes. For instance, a used car salesman may misrepresent that a car is in great condition when in fact it has significant mechanical issues. Or a defendant may encourage the plaintiff to sign a contract with oral assurances that contradict the terms of the written agreement. In these types of cases, fraud victims may be entitled to recover civil damages under Texas fraudulent misrepresentation laws.


Fraudulent Misrepresentation Defined

Fraudulent misrepresentation is a civil action arising under contract law. It involves a misrepresentation, false statement of fact, and/or omission that causes the victim to enter into a contract and incur damages.


Elements of a Fraudulent Misrepresentation Claim

To prevail at trial, a victim of a fraudulent misrepresentation must be able to prove several elements. These include:

  • False representation. The defendant lied to the victim about a present or past fact. Generally, statements of opinion or those made without the requisite intent do not satisfy this element.
  • The representation was material. A representation is material if it played a role in the victim’s decision-making process, or if it would have induced a reasonable person to act on that information.
  • The defendant acted with malice. The defendant knew that the statement was false, or made it with reckless disregard as to the truthfulness of the statement.
  • Intent to induce the other party to enter into a contract. The defendant made the misrepresentation or omission to get the other party to say “yes.”
  • The victim relied on the misrepresentation. The reliance must be justifiable (more on this below).
  • The plaintiff’s reliance on the misrepresentation caused their damages. The plaintiff must have actually incurred damages.

Many fraudulent misrepresentation claims come down to whether the plaintiff justifiably relied on the defendant’s misrepresentation. This is ordinarily a question of fact that must be proven at trial. However, Texas courts have held that plaintiffs have a duty to exercise reasonable diligence in protecting their affairs. This means that, in some instances, the plaintiff cannot claim justifiable reliance if a reasonably prudent person in a similar situation could have discovered the truth.

Moreover, reliance is not justified when the terms of the contract are contrary to the alleged misrepresentations. In the case of Mercedes-Benz USA, LLC v. Carduco, Inc., 583 SW3d 553 (Tex. 2019), the court addressed this very issue. The plaintiff in the case alleged that they agreed to purchase a Mercedes dealership in Harlingen, Texas, based on the defendant’s representations that the plaintiff could later relocate and operate a dealership in McAllen, Texas. Mercedes subsequently allowed another dealership to open in McAllen and denied the plaintiff’s request to relocate its dealership. The plaintiff subsequently filed suit.

The court sided with Mercedes, holding that the terms of the dealership agreement only identified the Harlingen location and therefore contradicted the plaintiff’s claims. The court also held that Mercedes had no duty to disclose that it was in discussions with a third party to open the McAllen dealership since there was no special or fiduciary relationship between the parties.


Fraudulent Misrepresentation Damages

If a plaintiff is successful in a fraudulent misrepresentation case, they may be entitled to recover several different types of damages, including compensatory damages.

Courts often calculate compensatory damages based on the difference between the value of the property as represented by the defendant and the value of the property that the plaintiff ultimately received. But depending on the facts of the case, awards can include other types of damages for:

  • Equitable relief or a declaratory judgment
  • Mental anguish
  • Statutory fraud damages
  • Exemplary damages
  • Attorney’s fees and costs

Calculating damages in a fraudulent misrepresentation case is often complex. Consider consulting with an experienced Texas fraudulent misrepresentation lawyer to learn more about remedies and damages that may be available to you.


Do You Need to Speak With a Texas Fraudulent Misrepresentation Attorney?

If you have been a victim of a fraudulent misrepresentation, it’s important that you speak with a lawyer to discuss your rights and options under Texas law. The experienced legal team at the Padua Law Firm has represented plaintiffs in a broad range of fraudulent misrepresentation cases throughout the state. Contact us today for more information.