Fraud & Misrepresentation TX Attorney

Occasionally, a contract is tainted by fraud or misrepresentation. A party makes a misrepresentation of a material fact, or intentionally or perhaps innocently neglects to mention the existence of that material fact, that was intended to induce another party to enter into the contract and that person suffers financial harm as a result.

In situations like these, the plaintiff or injured party can bring a lawsuit alleging misrepresentation or fraud and claim certain damages.

Before bringing a lawsuit for fraud or misrepresentation, you have to prove the following:

  • a person made a statement of material fact
  • that was false when it was made, and
  • that the person making it knew it was false or made it recklessly, and
  • the misrepresentation was made with the intention that you would rely on it, and
  • you did rely on it, and
  • the fact was of sufficient importance that a reasonable person in your position would have relied on it, and
  • you suffered damages as a result of the reliance

In other words, but for the material misrepresentation, you would not have taken the particular action of buying the product or entering into the transaction.

The misrepresentation can also be one of failing to mention or to disclose a material fact, such as that the house you are about to buy is in the path of a major highway development route. This is also referred to as fraudulent nondisclosure.

What is a Material Fact?

There is a difference between a salesperson who brags about or is effusive about a certain product and its properties, called "puffing," and a statement where that person makes a statement about the product or service that is of sufficient importance that a reasonable person would likely have relied on it.

Puffing is merely offering an opinion, belief or speculation. For example, if a car salesperson stated that a vehicle is one of the most popular on the market and will give you hours of pleasure, it is not a statement so vital or fundamental to the transaction that a reasonable person would rely on it to buy the car. On the other hand, if the salesperson states the car has never been driven more than 10,000 miles and never been in an accident, though the odometer was tampered with and the car had been in numerous collisions, this may be construed as material to the contract and reasonably relied on.

Reasonable Reliance

Reasonable reliance is a key element in a fraud case. Your reliance on the fact misrepresented must have been reasonable or one that a reasonable person would also have relied on. You also must show that you would not have entered into the contract unless the material fact was true; that the car had not been driven more than 10,000 miles and had never been in an accident. Your reliance can be of sufficient importance even if it was not the sole reason for your buying the car or product.

Fraudulent Misrepresentation

One of the most common kinds of misrepresentation is fraudulent in nature. This happens when the representative, or the one making the representation, gives a statement with an intention to deceive the represented. This is so that the latter will be induced to enter into an agreement. In other words, this could be done when a buyer gives a wrong, misleading or half-truth facts about the product, so that the other part will buy it. If this is the case, then the deceived party can be compensated for the damages. Aside from that, the agreement or contract can be rescinded.

Innocent Misrepresentation

What happens in a case where the party, such as the salesperson, was unaware that the car's odometer had been tampered with? Can you still recover damages where you may not be able to prove intentional misrepresentation?

If you can still demonstrate that fact represented was material to the transaction, was false when it was made, and that you would not have otherwise entered into the contract had the representation not been made and suffered damages, then you still may collect compensation. In these cases, the person making the representation may have merely assumed the statement was true even if the person lacked any reason to believe it was true.

Negligent Misrepresentation

Along with intentional misrepresentation, or fraud, you can bring a cause of action for negligent misrepresentation called a Section 522 cause of action. This is similar to a person making the representation without knowing that it is false. To prove negligent misrepresentation, you need to show the following, which is found in the Restatement (Second) of Torts Section 522 that Texas has adopted:

  • A person who in the course of his or her business, profession or employment, or
  • in any transaction in which the person has a pecuniary interest, and
  • supplies false information for the guidance of others in their business transactions
  • is subject to liability for pecuniary loss caused by their justifiable reliance on the information
  • if the person fails to exercise reasonable care or competence in obtaining or communicating the information

The tort of negligent misrepresentation is limited to business transactions or activities that are business-related.

Negligent Misrepresentation under Common Law

For a negligent misrepresentation case under the Common Law, the main keyword would be "carelessness." This is because this happens when the representative carelessly gives a representation without any reasonable basis at all. This type is relatively new in order to encapsulate instances when collateral contract or fraud cannot be established. Usually, this happens when the representative claims to have a special skill or knowledge about the subject matter and negligently makes a claim just for the sake of inducing someone to sign in a contract. This is also if the representative is fully aware that there is still no reasonable basis yet to support his or her claim.

Statutory Negligent Misrepresentation

Statutory negligent misrepresentation is different from the previous one in the sense that this one is pursuant to an existing law. For this one, scope and limitations of what constitute a misrepresentation are clearly provided. This is in contrast with negligent misrepresentation under common law, which is based on the previous decisions of the court, rather than an existing law. If the representative has been sued for a misrepresentation, he or she is burdened with the task to prove that the statement was an opinion, rather than a fact. This is also referred to as the innocent defence.

The difference between negligent and intentional misrepresentation is that the intentional misrepresentation cause of action involves reckless indifference or disregard for the truth, while negligent misrepresentation only requires no reasonable basis for assuming something is true.

Damages for Misrepresentation and Fraud

The remedy for fraudulent misrepresentation can be rescission of the contract and/or damages. Rescission merely voids the contract and restores the parties to the position they were in before entering into the contract such as by returning the goods to the seller and returning the full purchase price to the buyer. Rescission is available in fraud, innocent or negligent misrepresentation cases.

For damages, you can also recover what is known as benefit of the bargain damages, or what you would have received if the other party had performed as promised. For instance, if you bought a coin fraudulently represented as worth $10,000 but was only valued at $2,000 and you bought it for $7,000, the benefit of the bargain measure of damages would be $8,000 and not the price paid.

Should your claim be for fraud or intentional misrepresentation, you can bring a claim under the Texas Deceptive Practices Act, and recover claim actual damages, punitive damages, mental anguish and legal fees, though your noneconomic damages are limited to three times your actual damages.

Calculating your damages under any of these causes of action can be complicated. You need to consult with an experienced Austin business litigation attorney from Byrd Davis Alden & Henrichson, LLP to determine what your compensation may be and if you have a viable cause of action.

Fraud and Misrepresentation Attorneys

Whether you are negotiating a business deal or buying a home and have been the victim of misrepresentation, our attorneys can help you either reverse the transaction or obtain damages as a result of the fraud.

If you feel you have been the victim of fraudulent conduct or misrepresentation, call our law firm at 512-593-7650 to arrange for a consultation with one of our attorneys.