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Misrepresentation and Fraud

The document discusses the differences between fraud and misrepresentation in real estate contracts. Fraud involves an intentional deception meant to induce another party to enter a contract, while misrepresentation involves an unintentional statement relied upon by another party. For fraud, a contract is voidable by the injured party and punitive damages may be awarded, while for misrepresentation the contract is also voidable unless the truth could have been discovered through normal diligence.

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Sarthak Kapoor
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124 views2 pages

Misrepresentation and Fraud

The document discusses the differences between fraud and misrepresentation in real estate contracts. Fraud involves an intentional deception meant to induce another party to enter a contract, while misrepresentation involves an unintentional statement relied upon by another party. For fraud, a contract is voidable by the injured party and punitive damages may be awarded, while for misrepresentation the contract is also voidable unless the truth could have been discovered through normal diligence.

Uploaded by

Sarthak Kapoor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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A deceptive act done intentionally by one party in order to influence another party to enter into a

contract is known as fraud.

The representation of a misstatement, made innocently, which persuades the other party to
enter into a contract, is known as misrepresentation.

Generally speaking, fraud contains an element of intent. You must prove that there was an
intentional act to cause harm in order to show fraud.

The "intentional act" may be an affirmative statement by the real estate agent, or it could be the
purposeful withholding of a material fact about which the real estate agent has knowledge.

Let's use an oversimplified example.

You tell your client a house is 3,000 square feet, when you know full well it is only 1,500 square
feet. That is fraud.

Or the client asks you about the size of the property, and you intentionally say nothing. The
client starts asking you about the property and your phone starts "mysteriously" cutting out
suddenly, as if you are going through a tunnel. You get the idea.

Now the contract is voidable at the option of the buyer, i.e., he or she has the option to follow
through with or terminate the contract.

If a civil suit is filed because of fraud, damages may include not only the plaintiff's actual
damages but also punitive damages. Punitive damages are intended to deter a person from
repeating a violation.

As a matter of public policy, damages awarded for acts of fraud are not insurable. Therefore,
insurance carriers will not pay a judgment based on fraud. Because the defendant will be
personally responsible for those amounts, fraud claims can be very dangerous.

Misrepresentation is a representation of a material fact made by a party who believed it to be


true, the other party relied on the statement and entered into a contract based upon the
statement, and it later turned out to be incorrect.

Let's keep going with that square footage example. So now I told my client the house was 3,000
square feet because I really thought it was. Clearly if I did that I would be a terrible agent, but it
makes the point.

The representation is made unintentionally and unknowingly, not to deceive the other party, but
it became a reason of loss to the other party.

Now, the contract is voidable at the option of the injured party.


However, if the truth of the material fact could be discovered by the aggrieved party in the
normal course, then the contract is not voidable. For example, if I am at a property with my
client saying that it is 3,000 square feet although the property is 1,500 square feet, it would not
be hard to either find that information or simply notice it when you are there.

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