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Fraud Requires a Misrepresented “Fact”

Fraud Requires a Misrepresented “Fact”

Liability for fraud exists when six elements are proven: (1) knowing, recklessly, or without reasonable grounds; (2) making a material misrepresentation; (3) to deceive another; (4) who reasonably relies on the misrepresentation; (5) causing that person; and (6) actual damages. This article discusses the second element, making a material misrepresentation. Liability for fraud requires the making of a false representation of a material fact.

Puffing

If a person makes a statement of opinion or belief not meant as a representation of fact, fraud does not exist. In business, such statements are known as puffing or seller’s talk. In essence, the law recognizes that some people will naturally overstate the value of what they have to sell, and so reasonable buyers must beware. Because puffing is permitted, reasonable buyers must also beware of the fact that some people overstate the value of what they have to sell even though they do not believe in what they are saying, and beware of the law that such lying is not deemed to be fraud.

Suppose a used car dealer says to a potential buyer that “this is a beautiful car.” The statement is not a representation of fact, because beauty is in the eye of the beholder. On the other hand, if a car dealer says that a car is “new” when in fact the car dealer knows that the car has been wrecked, repaired, and repainted, the car dealer has misrepresented a material fact, and has committed fraud.

Immaterial Facts

If the fact that is misrepresented is not material, there is no fraud. If, for example, the buyer of a car does not care at which assembly plant the car was assembled, the car dealer does not commit fraud by misrepresenting where the car was assembled, because the fact is not material. On the other hand, if the car dealer knows that where a car was assembled is of particular importance to a particular buyer, the car dealer may commit fraud by misrepresenting to that buyer where the car was assembled, because the fact is material.

The slicker the salesperson, the more likely it is that the salesperson will grease the sales path with immaterial representations and misrepresentations. In an attempt to build rapport with a potential buyer, a salesperson, upon learning the name of the buyer, may falsely state that he or she has a son or daughter with the same first name. While it is immoral to make such false statements, it is not illegal. Of course, the more misrepresentations of immaterial facts that a salesperson makes, the more a judge or jury will be inclined to believe that the salesperson misrepresented a material fact.

Misrepresenting Facts Without Words

In addition to misrepresentation of a material fact by words, misrepresentation of a material fact can occur by actions (for example, rolling back an odometer). Misrepresentation can also occur by concealment of a material fact or by failing to disclose a fact where there is a duty to disclose that fact. If a statement is made where there is a continuing reliance on its truth, and the maker acquires new information which makes the statement false or misleading, the newly acquired information must be disclosed.