When you negotiate a deal or enter into a business transaction, you trust the other party is providing you with truthful and accurate information. When a party is not candid about what they can perform or deliver, disputes can arise based on misrepresentation. It’s important to understand that there are several forms of misrepresentation, with each type having its own legal standards and remedies.
Fraudulent Misrepresentation
Fraudulent misrepresentation occurs when a party knowingly makes a false statement with the intent that the other party will rely on it. This type of misrepresentation can also arise when a party intentionally conceals or fails to disclose material facts, regardless of their duty to do so. Some common examples of fraudulent misrepresentation can include failing to disclose known liabilities during contract negotiations, using fabricated documents to influence negotiations, and inflating financial statements during the sale of a business.
To state a claim for fraudulent misrepresentation under New York law, a plaintiff must be able to establish the following elements by clear and convincing evidence:
- Material misrepresentation: The defendant made a material false statement or omission of fact;
- Scienter: The defendant knew the statement was false;
- Intent to induce reliance: The defendant made the statement with the purpose of inducing the plaintiff to rely on it;
- Justifiable reliance: The plaintiff reasonably relied on the misrepresentation.
- Damages: The plaintiff suffered financial loss or harm due to reliance on the misrepresentation.
Specifically, for claims involving fraudulent concealment or omission, a plaintiff must also demonstrate that the defendant had a duty to disclose the information.
Remedies for fraudulent misrepresentation typically focus on the plaintiff’s actual financial losses and rescission of the contract. However, a plaintiff may also be entitled to punitive damages if the defendant’s conduct was particularly egregious.
Negligent Misrepresentation
In contrast with fraudulent misrepresentation, negligence misrepresentation occurs when a party provides untrue statements due to a failure to exercise reasonable care in verifying the accuracy of the information. Simply put, this type of misrepresentation can arise when a party carelessly makes claims without having the necessary facts to support them. To establish a claim for negligent misrepresentation in New York, a plaintiff must be able to prove the following elements:
- Duty: The defendant had a duty, as a result of a privity-like relationship, to provide correct information.
- False representation: The defendant provided false information they should have known was incorrect.
- Carelessness: The statements were the result of the defendant’s failure to exercise reasonable care or conduct due diligence.
- Reasonable reliance: The plaintiff reasonably relied on the defendant’s misrepresentation.
- Damages: The plaintiff suffered damages due to reliance on the defendant’s misrepresentation.
If a misrepresentation claim is successful, a plaintiff may be entitled to recover the financial losses they incurred due to the reliance, obtain rescission of the contract, or obtain equitable remedies, including contract rescission and restitution for benefits conferred under the contract.
Contact an Experienced New York Business Attorney
If you relied on another party’s misrepresentations during contract negotiations or a business transaction to your detriment, a skilled business attorney can help you protect your interests. At Barnes & Barnes, P.C., we offer high-quality legal services for a broad scope of business matters, including complex cases involving fraud and misrepresentation. Contact us at (516) 673-0674 to schedule a consultation and learn how we can assist you.
