Making a Contract With a Liar

Has a person ever convinced you to enter into a contract based on false information he or she has given you? If so, you may have claim against that party. The Claim is called “fraud in the inducement”. In order to have a claim, a person must intentionally and deliberately make a “material” misrepresentation to you; and the misrepresentation causes you to enter into a contract. In other words, you must have relied on the misrepresentation. The misrepresentation must be deliberate and intentional. A mere mistake may not rise to the level of fraud.

Not all misrepresentations are “material”. A simple definition as to when a misrepresentation is considered “material” would be if you had known that the information given to you by the other side was false, you would not have entered into the transaction. A “material” misrepresentation would be if a home seller told you that the roof was free of leaks, and it was not. A misrepresentation that the master bedroom is painted beige and it is really painted orange would not be considered material.

It should be understood that even if the other party makes a “material” misrepresentation, you could not claim that you relied on false information if you had the ability check the accuracy of the “facts” on your own. For instance, if you are buying a house and the seller says that there are four bedrooms and there are only three, you had the ability to verify the information prior to entering into the contract. Also, if you have a reason to believe that the representations presented to you are not accurate, then you must put in an additional effort into investigating their accuracy. Basically, you cannot stick your head in the sand and not do your own investigation, whenever possible and feasible.

The same is true in business. If you are buying a business and the seller tells you that the company has annual sales of $1,000,000.00 per year and the sales are only $100,000.00, this is a “material” misrepresentation. If seller represents to you that they have leased space of 50,000 sq. feet and it is really only 45,000 sq. feet, that may not be considerable a “material” misrepresentation.

It is very important that before you enter into a contract, you investigate the accuracy and truthfulness of the representations being presented to you, especially when you have reason to be suspicious.

If you think you have been deliberately misled on a material fact in order to influence you to enter into a contract or your are not sure if you have been persuaded into entering into a contract by fraud, you need an attorney to represent you.

Making a Contract With a Liar was Posted by Michael B. Schulman, Managing Attorney


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