Most business transactions are solidified with a contract that specifies the terms agreed upon by the parties. It’s crucial that parties act in good faith when entering into an agreement — whether it be documented in writing or verbally. Unfortunately, it can sometimes happen that a party makes a false or misleading statement to induce the other into a contract. If their conduct causes the other party to suffer economic damages, the party that was harmed may be able to bring a legal action for fraudulent misrepresentation.
In business law, a fraudulent misrepresentation is a statement made by a party with knowledge that it is false in order to induce another party to enter into a contract. A representation can also be considered a fraudulent misrepresentation if a claim was made recklessly to induce a party to enter into an agreement.
Under Illinois law, there are five elements that must be satisfied to establish a claim for fraudulent misrepresentation. These include the following:
(1) A false statement of material fact was made
(2) The defendant knew or believed the statement was false
(3) The defendant made the statement with the intent to get the plaintiff to act or refrain from acting
(4) The plaintiff relied upon the truth of the statement
(5) The plaintiff suffered damages due to relying upon the statement
Fraudulent misrepresentation can occur in many ways, such as through written words or conversation. It can also be made by an omission or concealment. It can involve the defendant’s agreement to pay for goods or services, the condition of a property, financial projections, or various other matters. Common types of misrepresentation in Illinois include misappropriation of business assets, financial statement fraud, and misrepresentations made during the course of a business transaction.
In some cases, a party may have made a false representation carelessly without knowing the statement was not true. While this may not be sufficient to rise to the level of a fraudulent misrepresentation, a court may instead find that a negligent misrepresentation was made. It is not necessary to prove that a defendant knew the statement was false to prevail in a claim for negligent misrepresentation — only that they were careless or negligent in ascertaining the truth of the statement.
A misrepresentation might also have been made innocently and in good faith. Innocent misrepresentation is the least serious type of misrepresentation and occurs when a party made a statement they believed to be true, which was actually false. Even if they had no intentions of deceiving the other party, a plaintiff who was harmed by an innocent misrepresentation may still be entitled to seek damages.
A defendant who is facing a civil lawsuit for fraudulent misrepresentation in business may be able to assert a number of defenses. For instance, they may be able to argue that there isn’t enough evidence to prove one of the required elements. In addition, if the plaintiff waited too long to commence a fraudulent misrepresentation claim, the defendant may use the defense of laches. This is an equitable defense that can be raised when a claimant delayed asserting their rights and is no longer entitled to pursue an equitable claim.
Coercion and duress can sometimes serve as defenses in a fraudulent misrepresentation claim. Although the conditions that give rise to these defenses are not very common, a defendant may have a viable defense if they can establish they were forced to make the statement under the threat of harm or duress.
To hold a defendant liable for fraudulent misrepresentation, the plaintiff must have suffered some sort of harm as a result of relying upon the statement. Often, the legal remedy in such cases comes in the form of monetary damages. Another common remedy can include rescission of the contract since a finding of fraudulent misrepresentation renders a contract voidable. However, only actual losses incurred in connection with the misrepresentation may be claimed.
Similarly, if negligent misrepresentation is proven, a prevailing plaintiff may also be entitled to recover their monetary damages and rescission of the contract.
If you’re facing a business fraud matter or have suffered harm due to another party’s fraudulent misrepresentation, it’s critical to have the representation of a skilled business attorney to ensure the best possible outcome in your case. Located in Rolling Meadows, Litico Law Group is committed to serving the needs of business owners in Illinois and works diligently to achieve positive results for every client. We welcome you to contact us at 847-307-5942 to schedule a consultation to learn how we can assist you.
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