As a business owner, whenever you enter a contractual agreement with an individual or other business, it’s critical to ensure that you know whom you’re dealing with. A business can have an impressive website filled with positive client testimonials and photos of their work, but that could all be fake.
Even if the information they present to the public and specifically to you is real, it may not be current – and therefore highly misleading. For example, a contractor’s license may have expired. They may be facing a serious lawsuit or they may no longer have the employees necessary to complete the job for which you’ve hired them.
What is considered “fraudulent misrepresentation?”
Whenever a party isn’t fully honest (whether in writing or verbally) about something that’s relevant to what it is they’re being contracted to do, that is called “fraudulent misrepresentation.” That can involve presenting false information as well as failing to disclose relevant (material) information.
In some cases, even if someone provides information they aren’t certain is true as factual, that may qualify as fraudulent misrepresentation as well. For example, maybe a vendor tells you they serve more businesses like yours than anyone else in the state, but they have no data confirming that.
If you’ve entered into a contract based on the other party’s false statements or lack of disclosure, that’s likely a breach of contract for which you can take legal action. You can also potentially sue them for fraudulent misrepresentation.
Proving harm and seeking damages
Typically, to be able to take legal action, you’ll need to show that you suffered economic harm. Maybe you had to pay another contractor to fix the damage done by an unlicensed one and then do the work that originally needed done. Maybe a vendor caused harm to customers that hurt your reputation and has you facing lawsuits.
If the harm caused was particularly serious or intentional (egregious), Texas law allows you to seek punitive damages as well as economic damages. For example, maybe a vendor sold your store or restaurant food that it knew had been recalled due to bacterial contamination. Maybe a contractor used materials they knew were inferior or damaged and could result in injuries.
The sooner you get out of a contractual or other business relationship that involves fraudulent misrepresentation, the more likely you are to minimize your losses. By getting sound legal guidance as soon as possible, you can determine how best to recover damages.