The Difference Between Fraud and Misrepresentation



A deceptive act done intentionally by one party in order to influence another party to enter into a contract is known as fraud.

The representation of a misstatement, made innocently, which persuades the other party to enter into a contract, is known as misrepresentation.

Generally speaking, fraud contains an element of intent. You must prove that there was an intentional act to cause harm in order to show fraud.

The “intentional act” may be an affirmative statement by the real estate agent, or it could be the purposeful withholding of a material fact about which the real estate agent has knowledge.

Let's use an oversimplified example.

You tell your client a house is 3,000 square feet, when you know full well it is only 1,500 square feet. That is fraud.

Or the client asks you about the size of the property, and you intentionally say nothing.

 The client starts asking you about the property and your phone starts “mysteriously” cutting out suddenly, as if you are going through a tunnel. You get the idea.

Now the contract is voidable at the option of the buyer, i.e., he or she has the option to follow through with or terminate the contract.

If a civil suit is filed because of fraud, damages may include not only the plaintiff’s actual damages but also punitive damages. Punitive damages are intended to deter a person from repeating a violation.

As a matter of public policy, damages awarded for acts of fraud are not insurable. Therefore, insurance carriers will not pay a judgment based on fraud. Because the defendant will be personally responsible for those amounts, fraud claims can be very dangerous.

Misrepresentation is a representation of a material fact made by a party who believed it to be true, the other party relied on the statement and entered into a contract based upon the statement, and it later turned out to be incorrect.

Let's keep going with that square footage example. So now I told my client the house was 3,000 square feet because I really thought it was. Clearly if I did that I would be a terrible agent, but it makes the point.

The representation is made unintentionally and unknowingly, not to deceive the other party, but it became a reason of loss to the other party.

Now, the contract is voidable at the option of the injured party.

However, if the truth of the material fact could be discovered by the aggrieved party in the normal course, then the contract is not voidable. For example, if I am at a property with my client saying that it is 3,000 square feet although the property is 1,500 square feet, it would not be hard to either find that information or simply notice it when you are there.