Common Misrepresentations in Business and Real Estate Transactions

In business and real estate transactions, making false statements or failing to disclose material facts can cause severe financial harm to another party. Once the misrepresentation is discovered, it may be the basis for cancelling the deal or recovering money damages or both. However, not all false statements are made knowingly or with intent to defraud. The character of the statement and the circumstances in which it was made can make all the difference when it comes to determining the appropriate legal remedies.

In real estate and business transactions, the law defines three types of misrepresentations:

• Innocent — This is a false statement of material fact by a party who was unaware at the time of contract signing that the statement was untrue.
• Negligent — A statement that the defendant party did not attempt to verify was true before executing a contract may be a negligent misrepresentation. This is a violation of the duty of “reasonable care” that a party undertakes when entering an agreement.
• Fraudulent — This is a statement made by a party who knew it was false or that was made recklessly to induce the other party to enter a contract.

An example of innocent misrepresentation is an assurance that a real estate parcel is not to the best of the homeowner’s knowledge affected by environmental hazards. If contamination is not discovered until after the sale takes place, the buyer has no cause of action against the seller. If, on the other hand, a hazard existed that could have been verified — such as the property’s location in an area prone to flood risk — the seller may be liable for negligence in failing to disclose it.

Normally, a negligence misrepresentation is not cause for voiding the deal. However, a knowing false statement makes the contract unenforceable and could make the defendant liable for damages — measured not only by the buyer’s out-of-pocket costs but by any other losses directly traceable to the transaction.

If you think your real estate or business transaction included a misrepresentation, you should seek the advice of a knowledgeable corporate litigation attorney with a record of success in recovering damages in these situations.

The Law Office of Paul R. Clevenger in Dallas, Texas provides effective representation for businesses and individuals in cases alleging misrepresentation, fraud and other misconduct. For help or advice about your legal rights and protections, contact us online or call 469-212-9764.