One of the earliest recognized business litigation matters, or business torts, was that of corporate or business fraud or misrepresentation.  Generally speaking, a successful case for business fraud or misrepresentation would include the following legal elements:

»  A misrepresentation
»  Of a material fact or opinion of another
»  Made for the purpose of inducing reliance by the other party
»  Which induces reliance by the other party
»  To his or her detriment

In corporate fraud cases, a number of factors must be considered, including the specific details and nature of the business fraud or misrepresentation and the relationship of the parties involved. These factors, among others, will affect the analysis of the above legal elements. Other legal elements, such as reliance on the business fraud or misrepresentation and whether there was a specific intent to defraud, may also affect the analysis.

In short, in order for fraud or misrepresentation to be actionable, the substance of the representation or statement must be material to the recipient's choice of conduct in the business transaction in question. Generally, a representation or statement is material whenever:


»  A reasonable person would attach importance to its existence or non-existence in determining his or her choice of action in the business transaction in question; or

»  The person making the representation or statement knows or has reason to know that its recipient regards or is likely to regard the business matter important in determining his or her choice of action, although a reasonable person would not so regard it. 

Corporate Fraud

Business (or corporate) fraud has been defined generally as anything intended to deceive, including all acts, omissions, and concealments involving one's breach of a legal duty, trust or confidence resulting in damage or injury to another or a business. Whether business fraud has occurred is generally a question of fact dependent on the circumstances of each particular business situation or business transaction. In other words, it will be determined on a case-by-case basis. However, it should be noted that most often erroneous statements of matters of opinion do not amount to fraud, nor do instances of exaggerated or unwarranted "puffing."

Business Misrepresentation

At the heart of the business tort of misrepresentation is the fiduciary duty to refrain from making intentional false assertions that mislead others to rely on such false representation.  Thus, generally speaking, the fundamental requirement of this type of business fraud is that the person in a fiduciary relationship with another make a knowing false representation.  This misrepresentation may be a verbal statement, an active gesture, or a knowing concealment of materially true and significant facts.  Further, ambiguous and incomplete representations that are false and misleading qualify as misrepresentations, even if the misrepresentation was made negligently or with the knowledge that the recipient might be misled by the false statement. 

For example, a prospective seller of a business may be liable for business fraud if he or she discloses financial records of the business that place the profitability of the business in a positive light, but fails to provide other records that are capable of a different interpretation.  However, failure to disclose important facts, such as the seller's financial records, which are subject to ordinary inspection and inquiry, or about which there is not expectation of disclosure, either because of the arm's length business transaction or the absence of any communications between the parties, may not support an action for business fraud or misrepresentation.  The intention of inducing reliance on the business fraud or misrepresentation is the key to the scope of the misrepresenter's liability.