Business deals can collapse when one party accuses the other of engaging in fraud or making misrepresentations during negotiations or on the course of the transaction. However, a party’s alleged fraud or misrepresentation in a transaction could lead to business litigation. But how do fraud and misrepresentation differ from one another under Oregon law, and how can the distinction affect a legal dispute in a business deal.
What Constitutes Fraud Under Oregon Law?
In Oregon, a party may commit “fraud” if they engage in activity that involves several elements, including:
- The communication of a false material fact (a fact becomes material if it would affect another reasonable person’s decisions or actions)
- Knowledge of the falsity of that fact (also called “scienter”)
- Intent to induce another party’s reliance on the fact
- The other party’s justifiable reliance on the fact (the other party does not know or suspect the fact’s falsity)
- Harm or damages to the other party
In civil business fraud lawsuits, a plaintiff alleging that a defendant defrauded them has a higher burden of proof than most other types of civil lawsuits. As opposed to the standard “preponderance of the evidence” (more likely than not) standard, a party alleging fraud in Oregon must prove a defendant’s liability for fraud by “clear and convincing evidence,” which requires a plaintiff to show that it was “highly probable” that fraud occurred.
What Counts as “Misrepresentation?”
Misrepresentation in a business deal in Oregon may occur when a party makes a misleading statement of fact or a deceptive omission of facts or actively conceals facts. The elements of a misrepresentation claim include:
- A false or misleading representation or omission of fact
- Materiality of the fact (the statement would affect a reasonable person’s decisions or actions)
- The party knowingly made a false or misleading representation or omission or made it without reasonable care for its veracity (negligence)
- The other party reasonably relied on the representation
- The other party incurred losses by relying on the representation
Key Legal Differences Between Fraud and Misrepresentation
Fraud and misrepresentation in business deals differ in several ways, including:
- State of mind: A person committing business fraud requires intent to defraud, whereas misrepresentation can occur due to a lack of due care regarding the veracity of a representation.
- Burden of proof: Fraud cases require proving liability by clear and convincing evidence, whereas misrepresentation cases typically use the standard “preponderance of the evidence” standard.
- Remedies: Although both fraud and misrepresentation claims typically award only compensation for losses incurred due to the fraud or misrepresentation, a party might have the option to request punitive damages against a defendant who engaged in fraud maliciously or with a reckless indifferences to an extreme, unjustifiable risk of harm or loss.
Why the Distinction Matters in a Business Dispute?
The distinction between fraud and misrepresentation allegations in a business dispute can affect the course of resolving the dispute, including the litigation strategies each party uses and the potential settlement leverage that a claimant may have. For example, a fraud claim’s higher burden of proof can make it riskier for a claimant to go to trial where they could potentially fail to prove their case.
Parties in business transactions may also have contractual language that indemnifies parties or limits liability for potential fraud or misrepresentations, making the distinction material should a dispute arise over alleged misstatements or omissions.
Contact Our Commercial Litigation Attorneys Today
You may need to pursue legal action when you suspect that the other party in your business deal has engaged in fraud or misrepresentation. Contact Wayne A. Lamb Law today for a free consultation with a civil litigation attorney to learn more about the legal differences between fraud and misrepresentations in Oregon business law and how they may affect your case when you have a dispute with a counterparty in a commercial transaction.