Business fraud/or misrepresentation is actionable in one of two circumstances.
Fraud or intentional misrepresentation occurs when there is a (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or his/her ignorance of the truth; (5) the speaker’s intent that his/her representation should be acted on by the hearer in the manner reasonable contemplated; (6) the hearer’s ignorance of the falsity of the representation; (7) the hearer’s reliance on the representation being true; (8) the hearer’s right to rely thereon; and (9) the hearer’s proximately caused injury. To give an example, if I sell you a commercial building and I tell you throughout the course of the negotiations I tell you that there are absolutely no water problems. You, in turn, rely on these statements in deciding to ultimately purchase the property and do not have any reason to know otherwise. If it comes to light that there is indeed water problems, and I knew about them, I would be likely liable for fraud or intentional misrepresentation.
Negligent misrepresentation exists when (1) a speaker supplies information in the course of business or because of some other pecuniary interest; (2) that, due to speaker’s failure to exercise reasonable care, the information was false; (3) that speaker intentionally provided the information for the guidance of a limited group of persons in a particular business transaction; that (4) listener justifiably relied on the information and (5) that as a result of listener’s reliance on the statement, he/she suffered a pecuniary loss. In the negligence context, moreover, there must be established that there is a special fiduciary relationship between the speaker and listener.
While fraud/misrepresentation is often a challenge to prove because of the particular elements, it can often result in serious economic losses and thus justify compensatory damages.