Also known as:materially fraudulent · material misrepresentation
Written by attorneys · grounded in primary & secondary sources — see below
A fraudulent misrepresentation of fact or law that would likely induce a reasonable person to enter a transaction or that the maker knows will induce the particular recipient's assent. The misrepresentation supports avoidance of a contract or discipline when it meets this threshold of influence on decision-making.
Sources & Authorities
How it applies
Common Examples
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Lawyer Marketing Mailer Omission
Ramona reviewed and approved a glossy mailer for Red Securities that displayed a chart claiming a five-year record of zero penalties for clients. Two clients had actually received minor SEC sanctions for late filings during that period, but the chart omitted them and included no disclaimers. Recipients who received the mailer could reasonably view the firm's regulatory success as complete. The omission renders the communication materially misleading under the rule governing lawyer statements about services.
Broker Risk Assurance to Investor
Lee, a broker at Apex Brokerage, told investor Dana that a structured note had never lost principal and was virtually risk free. Lee knew that similar notes had suffered large losses in prior downturns yet based the assurance on selective marketing materials. Dana purchased the note in reliance on the statement. The assurance addresses the core risk profile of the investment and would likely induce a reasonable investor's assent, making the misrepresentation material.
Select any source to read its text and confirm it supports the definition.
Cases
Uniform Acts
Model Codes
Restatements
Hornbooks
Study Supplements
Securities Scheme Liability Facts
Investment Partners purchased securities in a transaction arranged with Scientific Atlanta and other vendors. The vendors engaged in transactions that artificially inflated the issuer's reported revenues while knowing the arrangements lacked economic substance. Partners later discovered the scheme and sought recovery on the ground that the vendors' conduct facilitated material fraud on investors. The vendors' actions supplied the deceptive acts that supported liability for the fraud.
Stoneridge Investment Partners, LLC v. Scientific Atlanta, Inc.552 U.S. 148, 158 (2008)
Common questions
Frequently Asked
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What makes a misrepresentation material in a contract defense setting?+
A misrepresentation is material if it would likely induce a reasonable person to enter the contract or if the maker knows it is likely to induce that particular recipient to do so. The focus is on the tendency of the statement, in context, to affect the decision to assent. Statements about principal safety or neighborhood character meet this standard when they address core attributes a reasonable buyer would weigh heavily.
How does fraudulent misrepresentation differ from a merely material one?+
Fraudulent misrepresentation requires that the maker intends to induce assent and knows or believes the assertion is not in accord with the facts. Material misrepresentation supports avoidance even without that knowledge if the statement would likely induce reasonable assent. Both give the recipient power to avoid the contract, but fraud adds the element of knowing falsity.
Does a lawyer remain responsible for a communication approved without verifying underlying data?+
Yes. A lawyer who reviews and approves a client communication containing a material misrepresentation or omission is subject to discipline even if a nonlawyer prepared the initial draft. The rule requires the lawyer to ensure the statement considered as a whole is not materially misleading before distribution.
939 F.2d 91 (3d Cir. 1991)Contracts
…a reasonable jury could find, by clear and convincing evidence, each essential element of Step-Saver's fraud claim: (1) a material misrepresentation; (2) an intention to deceive; (3) an intention to induce reliance; (4) justifiable reliance by the recipient upon the representation; and (5) damage to the recipient proximately caused by…
ContractsDefenses to enforceability · Fraud, misrepresentation, and nondisclosureNEXTGENFoundational