Misrepresentation and fraud are highly related and often overlapping concepts in law. In fact, many people make the mistake of assuming that misrepresentation and fraud are largely interchangeable and synonymous terms. While there are many instances where these two terms can be used interchangeably, and there is even an offense called fraudulent misrepresentation, it is important to realize that there are nuanced differences between fraud and misrepresentation. Understanding the differences between these two concepts is essential for anybody working in legal areas related to fraud and misrepresentation, particularly contract law.
The same or different?
Confusing fraud with misrepresentation is understandable since, in many relevant criminal and civil cases, accusations of both fraud and misrepresentation are often at stake. In fact, almost every instance of fraud is also an instance of misrepresentation. The subtle difference between the two concepts is that not all forms of misrepresentation are acts of fraud. Let's look closer at why this difference matters.
All fraud is a misrepresentation
In cases of fraud, the defendant is being accused of tricking a person or organization into believing that something has a certain value when that defendant knows or should know that the item's value is actually much less. In such cases, the defendant is being accused of misrepresenting the value of the item in question. Therefore, all cases of fraud are essentially cases of misrepresentation. For example, if a person sells another person a ring claiming it is 24 karat gold when, in fact, the seller knows the ring is fake, then the seller has committed an act of fraud.
Is misrepresentation always fraud?
If all fraud is misrepresentation, then it is tempting to assume that all misrepresentations are likewise acts of fraud. This, however, is not the case. Obviously, many cases of misrepresentation are also cases of fraud, but there are also many cases where a person may misrepresent the facts without having committed fraud. In most cases, the difference between fraud and misrepresentation comes down to what the accused knew or should have known when the act of fraud or misrepresentation took place. Returning to the example of the gold ring, let's say that the seller this time genuinely believed that he was selling a 24 karat ring and that he was provided documents by a reputable source attesting to the ring's purity. Because the seller had reason to believe that the ring was 24 karats, if it later emerges that the ring is a fake then the seller cannot be considered to have committed fraud despite the fact that he unintentionally misrepresented the value of the ring to the buyer.
While the difference between fraud and misrepresentation is subtle, it is nonetheless important. This importance stems from the fact that fraud is often considered a much more serious offense than misrepresentation alone--especially if such misrepresentation was unintentional. In some cases, a fraud conviction can lead to massive fines and substantial prison sentences. As such, knowing how to distinguish between fraud and misrepresentation is essential for anybody involved in contract law or other legal areas where fraud and misrepresentation are especially serious charges.