07 / 18 / 2017

Can You Sue a Company for Misrepresentation?

business contract fradulent misrepresentation

It is an unfortunate fact of business that there exist vendors, suppliers, and other third parties who misrepresent their products and services, making claims of more than they can deliver or failing to substantially perform according to claims.

Misrepresentation is another label for false promises. In the business world, promises are dressed up in contracts, but they are promises none-the-less. When a party to a contract fails to substantially perform according to that contract, it is said to be in breach of contract.

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Depending on the type of breach, you may be able to bring suit and receive damages.

Example: Photon Infotech Private, Ltd. V. Simulados Software

A dispute arose between Photon Infotech Private, Ltd., an international software development company, and Simulados Software, a Vethan Law Firm client. Photon allegedly promised to create a web application as well as a software platform for a primary product of Simulados that worked on a PC or Mac operating system.

Simulados claimed that Photon misrepresented the expertise of its design team and the quality of the products it would deliver. Photon counterclaimed that it had substantially performed its contractual promise and that Simulados Software failed to pay the full amount due under the contract.

In the end, Simulados prevailed; the jury found that Photon breached the development contract that it fraudulently induced Simulados to sign. Simulados Software was awarded a total verdict amount of nearly $900,000 for lost profits and out of pocket expenses. Vethan Law Firm further claimed an additional recovery of around $200,000 in attorney fees for representing Simulados against Photon.

Photon received no damages from its counterclaim.

Breach of Contract

A breach of contract, essentially acting outside the contract, can occur when:

  • A party refuses to perform promises under contract
  • A party does something prohibited by the contract
  • A party prevents another party from performing its contractual obligations

A breach can material or immaterial. The latter is a trivial breach that does not irreparably break the contract or defeat its purpose. The former is a total breach or break of contract that is completely irreparable and a cause for litigation.

With a material breach, you can seek economic losses or damages. You also may be able to recover your attorney fees. You are not required to deliver your part of the contractual promise. The contract is terminated for cause.

What To Do When a Third Party Misrepresents Itself

The first thing to do when you believe a party to a contract has misrepresented itself or has not substantially performed its contractual promise is to review the contract carefully.

The contract should contain information on the scope of work, the start date, a timeline to completion, and clauses defining remedies for disputes. From this information, you determine if a material breach of contract has occurred by:

  • Contract case law review
  • Presence of language defining a material breach of contract
  • Presence of any contract term which the party failed to perform
  • Determination of the seriousness of the breach and the probability that you, the injured party, have received substantially what you were supposed to receive under contract

If your attorney thinks the case is strong enough, you can litigate to recover damages, monetary or otherwise.

Recovering Damages and Attorney Fees

Damages are classified as:

  • Direct damages
  • Consequential damages
  • All other damages necessary to place the non-breaching party in the position it would have been if the contract had been completed properly

Direct damages are damages caused directly by the non-injured party. An example would be a contractor hitting a wall with a crane or using the wrong screw to fasten a roof panel such that the roof panel comes loose in the first high wind.

Consequential damages flow from direct damages or the non-completion of work required to perform the next (consequent) step in the project.

On top of these damages, damages can be awarded to get the injured party to the point where, without the breach, it would have been in the project. This approach is also called common law termination. It can include the loss of profits as well as other damages.

Recoverable damages are defined in the contract, and there may be limits on their recovery. 

Recovering attorney’s fees depends on the jurisdiction of the case and any contractual clauses governing them. In Texas, Chapter 38 of the Texas Civil Practices and Remedies Code specifies that an attorney’s fees can be recovered when suing for breach of contract if and only if:

  • You prevail (win the suit)
  • You are awarded damages besides the attorney’s fees and
  • The attorney’s fees are considered reasonable and necessary

If you have suffered a loss because a third party has misrepresented itself or was unable to substantially perform according to a contract, you may have the ability to recover damages from lost profits or other losses.

Contact a knowledgeable business lawyer to help you go over your contract and determine whether you can successfully litigate for damages and recovered attorney’s fees.

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