Commercial Litigation

Specific Relief Concerning Fraud in Real Estate and Stock Transactions

Parties to real estate and stock transactions need to be aware of the specific relief for fraud in real estate and stock transactions. Typically, under common-law fraud, a plaintiff must prove that (1) the defendant knowingly or recklessly made a material misrepresentation with the intent that the plaintiff rely on the misrepresentation and (2) the plaintiff relied on the misrepresentation to his detriment.

For real estate and stock transactions, Chapter 27 of the Texas Business & Commerce Code provides a statutory fraud remedy that is essentially the same as commonlaw fraud with one key exception— under statutory fraud, the plaintiff need not prove that the defendant acted knowingly or recklessly. Thus, the standard of proof is not as great for this statutory fraud as opposed to common-law fraud.

Under statutory fraud, a defendant is liable if it is shown that (1) the defendant made a material misrepresentation or a false promise and (2) the plaintiff relied upon this misrepresentation to his detriment. Thus, in real estate and stock transactions a party may be liable for statutory fraud even though that party acted with care and was unaware of the falsity of the representation. Conceivably, a party could commit statutory fraud without having any intention to defraud merely by making representations that the party believed were true but later turned out to be false. Additionally, if the plaintiff can prove that the defendant acted knowingly, the plaintiff can recover exemplary damages.

A defendant may also be liable for statutory fraud under Chapter 27 for benefitting from a misrepresentation made by a third party that the defendant knew was false. When the misrepresentation is made by a third party and the defendant is aware of its falsity, the plaintiff may also recover exemplary damages because the defendant acted knowingly.

Accordingly, this relief is to be considered in the event a party has concerns as to the accurate nature of any representations in connection with a real estate transaction by another party to the transaction or a third party.

By J. Allen Smith