Fraud! Material Misrepresentation! Lies! The Victim Loses? What is Going On?
Normally when a person is induced by material misrepresentation to enter into a contract, the deceived party has the ability to cancel (rescind) the agreement. In other words, if a person lies about material facts, the deceived person can escape the responsibility of performing. If a person selling a car represents that the car is new - when it has actually been in a crash and put back together, the "new" representation is material if the buyer relied on it in making the purchase decision.
But what if you are selling yourself? What if you lie on a resume? What if you claim to have graduated from Harvard with an MBA and in fact you only spent one year at a community college? If the employer hires you based on the fabricated resume, they can cancel the agreement to hire you - or can they?
Who has the burden of proof, or perhaps it should be called the burden of truth? Does the prospective employee have the burden of honesty, or is the responsibility of the employer to investigate the claims of achievements and glory in the resume? Can an employee be fired for puffing in a resume? Can the employer fire the employee and rescind the employment contract?
A recent NY case puts an odd twist on the normal rule. Josepha Fallarino made serious misrepresentations on his resume. (He lied.) National Medical Health Card, Inc. (“NMHC”), the employer didn't check the representations and hired Fallarino. NMHC wanted the employment agreement rescinded because Fallarino lied on his resume. Seems straight forward. "Not so fast!" the court said (I am paraphrasing.) NMHC had the ability to check out the truth or falsity of the resume - they didn't, so they can't rescind. Don't most defrauded people or companies have the ability to investigate at least some part of a representation? Or at least hire an investigator?
Apparently the courts of the state of NY are prepared to hold that if the defrauded party enters into a contract with the deceiver, the defrauded party will apparently need to show that they at least tried to ascertain the truth before they entered into the contract. In NY you can't trust anyone - and if you do - you do so at your own risk! This is a strange holding.
You need to wonder - how much investigation would be reasonable? An Internet search, or must the employer hire an investigator?
On the other side of the world - in Texas - the state Supremes held that if the contract between the parties stated that the parties did not rely upon the representations of the other party, that the defrauded party could not sue for fraud because they had already agreed that they had no right to rely on the fraudulent representations. So, you could conclude that doing business in New York or Texas can be hazardous to your pocketbook.
The basic lesson in Texas is that you need to read the contracts, and if a party wants a provision that says you can't rely on any representations, the obvious question is, "Why can't I rely? What representations are false?"
