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Cleveland Business & Commercial Law Blog

What is the business tort of misrepresentation?

In an earlier post we raised the subject of business torts, which reflect the possibility that like an individual, a legal entity such as a business can engage in wrongful conduct that is actionable in court in Ohio. We began our examination of business torts with intentional interference with business relationships. In this installment, we will consider another legal theory under which a business can find itself the defendant in a civil lawsuit: misrepresentation.

Misrepresentation can harm another person or business if it causes that person or business to act, or to refrain from acting, in such a way that economic or other loss results. Misrepresentation may be either intentional or negligent, with intentional misrepresentation being the more serious tort. 

Creating a successful business in Ohio

Ohio is a great state for entrepreneurs. Small businesses open up seemingly every day, and many of them do quite well. But unfortunately, many also fail. Seeing these businesses fold may discourage you from creating a company of your own. There are a few things you need to keep in mind in order to create a successful business.

First, understand that business formation is not a part-time gig. It will absorb most of your waking hours — and some you usually devote to sleep. It is not for those who are not completely devoted. As such, starting a business is likely one of the most stressful things you will ever do. Getting licenses, finding customers, guaranteeing quality, a sporadic income — all of these will factor into your stress level.

Rights of Ohio corporations

The state of Ohio has written out in explicit detail the rights of corporations in the Ohio Revised Code, Title XVII. While many of the regulations are rather obvious and straightforward, such as trademarks and patents, there are nuances that can become quite complex. As such, it is important for businesses to understand their rights and what they can do if said rights are violated.

While this blog is too short to cover every law in depth, there are a few major ones to note. First, a corporation has the right to sue over business disputes and other matters -- and to be sued. On the other side, they may also accept and give gifts to and from the public and other entities. They may also do contract work for the national government for national defense or in times of war.

Tortious interference with business relationships: what is it?

In the individual context, a tort occurs when one person cause harm to another that is the result of a breach of ordinary or reasonable care owed to that other person. Being artificial persons, businesses can be liable for torts as well: either for wrongs done against individuals, or for wrongs committed toward another business, known appropriately as business torts.

Most of the time business torts are the result of one business taking free market competition too far. Unfair competition is one species of business tort; so is wrongful interference, which can be defined as one business deliberately attempting to harm the contractual relationship of another business, or to try to supplant that contractual connection. Wrongful interference is more than simply competing with another company for the same contract, which is legitimate. It frequently consists of a business attempting to sabotage the contractual relations of a competitor.

Why should I consider alternative dispute resolution?

The next chance you get to review one of your business contracts, or even a purchase order or order acknowledgment form, take a look at its provision for what forum to use if a dispute arises about its terms, conditions and performance obligations. Chances are that you will see a choice of law clause, but not a reference to court jurisdiction.

In fact, many if not most business-to-business contracts today, and many contracts between businesses and consumers, have mandatory alternative dispute resolution mechanisms built into them.

Competing lawsuits raise contract interpretation questions

Contracts with the state of Ohio will often involve two layers: the prime contract with the company responsible for project completion, and one or more subcontracts between that company and other companies it uses to help do the work. A recent dispute between two companies engaged in a project to raze some old buildings has called into question how each of them perceived its role in the prime-and-subcontractor relationship.

The project involved work to be done for the Ohio Department of Transportation and the city of Cincinnati. At least part of the project took the form of a minority-owned business set-aside contract under the Department of Transportation's "EDGE" (Encouraging Diversity, Growth and Equity) program. One of the two companies involved in the dispute is evidently a minority-owned business.

Careful planning can reduce the possibility of business disputes

Creating and operating a business is among the most challenging and rewarding activities that any entrepreneur can engage in. The prospect of making a good living by providing a valuable product or service is compelling, but at the same time if things go wrong then resolving business disputes with partners, customers, government entities or even your own employees can turn thoughts of business profitability into ones of business survival.

Unless you are doing business as a sole proprietor, something you will need to take into account is that the form of your business – whether it be an LLC, an S corporation, partnership or a C Corporation – will not only involve ordinary managerial concerns but also legal ones. Depending upon your goals and requirements, you will need to decide which type of legal entity status will be the best fit for you and your company not only in terms of how you serve your market but also how you protect yourself.

When does the Uniform Commercial Code apply to a contract?

If you do business in the state of Ohio, you likely deal with contracts. Depending on the nature of the transaction, the applicable law can be either the original, common-law based structure or the more recent Uniform Commercial Code (UCC) as it has been adopted by this state. But how do you know which body of law governs your agreement?

A business and commercial law firm experienced with the UCC can assist you in making sure that your contract properly includes and addresses UCC-specific considerations, as well as help you to interpret those considerations if the need arises.

What is an integration clause?

Negotiating a contract between two businesses can become a drawn-out process, and it is not uncommon for the parties to the agreement to have held multiple meetings in which proposed terms were discussed or written down, oral understandings were exchanged, or even a memorandum of understanding put together before multiple drafts of the agreement itself are passed back and forth. Sometimes even the last, signed version of the contract may still be subject to different interpretations, which has led to the question of what effect those prior negotiations and understandings may have if a dispute arises.

The legal term for the use of such external sources to help explain (or to contradict) what the two sides agreed to is “parol evidence”.  How or whether such evidence can be introduced depends on factors including whether the agreement is governed by the Uniform Commercial Code (UCC) as it has been adopted under Ohio law, and whether the final agreement contains what is known as an “integration clause.”

Choice of law provisions in contracts: why they matter

If your company does business with international partners, and especially if these transactions involve buying and selling goods, you may discover that to many foreign business people the American penchant for detailed contracts that seek to anticipate and address as many problem areas as possible is puzzling if not irksome. In the interest of trying to maintain a spirit of harmony during the negotiation process you may be tempted to scale back on some of the details, but one that you should always insist upon is a clearly understood choice of law provision.

International business transactions often carry the promise of great profitability, but if difficulties or disputes arise they can quickly become more complicated when the other side is using a legal system that is different from the one that you are accustomed to. Understanding exactly in advance which country's law will govern in the event of a misunderstanding, or whether an alternative dispute resolution mechanism will be used instead of litigation, will help to either avoid trouble or to expedite finding a solution.

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