Keith Mack
Misrepresentation in contract law occurs when a false statement or omission of fact influences a contractor or another party to enter into an agreement they otherwise would not have. This can be done unintentionally or deliberately, and it can be grounds for contract termination, legal action, or compensation. There are three types of misrepresentation: innocent, negligent, and fraudulent. The Misrepresentation Act 1967 provides remedies for misrepresentation, including rescission and/or damages. To determine whether a statement is a misrepresentation, courts consider various factors, including the accuracy of the statement, how it was made, and the knowledge of the parties involved.
| Characteristics | Values |
|---|---|
| Definition | Misrepresentation is a legal term for any type of falsehood or omission of fact that affects the behaviour of a contractor or other party. |
| Contractual Obligation | A representation does not create a contractual obligation but it could give rise to the tort of misrepresentation. |
| Types | Innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation. |
| Innocent Misrepresentation | Occurs when a false statement is made by someone who genuinely believes it to be true and induces someone to enter into a contract. |
| Negligent Misrepresentation | Occurs when a false statement is made carelessly or without reasonable grounds for believing it to be true. |
| Fraudulent Misrepresentation | Occurs when a false statement is made with the intention of inducing someone to enter into a contract. |
| Remedies | Rescission and/or damages. |
| Tort of Misrepresentation | A misrepresentation may give rise to an action in tort, which may be invoked with or without a contract being in place. |
| Contractual Statement | A statement made before the contract is entered into or set out in the contract that induces an individual or business to enter into the contract but that turns out to be false or misleading. |
| Statement of Opinion | A statement of opinion will only be held to be a misrepresentation if the individual making the statement knows that it is false or has a higher level of understanding of the subject matter than the other party. |
| Duty of Care | A duty of care is owed if there was an 'assumption of responsibility' on the part of the statement maker. |
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What You'll Learn
Innocent misrepresentation
Misrepresentation is a legal term for any type of falsehood or omission of fact that affects the behaviour of a contractor or other party. It is a basis for contract breach in transactions, no matter the size. It applies only to statements of fact, not to opinions or predictions.
- The statement was false.
- The representor believed the statement and this belief was reasonable.
- The claimant relied on this statement and suffered a loss as a result.
An example of innocent misrepresentation is a seller of land mistakenly informing a buyer that planning permission had been granted for a new housing development nearby. The seller genuinely believed this to be true based on information received from a neighbour. The buyer relied on this information in deciding to purchase the land. The seller may be liable due to innocent misrepresentation, even though it was an honest mistake.
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Negligent misrepresentation
For a statement to qualify as negligent misrepresentation, it must be a false statement of fact, not an opinion or prediction. The statement must also be material, meaning that it would positively influence a reasonable person to enter into the contract. Furthermore, the claimant must have relied on this statement and suffered a loss as a result.
When determining whether negligent misrepresentation has occurred, courts will consider various factors, including whether the claimant challenged the statement to check its accuracy, whether the statement was intended to prevent the claimant from discovering a flaw, and whether the statement was included in a written contract or an oral agreement. The court may also consider whether one party had special knowledge or expertise in the subject matter that would lead the other party to rely on their statement.
If negligent misrepresentation is proven, the claimant may seek remedies such as rescission of the contract and/or damages. The Misrepresentation Act 1967 provides that damages can be awarded instead of rescission, and the court has the discretion to determine the appropriate remedy.
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Fraudulent misrepresentation
In contract law, fraudulent misrepresentation occurs when someone tricks another party into signing a contract by lying or hiding important facts. This goes against the principle that contracts should be honest and fair.
To prove fraudulent misrepresentation, it must be shown that the defendant knew the representation was false or was reckless as to whether it was true or not. The court will presume that the fraudulent representations induced the claimant to enter the contract, unless there is strong evidence to the contrary. The statement will be considered false if it has an element of deception, deceit, dishonesty, fraud, or if it is misleading.
If fraudulent misrepresentation is proven, the court can order rescission of the contract, restoring the parties to their pre-contractual positions. The court can also award damages for actual losses caused by the fraud, including consequential losses. The defendant's profit is not taken into account, only the loss to the claimant.
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Contract rescission
Rescission is a legal remedy that allows parties to a contract to undo or terminate the contract, typically due to a material mistake, fraud, misrepresentation, or other valid legal grounds. It is important to note that rescission is often sought to address fundamental defects in the contract's validity. Rescission is distinct from termination, which involves ending the contractual relationship based on the terms and conditions specified within the contract itself or under applicable law. While termination can occur for reasons similar to rescission, it does not erase the existence of the contract retroactively.
In the context of contract law, rescission refers to the cancellation or undoing of a contract as if it never existed. It aims to restore the parties to their pre-contractual positions and nullify the contract. Rescission is typically viewed as an "extreme remedy" that is "rarely granted". To improve the chances of being granted rescission, parties may describe circumstances that give rise to an entitlement to terminate. Additionally, the party seeking rescission usually must offer to return any benefits received under the contract.
Courts will only grant rescission under common law if the parties can be restored to their original positions prior to the formation of the contract. Rescission at common law is available only for fraudulent misrepresentations and duress. On the other hand, rescission in equity falls under the exclusive jurisdiction of the courts in a wide range of situations, including innocent but material misrepresentation, breach of fiduciary duty, unconscionable conduct, or equitable fraud.
The Misrepresentation Act 1967 provides that damages can be awarded instead of rescission of the contract in cases of negligent misrepresentation. For fraudulent and negligent misrepresentation, the claimant may claim both rescission and damages. However, for innocent misrepresentation, the court has the discretion to award damages in lieu of rescission and cannot grant both remedies.
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Remedies for misrepresentation
Innocent misrepresentation occurs when a false statement of material fact is made by the defendant, who was unaware at the time of the contract signing that the statement was untrue. In this case, the remedy is usually the rescission or cancellation of the contract. The aim is to put the parties back into the position they would have been in had the contract not been made. For example, a seller of land may mistakenly inform a buyer that planning permission has been granted for a new housing development nearby, based on incorrect information received from a neighbour. As the buyer relied on this information in deciding to purchase the land, the seller may be liable for innocent misrepresentation.
Negligent misrepresentation is a statement made carelessly and in breach of the duty owed by one party to another to take reasonable care that the representation is accurate. The remedy for negligent misrepresentation is typically contract rescission and possibly damages. For instance, a real estate agent may state that the roof of a property has been recently renovated, but it is later discovered that significant repairs are needed. Despite not intending to deceive, the agent's negligent statement may have influenced the buyers' decision to make an offer on the property.
Fraudulent misrepresentation is the most serious type of misrepresentation and involves making a false statement knowingly, without belief in its truth, or recklessly. To bring a successful claim, the claimant must prove that they relied on the untrue statement and that it induced them to enter into the contract. The court can order rescission of the contract and damages for any losses caused, even if they were not foreseeable. Proving fraudulent misrepresentation can be challenging and may require substantial evidence.
It is important to note that the law regarding misrepresentation may vary depending on the jurisdiction. For example, in England and Wales, the Misrepresentation Act 1967 amended the common law, while in Australia, contractual misrepresentations are addressed by the Australian Consumer Law.
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Frequently asked questions
Misrepresentation is a legal term for any type of false statement or omission of fact that influences a party's decision-making process, causing them to enter into a contract they would not have otherwise agreed to.
There are three main types of misrepresentation: innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation.
Innocent misrepresentation occurs when a false statement is made by someone who genuinely believes it to be true, and this statement induces someone to enter into a contract. In this case, the court usually orders the cancellation or rescission of the contract.
Negligent misrepresentation occurs when a false statement is made carelessly, or the party making the statement did not have reasonable grounds to believe it was true. The burden of proof lies with the defendant, who must show that they had reasonable grounds to believe the statement was true.
Fraudulent misrepresentation is based on deceit, where a false statement has induced someone to enter into a contract. It is harder to prove than negligent misrepresentation as it requires showing the other party's intention or state of mind. If proved, the court can order the rescission of the contract and award damages for any losses.
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