Gavin Howe
Misrepresentation in contract law occurs when a party provides misleading information that influences the other party's decision-making process, causing them to enter into a contract they would not have otherwise agreed to. It is a false statement of fact made by one party that affects the other party's decision in agreeing to a contract. If a misrepresentation is discovered, the contract can be declared void, and the adversely impacted party may seek damages. There are three types of misrepresentation: innocent, negligent, and fraudulent.
| Characteristics | Values |
|---|---|
| Definition | A false statement of material fact made by one party that affects the other party's decision in agreeing to a contract |
| Types | Innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation |
| Contract Status | Misrepresentation can make a contract voidable |
| Remedy | Depending on the situation, the adversely impacted party may seek damages |
| Negligence | Negligent misrepresentation is a statement made carelessly or without reasonable grounds for believing it to be true |
| Fraudulent Misrepresentation | A false statement made knowingly or recklessly, with the intention of inducing the other party to enter into the contract |
| Proof | The standard of proof for fraudulent misrepresentation is high, requiring substantial evidence from the period leading up to the contract |
| Duty of Care | A duty of care is owed if there was an 'assumption of responsibility' by the statement maker, regardless of their actual expertise |
| Criminal Liability | Under the Fraud Act 2006, a false representation is a criminal offence with a maximum sentence of up to ten years, an unlimited fine, or both |
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What You'll Learn
Misrepresentation as a breach of contract
Misrepresentation is a false statement of material fact made by one party that influences the other party's decision-making process, causing them to enter into a contract they would not have otherwise agreed to. It is a basis for contract breach in transactions of any size. For instance, a seller of a car in a private transaction could misrepresent the number of miles to a prospective buyer, which could cause the person to purchase the car. If the buyer later finds out that the car had much more wear and tear than represented, they can file a suit against the seller.
There are three types of misrepresentation: innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation. In the case of innocent misrepresentation, the defendant makes a false statement of material fact, but they are unaware of it at the time of contract signing. Negligent misrepresentation, on the other hand, occurs when a statement is made carelessly or without reasonable grounds for believing it to be true. The defendant may genuinely believe the statement to be true, but this does not absolve them of their responsibility to verify its accuracy before executing a contract. Fraudulent misrepresentation is the most serious type, as it is founded on deliberate deceit. The defendant knowingly or recklessly makes a false statement, intending for the other party to rely on it and enter into the contract.
The remedy for misrepresentation can include rescission or cancellation of the contract, damages for losses caused, or both. The court will consider the specific circumstances and intentions of the parties involved. It is important to note that the false statement or representation does not need to be made in writing but can also be implied by conduct.
In addition to the civil remedies available, it is worth mentioning that under the Fraud Act 2006, fraudulent misrepresentation can also lead to criminal liability. If convicted of fraud by false representation, the defendant can face a maximum sentence of up to ten years, an unlimited fine, or both.
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Innocent misrepresentation
Misrepresentation in contract law refers to a false statement of fact made by one party that influences the other party's decision to enter a contract. If a misrepresentation is discovered, the adversely affected party may choose to rescind the contract, but they are not obliged to.
Another example of innocent misrepresentation is provided by the case of Pankhania v Hackney London Borough [2002] NPC 123. This case concerned the purchase of a property intended to be used as a car park. A statement was made that the occupier of the car park could be evicted within three months under the law. However, this statement was incorrect and constituted a false statement of fact. As a result, the contract could be rescinded.
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![An Exposition of the Principles of Estoppel by Misrepresentation [microform]](https://m.media-amazon.com/images/I/61gHUpgBBFL._AC_UY218_.jpg)
Negligent misrepresentation
Misrepresentation in contract law refers to a false or inaccurate statement of fact made by one party to another, which induces the other party to enter into a contract. This can render a contract voidable, and the law provides remedies for innocent parties who have suffered losses as a result. One type of misrepresentation is negligent misrepresentation, which occurs when a party fails to take reasonable care when making a statement and unintentionally provides false information. This is distinct from fraudulent misrepresentation, which involves an intentional lie or deceit.
An example of negligent misrepresentation could be a real estate agent telling a potential buyer that a property is free from any structural issues, without having obtained a proper survey. If the buyer purchases the property based on this information and later discovers significant structural problems, they may have a claim for negligent misrepresentation. The real estate agent, in this case, failed to take reasonable care in their statement and provided false information, even if they did not intend to deceive.
To establish negligent misrepresentation, the claimant must prove that the statement made was false or misleading. This involves demonstrating that the information provided was untrue, inaccurate, or presented in a way that gave a false impression. Additionally, the claimant must show that they reasonably relied on the statement and that this reliance caused them to suffer a loss or damage. This reliance must be reasonable, meaning that a prudent person in the same circumstances would have also relied on the statement.
Remedies for negligent misrepresentation aim to compensate the innocent party for any losses suffered. These remedies can include damages to cover any financial losses directly resulting from the misrepresentation. In some cases, the court may award restitution, requiring the party in breach to restore any benefits gained through the misrepresentation. Rescission, or undoing of the contract, may also be available, allowing the innocent party to be released from their obligations and recover any money or property exchanged.
It's important to note that the defense of "reasonable grounds" may be available to the defendant in some cases of negligent misrepresentation. This defense can be used if they can prove that they had reasonable grounds to believe that their statement was true, even if it turned out to be false. This defense, however, may not apply if the defendant did not have sufficient knowledge or expertise to make such a statement.
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Fraudulent misrepresentation
Misrepresentation in contract law occurs when a false statement of fact is made by one party, influencing the other party's decision to enter into a contract. It is important to note that misrepresentation applies only to statements of fact, excluding opinions or predictions.
To prove fraudulent misrepresentation, substantial evidence is required to demonstrate that fraud occurred and that it induced the claimant to enter the contract. The court will presume inducement unless there is strong evidence to the contrary. Statements that are deceptive, deceitful, dishonest, fraudulent, or misleading in nature constitute false statements.
If fraudulent misrepresentation is established, the court may rescind the contract, restoring the claimant to their pre-contractual position. Additionally, the court can order damages to compensate for losses incurred, regardless of whether the defendant profited from the fraud. The adversely affected party may also seek damages, and the contract can be declared void or voidable.
In summary, fraudulent misrepresentation in contract law involves intentional deception through false statements or withholding of information, influencing a party to enter into a contract. Remedies for fraudulent misrepresentation include rescission of the contract, damages, or declaring the contract void or voidable to protect the interests of the affected party.
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Misrepresentation and duty of care
Misrepresentation occurs when a false statement of fact is made by one party, influencing the other party's decision to enter a contract. If a misrepresentation is discovered, the contract may be declared void, and the adversely affected party may seek damages. Misrepresentation is a basis for breach of contract in transactions of any size.
There are three types of misrepresentation: innocent, negligent, and fraudulent. Innocent misrepresentation occurs when a false statement of material fact is made by the defendant, who, at the time of the contract signing, was unaware that the statement was untrue. Negligent misrepresentation, on the other hand, is a statement that the defendant did not attempt to verify as true before executing the contract. The defendant may be held liable if they held themselves out as possessing expertise or special skill, and the other party relied on this information. In the case of Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, the court concluded that a duty of care is owed if there was an 'assumption of responsibility' by the statement maker.
Fraudulent misrepresentation, while not explicitly mentioned in this context, can be inferred from the discussion of negligence and duty of care. This type of misrepresentation involves intentional deception or reckless indifference for the truth. It is safe to assume that fraudulent misrepresentation would also fall under the duty of care, as it involves a breach of trust and intentional harm.
In the context of negligent misrepresentation, establishing a duty of care can be challenging. The plaintiff must demonstrate a special or privity-like relationship, approaching privity, with the defendant to establish a duty of care. This standard can be difficult to satisfy, as seen in cases such as Glanzer v. Shepard, 233 N.Y. 236 (1922), where a duty of care was found despite a lack of prior relationship, and Ultramares Corp. v. Touche, 255 N.Y. 170 (1931), where the Court of Appeals rejected a cause of action due to the lack of a specific relationship between the plaintiff and defendant.
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Frequently asked questions
A misrepresentation is a false statement of fact made by one party that influences the other party to agree to a contract.
There are three types of misrepresentation: innocent, negligent, and fraudulent. Innocent misrepresentation occurs when someone unknowingly gives false information that induces someone else to enter into a contract. Negligent misrepresentation is a statement made without reasonable grounds for believing it to be true. Fraudulent misrepresentation is the most serious type, as it is founded on deliberate deceit.
A seller of a car may misrepresent the number of miles on the car to a prospective buyer, causing the person to purchase it. If the buyer later finds out that the car had much more wear and tear than represented, they can take legal action against the seller.
If a misrepresentation is discovered, the contract can be declared void, and the adversely impacted party may seek damages.
