Keith Mack
Misrepresentation is a legal term for a false statement or omission of fact that affects the behaviour of a contractor or other party. It is one of several vitiating factors that can affect the validity of a contract, and it can occur in various forms, including fraudulent, negligent, and innocent misrepresentation. The common law regarding misrepresentation was codified and amended by the Misrepresentation Act 1967, which provides remedies such as damages, injunctions, and rescission of the contract. This law was further amended by the Unfair Contract Terms Act 1977 and in 2012, but it was not addressed by the Consumer Rights Act 2015. The legal consequences of misrepresentation vary depending on the type and jurisdiction, with some cases resulting in tortious liability or grounds for termination of agreements.
| Characteristics | Values |
|---|---|
| Definition | Misrepresentation is a false or misleading statement or a material omission that induces someone to enter into a contract. |
| Types | - Innocent misrepresentation |
- Fraudulent misrepresentation
- Negligent misrepresentation | | Basis in Law | Misrepresentation is mainly based in contract law. It is also one of the elements of common law fraud. | | Remedies | - Rescission of the contract
- Damages | | Notable Cases | - Commonwealth v. Scott
- Striker v. Graham Pest Control Co.
- Drew v. Sylvan Learning Center, Corp.
- Royscot Trust Ltd v Rogerson
- Hedley Byrne & Co Ltd v Heller & Partners Ltd
- Caparo Industries plc v Dickman
- Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd
- Mitchell v Valherie |
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What You'll Learn
Misrepresentation in contract law
There are three types of misrepresentation: fraudulent, negligent, and innocent. Fraudulent misrepresentation occurs when a party makes a false representation knowingly, or without belief in its truth, with the intent to induce the other party to act upon it. Negligent misrepresentation occurs when a false statement is made carelessly or without reasonable grounds for believing its truth. Innocent misrepresentation, on the other hand, occurs when a false statement is made innocently or negligently, but without fraudulent intent.
To prove misrepresentation, four elements must be established. Firstly, there must be a false representation of fact. Opinions or future predictions do not qualify, nor do statements of intent about future conduct. Secondly, the representation must be made before the contract is entered into and must induce the innocent party to enter into the contract. Thirdly, the representation must be made by one party to another in the course of business, trade, or profession. Lastly, the claimant must have suffered a loss as a result of relying on the misrepresentation.
Remedies for misrepresentation include rescission of the contract, damages, and, in some cases, specific performance. Rescission allows the innocent party to set aside the contract and restore themselves to the position they were in before the contract was formed. Damages may be awarded to compensate for any losses incurred as a result of relying on the misrepresentation. Specific performance, which compels a party to perform their obligations under a contract, is a rare remedy for misrepresentation and is typically only granted when damages are inadequate.
Defences to a claim of misrepresentation include waiver, estoppel, and limitation. Waiver occurs when the innocent party continues to perform the contract despite knowing about the misrepresentation, thereby waiving their right to claim damages. Estoppel may prevent a party from asserting certain facts or rights if their conduct has led the other party to believe something to their detriment. Limitation periods may also apply, after which a claim for misrepresentation cannot be brought.
Finally, it is important to note that the law of misrepresentation varies across jurisdictions, and specific laws and remedies may differ. The information provided here offers a general overview of the key concepts and principles relating to misrepresentation in contract law.
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Types of misrepresentation
Misrepresentation is a false or misleading statement or a material omission that renders other statements misleading, with the intent to deceive. It is one of the elements of common law fraud and other causes of action for fraud.
Fraudulent Misrepresentation
Fraudulent misrepresentation is a reckless statement made by one party to induce another party to enter into a contract. For instance, a party may provide a statement that they know is untrue to another party that a parcel of land in Texas is located in an area where oil drilling recently started. The party becomes liable for fraudulent misrepresentation if the land is purchased based on false information. This type of misrepresentation is taken seriously by the courts, which will look for evidence that the defendant knew the statement was false or was reckless as to whether it was true or not.
Negligent Misrepresentation
Negligent misrepresentation is a form of non-fraudulent misrepresentation, where a defendant makes a false statement without due care in ascertaining its truthfulness. For negligent misrepresentation, the claimant may get damages as of right under s.2(1) and/or damages in lieu of rescission under s.2(2).
Innocent Misrepresentation
Innocent misrepresentation occurs when a false statement is made by someone who genuinely believes it to be true, and the statement then induces someone to enter into a contract. The claimant may only get damages in lieu of rescission under s.2(2). The remedy is usually termination or rescission of the contract.
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Misrepresentation remedies
The normal remedy for misrepresentation is to rescind the contract. Rescission is the primary remedy for misrepresentation, which places the parties in the position they would have been in had the contract not been made. The effect of the contract is reversed, and the contract is cut away. However, there are a number of restrictions on the use of this remedy, known as 'bars' to rescission. For example, rescission may not be possible if the contract has been affirmed, whereby the representee is happy with the contract despite the misrepresentation.
The court has the discretion to refuse the remedy of rescission and award damages instead. Damages are usually only awarded in cases of misrepresentation where there has been a tort, i.e., where the defendant has been dishonest or is in breach of a duty of care. The scale of damages is higher for fraudulent misrepresentation than for negligent misrepresentation due to the deceit involved.
It is generally preferable to try to resolve misrepresentation cases out of court, through alternative dispute resolution methods such as mediation, arbitration, or early neutral evaluation. An expert solicitor can advise on the best course of action.
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Misrepresentation in marketing
Misrepresentation is a false statement of material fact made by one party that influences the other party's decision in agreeing to a contract. It is one of the elements of common law fraud and other causes of action for fraud. In the context of marketing, misrepresentation occurs when there is a false or misleading statement or a material omission that influences consumers' decisions to purchase a product or service.
In the Commonwealth v. Scott case, a Massachusetts Supreme Court case, a forensic drug laboratory chemist made several affirmative misrepresentations by signing drug certificates and testifying to the identity of substances that she had not properly tested. This is an example of misrepresentation through the act of making a false statement.
Material omissions in marketing a product can also constitute misrepresentation. For instance, in Drew v. Sylvan Learning Center, Corp., a New York state court found that a tutoring service's failure to disclose that they measured "grade level" with their own standards, as opposed to the common public school system grade levels, was a misrepresentation through omission.
Google's advertising policies also prohibit misrepresentation. They may review information from multiple sources, including the ad, website, accounts, and third-party sources, to determine if an advertiser is misrepresenting or concealing material information. Violations of this policy can result in the suspension of Google Ads accounts without prior warning.
Companies can take proactive steps to prevent misrepresentations in marketing by establishing and enforcing ethical standards that promote honesty, integrity, and transparency.
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Misrepresentation case studies
Misrepresentation occurs when a false or misleading statement is made, or when a material omission causes other statements to become misleading, with the intention to deceive. It is one of several vitiating factors that can affect the validity of a contract.
Commonwealth v. Scott
In this Massachusetts Supreme Court case, a forensic drug laboratory chemist made several affirmative misrepresentations by signing drug certificates and testifying to the identity of substances that she had not properly tested. This is an example of a fraudulent misrepresentation, where the defendant made a false statement either knowingly, without belief in its truth, or recklessly.
Striker v. Graham Pest Control Co.
In this case, the Appellate Division of the Supreme Court of New York held that a seller's agent who did not disclose a carpenter ant infestation had misrepresented the buyers. The court found that "nondisclosure of a material fact is tantamount to an affirmative misrepresentation when a party is duty-bound to disclose pertinent information."
Drew v. Sylvan Learning Center, Corp.
In this New York state court case, a tutoring service failed to disclose that they measured "grade level" using their own standards rather than the common public school system grade levels. The court found that this omission in their marketing brochures constituted misrepresentation.
Mardon v. Esso
Mardon bought a petrol station from Esso, who predicted that the station would sell 200,000 gallons of petrol annually. However, they overlooked the fact that the station did not have direct access from the main road, which resulted in lower sales than expected. The court held that Esso had made a statement of fact from a position of expertise, constituting misrepresentation.
Selico v. (Unknown)
Selico owned a flat that was in poor condition, with rot inside the house. They painted over the rot, and a person bought the flat believing it to be in good condition. The court held that painting over the rot was an unequivocal statement of fact, and thus there was misrepresentation.
Various Indian Supreme Court Cases
The Supreme Court of India has dealt with numerous cases involving allegations of misrepresentation, often in conjunction with fraud, deceit, and undue influence. These cases include Afsar Sheikh And Anr vs Soleman Bibi And Ors, R V Raveendran, and Smt. Shrisht Dhawan vs M/S. Shaw Brothers.
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Frequently asked questions
Misrepresentation is a false or misleading statement or a material omission that encourages an innocent party to enter into an agreement. It is based mainly in contract law.
There are four types of misrepresentation: fraudulent misrepresentation, negligent misstatement, negligent misrepresentation, and innocent misrepresentation.
Common law fraud is one of the elements of misrepresentation. It occurs when a party makes deliberate false statements to persuade the other party into a contract.
The Misrepresentation Act 1967 is a UK law that codified and amended the common law on misrepresentation. It provides that damages can be paid instead of rescission of the contract where negligent misrepresentation is proved.
Some examples of misrepresentation include the cases of Commonwealth v. Scott, Striker v. Graham Pest Control Co., and Drew v. Sylvan Learning Center. In recent years, major companies such as Luminosity, Volkswagen, and Red Bull have also been accused of misrepresentation.
