Misrepresentation is a concept in contract law. It means a false statement of fact made by one party to another, which induced the latter to contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.
There are three types of misrepresentation: fraudulent, negligent and innocent misrepresentation.
Fraudulent misrepresentation
Occurs when a person makes a representation that he knows to be false and does so for the purpose of deceiving another person who justifiably relies on it to his detriment. Fraudulent misrepresentation is a tort and provides a basis for rescission of a contract.
In Derry v Peek (1889) LR 14 App Cas 337, the House of Lords had to decide that there are three elements to fraudulent misrepresentation necessary to hold the directors of a company (Defendants) liable for fraudulent misrepresentation.
1- A false representation of material fact
2- The maker knows or believes it to be untrue, or is reckless as to whether it is true or false; and
3- There is an intent that the recipient should act on it.
Negligent misrepresentation
Occurs when one party makes a representation without reasonable grounds for believing it to be true but without any intention of misleading another party. It can also lead to rescission of a contract. I.e., negligent misrepresentation is where someone gives out false or misleading information which causes someone else to suffer loss or damage as a result.
In Howard Marine v Ogden, there was an example of inaccurate information being given which caused damage. A ship repair company gave false information to a third party insurance inspector which damaged another party. The ship repair company were liable because they had given inaccurate advice, even though they were not aware it would be used by the third party insurance inspector and passed on to another person.
Innocent misrepresentation
Occurs when one party makes an honest but mistaken representation about something that induced another party to enter into an agreement. This type is not actionable and does not give rise to either tort or contract remedies, but it can provide grounds for rescinding a contract.
There are a number of different types of misrepresentation; those that have been discussed here, however, are the most common. Each type of misrepresentation is dependent on its own unique set of circumstances, and so it is therefore important to ensure that as much information as possible is gathered in order to present the best evidence to the court. The courts have had a number of difficulties with the law of misrepresentation since they are constantly trying to strike a balance between allowing the claimant to recover damages from what was intended by the defendant whilst avoiding claims brought due to mere puffery on behalf of the defendant.
You can use this simple guide to learn about the different types of misrepresentation and how you could use them to help protect your business.
If you need more advice on misrepresentation or any other contract law issue, feel free to get in touch with AIO Legal Services.
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