Misrepresentation in contract law: A brief on negligent, innocent and fraudulent statements
Contracts govern most of the transactions that a business carries out. When the representations that have induced someone to enter into a contract turn out not to be true or are misleading, this is misrepresentation.
If the person who has entered into the contract on the strength of a misrepresentation suffers loss, then they may be able to bring a legal claim for recission of the contract and/or damages.
What constitutes a misrepresentation?
A misrepresentation in contract law is a statement of fact that is not true and that persuades someone to enter into a contract. The contract does not have to be in writing, it can be a verbal agreement. The untrue statement can be made by an agent or employee on the part of their principal or employer.
A statement of opinion is not enough to constitute a misrepresentation, nor is a sales puff.
There are three types of misrepresentation, namely negligent misrepresentation, innocent misrepresentation and fraudulent misrepresentation.
Where misrepresentation is made carelessly or without reasonable grounds for believing it to be true, this can constitute negligent misrepresentation. The claimant will need to show that the statement was not true and in defending a claim, the party making the statement will have to prove that they believed the statement and demonstrate that this belief was reasonable.
If the court grants the claim, then it can order rescission of the contract or damages instead, as well as damages for losses caused, even if they were not foreseeable.
When someone unknowingly gives false information and this is not done fraudulently or negligently but the information induces someone to enter into a contract, this is innocent misrepresentation.
Where it can be proved that the information was not true, then a court can intervene to remedy the situation. This is usually done by rescinding the contract, with the aim of putting the parties back into the position they would have been in, but for the contract.
If rescission is not possible, then damages may be considered.
Fraudulent misrepresentation, being founded on deliberate deceit, is the most serious type of misrepresentation. To bring a successful claim, the claimant will need to show that the untrue statement was made knowingly or recklessly, that they relied upon it and that it induced them to enter into the contract.
Because of the seriousness of the allegation, the standard of proof is high. The fraudulent allegation will need to have been clearly stated and it will need to be shown that the person making the statement knew it was false or had no belief in its truth or was reckless as to whether it was true or false.
It also needs to be demonstrated that the defendant intended the claimant to rely on the representation. The court will generally presume that, had it not been for the fraud, the claimant would not have entered into the contract.
The claimant must also show that, as a result of their reliance on the claim, they suffered loss and damage.
Proving a case of fraudulent misrepresentation is not simple and could require a substantial amount of evidence from the period leading up to the making of the contract, such as what each party knew, what was discussed or disclosed by way of marketing materials, emails, meetings and correspondence and what promises were made.
If the court finds fraudulent misrepresentation, then it can order rescission of the contract and damages for any losses caused. The losses do not have to be reasonably foreseeable.
Statements made in cases of misrepresentation
In cases of misrepresentation, the false statement or representation does not need to be made in writing, although the claimant must be able to prove to the court what was said.
It can be stated expressly or implied by conduct. Where the statement is implied, the context in which the inference is made can be important.
The court will ask what a reasonable person would assume were the facts in the circumstances.
While silence does not of itself constitute misrepresentation, when a statement is true in part but silent as to another aspect, then misrepresentation can be inferred from the fact that something was left out.
Bringing a claim for misrepresentation
If you believe that you have experienced loss because of misrepresentation in a contract you have entered into, then you are advised to seek legal advice as soon as possible. There are strict deadlines
for starting a claim. It may also be more likely that you are able to resolve issues without the need for litigation if you ask a legal expert to intervene on your behalf.
At Lincoln & Rowe, our dispute resolution team have in-depth experience of solving difficult problems across a range of sectors. We will give you our honest opinion of your case and discuss your options with you so that you have a good idea of the best course of action.
We can negotiate with the other party on your behalf to try and reach an agreed settlement. Where this is not possible, we can assist you through alternative dispute resolution, such as mediation or adjudication, to seek agreement.
In the event that your case goes to court, we will ensure that you have a strong case and expert representation. For more information in respect of our services, see Misrepresentation.
We were named as the ‘Commercial Disputes Specialists of the Year’ in the Corporate Livewire Innovation & Excellent Awards 2020 as well as ‘Boutique Litigation Law Firm of the Year’ in both the 2019 and 2020 Global Awards by ACQ5. Partner, Dipesh Dosani, was named Commercial Litigation Lawyer of the Year in 2019 and 2020 in the ACQ5 Law Awards.
If you would like to talk to one of our expert legal team about a contract dispute, call us on 020 3968 6030, email us at email@example.com or fill in our contact form and we’ll be happy to help.
The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor.