Misrepresentation

GUIDE TO MISREPRESENTATION LAW – SOLICITORS IN SOUTHAMPTON

During negotiations to enter into contracts parties will say all kinds of statements to the other. These statements are known as representations and in some cases these representations will be relied on by the other to enter into a contract. If it turns out that these statements are not true, then a misrepresentation has happened and the person who relied on the representations will have the following options detailed below.

Legal Advice on Misrepresentation

A misrepresentation is defined under the Misrepresentation Act 1967 as an untrue statement of fact made by one party to the other, which induces that party to enter into the contract. If the innocent party investigated the truth of the statement and found that it was false they cannot claim it induced them to enter the contract. Misrepresentation can take three different forms:

  • fraudulent;
  • negligent;
  • innocent misrepresentation.

How you define the misrepresentation depends on the state of mind of the defendant when he made the misrepresentation. The remedies that are available to a person also depend on which type of representation was made.

Fraudulent misrepresentation

If a statement is made knowingly without belief in its truth or with carelessness as to whether it is true or not, this will constitute fraudulent representation.

It must be a statement that is known to be untrue and must be more than simply inaccurate or unreasonable.

A fraudulent representation makes a contract voidable and enables the misled party to sue for damages.

A fraudulent representation makes a contract voidable. If the party refuses to hand back what the misled party has paid it will be necessary to apply for a formal order of rescission order.

If the innocent party sues for rescission he will need to hand back what he got under the contract. If the fraudulent party commences an action against him then as a defence he can refuse to return whatever he received.

Negligent misrepresentation

Negligence misrepresentation provides a remedy in damages.

Innocent misrepresentation

This is a statement that was made without intending to mislead but should have been made with more care.

The innocent party is eligible for damages.

FAQs about:
Misrepresentation

What is a misrepresentation?

A misrepresentation is a false statement of fact that induces someone to enter into a contract. There are several types of misrepresentation, including fraudulent, negligent and ‘innocent’ misrepresentation. The concept is deceptively simple.  However, whether a statement is legally seen as a misrepresentation depends on how central the clause is to the contract and whether there were other reasons for being induced into the contact.

The legal requirements for misrepresentation stated simply are:

  • There must be a statement.  Lack of disclosure is a separate issue.

  • An unambiguous statement

  • The statement is actually false

  • The statement must appear

  • The statement actually misleads the claimant

Fraudulent misrepresentations require evidence of intent on the part of the defendant i.e. a deliberate intention to mislead the other party to the contract.

How are statements of opinion treated by the law?

In must be determined whether the statement was actually an opinion or statement of fact.  In Bisset v Wilkinson, a farmer represented that his land could hold 2000 sheep.  It, in fact, could not. This case held that where both parties know the facts, then any statement made based on those facts is likely to be an opinion.  If, however, the defendant makes a statement based on some fact unknown to the other party, or the claimant lacks the capacity to learn it is likely that the statement will be treated as a misrepresentation subject to the requirements of misrepresentations stated above.

Under the law, opinions are not treated as misrepresentations.

How are statements of intention treated by the law?

Statements of intention are generally treated in the same way as statements of fact and can therefore be treated as misrepresentations.  However, to be actionable, it must be a statement of present intention rather than future intention.

In Edgington v Fitzmaurice, the claimant was a shareholder and the defendants were officers.   The company directors advertised shares and it was state that the shares would be used to renovate the property and improve the business.  The claimant asked if he would be entitled to have a first charge on the property in the event of the company going bankrupt and was told he would.  The court found that the shares were actually being used to pay off the company’s debts.  This was seen to be a misrepresentation of present intention the claimants succeeded in their claim.

What are the remedies for misrepresentation?

If the court finds in favour of the claimant, they will be entitled to rescind the contract and claim damages.  Rescinding the contract (‘rescission’) sets aside the contract so that any past and future obligations are legally invalid.  The general aim of civil remedies in English law is to put any person who suffers loss in the same position as they were prior to a breach of the law.  However, rescission is often not enough to achieve this.  Damages can be claimed for both fraudulent and negligent misrepresentation, although it is arguable that any loss suffered is going to be greater in cases of fraudulent misrepresentation.

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