A contract largely depends on the honesty and goodwill of those who have agreed to it. If a party to a contract makes a misrepresentation of fact without suffering any repercussions for that misrepresentation, then few people would feel comfortable binding themselves to that contract. Misrepresentation is an important concept in the contract laws of England, Wales, and certain other Commonwealth countries. There are three main types of misrepresentation, fraudulent, negligent, and innocent. Below is a brief overview of each type and the remedies for them.
Before talking about the three types of misrepresentation, however, it's important to first define what misrepresentation means in the context of contract law. A misrepresentation is an untrue statement of fact that induces a party to enter a contract. Furthermore, to pursue a claim against the person who made the misrepresentation, the claimant must show that he or she relied on the untrue statement of fact when deciding to enter the contract and that the misrepresentation led to damages to the claimant. An opinion, it is important to keep in mind, even if considered false, is not the same as a fact and generally does not figure in cases surrounding misrepresentation. With that in mind, it's time to look at the three types of misrepresentation.
Fraudulent misrepresentation is very serious. Fraudulent misrepresentation occurs when a party to a contract knowingly makes an untrue statement of fact which induces the other party to enter that contract. Fraudulent misrepresentation also occurs when the party either does not believe the truth of his or her statement of fact or is reckless as regards its truth. A claimant who has been the victim of alleged fraudulent misrepresentation can claim both rescission, which will set the contract aside, and damages.
A party that is trying to induce another party to a contract has a duty to ensure that reasonable care is taken as regards the accuracy of any representations of fact that may lead to the latter party to enter the contract. If such reasonable care to ensure the truth of a statement is not taken, then the wronged party may be the victim of negligent misrepresentation. Negligent misrepresentation can also occur in some cases when a party makes a careless statement of fact or does not have sufficient reason for believing in that statement's truth. As with fraudulent misrepresentation, claimants can pursue both damages and a rescission of the contract.
In innocent misrepresentation, a misrepresentation that has induced a party into a contract has occurred, but the person making the misrepresentation had reasonable grounds for believing it was true at the time the representation was made. A claimant who has been the victim of innocent misrepresentation can still pursue damages, but he or she cannot pursue rescission. Again, to pursue damages it must be shown that the claimant suffered a loss because of the misrepresentation.
The three types of misrepresentation described above are fundamental to understanding contract law in England and many Commonwealth countries. Claims based on allegations of misrepresentation help ensure that contracts are ultimately honored and that unscrupulous or negligent behavior does not go unpunished.