Misrepresentation and the Misrepresentation Act 1967

What is a misrepresentation

A misrepresentation is an untrue statement of fact made by one party to the other, which induces and misleads that party to enter into a contract. Misrepresentation must be of fact, not of opinion or intention. Silence in itself can be regarded as a misrepresentation. Similarly, the truth but not the whole truth can be a misrepresentation.

During negotiations prior to the making of a contract, a number of statements will have been made. Some of these statements may have become incorporated into the contract and will, therefore, be contractual terms. If the statement is untrue, it will amount to a breach of contract. A claim for breach of contract can be brought.

However, not all statements made during negotiation will not have become incorporated into the contract. They must have induced or persuaded a party to enter into the contract. If such a representation turns out to be untrue, it will be a misrepresentation, and a claim in misrepresentation can be brought.

An untrue statement is a misrepresentation only if it induces the person to whom it is made to enter into a contract. It will have no legal effect if the untrue statement is not relied on. Thus, if a person makes his own investigation to test the truth of a statement made to him, he cannot then claim on the ground of misrepresentation. It may however be a misrepresentation if a person is given the opportunity to make investigations but does not do so. Action can be taken by reason of a misstatement even if that misstatement was not the only inducement to enter into the contract.

Misrepresentations are of three kinds:

  • fraudulent misrepresentation
  • negligent misrepresentation
  • innocent misrepresentation.

The remedies available depending on which type of misrepresentation was made. This will depend on the state of mind of the person making the representation, unlike where statements are incorporated into the contract when the state of mind of the defendant is largely irrelevant.

Fraudulent misrepresentation

An untrue representation will constitute fraudulent misrepresentation where it is made knowingly, without belief in its truth or recklessly, careless as to whether it be true or false. A fraudulent misrepresentation is simply a statement that the maker does not honestly believe to be true. It must, therefore, be more than just foolish, inaccurate or unreasonable.

A fraudulent representation makes a contract voidable.

The party who has been misled may avoid the contract and sue for damages. This claim will not be in breach of the contract, but as a claim in fraud.

It is for the party suffering the fraudulent misrepresentation to choose whether to affirm or of avoid the contract.

If he decides to avoid the contract, there is no need to issue proceedings. All that needs to be done is to give notice by words or conduct, that the party refuses to be bound by the contract.

However, if the other party then refuses to hand back what the misled party has paid or transferred in consideration of the contract, it will be necessary to apply to the court for a formal order of rescission. When a party has been induced by fraud to enter into a contract, he need only hand back what he got under the contract if he himself sues for rescission. If an action is commenced against him by the fraudulent party, he can plead fraud as a defense and refuse to return what he received under the contract.

Negligent misrepresentation

Negligent misrepresentation provides a remedy in damages. This is based upon the special relationship existing between parties intending to enter into a contract.

Innocent misrepresentation

This is where the person making the representation had reasonable grounds for believing that the statement made was true. Innocent misrepresentation provides an entitlement to damages but not to rescind the contract.

Claims for breach of contract

A statement of claim for breach of contract will set out:

  • the details of the contract to include the date, whether the contract was written or oral and the type of contract such as employment sale of goods etc;
  • the term in which it is alleged has been broken by the defendants;
  • details of the relevant breach;
  • allegations of damage, together with detailed particulars;
  • a claim for interest.

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