Misrepresentation

During negotiations prior to the making of a contract a number of statements will have been made.

Some of these statements will by agreement 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.

However other statements made during negotiation will not have become incorporated into the contract. They may however 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 as such can lead to certain legal remedies.

A misrepresentation is an untrue statement of fact made by one party to the other, which induces that party to enter into the contract.

Misrepresentations are of a three kinds:

• fraudulent
• negligent
• innocent misrepresentations

The remedies available depend 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.

A 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.

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 he even if that misstatement was not the only inducement to enter into the contract.

Fraudulent misrepresentation.

An untrue representation will constitute fraudulent misrepresentation where it is made knowingly, with out 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 for 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 and as a defence 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. Liability for a negligent misstatement.

Innocent misrepresentation

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 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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