Misrepresentation

What Is a Misrepresentation?

A misrepresentation is a false statement of a material truth made by one party which influences the other party's decision in consenting to a contract. Assuming that the misrepresentation is found, the contract can be declared void and, contingent upon the situation, the adversely influenced party might look for damages. In this type of contract dispute, the party that is blamed for making the misrepresentation is the litigant, and the party making the claim is the offended party.

How Misrepresentation Works

Misrepresentation applies to statements of reality, rather than to suppositions or expectations. Misrepresentation is a basis for contract breach in transactions, regardless of the size.

A seller of a vehicle in a private transaction could distort the number of miles to a prospective buyer, which could make the person purchase the vehicle. On the off chance that the buyer later figures out that the vehicle had substantially more wear and tear than addressed, they can file a suit against the seller.

In higher stakes situations, a misrepresentation can be considered a event of default by a lender, for example, in a credit agreement. In the mean time, misrepresentations can be reason for termination of a mergers and acquisitions (M&A) deal, in which case a substantial break fee could apply.

Special Considerations

In certain situations, for example, where a fiduciary relationship is involved, misrepresentation can happen by exclusion. That is, misrepresentation might happen where a fiduciary neglects to reveal material realities of which they have information.

A duty likewise exists to address any statements of reality which later become known to be untrue. In this case, the inability to address a previous false statement would be a misrepresentation.

Types of Misrepresentations

There are three types of misrepresentations. Innocent misrepresentation is a false statement of material reality by the litigant, who was unaware at the hour of contract signing that the statement was untrue. The cure in this situation is typically rescission or cancellation of the contract.

The subsequent type is the careless misrepresentation. This type of misrepresentation is a statement that the litigant didn't endeavor to confirm was true before executing a contract. This is a violation of the concept of "sensible care" that a party must embrace before entering an agreement. The solution for careless misrepresentation is contract rescission and potentially damages.

The third type is a fraudulent misrepresentation. A fraudulent misrepresentation is a statement that the litigant made realizing it was false or that the respondent made wildly to instigate the other party to enter a contract. The harmed party can try to void the contract and to recuperate damages from the litigant.

Features

• Misrepresentation is a basis of contract breach in transactions, regardless of the size, yet applies to statements of reality, as opposed to conclusions or forecasts.
• There are three types of misrepresentations — innocent misrepresentation, careless misrepresentation, and fraudulent misrepresentation — all of which have changing cures.
• Misrepresentations are false statements of truth that influence one more party's decision connected with a contract.
• Such false statements can void a contract and at times, permit the other party to look for damages.