Misrepresentation in Contracts: Types and Consequences
What Is Misrepresentation?
Misrepresentation occurs when one party makes a false statement of fact that induces the other party to enter a contract. The statement must concern a material fact — not an opinion, prediction, or "sales talk" — and the other party must have reasonably relied on it.
Three Types of Misrepresentation
Fraudulent Misrepresentation
The person knowingly makes a false statement, or makes it recklessly without caring whether it is true, intending the other party to rely on it. This is the most serious form and may give rise to both contract rescission and tort damages.
Negligent Misrepresentation
The person makes a false statement carelessly, without reasonable grounds for believing it is true. There is no intent to deceive, but the lack of care is enough for liability.
Innocent Misrepresentation
The person genuinely believes the statement is true and has reasonable grounds for that belief. Even so, the misled party may still rescind the contract.
Elements to Prove
To establish misrepresentation, you generally need to show:
- A false statement of material fact was made
- The maker intended or expected the other party to rely on it
- The other party actually and reasonably relied on the statement
- The reliance caused damage or loss
Available Remedies
- Rescission — the contract is unwound, putting both parties back in their original positions
- Damages — compensation for losses caused by the misrepresentation (available for fraudulent and negligent types)
- Indemnification — if the contract includes a representations and warranties section with indemnification
When to Consult a Lawyer
Consider legal advice if you discover that key facts you relied on when signing a contract were false, as time limitations for raising misrepresentation claims vary by jurisdiction.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.