Leading up to the signing of any contract, many things are said or written about the transaction or deal in question. The verbal or written statements which induce a party to enter a contract are known as ‘representations’.
Some representations become formal terms or conditions of the contract. The representations which do not become terms or conditions are known as ‘mere representations’.
A mere representation that turns out to be false becomes a misrepresentation in law.
If it is successfully proven in a court of law that misrepresentation has occurred, the party which has been lied to obtains rights against the party which made the misrepresentation. The law also deems that the contract in question may be voidable.
The law of misrepresentation assists parties who relied on a false pre-contractual statement to their detriment to receive their dues in court – otherwise, they will not be able to sue for breach of contract [because the representation was not a formal term of the contract in. the first place].
When do Statements Become Terms, and When do they Become Mere Representations?
The courts have developed principles over the years to assist them in determining whether a statement is a term or a representation. These include, but are not limited to, the following:
Statements written into the contract
If a statement was not included in the contract, the statement is more likely to be a mere representation.
Requests to verify statements
If a party makes a statement and asks the other party to verify or confirm the accuracy or veracity of that statement, then the statement is more likely to be considered a mere representation.
Long time elapsed
If a long time has elapsed between the time of the making of the statement and the time of entering into a contract, then the statement is more likely to be a mere representation.
Knowledge of the parties
If the party which made the statement has more knowledge, skill or expertise than the other party, then the statement is more likely to be considered a term of the contract.
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Essential Elements of Misrepresentation in Law
There are two main elements for a representation to become misrepresentation, as follows:
- The misrepresentation must be a statement of fact
- The other party was induced by the statement to enter into the contract.
Let’s discuss these in turn
The Misrepresentation Must be a Statement of Fact
A statement can be considered a misrepresentation only if it pertains to a fact.
The following are generally not considered statements of facts in law:
- a statement of opinion,
- a statement of future intention, or
- a statement of law.
Do also take note that mere ‘puffs’ are not considered statements of facts. ‘Puffs’ may generally be described as statements made before a contract is formed but which are not to be taken seriously at all. They have no legal effect whatsoever. Examples of puffs are marketing and advertising statements like ‘You’ll read the best articles on this website.
The Other Party was Induced by the Statement to Enter into the Contract
A party trying to prove misrepresentation must show that they were induced to enter into the contract by the misrepresentation. They must have relied on the misrepresentation to their own eventual detriment. The courts acknowledge that the misrepresentation/s in question need not be the only reason or inducement for the wronged party to enter into the contract. It only needs to be important enough or material enough.
Do take note, however, that not all false statements will be considered misrepresentations. In certain circumstances, the false statement will not be deemed a misrepresentation despite its falsity because it cannot be said that there was an inducement at all. For example, the wronged party may have known all along that the statement was false, or the wronged party was not aware at all of the statement in question, or the wronged party simply was not persuaded at all by the statement in question and did not rely on it.
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Types of Misrepresentation
There are three main types of misrepresentation recognized in law. These are:
- Innocent Misrepresentation
- Negligent Misrepresentation
- Fraudulent Misrepresentation
We shall now discuss each type of misrepresentation.
Innocent Misrepresentation
Innocent misrepresentation refers to the situation where the maker of the false statement did not know of its falsity when making the statement, had no intention to lie and had good reason to believe the statement was, in fact, true. Nevertheless, the wronged party relied on the false statement to its detriment, and the innocent maker of the statement may still be liable.
Negligent Misrepresentation
Negligent misrepresentation is governed by the Misrepresentation Act. Section 2[1] of the Act mandates that even if a misrepresentation was not made fraudulently, the maker of the statement is still liable under fraudulent misrepresentation unless the maker of the statement can prove that he or she had reasonable ground to believe that the misrepresentation was actually true and that he or she did actually believe that it was true. If the maker of the statement cannot prove these two things, he is said to have made a negligent misrepresentation.
Fraudulent Misrepresentation
This refers to the situation where the maker of the statement was deliberately dishonest. The law has consistently upheld that fraudulent misrepresentation occurs when the maker of the statement makes the statement knowingly, without belief in its truth, or in such a way that he or she was recklessly careless whether it was true or false.
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Remedies for Misrepresentation
Whether it’s a finding of innocent, negligent or fraudulent misrepresentation which has been established in court, the law mandates that the contract may be declared voidable and that the innocent party has the option to rescind the contract ab initio [or cancel the contract from its very inception as if the contract had never been made in the first place].
For innocent misrepresentation, the innocent party may not claim damages but has the option of rescinding the contract. The court may order damages to be paid only in lieu of rescission.
For negligent misrepresentation, the innocent party may claim damages under section 2[1] of the Misrepresentation Act and ask for the contract to be rescinded ab initio.
For fraudulent misrepresentation, the innocent party may claim damages and rescission ab initio in common law.
Do take note that there is a possibility that the innocent party may claim for personal restitution of whatever ‘enrichment’ the wrongful party may have received as a result of his or her misrepresentation. Although this remedy is available for all three types of misrepresentation, it is typically not used for cases of fraudulent and negligent misrepresentation because the common law and the Misrepresentation Act already afford the innocent party the right to claim for both damages and rescission. If used at all, such a claim for restitution would be made by the wronged party in an innocent misrepresentation case.
Conclusion
The law of misrepresentation, when applied to contracts, serves an important function. In many cases, innocent parties are induced by misrepresentations to enter into contracts. Such misrepresentations are not formal terms. Therefore, the innocent parties cannot sue for breach of contract. This is where the law of misrepresentation steps in to afford some recourse to wronged parties.
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