Introduction
Misrepresentation is a civil wrong or a TORT. This refers to any such activity that may end up in a pecuniary loss creating a civil liability. Legal dictionary defines misrepresentation as “An assertion or manifestation by words or conduct that is not in accord with the facts.”Legal misrepresentation occurs when an individual manifests by words or via other means, something that is false in accordance with the facts which the circumstances provide. It is a statement and not opinion, made by the seller prior the contract is made.
If the purchaser decides to go for the contract relying on the statement provided which later turns out to be false, then it’s a misrepresentation and the purchaser is rightful by law to claim compensation against it. The purchaser in this case can also rescind the contract making the contract void. In order to claim a misrepresentation successfully, the claimant must satisfy 3 pre requisites. Proof of the misrepresentation in the form any document or facts, defining the type of misrepresentation and proper demonstration of an entitlement to the sought remedy. Statement of intention, statement of opinion and statement of law are the key elements of a misrepresentation case analysis
Types /Categories of Misrepresentation.
There are majorly three types of misrepresentation according to the nature;
- Fraudulent misrepresentation -- Intentional deceit
- Innocent misrepresentation -- Lack of intention to deceive
- Negligent misrepresentation -- Reckless and careless statement (special relationship must exist)
The act of representing the information with the intention of deceiving or knowing the falsehood of the information comes under the heading of fraudulent misrepresentation. Proving this type of misrepresentation is not easy as the test for this is subjective as in the case of Derry v Peek.
Innocent misrepresentation as the name indicates is the case where the maker of the statement has neither been negligent nor fraudulent. The presenter believes honestly in the authenticity of the statement. The remedy for this type of misrepresentation is generally up to the claimant to decide whether to rescind the contract or not. There are no common laws for claiming the damages for the misrepresentation as in Redgrave v Hurd.
Negligent misrepresentation is a kind of innocent misrepresentation. If a statement is found to be misrepresented unintentionally but with sound negligence which could have been avoided, the statement is negligently misrepresented. Hedley Byrne v Heller. The remedy for this kind of negligence is same as that of fraudulent and innocent misrepresentation.
Remedies:
Under the Misrepresentation Act 1967, remedies for fraudulent and negligent misrepresentation, the claimant can claim both, the compensation against the damages or a rescission. In case of an innocent misrepresentation, these remedies can’t be claimed. And the damages are assessed and managed according to general contractual principles.
Issues in Misrepresentation
Opinions are not given importance unless the claimant is in a position of knowing the facts.
Silence is not considered as filing a misrepresentation.
In a case where third party acquires the goods’ right, rescission is not granted to that party in a case of misrepresentation.
In the case contracts of insurance, it is the responsibility of the issuer to disclose all the related information and a failure to do so can result in a misrepresentation case.
Any false statement of law amounts to a misrepresentation.
In a situation where a statement becomes untrue due to changes in circumstances, the changes must be disclosed.
Cases from the Past and Remedies;
- Bissett v Wilkinson [1927] AC 177
A farm was sold in New Zealand from ‘S’ to ‘P’. S gave the information to P that the farm could support 2000 sheep in his opinion. The farm was never been used for sheep earlier hence S stated only his opinion. P knew this also he was aware that S was exaggerating and that the farm could not be used for so many sheep. So P tried to get the contract in order to set aside a case for misrepresentation.
Remedy; The court stated that the statement of opinions are general and are not the statement of facts, however exceptions are always there.
- Smith v Land & House Property Corporation(1884) 28 ChD 7.Bowen LJ:
P wanted to sell a hotel to a sitting tenant D, D agreed to buy but before the sale, D went into liquidation and refused to buy then. P sued D for specific performance while D counterclaimed a misrepresentation.
Remedy; The court held that the facts were known and no misrepresentation has been done.
- Dimmock v. Hallett (1866) LR 2 Ch 21
Sale contract of a farming land, according to the seller the land was
“..Fertile and improvable” The buyer could not get expected out put and filed a misrepresentation.
Remedy: The court declared this as “a mere flourishing statement” and refused to consider it as a case of misrepresentation.
- Smith v. Lynn (1954) 85 ILTR 57
P saw an advertisement for a house on sale, J was the owner and wanted to sell, in his advert he claimed the house to be in very good condition. P inspected the house and then bought it. Later he filed a misrepresentation against J.
Remedy: The court said that P should not have relied on the advert, also he had inspected the house prior the purchase. This case can’t be treated as a misrepresentation as such flourishing statements are usually used in adverts.
- Esso v. Mardon [1976] QB 801
Mordon wanted to purchase Esso franchise at a gas station, the financial advisor of Esso made an estimation on which the patrol would sell. On this information Mardon purchased the franchise. The estimate turned to be highly optimistic and Mordon did not get the expected returns.
Remedy: The court stated that the estimate was just an opinion, yet it involved negligence on the analyst’s part. A misrepresentation has therefore taken place. Esso is to provide compensation against this claim.
- Redgrave v Hurd (1881 20 Ch D1:
R sold a business to H claiming that the business gives a turnout of 300m P.a. The business showed the returns of 200m p.a. H claimed for the differences in response of which R presented the documents relating to other businesses which showed trifling returns.
Remedy: H shall have examined the market and its competitors and would have known the truth. Thus the case can’t be treated as misrepresentation.
Articles on Misrepresentation
A lot has been written on misrepresentation in the news, journals, business research papers etc. since this is an issue of high importance and touches the legal side of the business issues.
An article at www.inc.com on business torts claims treatment of tort in California that may include unfair competition "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising."
Greg Standing, in his article Fraudulent misrepresentation discusses a case of representation been made to a dealer and not to the purchaser ‘Renault’. The company’s claim was that false information had been provided due to which the company had to bear losses. The counter company was of the view “Renault were aware that the scheme was being misused and turned a blind eye to it and therefore suffered no loss”.
Another article published on the 14th May 2012, in the Los Angeles Times written by Roger Vincent, says that
“yahoo Inc. Chief Executive Scott Thompson resigned from the digital media company Sunday after a dissident shareholder called attention to his apparent misrepresentation of his college credentials.”
Trinity international published an article named Focus that discussed different aspects of misrepresentation. The concluding remarks of the article were; “A final point to the sellers to be aware of is that making an incorrect pre contractual representation may amount to a criminal offence”
Aaron Larson discusses kinds of fraud in his article Fraud, Silent Fraud, and Innocent Misrepresentation”Silent fraud occurs when a defendant fails to disclose material facts”.
Rollingsons Solicitors Ltd discuss misrepresentation as
“Misrepresentation does not provide a reliable escape route for buyers attempting to exit property deals that are no longer attractive. However, sellers should still take care to avoid potential claims for misrepresentation by responding carefully to enquiries, properly defining the property in question and ensuring that the contract fully reflects the expectations of the parties”.
Summary:
Misrepresentation can only make the contract voidable. In the case where there are two parties involved and the outcome is same as that of the mistake. The first step towards representing a misrepresentation is to check whether it is a misrepresentation at all or not once proved this misrepresentation is then viewed according to the category, intentional deceit, innocent or negligent misrepresentation, and then is treated accordingly. An important rule to know here is that silence is not a representation of a misrepresentation.
Generally, once the misrepresentation has been recognized, there are certain steps and procedures devised by Law which properly channelize the procedure. Under the Trade Practices Act or equivalent territory and state fair trading legislations, the claimant must induce the contract so as to prove that that claimant has not relied on their own knowledge, judgment and skills. They should be material in the sense that the misrepresentation affected the claimant’s judgment.
Conclusion
Summing up it can be deduced that an assertion that is not in accordance with the truth is considered as a misrepresentation of facts. Generally misrepresentation is of two types innocent or fraudulent, which can be further categorized according to the nature. History has shown many cases of misrepresentation like Bissett v Wilkinson Smith v Land and House Property Corporation R v Kylsant Jones v Dumbrell, etc. Remedies for the misrepresentations have also been devised, the very first of which is that the contract becomes voidable as soon as the misrepresentation is proved. The innocent party can then claim either for rescissions or damages. The representation of the misrepresentation has to be made very carefully failing which can result in negligent misrepresentation which allows remedy for the damages when collateral frauds and contracts are not found.
Sources
Misrepresentation Law & Legal Definition. http://definitions.uslegal.com/m/misrepresentation/
Vitiating Factors / Misrepresentation. http://www.insitelawmagazine.com/ch10misrepresentation.htm
Misrepresentation. http://www.lawteacher.net/PDF/Misrepresentation%20Lecture.pdf
Misrepresentation. http://legal-dictionary.thefreedictionary.com/misrepresentation
Types of Misrepresentation. think.io/pub//Misrepresentation%20at%20Common%20Law.doc
Categories of Misrepresentation. The Law of Contract. By Laurence Koffman, Elizabeth Macdonald
Fraudulent misrepresentation. http://www.wragge.com/published_articles_2526.asp
Focus. http://www.trinityllp.com/article-fraudulent-misrepresentation-rescinding-a-share-purchase-agreement/
