Misrepresentation: Definition, Example and Related Terms
What is a Misrepresentation ?
Misrepresentation is a false statement of fact made by one party to another, which affects the other party's decision in agreeing to a contract. This false statement must be important - it can't just be a little white lie that wouldn't change the other person's mind.
It also can't be an opinion or a prediction of future events. For example, if someone is trying to sell you a car and they say it's never been in an accident, but it actually has, that's misrepresentation. If they say they think it's the best car in the world, that's just an opinion, not a fact, so it can't be misrepresentation.
There are a few different types of misrepresentation in contracts: innocent, negligent, and fraudulent. Innocent misrepresentation is when the person who made the false statement had reasonable grounds for believing that it was true. Negligent misrepresentation is when the person had no reasonable grounds for believing the statement was true, and fraudulent misrepresentation is when the person knowingly made a false statement.
In business, misrepresentation can be a serious issue. If a contract is entered into based on misrepresentation, the contract can be declared void, and the person who was misled can sue the other person for damages. That means they can get money to make up for any losses they suffered because of the misrepresentation. So, it's really important for businesses to be honest and clear in their contracts and negotiations.'
Example(s)
Scenario Description A company is selling a piece of machinery and claims it has a production capacity of 1000 units per hour. The buyer, based on this information, decides to purchase the machine. After the purchase, the buyer finds out that the machine can only produce 800 units per hour. This is a case of misrepresentation, as the seller provided false information about the machine's capacity, which influenced the buyer's decision to purchase. A software company claims their product can integrate with any existing system, leading another company to enter into a contract with them. Later, it is discovered that the software does not integrate with the company's existing system. This is a case of misrepresentation because the software company made a false statement that influenced the other company's decision to enter into a contract.