Misrepresentation In Contract Law Does the Truth Really Matter

Understanding what is misrepresentation is important in contractual agreements since this is one of the five main vitiating elements in a contract.

During the negotiation phase of a contract there are statements made with an intention of getting the other party into the deal. These statements are referred to as representations.

Representation is a statement of fact made to induce the contract. Such statement relates to some material aspects of the contract.

If such statements turn out to be false, they become misrepresentation.

It is worth noting that during the negotiation phase of the contract, material statement made may either be;

1. Statements which form the express terms of the contract. If these are untrue, the untruth constitutes a breach of contract
2. Statements which do not form part of the contract but which helped to induce the contract. Such statements are mere representation and if untrue the are misrepresentations

REQUIREMENTS OF MISREPRESENTATION

In order to understand what is misrepresentation you must first get to know the requirements need for such to be actionable.

• It must be a statement of fact.

It should not be some vague reference without effect or a statement of opinion.

See Bisset V. Wilkinson (1927)

the vendor of a farm which had never been used as a sheep farm stated that in his judgment the farm would support 2,000 sheep. It was held that the statement of opinion.

• It must not be a misrepresentation of the law
• It must be an active representation

The statement has to be expressed. It is on this basis that the general rule is that silence does not mount to misrepresentation.

Must you disclose the truth in a contract

A party to a contract is under no duty to disclose material facts and the burden is on the other party to elicit the facts from him/her.

Exception to this;

1. Where there is a fiduciary relationship, e.g in principal agent relationship
2. Where circumstances have changed since a representation was made, the representor should disclose this.
3. In contracts of uberrimae fidei (utmost good faith) in which full disclosure is must
4. Partial disclosure. If a party makes half truth statement then he/she is obliged to make the full true statement because half truth amount to misrepresentation.

• It must have been a material inducement

It must be a matter which would affect the decision of a reasonable person in such a way as to make the person enter into the contract.

Exceptions

1. Where the misrepresentee or his agent actually knew the truth
2. Where the misrepresentee was ignorant of the misrepresentation when the contract was made.

See Horsfall V Thomas (1862) the gun vendor concealed a defect in the gun (this is misrepresentation by conduct) The buyer, however, bought the gun without examining it. It was held that this was not actionable misrepresentation.

3. If the misrepresentee did not allow the misrepresentation to affect his judgment.

TYPES OF MISREPRESENTATION

They can be classified into three types based on how they occur:

• Fraudulent misrepresentation– this occurs when a statement is made without honest belief in its truth. Usually such require proof of fraud then it can be actionable.
• Innocent misrepresentation- this occurs when the misrepresented statement is made honestly without any fault on the part of the representor.
• Negligent misrepresentation– this is also known as negligent misstatement and once proven the defendant is liable for the damages.

Related: Understanding terms of a contract