how misrepresentation works
misrepresentation applies only to statements of fact not to opinions or predictions misrepresentation is a basis for contract breach in transactions no matter the size a seller of a car in a private transaction could misrepresent the number of miles to a prospective buyer which could cause the person to purchase the car if the buyer later finds out that the car had much more wear and tear than represented they can file a suit against the seller in higher stakes situations a misrepresentation can be considered an event of default by a lender for instance in a credit agreement meanwhile misrepresentations can be grounds for termination of a mergers and acquisitions m a deal in which case a substantial break fee could apply special considerationsin some situations such as where a fiduciary relationship is involved misrepresentation can occur by omission that is misrepresentation may occur when a fiduciary fails to disclose material facts of which they have knowledge 1a duty also exists to correct any statements of fact that later become known to be untrue in this case the failure to correct a previous false statement would be a misrepresentation types of misrepresentationsthere are three types of misrepresentations innocent misrepresentation is a false statement of material fact by the defendant who was unaware at the time of contract signing that the statement was untrue the remedy in this situation is usually rescission or cancellation of the contract 2consider a situation where a seller of a piece of land mistakenly informs a buyer that there is planning permission granted for a new housing development nearby the seller genuinely believed this to be true based on information received from a neighbor unfortunately unknown to the seller that planning permission had since been denied because the buyer relied on this information in deciding to purchase the land the seller may be liable due to innocent misrepresentation since they made a mistake even though it was an honest mistake negligent misrepresentation is a statement that the defendant did not attempt to verify was true before executing a contract this is a violation of the concept of reasonable care that a party must undertake before entering an agreement the remedy for negligent misrepresentation is contract rescission and possibly damages 3suppose a real estate agent while showing a property to potential buyers states that the roof was recently renovated it turns out that the roof needs significant repairs despite not intending to deceive the agent s negligent statement about the roof s condition played a part in the buyers making an offer on the property if the buyers later discover the true state of the roof they may have grounds to claim damages from the agent for the costs of repairing the roof as the agent was negligent in sharing incorrect information fraudulent misrepresentation is a statement that the defendant made knowing it was false or that the defendant made recklessly to induce the other party to enter a contract the injured party can seek to void the contract and recover damages from the defendant 4imagine a scenario where a seller knowingly advertises a used car as having only 50 000 miles on the odometer however the car actually has 150 000 miles on it and the seller has rolled back the odometer the buyer relies on this false information and would buy the car based on the misrepresented mileage in this case the seller s fraudulent misrepresentation gives the buyer grounds to rescind the contract return the car and potentially seek damages for any losses suffered due to the deception 