Misrepresentation is the giving of false information by one party (or her or his agent) to the other before the contract is made, which induces them to make the contract. If you make a contract in reliance on a misrepresentation and suffer loss as a result, you can cancel the contract or claim damages.
The false statement must be one of fact, as opposed to a statement of opinion or a promise. For example, a seller saying that his property is worth $150 000 is expressing an opinion, but a seller saying that he paid $150 000 for it is making a statement of fact. A promise cannot be a misrepresentation because the statement made is about the future, and cannot be true or false at the moment it is made. Similarly, claims in advertisements, such as 'our soap powder washes whiter than white' or 'our beer will make you feel on top of the world' are not regarded by law as representations of fact and so cannot be misrepresentations. However, factual statements in advertisements, such as 'this vehicle is equipped with passenger airbags and ABS braking' are statements of fact and can be misrepresentations if false.
Some latitude is allowed to people selling privately to make statements commending an article in order to arouse interest in potential buyers. In such situations the borderline between misrepresentation and commendatory or promotional expression could be thin indeed. Rather than relying on the seller's statements, you should carefully inspect the item for yourself, and if necessary, have an expert examine, test or value it for you. Also remember that it may be difficult to claim based on a misrepresentation by the seller about something which should have been obvious to you. For example, if the seller told you that the vehicle had only done 20 000 km but the odometer showed twice that, the court will probably not accept that you placed any reliance on what was said.
A misrepresentation is innocent where the trader believes that the statement she or he is making is true and consequently has no intention to deceive the buyer. It is fraudulent where the trader makes the statement knowing it to be false or without believing in its truth, or without caring whether it is true or false. In that case, the maker may be guilty of the offence of fraud as well as misrepresentation.
It is a defence to misrepresentation if the person making the statement can show that they believed on reasonable grounds that it was true, or that someone else made the statement and he or she had no reason to know that it was made, or was not true.
If you relied on a misrepresentation in entering a contract, you can:
- rescind (cancel) the contract
- sue for to compensate for any loss.
Rescinding a contract
If you want to cancel the contract because of the misrepresentation, you must do this promptly when the misrepresentation is discovered. If you wait, you may lose this right. The right can also be lost if:
- you have in some way acted unfairly
- you know of the misrepresentation and of the entitlement to rescind, but do something which shows that you want to go on with the contract
- you cannot restore the other party substantially to the position she or he was in before the contract was made, for example, if the goods have been used or damaged
- a person who is not a party to the contract has obtained some right over the goods and would suffer if the contract were set aside. In the case of a contract for the sale of goods, a seller who fails to rescind before the buyer resells the goods to another person can lose the right to rescind. The new owner can keep the goods if they are bought in good faith and she or he did not know of any problem with the buyer's right to the goods.
You rescind the contract by telling the other party that you are doing so, and returning the goods in good condition. If the other party accepts this, the contract ends. However, if the other party still wants to go on with the contract, they can apply to the court. Under the Misrepresentation Act 1972 a court can declare a contract of sale to be legal even if a consumer has already rescinded, or is entitled to rescind, the contract. However, the court can still award damages for the misrepresentation.
As an alternative to rescission, you can sue for damages. The court will consider whether the statement was a misrepresentation, whether you relied on it in entering the contract, and whether you have sustained some loss as a result. The seller may not be ordered to pay damages if she or he can prove either of the following:
- that she or he had reasonable grounds to believe and did believe the statement was true
- that someone else made the statement, for example an employee and the trader did not know and could not reasonably be expected to know that the representation had been made or that it was untrue.
In addition, it is an offence if the misrepresentation was made by a trader, see: False or misleading representations .
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