Misrepresentation in Contracts: Types, Effects, and Remedies

Question 1
Any untrue statement of fact or law has been made by a party or its agent and when such
statement induces the other party to enter the contract with and thereby resulting in a lost to the
second party known as misrepresentation. The Action for misrepresentation can be brought
regarding a mispresentation of fact or the misrepresentation of law.
In this way, a misrepresentation striped as a false statement of fact or law, other party is induced
to enter into a contract. The law provides that when the statement has been made in the course of
negotiations, it can be termed as a representation instead of a term of the contract and an action
for misrepresentation may be available to the other party where the statement has turned out to
be untrue. In this regard it needs to be noted that there are three types of misrepresentation.
These are fraudulent misrepresentation, regent misrepresentation and innocent misrepresentation
(Smith v Land & House Property Corp, 1884). When it is discovered that a contract has been
made on account of a misrepresentation the effect is that the contract is considered as voidable.
This means that the contract is present but it can be set aside by the party to such
misrepresentation was made. The remedy available depends on the nature of misrepresentation.
Generally the remedy consists of the recession of the contract and at the same time the party me
also claim damages. However, there are certain circumstances where the right to rescind the
contract may not be available to the other party.
A statement can be described as an actionable misrepresentation if the criteria mentioned below
is satisfied:-

False statement: A party to the contract should have made a false statement of fact or law as
compared to an opinion or an estimate regarding future events (Bisset v Wilkinson, 1927).
The law provides that a statement of opinion may amount to an actionable misrepresentation if
the party making the representation was in a position to know the facts (Smith v Land & House
Property Corp., 1884).
It is further provided that a statement regarding chain cannot be considered as a
misrepresentation unless seeking the Representation had no intention of carrying out the stated
intention. The law further provides that silence will not be considered as misrepresentation.
Therefore unless the contract is of uberrimae fidei or in other words the contract of utmost good
faith like a contract of insurance or where the party making the representation in a fiduciary
position, even silence may be considered as misrepresentation. In case of contacts, there is a duty
present on part of the representor to disclose material facts and similarly any failure to disclose
all the material facts may result in an action for misrepresentation (With v O'Flanagan, 1936).
The significance of a misrepresentation been classified as fraudulent misrepresentation is that the
measure of damages may be higher under certain circumstances. As mentioned above, the two
remedies that are available in case of fraudulent misrepresentation are the recession of contract
and damages.
A fraudulent misrepresentation has been defined by the court in Derry v Peek (1889). The court
stated that a false statement that has been made knowingly and without believe in the truth this

statement organ comment has been made recklessly without caring too it is true or false, can be
described as a fraudulent misrepresentation.
In order to decide if a particular statement can be described as made fraudulently, it needs to be
considered if the party making the statement was aware that statement made is false and if the
party making the statement has reasonable grounds to believe that the statement is true even if
the statement is false. Therefore in the first case, this statement will be considered as clearly a
fraudulent statement. On the other end in the second case, if the party making the statement has
made a false statement but reasonable Grounds to believe that will not be considered as a
fraudulent statement. The reason is that in this case the statement is not been made recklessly or
carelessly. A statement that has been made recklessly needs to be the statement that has been
made by the party without having any believe in the truth of the statement.
In this case, Andy was willing to purchase the drinks manufacturing business of Billy. Therefore
Billy took Andy on a tour of the factory. However, Billy did not show Andy the machines that
were in need of major repairs. Billy also told Andy that he has 20 experienced staff members
while the reality was that 15 out of these staff members had already given notice of resignation
as they were going to join a rival company. Billy also made a statement that there was going to
be an increase in sales in the next few months with the improvement in the economy and more
spending by the consumers. He also provides an exaggerated statement of the past earnings of
the business.
All this amounts to a fraudulent misrepresentation.
Andy also entered into a contract with Chris for purchasing 1000 cardboard boxes. However, at
the time of the contract, both of them were not aware that the cardboard boxes had a warehouse