What is Innocent Misrepresentation? Misrepresentation in general is a legal term that means "a false statement of fact that has the effect of inducing someone into a contract." For example, telling someone a stereo is "practically new" so that they buy it, when it is in fact 5 years old and heavily used. Innocent misrepresentation is one of the three recognized varieties of misrepresentations in contract law. Essentially, it is a misrepresentation made by someone who had reasonable grounds for believing that his false statement was true. So in the above example, if the seller didn't know the stereo was actually old, he would only be liable for an innocent misrepresentation. In the real world, however, it is often the case that because the other two varieties of misrepresentation (negligent and fraudulent) are much more difficult to prove (because of the complexity of proving intent), often this is the only course of action left available. What Constitutes Innocent Misrepresentation?
There are five elements that must be satisfied to prove innocent misrepresentation:
- Someone must makes a false representation (that must be false at the time of the transacation, AND remain false. If it turns out to be true later on, there is no case.)
- The misrepresentation is "material to the transaction," which means it must be about an important element of the transaction at hand. If you are selling a car and say that it has 15,000 miles on it when it actually has 15,124 miles, this would not be a material mistake.
- The other party must substantialy rely on the lie. This means the other party not only must go through with the transaction, they must do so only because of the misrepresentation. If the buyer, for instance, would have bought your item regardless of what you said about it, this does not count. They must substantially rely on the falsehood.
- The lie must also proximately cause the other party to suffer damages. In other words, the buyer must be actually harmed by the final transaction in order to sue.
In addition to those four elements, which are necessary for negligent and fraudulent misrepresentation as well, there is a fifth element that is unique to innocent misrepresentation. - The loss of the one party must benefit the other. This is an odd and very vague requirement, but one that the courts have held up nonetheless. Essentially, if the misrepresentation made does not benefit the person who made it, (or hurts BOTH parties to the contract), then the courts will not consider it a case of misrepresentation. Just exactly how the court will measure if a party has "benefitted" from a lie remains indistinct, and various states interpret this rule differently.
What are the Punishments/Remedies for Innocent Misrepresentation? Misrepresentations are civil offenses, meaning you can only sue for them in civil court (the criminal equivalent, only done with intent, is called "false pretenses"). The general remedy in civil court for all types of misrepresentations is that of rescission. This means the court will act like the transaction or contract never existed, and everyone goes back to the way they were. Example: You sell someone a stereo for $50 telling them that it is fully functional (which you think is true), and it turns out to be broken. The deal is rescinded; the buyer returns the stereo, and you return the money. As mentioned earlier, there may be circumstances where you are unable to prove somone acted with the actual intent to defraud (absent a confession on the other guy's part, this is often the case), and so innocent misrepresentation can be useful to still maintain a cause of action. But where damages can sometimes be awarded for negligent or fraudulent misrepresentaion, here you are only allowed a rescission of contract, since it really ends up being, in essence, a mutual mistake of fact. How Can an Attorney Help? Dealing with any sort of misrepresentation is a difficult process, precisely because it is very difficult to ascertain whether someone was making an "innocent" mistake, or really attempting to defraud you out of your money. If you have been the victim of a misrepresentation, an experienced contract lawyer will be essential in pursuing the case. Each state has its own laws regarding the topic, so a good attorney will know how best to proceed and can explain what kind of remedies you can expect. |
