Misrepresentation is an important concept in contract law and there are different types of misrepresentation. A misrepresentation is any untrue statement of fact which induces one party to enter into a contract.
In order to succeed in any misrepresentation claim, the plaintiff has to show that they relied on the untrue statement of fact when deciding to enter the contract and that the misrepresentation led to damages for the plaintiff.
Any party which is trying to induce another party to enter into a contract owes a reasonable duty of care to ensure that the representation of facts which leads another party to enter into a contract is accurate.
Negligent misrepresentation takes place when one party does not exercise reasonable care to make sure that the representation of facts is true. Negligent misrepresentation also applies when one party makes a careless statement of facts even when there is no sufficient basis for believing in the truth of those facts. In order to prove negligent misrepresentation, the plaintiff has to prove the following elements.
- The defendant made a statement of fact while trying to induce the plaintiff to enter into a contract or a business transaction;
- The statement of fact was false and the defendant did not exercise reasonable care and was careless when acquiring and communicating the information;
- The plaintiff relied on this misrepresentation when entering into the contract or business transaction; and
- The plaintiff suffered damages by relying on this misrepresentation.
Damages in this situation are typically economic or some other calculable loss. In a case of negligent misrepresentation, emotional damages like pain and suffering (without any financial loss) would not most likely not be considered damages.
There are certain defenses which the defendant can use when they are being sued for negligent misrepresentation such as:
- Contributory Negligence: The defendant can claim that the plaintiff was also negligent and they were also responsible for the damages which they incurred. For example, when signing up to purchase a product or service, the plaintiff may have had an opportunity to verify whether or not the defendant’s claim was true but chose not to do so.
- In a jurisdiction which allows this defense, if the plaintiff was found to have also been negligent, then the plaintiff would not be able to recover any money from the defendant.
- Comparative Negligence: In jurisdictions which have comparative negligence as a defense, if the defendant can prove that the plaintiff was partially at fault, then the defendant’s liability will be reduced to that extent. For example, if a plaintiff was 40% at fault, then the plaintiff’s monetary recovery from the defendant will reduced by that percentage.
- Assumption of Risk: The defendant can claim that the plaintiff voluntarily assumed the risk of entering into the transaction and the plaintiff was not induced or compelled by the defendant.
- Statement of Opinion Rather Than Fact: Misrepresentation claims are generally about facts and not about opinions, even if they are false. The defendant claim that they were merely expressing their opinion which may have turned out to be false and that they did not make any false statement of fact to the plaintiff.
- Puffery: Puffery refers to any exaggerated or extravagant statement which is made to attract buyers to a particular product or service. It is commonly used in advertising and marketing and it is assumed that most consumers would not take puffery literally.
- An example of puffery would be to claim that your pizza restaurant is the best in your city. The defendant can claim that it did not make a negligent misrepresentation to the plaintiff but was merely using a certain technique to sell or advertise its products or services.
Besides negligent misrepresentation, there are also other types of misrepresentation such as those based on fraud or innocence. Fraudulent misrepresentation is when one party knowingly and deliberately makes a false statement of fact which induces another party to enter into a contract.
Fraudulent misrepresentation can also apply when one party is reckless with regard to the truth of its statement of facts. Fraudulent misrepresentation is quite serious and it can seriously damage the reputation of the defendant and their company.
Innocent misrepresentation is when the defendant had a reasonable basis to believe that their statement of fact was true at the time when they made this representation to the plaintiff but which in fact turned out to be false.
To pursue damages in cases of innocent misrepresentation, the plaintiff has to show that they suffered damages because of the misrepresentation. It is different from negligent misrepresentation because they had a reason to believe it was true, even though it was in fact, false.
Contract laws can be complex and it can be difficult to prove all of the elements of negligent misrepresentation. In this context, it is important to consult with an experienced business attorney before proceeding.