Misrepresentation

Misrepresentation is an innocent, honestly held but incorrect statement of fact that induces another party to enter a contract. It shares fraud's element of a false statement inducing consent, but lacks fraud's dishonest intent, and the two doctrines carry different consequences.

Legal Framework

Three Categories Under S.18

1. Positive Assertion, Not Warranted by Information, of What Is Not True. A statement made confidently, believing it true, but without reasonable grounds or verification, that turns out to be false.

Why: The law does not require dishonesty for misrepresentation; an honest but unfounded assertion is enough, since the misled party's reliance on the false statement is the same regardless of the speaker's state of mind.

2. Breach of Duty Without Intent to Deceive, Which Gains an Advantage by Misleading Another. Certain relationships impose a positive duty to disclose material facts; a breach of that duty, even without deceptive intent, that results in the other party being misled falls within this category.

3. Causing, However Innocently, a Party to an Agreement to Make a Mistake as to the Substance of the Agreement's Subject Matter. Even entirely innocent conduct that causes such a mistake about the subject matter itself qualifies as misrepresentation.

Essentials of Misrepresentation

1. Representation of Fact, Not Opinion or Law. Only a statement of fact, not a mere expression of opinion or a statement of law, qualifies.

2. Must Be Untrue. The statement must in fact be incorrect, though made honestly.

3. Must Have Induced the Contract. The misled party must have relied on the representation in entering the agreement; a representation that played no part in inducing consent does not vitiate the contract.

4. Made Without Intent to Deceive. This is the defining feature distinguishing misrepresentation from fraud: the maker genuinely, though mistakenly, believes the statement to be true.

Consequences: Rescission, Not Damages

Under S.19, a contract induced by misrepresentation is voidable at the misled party's option; the misled party may rescind the contract. Since misrepresentation lacks fraud's dishonest intent, damages in tort for deceit are not available, though the misled party may still be entitled to restitution of benefits conferred under the rescinded contract.

Illustrations

1. Innocent positive assertion: A seller, genuinely unaware that his car's odometer had been tampered with by a previous owner, tells a buyer the car has done 40,000 kilometres. The buyer purchases relying on this figure. This is misrepresentation, since the seller honestly believed the statement, and the buyer may rescind on discovering the truth.

2. Breach of duty without deceptive intent: An insurance applicant, required by the policy's terms to disclose all material health information, omits a minor but relevant condition, believing in good faith it was immaterial. If the omission misleads the insurer regarding risk assessment, this may constitute misrepresentation through breach of disclosure duty.

3. Innocent mistake as to subject matter: A seller describes land for sale as free from any easement, genuinely unaware of an old right of way recorded decades earlier and long unused. The buyer, relying on this description, purchases the land. On discovering the easement, the buyer may rescind, the seller's statement having innocently caused a mistake as to the substance of the subject matter.

Recall Check

1. What is the essential difference between misrepresentation and fraud regarding the maker's state of mind?
2. List the three categories of conduct falling within S.18's definition of misrepresentation.
3. What remedy is available for misrepresentation, and why is damages for deceit generally unavailable?

Key Cases

Derry v. Peek (1889) Derry-v-Peek-1889 Issue: Whether directors who made an honestly believed but ultimately incorrect statement in a company prospectus were liable for fraud. Rule: Fraud requires a false statement made knowingly, without belief in its truth, or recklessly, careless of whether it is true or false; an honest belief, even if unreasonable, negates fraud, leaving at most a claim in misrepresentation. Held: The directors were not liable for fraud, since they honestly believed the statement to be true, though the case left open other remedies grounded in innocent misrepresentation.

Distinctions

Flashcards

Q: What three categories of conduct does S.18 define as misrepresentation? A: Unwarranted positive assertion of untrue facts, breach of duty misleading another without deceptive intent, and innocently causing a mistake as to the subject matter.

Q: Is damages in deceit available for misrepresentation? A: No, since misrepresentation lacks fraud's dishonest intent; rescission is the primary remedy.

Q: What did Derry v Peek establish about the distinction between fraud and misrepresentation? A: An honestly held but incorrect belief negates fraud, leaving at most a claim grounded in innocent misrepresentation.

Q: Can a statement of opinion amount to misrepresentation? A: No, misrepresentation requires a statement of fact, not mere opinion or a statement of law.

Q: What must the misled party show regarding reliance on the representation? A: That the representation actually induced them to enter the contract.

Exam Scenario

A property broker, relying on outdated municipal records he had no reason to doubt, tells a buyer that a plot of land has clear title with no pending litigation. In fact, unknown to the broker, a suit challenging the title had been filed shortly before, which had not yet updated the public records. The buyer purchases the plot relying on the broker's statement. Advise the buyer on his remedy upon discovering the pending suit.

Approach: Assess whether the broker's statement, honestly made based on records available to him without any intent to deceive, falls within S.18's definition of misrepresentation rather than fraud under S.17. Apply the Derry v Peek principle that an honest, even if ultimately mistaken, belief negates fraud. Conclude that the buyer's remedy lies in rescission of the sale under S.19, restoring both parties to their pre-contract position, rather than a claim for damages in deceit, which would require proof of dishonest intent absent here.

See Also

• Fraud : the contrasting doctrine requiring deliberate deception, distinguished from misrepresentation's innocent false statement.