In general, a misrepresentation is a legal term that is defined as a false statement of fact that has the effect of inducing another individual into a contract. This concept originated in English common law and has been adopted as a legal principle in the United States.
Innocent misrepresentation is a statement that is either highly misleading or untrue, as opposed to being a statement of opinion. An example of this would be telling another individual that a stereo is practically new so they will purchase it even though the stereo is five years old and heavily used.
Innocent misrepresentation is one of the three recognized varieties of misrepresentations in contract law. This is essentially a misrepresentation that is made by an individual who had reasonable grounds to believe that their false statement was true.
Such as in the above example, if the seller was not aware the stereo was actually old, they would only be liable for innocent misrepresentation. There are two other types of misrepresentation, negligent misrepresentation and fraudulent misrepresentation.
These types, however, are much more difficult to prove. Because of this, in many cases, innocent misrepresentation may be the best course of action.
If an individual has any questions about misrepresentation, it is important to consult with a lawyer who can provide advice regarding case law on innocent misrepresentation and the laws that apply in the jurisdiction.
What Is Innocent Misrepresentation in a Contracts Claim?
Innocent misrepresentation in contract law may arise when one party makes a material misrepresentation regarding a contract but, as discussed above, has reasonable grounds to believe that their statement was true.
In the context of contract law, innocent misrepresentation may serve as a valid cause of action. Therefore, even if a defendant did not intend to make a misrepresentation, they may still be held liable for a plaintiff’s losses under this theory.
In many cases, innocent misrepresentation is asserted where it is difficult to prove that the defendant acted intentionally, such as in contract fraud. One example of innocent misrepresentation arises when a party sells a computer and markets that computer as good as new when, in reality, it may be several years old and have many internal defects.
In order for an innocent misrepresentation to become a material term of a contract, the misrepresentation is required to meet certain criteria. The factors that may be considered regarding whether a misrepresentation amounts to a contractual term include:
- Expertise of one party versus the expertise of the other party to the contract;
- The reliance one party has shown on the misrepresented statement;
- Customary norms of the trade in question;
- Reassurances provided by the speaker of the statement; and
- The misrepresentation statement forms the basis of the contract.
What Are Some Examples of Innocent Misrepresentation?
There are numerous different types of examples of innocent misrepresentation. Such as, if a seller unknowingly offers defective merchandise.
Another type of example would be if an individual sells a used television on eBay but is not aware that it is actually broken.
Innocent misrepresentations are misrepresentations that do not rise to the level of being fraudulent or negligent.
What Constitutes Innocent Misrepresentation?
What is considered innocent misrepresentation will depend on the laws of the state where the misrepresentation occurred. There are, however, five basic elements of innocent misrepresentation that must be shown, including:
- An individual must make a false representation that must be false at the time of the transaction and that remains false;
- The misrepresentation is material to the transaction, which means that it must be about an important element of the transaction at hand;
- For example, if an individual is selling a car and they say that it has 15,000 miles on it when it actually has 15,124 miles, this misrepresentation would likely not be material;
- In contrast, claiming the car had 15,000 miles when it had 150,000 miles would be;
- The other party has to have substantially relied on the misrepresentation. This means that if the other party knew, they would not go through with the transaction;
- If the buyer, for example, would have bought the item regardless of what was said about it, the misrepresentation may not count. They must substantially rely on the falsehood;
- The lie must proximately cause the relying party to suffer damages;
- In other words, the buyer must have been actually harmed by the final transaction to be able to sue.
In addition to these four elements that are also necessary to prove negligent and fraudulent misrepresentation as well, there is a fifth element that is unique to innocent misrepresentation, which is that the loss of one party must benefit the other party.
This requirement may seem odd and very vague. However, courts have still required it to be shown.
If the misrepresentation that is made does not benefit the individual who made it or if it hurts both parties to the contract, the court will not consider it to be a case of misrepresentation.
What is Needed to Prove Innocent Misrepresentation?
Proving that innocent misrepresentation occurred may be difficult in many cases because it is not necessary for the defendant to act intentionally regarding the misrepresentation. Although these may differ by jurisdictions, a plaintiff claiming innocent misrepresentation must show that:
- The defendant made a representation or statement of one or more facts that are material to the subject matter of the contract;
- The representation was made in connection with the contract formation between the parties;
- At the time it was made, the representation was actually false;
- The plaintiff would not have entered into the agreement if the defendant had not made the representation or statement;
- The plaintiff suffered measurable losses as a result of relying on the representation and entering into the contract; and
- The plaintiff’s losses served to actually benefit the defendant.
If one of these elements cannot be proven, it may serve as a defense for the defendant. For example, if the plaintiff did not actually suffer any losses as a result of entering into the contract, the defendant cannot be held liable for innocent misrepresentation.
What Are the Punishments and Remedies for Innocent Misrepresentation?
A misrepresentation is a civil offense. This means that it can only be heard in a civil court.
The criminal equivalent of this is called false pretenses and requires a degree of intent. In general, the remedy for all types of misrepresentations is contract rescission.
A rescission means that the court treats the contract as though it never existed. Although money damages may be possible, they are less likely in cases of innocent misrepresentation unless rescission is not available as a remedy.
This may arise when one of the parties has already substantially carried out their part of the contract. For example, if Bob sold Tom a stereo for $50 and told him that the stereo was fully functional and Tom relied on that and purchased the stereo, in a civil court the deal would be rescinded and Tom would return the stereo to Bob.
Bob would then give Tom his $50 back.
Do I Need a Lawyer if I Have Legal Issues Involving Innocent Misrepresentation?
If you are involved with any type of misrepresentation, it may be a difficult process because it is difficult to determine whether the other individual made an innocent mistake or was attempting to defraud you out of your money. If you have been the victim of innocent misrepresentation, it is important to consult with a contract lawyer in your area.
Every state has its own laws governing the issue. Your attorney can provide you advice regarding the best way to proceed as well as what kind of remedies may be available in your case.
