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The Law & You: Effect Of Misrepresentation On A Contract Of Sale

1.0 Introduction

Many statements can be made in the course of trying to win work and there can be a temptation to overstate facts. In other words, say things or make statements in other to ensure or cause another to do or act in a particular way. The effect of causing another to act in such manner or circumstance is the focus of this article.

2.0 Meaning of Misrepresentation

A misrepresentation is an untrue statement made by one party (to a contract) to the other before or at the time of contracting, with regard to some existing fact or to some past event which is one of the causes that induced the contract. Simply put, where a person acts or makes a statement which makes another person honestly believe and act on same is what is called representation. However, where such act or statement is false and was deliberately made to induce the other party into doing something ordinarily he will not do but for the representation, such act or statement will amount to misrepresentation.

With respect to contract of sale, a misrepresentation is a false statement of fact or law which induces another party i.e. the representee to enter a contract. Where a statement made during the course of negotiations in a contract is classed as a representation and the other party is made to believe same, an action for misrepresentation may be available where the statement turns out to be untrue[1].

3.0 Types of Misrepresentation

There are three types of misrepresentation in law which includes

  • Fraudulent misrepresentation,
  • Negligent misrepresentation, and
  • Innocent

A misrepresentation is fraudulent where the trader makes the statement knowing it to be false or without believing in its truth, or without caring whether it is true or false. In that case, the maker may be guilty of the offence of fraud as well as misrepresentation.

A negligent misrepresentation is made when the person making it is careless as to whether it is true or false. It is innocent where the trader believes that the statement he or she is making is true and consequently has no intention to deceive the buyer.

The false statement made must however be one of fact, as opposed to a statement of opinion, law or a promise[2].

4.0 Essentials of misrepresentation:

The following are essential of misrepresentation:

  • The representation must be untrue.
  • The representation must relate to the fact essential to the contract.
  • The misrepresentation must have been addressed by one party to the party misled.
  • The representation must induce the other party to enter into contract.

 5.0 Effect of Misrepresentation in Contract of Sale

The effect of a finding of misrepresentation in a contract is that the contract is voidable i.e. the contract exists but may be set aside by the representee (the aggrieved party). In other words, the effect of a misrepresentation is to make it voidable by the injured party who can then choose (subject to some qualifications) whether to set it aside and treat it as if it had never been made (this is called rescission) or to continue with it. The available remedy in a contract of sale generally includes rescission and or damages, though such available remedy will depend on the type of misrepresentation.

Where a party relies on a misrepresentation in entering a contract, the party may exercise both or any of these options with respect to fraudulent or negligent misrepresentation:-

  • rescind (cancel) the contract
  • sue for to compensate for any loss.

However, with respect to innocent misrepresentation, the injured party may either rescind the contract or claim damages but cannot claim both[3]. Furthermore, where a statement made becomes false because of a later change of circumstances, there is an obligation to disclose the change of circumstances[4].

More so, the right to rescind the contract may be lost where a third party acquires rights, where the representee affirms the contract, through lapse of time or where restitution integrum is impossible. Furthermore, where the representee does an act to adopt the contract, or demonstrate a willingness to continue with the contract after becoming aware of the misrepresentation they will lose the right to rescind[5].

6.0 Cases when an aggrieved party has no remedy in law:

The following are instances where an aggrieved party has no remedy in cases of misrepresentation.
(i) Where consent was given with the knowledge of misrepresentation,
(ii) where a third party has acquired rights in the subject matter of contract in good faith and for value.
(iii) Where the aggrieved party had the means of discovering the truth ordinarily with diligence.

(iv)Where there has been a substantial lapse of time between the conclusion of the contract and the institution of the action to set it aside.

(v) Where the plaintiff/Claimant after discovering the misrepresentation affirms the contract.

 7.0 Conclusion

Conclusively, this article has tried to consider the meaning of misrepresentation as well as its effect on a contract of sale. Hence, once all the elements above has been established, there is hence misrepresentation and the injured or aggrieved party can bring an action in tort for misrepresentation and claim appropriate remedy or reliefs provided for under the law.

 


[1]https://www.google.com.ng/url?sa=t&rct=j&q=&esrc=s&source=web&cd=8&cad=rja&uact=8&ved=0ahUKEwja3dPH4MrZAhUMZVAKHY8aBMIQFghQMAc&url=http%3A%2F%2Felawresources.co.uk%2FMisrepresentation.php&usg=AOvVaw2gYkjhNn6VRVNUkDiT0D9C

[2] Edgington v Fitzmaurice (1885) 29 Ch D 459, Esso Petroleum v Mardon [1976] QB 801.

 

[3] Bisset v Wilkinson [1927] AC 177

[4] Long v Lloyd [1958] 1 WLR 753

[5] http://e-lawresources.co.uk/Misrepresentation.php

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Foluke Akinmoladun

Foluke Akinmoladun is the Managing Solicitor of Trizon Law Chambers. She has been a legal practitioner for 13 years and has experience in a wide range of commercial matters. She is a certified mediator, a member of the Chartered Institute of Arbitrators(UK), holds an Advanced Diploma in Accounting from the Association of Chartered Certified Accountants (UK) and is also a tax consultant. She is a dispute resolution expert, handling commercial disputes from negotiations all the way to litigation (if need be).

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