Key Takeaways

  • Innocent misrepresentation occurs when a false statement is made without intent to deceive, often due to a lack of knowledge.
  • A statement of opinion may not be actionable unless it implies underlying factual knowledge.
  • Courts distinguish between fact and opinion depending on the context and the speaker’s expertise or access to knowledge.
  • Remedies typically involve rescission, though damages may be limited compared to fraudulent misrepresentation.
  • Case law shows innocent misrepresentation can arise in contracts involving property sales, commercial leases, and business investments.

Innocent misrepresentation cases involve instances of misunderstanding or the giving of answers without full knowledge of a situation. For instance, Jim bought two patches of land from Sally to farm sheep. During the negotiation process, Sally claimed that if the place was tended adequately, it would support 1,000 sheep. Jim purchased the land believing it would support 1,000 sheep. Both parties know Sally did not carry sheep on the land.

During the trial, the judge made the following points:

“In ordinary instances, any statements from the owner who had been occupying the farm in regard to capacity would be considered a factual statement. This, however, would not be the case. In this circumstance, the defendant was not justified in taking anything said from the plaintiff regarding the support capacity being anything other than an opinion regarding the subject.”

Hotel Purchase Case

Another case involves a plaintiff who decided to sell his hotel and stated it was rented to a desirable tenant. The defendants bought the hotel, and the tenant entered bankruptcy. Therefore, the defendant refused to complete the purchase and was sued by the plaintiff. The Appeals Court determined that the statement from the plaintiff was not an opinion, but stemmed from fact.

Loan Case

A shareholder plaintiff got a circular from directors who requested loans of 25,000 pounds, including interest. The circular stated that the business purchased a leased property of value. However, a monetary investment was necessary to renovate the property and to transport fish from the coast to London. The circular was accused of being misleading. Parties alleged that it was framed in a manner to lead to the belief that the debentures would be a simple charge to the property of the business, and that the entire object of the problem was to buy off pressing liabilities of the business, not to finish the renovations.

The plaintiff who took debentures stated that repayment of the money on the grounds that it was received from the lender via fraudulent claims. The Appeals Court determined that an intentional statement was rooted in fact and was a misrepresentation, and that the plaintiff can rescind the agreement. Even though the agreement was an intentional promise, the court determined that a defendant had no intention to maintain the agreement at the time he made the claim.

Esso Case

Esso’s seasoned rep conveyed to Mardon that Esso guessed that a throughput of oil on a worksite would go to 200,000 gallons in the third operating year and persuaded Mardon to get into a tenancy contract in April of 1963 for a period of two years. Mardon completed what was to be done in the role of a tenant, but the worksite was not sufficient enough in achieving a throughput, getting over 60,000 to 70,000 gallons. Mardon lost a great deal of money and could not pay for the oil that was supplied. Esso claimed money that was due, including possession of the worksite. Mardon claimed damages in regards to misrepresentation. The Appeals Court determined negligence under Hedley Byrne v. Heller.

Flats Case

In 1931, a dwelling establishment was turned into six flats. In 1938, the first flat was rented for three years at annual rental rate of 140 pounds. In 1947, the defendant took out a lease on the building, intending to fix bomb damage and other renovations. The defendant and plaintiff told the defendant that he could charge 250 pounds for the first flat. The plaintiff paid rent of 250 pounds each year for a certain period and took out proceedings on a declaration that typical rent amounted to 140 pounds. The defendant made the argument that the flat was a separate and new unit via identity changes, and therefore was not under Rent Restriction Acts. This was determined to be a factual statement.

Farmer Case

A plaintiff farmer inquired to the defendant’s manager, who trained racehorses, if he wished to purchase oats, and he provided a sample. The manager responded that he would take the entire quantity. The plaintiff delivered a piece of the quantity. The defendant made a complaint that the oats were new and he thought he was getting older varieties because newer ones had no benefit to him. The plaintiff, knowing that the oats were brand new, refused to take the quantity back and sued for the price. Conflicting evidence regarding what happened occurred between the manger and plaintiff.

What Constitutes Innocent Misrepresentation?

Innocent misrepresentation arises when one party makes a false statement believing it to be true, without any intent to deceive. According to courts, a misrepresentation becomes “innocent” when:

  • The statement is made honestly but turns out to be incorrect.
  • The person making the statement had reasonable grounds to believe it was true at the time.
  • There is no negligence or fraudulent intent involved.

Importantly, courts often evaluate whether the misrepresentation was of fact, not opinion. For example, an opinion offered by someone without special expertise (e.g., a seller with no prior use of farmland) is less likely to be considered factual, while a similar statement from an expert might carry the weight of fact.

Legal Consequences of Innocent Misrepresentation

When innocent misrepresentation is proven, the primary remedy is rescission—canceling the contract and returning the parties to their pre-contractual position. Unlike fraudulent or negligent misrepresentation, damages are not typically awarded unless rescission is impossible.

However, some jurisdictions may allow damages under specific statutes (e.g., the Misrepresentation Act 1967 in the UK), especially if the court deems that a party suffered measurable financial harm.

Misrepresentation vs. Opinion: Court’s View

Courts carefully distinguish between factual representations and mere opinions. The Esso Case, for instance, demonstrated how a company’s expert forecast could be treated as fact due to their industry expertise. In contrast, a casual statement from a non-specialist may be seen as an opinion, not actionable as misrepresentation.

Key indicators of factual representation:

  • The speaker holds relevant knowledge or expertise.
  • The statement influences the other party’s decision.
  • There is a reasonable expectation that the statement is accurate and reliable.

Key Elements for Proving Innocent Misrepresentation

To succeed in a claim of innocent misrepresentation, the claimant must generally prove the following:

  1. A false statement of material fact was made.
  2. The statement induced the claimant to enter the contract.
  3. The misrepresentor believed the statement to be true and was not negligent in holding that belief.
  4. The claimant relied on the statement to their detriment.

Courts often assess whether the reliance was reasonable and whether the misrepresentor exercised due diligence in verifying their claims.

Frequently Asked Questions

  • What is an example of innocent misrepresentation?
    A seller claiming a property earns a certain rental income based on outdated or incorrect information—believing it to be true—is a classic example.
  • Can I sue for innocent misrepresentation?
    You can sue for rescission (canceling the contract), but monetary damages are typically limited unless provided by specific legislation.
  • How is innocent misrepresentation different from fraud?
    Innocent misrepresentation lacks intent to deceive, whereas fraud involves knowingly making false statements to mislead another party.
  • Is an opinion considered a misrepresentation?
    Generally no, unless the speaker holds special knowledge or expertise that gives the opinion the weight of fact.
  • What remedy is most common in innocent misrepresentation cases?
    Rescission is the most common remedy, allowing parties to undo the contract and return to their original positions.

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