A classic misrepresentation example in contract terms would be telling someone an item is “just like new” when it's really several years old and worn from use. Inducing someone to enter into a contract with false claims is called misrepresentation.

There are three types of misrepresentation: innocent, negligent, and fraudulent.

Innocent Misrepresentation

Not all misrepresentation is intentional. There may be situations in which a person reasonably believes that his false claims are true, such as when you sell an item that is not in working condition although you believed that it was working properly. When misrepresentation occurs, this is typically what is claimed. 

Proving that misrepresentation was innocent depends on the state law where the issue takes place. Five elements need to be present in order to prove that innocent misrepresentation is what truly happened:

  • An individual has made a false claim at the time of the transaction, which remains untrue at a later date as well.
  • The false claim, or misrepresentation, is vital to the transaction, and not irrelevant or minor.
  • The other party has based his decision on whether or not to complete the transaction on the false claim. 
  • The false claim has caused the other party to suffer damages.
  • The false claim has benefited the first party in some way.

All misrepresentations are considered civil offenses and are dealt with in civil court. In the case of innocent misrepresentation, if found to be valid, the solution is to simply pretend the contract or transaction never happened. If an item is purchased due to innocent misrepresentation, it is simply returned for a refund

Attorneys can help when dealing with any type of misrepresentation, because it is not always easy to find out of the mistake was innocent or intentional. A business lawyer who is experienced in this type of case can be a be a big benefit to you, especially since each state has specific laws that apply to this situation. 

Fraudulent Misrepresentation

In a fraudulent misrepresentation, a party makes a false claim regarding a contract or transaction but knows it isn't true. For example, if a person is selling a car and knows there is a problem with the transmission, yet advertises it in perfect mechanical condition, they have committed fraudulent misrepresentation.

Just like an innocent misrepresentation, a fraudulent misrepresentation is valid if the other party depends upon the false claim in order to decide whether or not to proceed with the transaction. 

Negligent Misrepresentation

There may be situations in which a party makes a false claim in a contract or transaction, but is not aware of its falsehood — but unlike an innocent representation, that party should have taken the initiative to find out before making a statement about the item. 

For example, if a real estate agent is selling a property that has a major defect such as damage to the foundation, the owner may have told the agent that nothing is wrong with the house. The agent has a responsibility to make sure the owner is telling the truth before representing the house as being free of defects to potential buyers. This would be considered negligent misrepresentation.

Duress

Related to misrepresentation is a term called “duress,” which means that one party is pressured to enter into a contract by means of threats. For example, economic duress occurs when one party makes threats to the other party that they will damage their property or otherwise cause them financial loss unless that individual agrees to sign a contract. If this sort of duress is found to exist, the contract will be considered void in a court of law.

Undue Influence

Undue Influence is similar to duress. It occurs when one party has power over another person and uses it as a means of negotiating a contract. Some of the most common conditions under which this occurs are with the elderly, disabled, or anyone who is isolated and vulnerable. 

For example, an elderly person at a nursing home may be the victim of undue influence if a representative of the facility requires them to sign a contract to pay extra or give up their personal property in exchange for special treatment or other privileges. 

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