An untrue statement of fact, made by one party to the other in the course of negotiating a contract, that induces the other party to enter into the contract. The person making the misrepresentation is called the representor, and the person to whom it is made is the representee. A false statement of law, opinion, or intention does not constitute a misrepresentation; nor does a statement of fact known by the representee to be untrue. Moreover, unless the representee relies on the statement so that it becomes an inducement to enter into the contract, it is not a misrepresentation. The remedies for misrepresentation vary according to the degree of culpability of the representor. If the representor is guilty of fraudulent misrepresentation (i.e. not honestly believing in the truth of any statement made) the representee may, subject to certain limitations, set the contract aside and may also sue for damages. If the representor is guilty of negligent misrepresentation (i.e. believing a statement made without reasonable grounds for doing so) the representee may also rescind (see rescission) the contract and sue for damages. If the representor has committed merely an innocent misrepresentation (reasonably believing a statement to be true) the representee is restricted to rescinding the contract.
Subjects: Law — Financial Institutions and Services.