Misrepresentation in Contract Law — Types, Remedies and Cases

Misrepresentation in contract law is a false statement of fact or law, made by one party to another, which induces the other to enter the contract. Unlike a breach of a term, a misrepresentation operates on the formation of the contract: it is a pre-contractual statement that turns out to be untrue. This guide sets out what makes a statement actionable, the three categories of misrepresentation, the remedies for each, and the leading authorities, with links to full case briefs you can drill.

The elements of an actionable misrepresentation. The claimant must show (1) an unambiguous false statement, (2) of existing fact or law, (3) made to the claimant, which (4) induced the claimant to enter the contract. Each element does real work in problem questions.

Fact, not opinion or future intention. A mere statement of opinion is not a misrepresentation of fact — Bisset v Wilkinson (1927) (an honest estimate of the carrying capacity of land that neither party knew). But where the speaker has special knowledge, an opinion can imply a statement of fact — Smith v Land and House Property Corp (1884) (describing a tenant as “most desirable” implied facts the landlord knew to be false). Silence is generally not a representation, but a true statement that later becomes false must be corrected — With v O’Flanagan (1936).

Inducement. The false statement must have been a real inducement, though it need not be the only one. The claimant cannot complain if they did not know of the statement, did not rely on it, or knew it was untrue. Crucially, there is no duty to check: a claimant who is offered the chance to verify but does not is still entitled to rescind — Redgrave v Hurd (1881).

Fraudulent misrepresentation. Defined in Derry v Peek (1889) as a false statement made (i) knowingly, (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false. The tort is deceit. Damages are assessed on the tortious measure and, uniquely, extend to all direct losses flowing from the transaction, whether or not foreseeable — Doyle v Olby (Ironmongers) Ltd (1969) and Smith New Court Securities v Scrimgeour Vickers (1996).

Negligent misrepresentation. Two routes exist. At common law, a negligent misstatement made where a special relationship gives rise to a duty of care can found liability under Hedley Byrne v Heller (1964) (applied to pre-contractual statements in Esso Petroleum v Mardon (1976)). More commonly, the claimant relies on section 2(1) of the Misrepresentation Act 1967, which reverses the burden of proof: once a misrepresentation is shown, the representor is liable unless they prove they had reasonable grounds to believe, and did believe, the statement was true. Controversially, damages under s 2(1) are measured on the fraud (tortious) basis — Royscot Trust v Rogerson (1991) (the “fiction of fraud”).

Innocent misrepresentation. A statement made entirely without fault — neither fraudulent nor negligent. The primary remedy is rescission, but under section 2(2) of the Misrepresentation Act 1967 the court has a discretion to award damages in lieu of rescission where that would be equitable.

Remedies: rescission and bars. Rescission sets the contract aside and restores the parties to their pre-contractual position. It is barred by affirmation, lapse of time, the intervention of third-party rights, and where restitution is impossible (restitutio in integrum). For damages, distinguish carefully: deceit and s 2(1) use the tortious measure with the wide Doyle v Olby rule, whereas s 2(2) damages are a substitute for rescission and are more limited.

How to use this in an exam. Run the elements in order, classify the misrepresentation (fraudulent, negligent under s 2(1), or innocent), then address rescission and damages separately — note that the same facts often give the claimant a choice of routes, and s 2(1) is usually the easiest because the burden shifts to the defendant. Misrepresentation problem questions appear frequently in our contract past papers. Misrepresentation sits alongside the wider law of consideration and offer and acceptance in contract formation, and overlaps with unconscionability and undue influence where the misrepresentation is part of unfair pressure. See the Contract Law topic hub and our 50 must-know contract cases guide. Drill the authorities with our contract law flashcards and test application on our past papers.