Misrepresentation
Misrepresentation gives a party a way out of a contract, and the whole concept turns on a single either/or that students constantly get wrong.
9. Misrepresentation
Misrepresentation is another ground for voiding a contract.
- A contract is voidable if assent was induced by either a fraudulent misrepresentation or a material misrepresentation of a fact.
- Fraud is not necessary if the misrepresentation was material.
- Conversely, materiality is not necessary if the misrepresentation was fraudulent.
- A misrepresentation of fact is fraudulent if the maker intends the assertion to influence the other party’s decision to enter the contract and:
- The maker knows or believes the assertion is not true, or
- The maker expresses confidence in the truth of the assertion and does not have the stated level of confidence, or
- The maker states a basis for the assertion and the maker does not have that basis for the assertion.
- A misrepresentation is not fraudulent if the maker believes it to be true even if this belief is wrong.
- A misrepresentation is material if:
- It would be likely to induce a reasonable person to manifest assent or
- The maker knows it would be likely to induce the particular recipient to do so.
- The usual remedy for misrepresentation is voiding or rescinding the contract.
- The Nevada FLE does not test when an expression of opinion may constitute misrepresentation.
A contract is voidable if assent was induced by a misrepresentation of fact that is either fraudulent or material. You do not need both. The usual remedy is voiding or rescinding the contract.
Misrepresentation gives a party a way out of a contract, and the whole concept turns on a single either/or that students constantly get wrong. A contract is voidable if assent was induced by a misrepresentation of fact that is either fraudulent or material. You do not need both. Fraud is not necessary if the misrepresentation was material; conversely, materiality is not necessary if the misrepresentation was fraudulent. So a fraudulent lie wins even if it would not have moved a reasonable person, and an honest-but-material misstatement wins even though the speaker had no intent to deceive.
Now define each route. A misrepresentation of fact is fraudulent if the maker intends the assertion to influence the other party's decision to enter the contract and one of three things is true.
- 1The maker knows or believes the assertion is not true; or
- 2The maker expresses confidence in the truth of the assertion without actually having that stated level of confidence; or
- 3The maker states a basis for the assertion and does not actually have that basis.
Notice the second and third forms: a speaker can be fraudulent without literally knowing the statement is false, by overstating how sure they are or by claiming a foundation they do not have. But a misrepresentation is not fraudulent if the maker honestly believes it to be true, even if that belief turns out to be wrong. An innocent, sincere mistake is not fraud.
A misrepresentation is material if it would be likely to induce a reasonable person to manifest assent, or if the maker knows it would be likely to induce this particular recipient to do so. So materiality has its own two ways in: the objective reasonable-person path, and a subjective path keyed to what the maker knew about this specific recipient. The usual remedy for misrepresentation is voiding or rescinding the contract.
The Nevada FLE does not test when an expression of opinion may constitute misrepresentation, so every tested item rests on an assertion of fact, not opinion.
"Fraudulent or material, never both."
A misrepresentation of fact voids the contract on either route standing alone.
Fraud is not needed if it was material; materiality is not needed if it was fraudulent.
Two ways to be fraudulent beyond a flat lie: overstating your confidence, or claiming a basis you do not have.
Honest-but-wrong is not fraud.
Material has its own two paths: would move a reasonable person, or the maker knew it would move this recipient.
Throwaway facts that never decide it: "the speaker didn't intend to deceive" (irrelevant if material) and "a reasonable person wouldn't have cared" (irrelevant if fraudulent).
A seller of a used boat tells a buyer, to get the sale done, that the hull "has never had a single repair." The seller has no idea whether that is true; he has never inspected the hull and has no records, but he says it with full confidence to close the deal. In fact the hull was patched years earlier. The buyer, relying on the statement, buys the boat and later sues to rescind.
The contract is voidable and the buyer may rescind. Now suppose the seller had carefully inspected the hull, honestly and reasonably believed it had never been repaired, and was simply wrong. That is not fraudulent, because a maker who honestly believes the assertion is not fraudulent even if the belief is wrong. The buyer would then have to show the misrepresentation was material instead.
An option that requires BOTH fraud and materiality, or that limits fraud to a maker who actually knew the statement was false.
The two routes are disjunctive (either alone voids the contract), and fraud also covers overstating confidence or claiming a basis the maker does not have.A sympathetic answer resting on a true but irrelevant fact: the speaker did not intend to deceive, did not know it was false, or the buyer could have investigated.
Fraud is not necessary if the misrepresentation was material, and a fraudulent assertion that induced assent voids the contract regardless of the buyer's chance to investigate.An answer that demands the statement be likely to move a reasonable person, ignoring that the maker knew it would move this particular recipient.
Materiality is satisfied by the subjective path too: the maker's knowledge that it would induce this specific recipient.An absolute: any false statement in negotiation voids the contract, or rescission is unavailable for the sale of goods.
Only a fraudulent or material misrepresentation of fact makes a contract voidable, and rescission is the usual remedy for a qualifying misrepresentation.An answer that swaps in a neighboring doctrine, such as breach of an express warranty or an implied accident-free promise.
The operative ground is a misrepresentation of fact that induced assent (fraudulent or material), not a warranty or other doctrine.one party makes a factual statement to get the other to sign, the statement is off, and the stem stresses something about the speaker's state of mind (didn't mean to lie, wasn't sure, had no basis, honestly believed it) or about whether a reasonable person would have cared.
The instant you see an induced assent resting on a false assertion of fact, run the either/or: was it fraudulent (intended to influence + knew/believed false, or overstated confidence, or claimed a basis it lacked) or was it material (would move a reasonable person, or the maker knew it would move this recipient)?
Either one alone makes the contract voidable and rescindable.
Honest-but-wrong knocks out fraud but leaves materiality open.
And keep opinion out: the tested items rest on assertions of fact.
A homeowner negotiating to sell her house told the buyer that the roof had been completely replaced two years earlier. She made the statement to reassure the buyer and close the sale. She honestly and reasonably believed it was true, because a contractor had told her so, but in fact only part of the roof had been redone. The misstatement was the kind that would lead a reasonable buyer to go forward with the purchase, and it did. After closing, the buyer discovered the truth and sued to rescind.
Is the buyer likely to succeed in voiding the contract?
A dealer selling a vintage watch told a collector that the watch "definitely has its original movement, no question about it," speaking with complete confidence to push the sale along. In truth the dealer had never opened the case and had no information either way about the movement. The collector, persuaded by the assurance, bought the watch, and the movement turned out to be a later replacement. The collector sued to rescind, and the dealer argued he had never actually said anything he knew to be false.
Is the collector likely to prevail in voiding the contract?
A franchise seller, trying to sign a particular buyer, told that buyer that a competing store two blocks away was about to close. The seller knew this buyer cared enormously about that one competitor and would sign only if it were leaving, even though the average purchaser in the buyer's position would not have considered a single nearby competitor important. The statement was false and the seller, who honestly was not sure, presented it as settled fact to move this buyer. The buyer signed in reliance and later sued to void the deal.
Is the buyer likely to succeed in voiding the contract?
A car owner selling his sedan told the buyer, "based on the full service history in my files, this car has never been in an accident." The owner stated that he was relying on those files as his basis for the claim. In fact he had no service files at all and had simply invented the basis to make the sale, intending the buyer to rely on it. The buyer bought the car in reliance and discovered it had been in a serious collision. The buyer sued to rescind.
Is the buyer likely to prevail in voiding the contract?
A supplier negotiating a one-time bulk sale told the buyer that the goods were "sourced this season," honestly believing it because his own records said so. The records were mistaken and the goods were a year older. The age of the goods was not something that would lead a reasonable buyer in this market to go forward, and the supplier had no reason to think this particular buyer cared about it; the buyer in fact signed for unrelated reasons. After learning the goods were older, the buyer sued to rescind solely on the basis of the supplier's statement.
Is the buyer likely to succeed in voiding the contract?