Most transactions and agreements are sealed with a contract, even if it’s just a handshake. Contract law regulates the transfer of rights from one party to another, holding each party accountable to the agreed-upon terms.

Both parties must be on the same page and acting in good faith. If one party makes a false or misleading statement in order to induce another party into a contract, causing some kind of harm, the aggrieved party may sue for misrepresentation. Misrepresentation is simply a false statement of fact that induces a party to enter a contract. There are three different types:

Fraudulent Misrepresentation

Fraudulent misrepresentation is very serious and occurs when a party to a contract purposefully makes an untrue statement which induces the other party to enter that contract. It also occurs when the party either does not believe the truth of their statement or is reckless.

Depending on the nature of the case, remedies may include rescission of the contract and damages. This is the most common remedy, since fraudulent misrepresentation renders it voidable. The parties may choose not to rescind the contract, restoring the parties to their pre-contractual positions. In regards to damages, only actual losses resulting from the misrepresentation may be claimed.

Negligent Misrepresentation

A party trying to induce another to a contract has a duty to ensure that reasonable care is taken as regards the accuracy of any representations of fact that may lead to the latter party to enter the contract. If such reasonable care to ensure the truth of a statement is not taken, the party at fault may be the victim of negligent misrepresentation.

This can also occur in some cases when a party makes a careless statement or lacks sufficient reason for believing in that statement’s truth. Claimants can pursue both damages and a rescission of the contract.

Innocent Misrepresentation

In innocent misrepresentation, is where a party was induced  into a contract, but the person making the misrepresentation had reasonable grounds for believing the statement  was true at the time the representation was made.

A claimant who has been the victim of innocent misrepresentation can still pursue damages, but may not pursue rescission. To pursue damages it must be shown that the claimant suffered a loss because of the misrepresentation.

Claims based on allegations of misrepresentation  help ensure that contracts are ultimately honored and that unscrupulous or negligent behavior does not go unpunished. Make sure that your business has a Commercial Insurance program that will cover you in the case of claims such as these.

About Thayer Innes and Freeman Bunting Insurance Agencies

At Thayer-Innes Insurance Agency and Freeman Bunting Insurance Agency, we strive to provide comprehensive insurance solutions to support Ann Arbor homeowners. Our homeowners’ policies can be tailored to meet your specific risk exposures and provides much more coverage than a traditional policy, giving you the peace of mind you deserve. For more information about our products, contact us today at (855) 395-6316.