Material misrepresentation

From CEOpedia | Management online

Material misrepresentation is an act related to the intended concealment or fabrication of an important fact which, if known to the person concerned, could significantly affect the basis of the contract and the final decision of that person. To be significant in consequences (J. Davis 2012, p. 168):

  • misrepresentation must be material,
  • the deceit cannot be temporary and negligible,
  • the plaintiff must prove that the damage to his company is the consequence of fraud that is provided for and considered by the defendant.

For instance, basely claiming by one trader that rival trader's goods are overpriced can be damaging but at first sight it is not a misrepresentation that bears in passing-off action. Misrepresentation can be explicit or implied. Explicit misrepresentation is rare. Relevant misrepresentation is connected with misleading the public by convincing them that the defendant's goods or activities are in some way related to the plaintiff's activities, which may cause losses to his business (J. Davis 2012, p. 168).

Concluding a contract

To perceive misrepresentation as actionable, it must be significant enough. By this it means that it should have a proper impact on reasonable person taking the decision whether or not to sign a contract. In order to designate the level of the urge, courts uses the applicable and objective test. As result, even if the defendant does not perceive misrepresentation as material, it can be considered as such. This test consists in studying state of represent's mind in reference to fraudulent asseveration at the time of entering into contract. It is required to state that the person has been induced to conclude a contract (P. Richards 2007, p. 221).

Material misrepresentation and confusion

The main difference between material misrepresentation and confusion amounts to determining whether this commotion is intended and clearly detrimental to the plaintiff's business. Confusion does not necessarily mean a significant misleading. An example of this kind of dilemma occurred in case of HFC Bank and HSBC Bank.

Case

The claimant leaded a HFC bank, which tried to attract customers by offering a number of services as retail agreements, credit brokers, and credit card business. Simultaneously, there was a Midland Bank, belonging to HSBC Holdings. At some point, Midland Bank changed the brand to HSBC Bank.

Trial

According to the court, if using HSBC were to determine material misrepresentation, the claimant would have to reveal that it had led to perceiving by the current and potential customers this HSBC brand as HFC brand.

Verdict

The court considered that even if for some customers it is important to identify with the concrete Bank, there are no circumstances in which they would enter into definite transaction with this Bank without feeling of distraction caused by such confusion. To sum up, from the point of view of law, there was a preliminary misrepresentation but it was not material (J. Davis 2012, p. 169).

Examples of Material misrepresentation

  • An example of a material misrepresentation could be when a seller of a house fails to disclose information about the condition of the home, such as the presence of mold, which could significantly impact the buyer's decision to purchase the home.
  • Another example of material misrepresentation could be when a person applies for a loan and gives false information on their income, assets, or employment status.
  • A third example of material misrepresentation could be when a person applying for a job misrepresents their qualifications or experience.
  • A fourth example of material misrepresentation could be when a person selling a car misrepresents the car's mileage or condition.

Limitations of Material misrepresentation

Material misrepresentation has several limitations that must be considered when identifying and assessing its impact:

  • First, it can be difficult to assess the materiality of the fact in question. In some cases, a fact may seem important to one party, but not to another. Consequently, it can be difficult to determine whether a fact should be considered material.
  • Second, misstatements of fact may not necessarily be intentional. In some cases, a misstatement may be made due to an honest mistake, or simply due to lack of knowledge.
  • Third, even if a misstatement is intentional, it may not necessarily be material. In some cases, the misstatement may be so insignificant that it does not affect the basis of the contract or the decision of the party.
  • Fourth, in some cases, the party who has been misled may not be able to prove that the misrepresentation was intentional or that it was material. This can be difficult to prove, particularly if the misstatement was made orally.
  • Finally, in some cases, the party who was misled may not be able to prove that the misrepresentation was the cause of the damage. This can be difficult to prove, particularly if there are other factors that could have caused the damage.

Other approaches related to Material misrepresentation

Material misrepresentation is an act related to the intended concealment or fabrication of an important fact which, if known to the person concerned, could significantly affect the basis of the contract and the final decision of that person. Other approaches related to material misrepresentation include:

  • Fraud: Fraud is the intentional misrepresentation of facts with the intention to deceive or mislead another party.
  • Negligent Misrepresentation: Negligent misrepresentation occurs when a party makes a false statement that they do not believe to be true or they do not have reasonable grounds to believe to be true.
  • Innocent Misrepresentation: Innocent misrepresentation occurs when a party makes a false statement without having intent to deceive another party.
  • Mistake: Mistake occurs when a party makes a false statement due to a misunderstanding or lack of information.

In conclusion, material misrepresentation is an act related to the intended concealment or fabrication of an important fact which, if known to the person concerned, could significantly affect the basis of the contract and the final decision of that person. Other approaches related to material misrepresentation include fraud, negligent misrepresentation, innocent misrepresentation, and mistake.


Material misrepresentation — recommended articles
Constructive fraud — Vitiating factor — Warranty of title — Objective theory of contract — Mutual assent — Gharar — Slander of title — Prohibitory injunction — Mutual agreement

References

Author: Sonia Natkaniec

.

Retrieved from "https://ceopedia.org/index.php?title=Material_misrepresentation&oldid=94301"