LAW 505-002 – Contracts I
A misrepresentation is an assertion that is not in accord with the facts.
When Action Is Equivalent to an Assertion (Concealment)
Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.
When Non-Disclosure Is Equivalent to an Assertion
A person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:
- where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.
- where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
- where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
- where the other person is entitled to know the fact because of a relation of trust and confidence between them.
When a Misrepresentation Is Fraudulent or Material
- A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker
- knows or believes that the assertion is not in accord with the facts, or
- does not have the confidence that he states or implies in the truth of the assertion, or
- knows that he does not have the basis that he states or implies for the assertion.
- A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.
When a Misrepresentation Prevents Formation of a Contract
If a misrepresentation as to the character or essential terms of a proposed contract induces conduct that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity to know of the character or essential terms of the proposed contract, his conduct is not effective as a manifestation of assent.
When a Misrepresentation Makes a Contract Voidable
- If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.
- If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.
When a Misrepresentation as to a Writing Justifies Reformation
If a party's manifestation of assent is induced by the other party's fraudulent misrepresentation as to the contents or effect of a writing evidencing or embodying in whole or in part an agreement, the court at the request of the recipient may reform the writing to express the terms of the agreement as asserted,
- if the recipient was justified in relying on the misrepresentation, and
- except to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected.
When a Misrepresentation Is an Inducing Cause
Reliance on Assertions of Opinion
- An assertion is one of opinion if it expresses only a belief, without certainty, as to the existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters.
- If it is reasonable to do so, the recipient of an assertion of a person's opinion as to facts not disclosed and not otherwise known to the recipient may properly interpret it as an assertion
- that the facts known to that person are not incompatible with his opinion, or
- that he knows facts sufficient to justify him in forming it.
When Reliance on an Assertion of Opinion Is Not Justified
To the extent that an assertion is one of opinion only, the recipient is not justified in relying on it unless the recipient
- stands in such a relation of trust and confidence to the person whose opinion is asserted that the recipient is reasonable in relying on it, or
- reasonably believes that, as compared with himself, the person whose opinion is asserted has special skill, judgment or objectivity with respect to the subject matter, or
- is for some other special reason particularly susceptible to a misrepresentation of the type involved.
When Fault Makes Reliance Unjustified
A recipient's fault in not knowing or discovering the facts before making the contract does not make his reliance unjustified unless it amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.