What happens if I enter a contract containing false statements?

Fraudulent Misrepresentation

When dealing with false statements made during the formation of a contact we have to look towards the law of misrepresentation.

What is meant by misrepresentation?

When a false statement is made during the formation of a contract this could simply be a mere statement with no contractual effect or it can become a term or condition of the contract. Where a representation made in the contractual dealings is untrue it will be termed a misrepresentation.

Will the contract automatically become void if there has been a misrepresentation?

Misrepresentation when it is actionable will render the contract voidable meaning that it will remain valid until voided by the party when relying on the misrepresentation when entering into the contract. This means that if you rely on an actionable misrepresentation when you enter into a contract then that contract will become void.

How can a misrepresentation become actionable?

For a misrepresentation to be actionable there must have been a false statement of fact which has been made by one party to the other which induces that party to enter into the contract.

Therefore the following needs to be proven for actionable misrepresentation:

  • False statement of fact

  • Inducement to break the contract

False Statement of Fact

What is meant by a false statement of fact?

In order to find a false statement of fact it must relate to an existing fact or a past event. In most cases the statement of fact will usually be in words either spoken by one party or communicated by that party through another medium, often email or other written communications.

The following statements will not therefore fall within the definition of a statement of fact

  • Statement in relation to future conduct or intention

  • Statement of opinion

  • Statement of law

  • Silence

Statement in relation to future conduct or intention

In certain cases this can however result in a fraudulent misrepresentation where a statement in relation to future conduct or intention is made and it can be proven that the person never had the intention he claims to have had. This however, is the exception to the rule

Statement of opinion

The only scenario where a statement of opinion will be considered as a statement of fact is where the person giving the opinion knows the opinion they are giving to be false and if they have special knowledge, i.e. that they are in a better position to know the true facts surrounding the subject matter of the contract. For example an opinion given by someone in the motor trade stating that a specific part for a car may be the most desirable when it actual fact he knew that to not be the case.  Even though it is a statement of opinion it will be held to be a false statement of facts as that person is in a position to know the true facts.

What about negligent statements?

A statement made negligently with the intention that they be relied upon will always amount to a misrepresentation of fact.

Statement of Law

If someone makes a statement in relation to law this can never constitute a misrepresentation of fact.

Silence

Mere silence will not amount to a misrepresentation as there has been no statement made. Further to this there is no duty to disclose facts which may have an effect on the other party’s decision to enter into the contract.

What happens if my circumstances change?

Change of circumstances

When an individual has made a statement of fact which subsequently becomes false due to a change of circumstances or a lapse of time then there is a duty on that individual to correct the statement. If you do not correct this then it will result in a fraudulent misrepresentation.

What happens if I remain silent concerning a defect in a product?

Active concealment

If you enter into a contract concerning products or goods which may have a defect which you are aware of and you remain silent on the issue this will constitute a fraudulent misrepresentation.

Inducement to break the contract

In order to prove fraudulent misrepresentation it is not enough for there simply to have been a false statement. This statement must have induced the party to whom it was made to enter into the contract. Therefore the following conditions must be satisfied:

  • There must have been a material statement

  • This statement must have been made known to the claimant  

  • The maker of the statement intended it to be acted upon

  • The claimant must have actually acted upon the statement

Material Statement

The statement must be a fact which has caused the party to enter into the contract. It does not have to be the sole reason for that person to enter into the contract but it has to be one of the reasons. If for example a person was going to enter a contract regardless of the false statement of fact then this would not be regarded as a material statement.

Statement made known

The individual relying on the statement to enter into the contract must have been made aware of the false statement of fact.

Intended to be acted upon

The false statement of fact made by one party to the other must have been intended for the party to rely upon it and enter the contract on the back of that statement.

Acted upon

In the situation where the claimant simply relies upon the statement without checking its validity and enters into the contract then this will amount to inducement. It will still amount to inducement where they were provided with an opportunity to check the validity of the statement and chose not to before entering into the contract.

If the claimant is provided with an opportunity to check the validity of the statement and does in fact check but still enters into the contract there will be no inducement to break the contract as it will be said that they have therefore not relied upon the false statement made.