A business no matter the size, will enter into many contracts throughout its duration, it is essential to have contracts reviewed by an experienced business lawyer. The appointed business lawyer can guide the business as to any potential loopholes, or problems that may arise at a later date should the contract be enforced. One of the most common causes for a contract dispute to arise for any business is as a result of misrepresentation. A misrepresentation can be deliberate, or may be accidental. As often as misrepresentation is claimed, it is equally as often that the doctrine of mistake is overlooked by claimants; when first bringing their litigation dispute to the attention of their commercial lawyer. There are primarily three distinct branches of misrepresentation, these are:
1) Fraudulent misrepresentation- where a false representation has been given, either knowingly or recklessly.
2) Negligent misrepresentation- where a commercial relationship exists, your business lawyer will examine the disputed contract to determine if the offending party has upheld their duty to take reasonable care that any/all representations made are accurate. If your commercial lawyer finds that no ‘special relationship’ exists, then the Misrepresentation Act 1967 s2(1) governs that:
“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made the facts represented were true.”
3) Innocent misrepresentation- a misrepresentation that is neither negligent nor fraudulent.
All three forms of misrepresentation derive from the basic definition of an untrue statement of fact or law made by party A to party B, this untrue statement must be said to have induced party B into entering the contract.
Mistake derives from common law, as such there is no simple definition that governs the grounds for claiming mistake. Similarly, to misrepresentation, a mistake in law can also be further divided into three sub-categories:
1) Common mistake- The mistake is made by both parties, and makes the contract fundamentally different, from what was intended at the time of formation.
2) Unilateral mistake- Where one party is mistaken, and the other knows or ought to have known of the mistake. The mistake must relate to the fundamental nature of the contract as to make it void.
3) Mutual mistake- The parties are at cross purposes with each other. Your commercial lawyer in this scenario will look to the words and conducts of both parties at the time the contract was formed. If the business lawyer in question, can only interpret the words and conducts to have one possible meaning then the contract will be valid. Otherwise, the contract will be void.
If your business currently faces a contract dispute, then you should be aware of the difference between a misrepresented contract, and a mistaken term of the contract. A mistake can render the
contract void. Whereas, the remedies for misrepresentation are rescission and/or damages.
Summerfield Browne Solicitors have offices in London, Birmingham, Oxford, Cambridge, Leicester and Northampton.
