What Is a Misrepresentation?

A misrepresentation is a false statement from one party influencing the decision of another party. Misrepresentation can result in void contracts and legal action being taken against those guilty of misrepresentation.

How It Works

Misrepresentation applies only to factual statements

For example, if someone selling a car misrepresents the mileage of said vehicle it is misrepresentation.

In many cases a misrepresentation can be considered as a default by a lender, and misrepresentations can be grounds for termination of a mergers and acquisitions arrangement and attract many additional financial fees as a consequence.

Special Considerations

Misrepresentation can also happen  where a fiduciary fails to disclose material facts of which they have knowledge as well as correcting previous statements that turned out to be inaccurate.

Types of Misrepresentations

• Innocent misrepresentation is a factual false statement but not made with any attention to deceive. A simple error.
• The second type is negligent misrepresentation. This is where the person making the statement did not verify its accuracy and did not take reasonable care in making sure what they were saying was accurate
• The third type is a fraudulent misrepresentation. This is where a person makes a deliberate false statement with the purpose of representing an aspect of a contract or arrangement.

Source: https://www.investopedia.com/terms/m/misrepresentation.asp

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