MBE Fast Fact: Misrepresentation

In Contracts there are two types of misrepresentation to keep in mind, and the fine distinctions between them are exactly the type that the writers of the MBE are likely to test:

Fraudulent Misrepresentation: In this type of misrepresentation one party to the contract induces another to enter into the contract by asserting information that s/he knows is untrue. Here, if a contract is formed, the contract is voidable by the innocent party provided that the innocent party justifiably relied on the fraudulent misrepresentation. This is sometimes referred to as fraud in the inducement.

Nonfraudulent Misrepresentation: There can be a misrepresentation even if that misrepresentation is not fraudulent. In other words, a false statement is made by a party to the contract but that party does not know that the statement is false when the statement is made and there is not necessarily an intent to defraud. Here, again, the contract is voidable by the innocent party but only if the innocent party justifiably relied on the misrepresentation, and the misrepresentation was material. A misrepresentation is material if it would induce a reasonable person to enter into a contract, or if the person who made the misrepresentation knew that due to special circumstances the statement would be likely to induce the innocent party, even if it would not induce a reasonable person.