The Law Shop is now closed. Please click here to find out more.

Product misplacement? How to avoid misrepresentation when making a sale

Luke Whitmore - Law on the Web

  1. 18 June 2015
  2. Business
  3. 0 comments
Angry customer

If you run your own business, you should be aware that there are reasonably high standards for what you can and cannot say in order to coax a prospective customer into buying from you. If it later turns out that you have misled someone over the details of your product or service, whether intentionally or not, you will likely find yourself in hot water for misrepresentation.

What is misrepresentation?

‘Misrepresentation’, under the law, is when one party makes a false statement of fact which plays a part in persuading another party to enter into a contract with them. For the majority of businesses, this is most likely to apply when selling something, but it could also occur in a variety of other situations, including the setting out of employment terms, sales of business assets, or statements made prior to a merger – essentially anything which involves an eventual signing of contracts.

There are three different types of misrepresentation:

  • fraudulent misrepresentation, where the perpetrator makes statements they know to be false or is reckless as to whether they are true or false, with the intent of tricking the other party
  • negligent misrepresentation, where the perpetrator makes claims carelessly or does not have reasonable grounds to believe that what they say is true
  • innocent misrepresentation, where the perpetrator has good reasons to believe the truth behind a statement they made, but it turns out to be false

Although these different types of misrepresentation clearly differ in severity, any one of them can get you in trouble with the law, and even innocent misrepresentation can lead to a payout for damages. The more serious forms could lead to the contract being voidable and require you to restore the victim to the position they would have been in had you not committed the misrepresentation.

Avoiding misrepresentation

As should be clear by now, avoiding misrepresentation in the course of doing business is extremely important. Fraudulent misrepresentation is simple to avoid for any scrupulous business owner, but innocent and even negligent misrepresentation can be easy to fall foul of.

The best way to avoid the risk of misrepresentation is to know your business and its products inside and out. This may be simple for some enterprises, but as your business grows, the harder it is likely to become, and customers and clients often have the remarkable skill of completely blindsiding you with questions you hadn’t even considered before. Because of this, dealing with uncertainty can become something of an art form.

If a potential customer asks about something you’re not sure of, it may be tempting to simply wing it and throw out some vague promises to keep them on the hook, but remember this will leave you wide open if it turns out they took your statements to heart and decided to purchase because of a claim which later turned out to be false.

Of course, it can be difficult to simply admit that you don’t know something if a prospective buyer is relying on your knowledge when deciding whether to do business with you. However, it is far less risky to your company if you offer to find out the answer to their question rather than guessing at the facts to save face.

What misrepresentation isn’t

The idea of inadvertently misrepresenting your product could by this point be sending chills down your spine as you think of all the times you’ve talked up your product. However, it’s important to remember that there are limitations on what counts as misrepresentation.

  • Advertising slogans that a reasonable person would not believe to be literally true – saying something is the “best in the world”, for example – do not count as misrepresentation, but citing false “facts” in support of a product would do.
  • Simply stating an opinion will generally not constitute misrepresentation, but the exact definition of an opinion can be vague, and opinions may count as misrepresentation if they run counter to facts that you are in a better position to know about than the other party.
  • Except in special types of contract, simply omitting to mention a relevant fact does not count as misrepresentation – however, telling half-truths, making ambiguous statements, or failing to inform the other party if the facts have changed can all count as misrepresentation.
  • If an untrue statement did not influence the other party’s decision to enter into a contract with you, or they did not rely on your statement when making their decision, it doesn’t count as misrepresentation.

Share your experiences

Please note: The views expressed in community areas of this site do not necessarily reflect or represent the views of Law on the Web, its owners, its staff or contributors. All comments are moderated prior to publication.

comments powered by Disqus