5 Tragic Truths of Misrepresentation
Misrepresentation is a common worry among our customers. What if I misrepresented something in my business? What if one of my business partners misrepresented something of my company that goes against my values? Sound familiar?
We often get questions from clients to our Good Lawyers about what misrepresentation means in terms of the law, and the last thing you want to do is misrepresent your business and attract the wrong attention. In this post, we’ll cover what misrepresentation is and the 5 most important things to know about misrepresentation. Misrepresentation happens in contracts and in the law itself.
Meaning of Misrepresentation
Misrepresentation is where one party deliberately or accidentally makes false statements to convince the other party to come to a decision on an agreement. These representations can speed up a decision for the second party or deter them. Once these misrepresentations are discovered, they can lead to adverse consequences such as voiding a contract, having the second party sue for damages, damaging reputations and credibility.
1. Innocent (Accidental) Misrepresentation
Misrepresentation can happen accidently when starting a business. It could be a lack of legal knowledge, or from finding templates of certain established businesses, since finding a lawyer can be intimidating and notarizing documents for your own company can seem like an endless hassle.
Some examples of accidental misrepresentation can be:
- Copying something (perhaps a contract) unknowingly from a source--whether it was labeled for reuse or not
- A claim made by someone who had reasonable grounds for believing that is false statement was true
Contract Mistakes: Queen v. Cognos Inc.
Cognos Incorporated is an Ottawa based software company who advertised looking for an accountant to assist with the product development of their new software. Cognos Inc mentioned that the successful candidate will be an asset to the company and will be ensured job security.
Cognos was operating under the understanding that they were able to hire this individual with the funding they will be acquiring from external stakeholders. While they were interviewing the prospective employee, Cognos Inc was happy to preach the perks to entice the candidate and the individual signed onto the contract. However, Cognos Inc’s funding was not approved by the external stakeholder and they had to terminate the employee quickly. The employee then sued Cognos Inc for misrepresentation in the terms that he signed.
Essentially, Cognos Inc was operating on the assumption that they would get the funding from the external stakeholder before they hired the candidate, but it turns out they were not able to due to the stakeholder backing out after the hiring process.
To prevent your business from having accidental misrepresentation in your own contracts, make sure you have all your assets ready before creating a contract. A lawyer can sit down with you, lay down what is important to you, and make sure both parties are in agreement in a clear, understandable and transparent matter.
2. Negligent Contract Misrepresentation
Negligent contract misrepresentation can happen when starting business where customers do not take the proper care in crafting a contract. With the intimidation of hiring a lawyer, not knowing where to start can lead to confusing clauses and ignoring parts of the law. The contract can then become invalid when you are taken to court and may cost you your business if the terms are not written in your favor. A business lawyer can help solve these ambiguities to make sure you and your assets are legally protected by law.
3. Innocent (Accidental) Misrepresentation in Law
Like a contract, accidental misrepresentation can happen where a statement made by someone who had reasonable grounds for believing that their false statement was true.
Accidental Misrepresentation in Action: Syngenta Biotech Co.
Syngenta is a biotechnical company who has created a new strain of corn by creating genetically modified seeds. These seeds were resistant to pesticides, hence making them a viable product which can be sold anywhere in the world. However, they were prevented selling to China, since these strains of corn were not approved in the country.
Syngenta was on the reasonable grounds that they could sell their product everywhere since farmers would benefit from having pests destroy their crops but could not sell it to China, making their product accidentally misrepresented in their claim that they can sell their product everywhere.
4. Negligent Misrepresentation in Law
Negligent misrepresentation can happen where a statement made by someone makes a statement but does not give their due diligence when making their statement. They ignore taking an extra step to ensure their statement is true.
Hypothetical Example: Bob Miller
Bob Miller wants to sell his old bike. It’s beaten up and is collecting dust in the garage. Trevor walks up and asks,
“Hey Bob, how much for your bike?”
“$50”
“Do the brakes work?”
“Yea”
In this example, Bob didn’t try out the brakes to make sure they were working for his friend. Bob was being careless, and the brakes didn’t actually work.
5. Fraudulent Misrepresentation in Law
Fraudulent misrepresentation can be dangerous. It is where a party deliberately misleads another for their own personal gain, and it can be monetary or not.
Fraudulent Misrepresentation in Action: Apple Gift Cards
Scammers find ways to talk to vulnerable people by making’ legitimate’ phone calls. Some were from the Canadian Revenue Agency to lost relatives. They prey on the vulnerable by playing with the victim’s emotions either with fear or with love.
These scenarios include fear-ridden quotes such as the CRA demanding money and if you don’t do as they are told, they will place you under arrest and the only way is to pay them through gift cards. Another is having a loved in jail, giving them money through many redemption codes to release them from prison.
The fraudulent misrepresentation here is that the scammers are gaining money through these vulnerable individuals and the vulnerable person is losing thousands of dollars. The hardest part of this scam was that gift cards are untraceable, making it hard for the victims to retrieve their money from the scammers and the police have no way in tracking these criminals.
Misrepresentation can damage your business, give you a hard time when you attract negative attention and sometimes you might have to do some damage control. As a business owner, you’re already busy running your business to make sure everything is running smoothly and to know that misrepresentation is another thing to worry about can be overwhelming, but there are resources out there and you’re not alone.
Has Your Business Encountered Misrepresentation?
Goodlawyer offers a Contract Review or an Advice Session if you think misrepresentation has occurred in your business. We also have the option for you to speak with a Business lawyer on our website.
