The three types of misrepresentation influence the way in which the law will be interpreted in a court of law. Fraudulent misrepresentation occurs when a party is aware that he is giving out false information to another party but still goes ahead to do so. Innocent representation takes place when a party believes that the information or representation is true when it is actually not true. Negligent misrepresentation occurs when one party does not take all factors into consideration when making a representation. This results to a careless representation, which induces the other party into a contract agreement.
Misrepresentation laws provide for a contract agreement to be void due to the false statements made by one party. A void or voidable contract is one that cannot be legally enforced. To determine whether a contract agreement is void the courts have to determine the intent of the misrepresentation. If this false statement influenced the victim to enter into the contract, then the contract cannot be enforced.
Rescinding is usually the remedy of a misrepresentation. This means the contract is cancelled and the parties are restored back to the status they were at before the contract was entered into. This is especially favorable for the victim, as he leaves the contract without incurring liability for not meeting the terms of the contract. A court issues an order of rescission to restore the parties to their previous status before the contract.
The law provides that the party who misrepresents be held liable for damages caused by this act. The victim can claim damages on fraudulent and negligent misrepresentation. The damages compensation is usually paid as the amount of money a victim lost due to the misrepresentation. For example, a dealer who sold a water pump for $500 and claimed the pump was in good condition, even though it was not, will pay damages of the same amount or more to the buyer.