How much care and attention must we pay during a contract negotiation?
What is at risk if we are naïve during the negotiations and therefore we are persuaded to spend a lot of money for something which is not worth it?
Can we claim for breach of contract?
Firstly, please note that when someone states something that it is not true (even if he is convinced it is) during a negotiation, he may be guilty of misrepresentation.
A misrepresentation is an untrue statement of fact made by Party A to party B which induces Party B to enter the contract causing Party B a loss.
Here’s an example. You bought a dress from Ebay last week. The seller told you it was silk, hand-made in Italy, and genuine Versace, so it was a really good deal at £1,000. You bought it, but when you opened the parcel, it was obvious that the gown was hand-made, blue, silk but not a real Versace.
In other words, the seller gave a false representation of only one of the facts, but this fact (the Versace brand) was very relevant for you, because you decided to buy the dress and to pay a considerable amount of money for this reason only.
The seller made a misrepresentation during the negotiation. So, you want your money back, and to be reimbursed for all costs you have incurred. From a legal point of view, you are the claimant, and the seller is the defendant.
The remedy for misrepresentation is recission (cancellation) of the contract and/or damages. However, it must be determined whether the misrepresentation was fraudulent, negligent, or innocent to decide how to proceed:
- For fraudulent and negligent misrepresentation, the claimant may claim rescission and damages.
- For innocent misrepresentation, the court has a discretion to award damages in lieu of rescission or rescission; the court cannot award for both damages and rescission.
Fraudulent misrepresentation
A false representation has been made knowingly or without belief in its truth, or recklessly as to its truth.
Negligent misrepresentation
Where a statement is made by one contracting party to another carelessly, or without reasonable grounds for believing in its truth.
Innocent misrepresentation
Where a statement is made entirely without fault, when the maker can show that it had reasonable grounds to believe its statement was true.
Because of the written agreement, the misrepresentation may also be a condition of the contract and, in this case, the claimant may elect to claim for breach of contract and damages, as an alternative to a claim for misrepresentation.
Please note, it can be difficult for the claimant to provide sufficient evidence to support a successful claim for fraudulent and negligent misrepresentation. In certain instances, it can be simpler to provide evidence of breach of contract.
Where a claim is successfully brought for breach of contract, damages are assessed on the basis of putting the claimant into the position they would have been in if the breach had not occurred. In these situations, claimants can ask for losses arising from the contract, for the expenses incurred by entering into the contract, and for loss of bargain (the inability to complete a sale or other business deal).
Ensure you are very careful during any negotations.
By the way, in our Versace case, you would have a right to demand your money back and probably have grounds for bringing a successful claim for breach of contract.
Summerfield Browne Solicitors have offices in London, Birmingham, Oxford, Cambridge, Market Harborough and Leicester. Christian Browne is also a legal advisor with the Institute of Directors in London.
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Summerfield Browne Solicitors directly.