What are the three types of misrepresentation and the typical remedy?

• A. Fraudulent misrepresentation only.
• B. Negligent misrepresentation only.
• C. Fraudulent, negligent, and innocent misrepresentation; remedy: rescission and/or damages (depending on type and timing).
• D. Innocent misrepresentation never leads to damages.

Answer: (C)

The idea being tested is that misrepresentation in contracts comes in three forms, and the remedies switch depending on which form it is and when you seek relief. A fraudulent misrepresentation is a false statement made knowingly, or with reckless disregard for whether it’s true, that induces the contract. Because there’s deceit involved, you can unwind the contract (rescission) and you can also claim damages for the losses caused by the deceit.

In negligent misrepresentation, the statement is false but made carelessly or without reasonable grounds for belief in its truth. The usual options are rescission and damages as permitted by law, with damages often available under statutory provisions that let the claimant recover losses in lieu of or alongside rescission.

Innocent misrepresentation, the false statement is believed to be true but there’s no fault in the representor. The primary remedy is rescission of the contract. Damages are generally not available in ordinary innocent misrepresentation, though there can be limited exceptions under specific statutes or circumstances.

Timing matters because if the contract has been affirmed, performed, or too much time has passed, rescission may no longer be available, and the available damages may depend on the type of misrepresentation. So, the takeaway is that there are three types of misrepresentation, and the remedy is typically rescission, with damages possible in some cases depending on the type and timing.