What is the definition of misrepresentation in contract terms?

Misrepresentation in contract terms refers to a false statement of fact made by one party to another before the contract is finalized. This false statement can influence the decision of the other party, leading them to enter the contract based on incorrect information. Misrepresentation is significant because it can establish grounds for the rescission of the contract or even allow the misled party to claim damages.

Understanding this definition is crucial since it highlights that misrepresentation is not simply a misleading statement but a verifiable falsehood that affects the contractual relationship. In scenarios involving misrepresentation, the injured party may have legal recourse, as the integrity of the contractual agreement relies on the truthfulness of the statements made during the negotiation process. This underscores the importance of accuracy and honesty in contract formation to avoid potential legal issues down the line.