Legal Definitions - material representation

A material representation is a significant statement or claim made by one party to another that is crucial in convincing the second party to enter into a contract. This statement is considered "material" because a reasonable person would rely on it when deciding whether to agree to the terms of the agreement. If this important statement turns out to be false or misleading, the contract may be canceled or rescinded, often without penalty to the party who relied on the false information.

Here are some examples illustrating a material representation:

• Real Estate Purchase: A homeowner selling their property tells a potential buyer that the house's foundation was professionally reinforced just two years ago and comes with a transferable warranty, knowing that the buyer has expressed concerns about structural integrity. Based on this assurance, the buyer proceeds with the purchase.

  Explanation: The seller's statement about the foundation reinforcement and warranty is a material representation. The buyer specifically relied on this claim to overcome their concerns about the property's structure and decide to buy the house. If the buyer later discovers that the foundation work was never done or was performed by an unlicensed contractor without a warranty, this false material representation could allow the buyer to rescind the purchase agreement.

• Business Investment: A startup company pitches its product to a potential investor, claiming that their proprietary algorithm has been independently verified to increase data processing speed by 500% compared to industry standards, providing a significant competitive advantage. The investor, impressed by this technical superiority, decides to fund the company.

  Explanation: The claim about the algorithm's performance and independent verification is a material representation. The investor's decision to provide funding was directly influenced by the belief in the product's superior technical capabilities. If it's later revealed that the algorithm's performance was exaggerated or the verification was never conducted, this false material representation could lead the investor to withdraw their investment or cancel the agreement.

• Vehicle Purchase: A car dealership assures a customer that a used car they are interested in has never been in an accident and has a clean title, providing a vehicle history report that appears to confirm this. The customer, prioritizing safety and resale value, buys the car based on this information.

  Explanation: The dealership's statement that the car has never been in an accident and has a clean title is a material representation. The customer's decision to purchase the vehicle was heavily influenced by these assurances regarding its history and condition. If the customer later discovers that the car was previously involved in a major collision and has a salvage title, this false material representation could allow them to return the car and cancel the purchase contract.