False Preliminary Statements

Question 1

What is the purpose of this chapter?

Answer 1

To distinguish between different types of pre-contractual statements, explain misrepresentation law, and appreciate the relationship between contract and tort law.

Question 2

What are the three types of statements made during contractual negotiations?

Answer 2

• A mere puff
• An express term
• A representation

Question 3

What is a mere puff?

Answer 3

An extravagant claim or advertising gimmick with no right of action.

Question 4

What constitutes an express term in a contract?

Answer 4

A term that is part of the contract; if untrue, the innocent party has a remedy for breach of contract.

Question 5

What defines a representation in contract law?

Answer 5

A statement made by one party that may have induced the other party to enter into the contract but does not form part of it.

Question 6

What is the significance of exclusion clauses in commercial contracts?

Answer 6

They often focus on the validity of the exclusion rather than the classification of the false statement.

Question 7

What does Section 3 of the Misrepresentation Act 1967 state?

Answer 7

Clauses excluding liability for misrepresentation in non-consumer contracts must satisfy the reasonableness test of UCTA 1977.

Question 8

Why is it important to distinguish between terms and representations?

Answer 8

Because the remedies for breach of contract and misrepresentation differ.

Question 9

What is the primary test for determining whether a statement is a term or a representation?

Answer 9

The common intention of the parties when entering the contract.

Question 10

What factors do courts consider to determine the intention of parties regarding a statement?

Answer 10

• Relative skill and knowledge of parties
• Whether the statement was repeated in a written contract
• Importance of the statement to the recipient
• Invitation to verify the statement
• Time lapse between statement and contract formation

Question 11

In Oscar Chess Ltd v Williams, why was the defendant’s statement considered an innocent misrepresentation?

Answer 11

The claimant, a motor dealer, had equal or better knowledge of the car’s manufacture date.

Question 12

What can indicate that a statement is likely a term of the contract?

Answer 12

If the recipient made clear it was of vital importance.

Question 13

What does the case of Ecay v Godfrey illustrate about statements?

Answer 13

If a seller invites a buyer to verify a statement, it is likely just a representation.

Question 14

What is the effect of a time lapse on the classification of a statement?

Answer 14

The longer the lapse, the more likely the statement will be held as a representation.

Question 15

What is a misrepresentation?

Answer 15

A false statement of fact made by one party before the contract was made, inducing the other party to enter into the contract.

Question 16

What are the four exceptions to the rule that silence does not amount to a misrepresentation?

Answer 16

• Fiduciary relationship
• Contract of utmost good faith
• Half-truths
• Change of circumstances

Question 17

What case illustrates the concept of a half-truth in misrepresentation?

Answer 17

Curtis v Chemical Cleaning and Dyeing.

Question 18

What must be true for a statement to amount to a misrepresentation?

Answer 18

It must be a false statement of fact, not opinion or intention.

Question 19

What is illustrated by the case Smith v Land and House Property Corporation?

Answer 19

An opinion can imply a false statement of fact if the speaker knows the actual facts.

Question 20

What does the case Bisset v Wilkinson demonstrate?

Answer 20

Statements of opinion are not misrepresentations if the speaker has no reasonable grounds to believe them.

Question 21

What is the significance of the statement of opinion in Smith v Land and House Property Corp?

Answer 21

A statement of opinion may imply a statement of fact if the speaker possesses facts justifying that opinion.

Bowen LJ indicated that if one party knows facts that the other does not, their opinion could be interpreted as factual.

Question 22

What was the ruling in Bisset v Wilkinson regarding the statement about sheep?

Answer 22

The statement was considered opinion rather than fact because the seller had no experience with sheep farming on the land.

The court recognized that both parties understood the seller’s lack of relevant farming experience.

Question 23

In Edgington v Fitzmaurice, what was the misrepresentation made by the directors?

Answer 23

The directors falsely stated that the purpose of borrowing money was to expand the business, while in truth, it was to pay off debts.

This case highlights that a statement of intention can be misrepresented if the intention was never held.

Question 24

What are the requirements for a statement to be considered a misrepresentation?

Answer 24

1. Made by one party to the other
2. Induced the other party to enter the contract
3. Not necessarily the sole reason for entering the contract

The case of Edgington v Fitzmaurice supports the idea that the statement need not be the only inducement.

Question 25

What happens if a party verifies facts through their own experts?

Answer 25

There will not be a misrepresentation if the party does not rely on the other party’s statement. ## Footnote This principle was established in Attwood v Small.

Question 26

Can a claimant still claim misrepresentation if they had a chance to verify the facts?

Answer 26

Yes, if they were given the chance but did not take it, unless the true position was clear in the signed contract. ## Footnote This principle is illustrated by Redgrave v Hurd.

Question 27

What is the burden of proof in misrepresentation cases?

Answer 27

The party alleging misrepresentation bears the burden of proving that a misrepresentation occurred.

Question 28

What is rescission in the context of misrepresentation?

Answer 28

Rescission makes a contract voidable, meaning it is valid unless the innocent party rescinds it. ## Footnote The innocent party can choose to affirm the contract instead.

Question 29

What must an innocent party do to rescind a contract?

Answer 29

Notify the other party of their decision to rescind. ## Footnote In certain cases, they may need to apply to court for a formal order of rescission.

Question 30

What does rescission aim to achieve?

Answer 30

Restores both parties to their pre-contract positions, requiring them to return exchanged money or property. ## Footnote This is akin to hitting the rewind button on the contract.

Question 31

What are the four bars to rescission?

Answer 31

1. Bona fide purchaser acquired rights 2. Affirmation of the contract 3. Undue delay 4. Impossibility of restoration ## Footnote The first three are equitable bars; the last is a practical bar.

Question 32

What is the impact of undue delay on rescission?

Answer 32

Undue delay can bar rescission if too much time has passed since the misrepresentation was discovered or should have been discovered. ## Footnote Illustrated by the case of Leaf v International Galleries.

Question 33

What happens if substantial restoration of goods is impossible?

Answer 33

Rescission may be barred if a party cannot restore goods or property to the other. ## Footnote This principle was discussed in Erlanger v New Sombrero Phosphate Co.

Question 34

What is an indemnity in the context of rescission?

Answer 34

An indemnity can be claimed for expenses incurred as a result of entering into the contract, but it is restricted to cases of rescission.

Question 35

What are the four bars to rescission?

Answer 35

* Innocent purchaser acquired interest before rescission * Affirmation * Undue delay * Impossible to restore goods or property ## Footnote These bars prevent a party from rescinding a contract in certain circumstances.

Question 36

What can an innocent party claim as part of rescission?

Answer 36

Indemnity for expenses necessarily incurred as a result of entering into the contract ## Footnote Indemnity is restricted and only available during rescission.

Question 37

In Whittington v Seale-​Hayne, what expenses did the claimant seek indemnity for?

Answer 37

* Cost of the chickens * Loss of profit on the sale of the chickens * Rent paid to the defendants * Vet’s bill * Medical expenses * Repairs carried out under the lease * Rates paid in accordance with the lease ## Footnote Only rent, repairs, and rates were covered as they were obligations under the lease.

Question 38

What is the significance of damages in lieu of rescission under s 2(2) of the Misrepresentation Act 1967?

Answer 38

The court may declare the contract subsisting and award damages in lieu of rescission if equitable ## Footnote This applies when the misrepresentation is non-fraudulent.

Question 39

What is the burden of proof for fraudulent misrepresentation?

Answer 39

The party alleging fraud must prove that the false representation was made knowingly, without belief in its truth, or recklessly ## Footnote This is based on the definition provided by Lord Herschell in Derry v Peek.

Question 40

How are damages for fraudulent misrepresentation assessed?

Answer 40

On tort principles to put the innocent party in the position they would have been if the misrepresentation had not occurred ## Footnote The usual tortious remoteness rule does not apply.

Question 41

What was decided in East v Maurer regarding damages for loss of profit?

Answer 41

Damages were calculated to represent the difference between the profit actually made and the profit that would have been made had the misrepresentation not occurred ## Footnote This illustrates a different calculation method from ordinary breach of contract.

Question 42

What must a claimant show to claim damages under s 2(1) of the Misrepresentation Act 1967?

Answer 42

There was a misrepresentation that caused loss ## Footnote Damages are awarded in accordance with tort principles.

Question 43

What is the effect of the Royscot Trust Ltd v Rogerson decision on damages for non-fraudulent misrepresentation?

Answer 43

Damages under s 2(1) are awarded in the same way as for fraudulent misrepresentation, ignoring usual foreseeability rules ## Footnote This reduces the importance of proving fraud in claims.

Question 44

What is the requirement for damages under s 2(1) regarding the defendant's belief in the representation?

Answer 44

The defendant must prove they had reasonable grounds to believe the representation was true ## Footnote The burden of proof lies with the party making the misrepresentation.

Question 45

What is a negligent misstatement?

Answer 45

A statement that causes economic loss due to carelessness, which can be a statement of opinion or fact ## Footnote It is actionable under the tort of negligence as established in Hedley Byrne & Co v Heller.

Question 46

What must exist for a duty of care to be recognized in negligent misstatement?

Answer 46

A 'special relationship' where the statement was relied upon, the maker knew it was being relied on, and it was reasonable to rely on it ## Footnote This principle was established in Hedley Byrne.

Question 47

What is a negligent misstatement?

Answer 47

A false statement made by the other contracting party that can lead to a duty of care claim under certain conditions ## Footnote This occurs when a 'special relationship' exists between the parties, meaning the statement was relied on, the maker knew it was being relied on, and it was reasonable to rely on it.

Question 48

What must a claimant prove in a negligent misstatement claim?

Answer 48

The maker of the statement owed a duty of care, breached this duty causing loss, and the loss must be foreseeable ## Footnote The normal negligence remoteness rules apply.

Question 49

What advantage does suing for negligent misstatement have over misrepresentation?

Answer 49

The statement need not amount to a misrepresentation, and there need not be a contractual relationship between the parties ## Footnote Misrepresentation can provide a better legal remedy under s 2(1) of the Misrepresentation Act 1967.

Question 50

What is the definition of misrepresentation?

Answer 50

A false statement of fact made by one party to the other which induces the other party to enter into the contract ## Footnote The burden of establishing misrepresentation lies with the claimant.

Question 51

What are the remedies available for misrepresentation?

Answer 51

Rescission and damages ## Footnote Rescission aims to restore parties to their pre-contractual position; damages can be awarded regardless of rescission.

Question 52

What must be established for a statement to be considered a misrepresentation?

Answer 52

It must be a statement of fact, not opinion, and must induce the other party to enter into the contract ## Footnote Examples include Bisset v Wilkinson and Smith v Land and House Property Corporation.

Question 53

What is the significance of the timing of statements in determining if they are terms or representations?

Answer 53

The timing suggests that statements made not immediately before the sale are likely representations ## Footnote This is based on case law, such as Routledge v McKay.

Question 54

What is the role of special skill and knowledge in determining if a statement is a term or a representation?

Answer 54

If the maker has special skill and knowledge, the statement is likely a term; if the other party has the skill, it is more likely a representation ## Footnote Relevant cases include Dick Bentley v Harold Smith Motors and Oscar Chess v Williams.

Question 55

What happens if a false statement is made by a person not a party to a contract?

Answer 55

Consideration of negligent misstatement applies ## Footnote This can lead to claims for damages even without a contractual relationship.

Question 56

Fill in the blank: Misrepresentation makes the contract _______.

Answer 56

voidable

Question 57

What does s 2(1) of the Misrepresentation Act 1967 state about the burden of proof?

Answer 57

The burden of proof is reversed ## Footnote The maker must show reasonable grounds for believing the truth of their statements.

Question 58

What can happen if a party delays in seeking rescission after misrepresentation?

Answer 58

Delay may constitute a bar to rescission ## Footnote Example case: Leaf v International Galleries.

Question 59

What is the aim of damages awarded in misrepresentation cases?

Answer 59

To put the claimant in the position they would have been in if the misrepresentation had not been made ## Footnote This follows the usual aim in tort law.

Question 60

True or False: A statement of opinion can be considered a misrepresentation.

Answer 60

False ## Footnote Statements must be factual and induce the contract.

Question 61

What key aspect must be considered when analyzing potential misrepresentation?

Answer 61

Whether the claimant relied on the statement when entering the contract ## Footnote Relevant case: Attwood v Small.

Question 62

What is the suggested structure for tackling problem questions on false preliminary statements?

Answer 62

1. Is there a contract? 2. Is the statement a term and/or a representation? 3. If a term, consider breach and remedies. 4. If a representation, assess misrepresentation and remedies ## Footnote This structure helps organize legal analysis effectively.