Misrepresentation Flashcards
What is misrepresentation?
a false statement of fact that induces one party to enter into the contract
- somebody tells you something that is not true
At what stage of the contract does misrepresentation occur?
the formation of a contract, usually during the offer/negotiation stage
False statement?
the statement is usually written or verbal but it could be anything that influences the persons decision i.e. conduct
Spice Girls Ltd v Aprilia
the statement must be false, the extent of the knowledge will define what type of misrepresentation it will be, it cannot be silence - Fletcher v Krell
What are the key elements of misrepresentation?
- a false statement
- of material fact
- made by a party to the contract
- that induces the other party to enter the contract
False statement: Spice Girls v Aprilia
Spice Girls signed a sponsorship with Aprilia. While the agreement was being negotiated, Geri had given notice to leave the group and A were unaware of this. When they filmed promotional videos, all girls were present and when Geri left, it made the videos worthless. Their conduct suggested that none of them intended to leave which was a misrepresentation
Silence: Fletcher v Krell
A woman applied for a job of governess, she did not disclose that was divorced and was not asked if she was. In Victorian times, she wouldn’t have gotten the job if she was divorced, not a misrepresentation as she was under no duty to disclose this and was not asked about it.
Silence exceptions:
Silence cannot be an exception UNLESS:
1. Change of circumstances
2. The making of a half-truth
3. Confidential relationships
Change of circumstances
The statement may be true when it is made, but it can become a misrepresentation if it becomes false before the contract is made
With v O’Flanagan :
The claimant purchased a medical practice from the defendant. The claimant was induced to buy the practice by the defendant’s statement that the practice took £2,000 per annum. This statement was true at the time it was made. However, subsequently the defendant became ill and many patients went elsewhere. By time the sale was completed the practice was virtually worthless.
Held:
Where a statement is rendered false by a change in circumstances there is a duty to disclose the change. A failure to do so will result in an actionable misrepresentation.
Half truth:
If a statement is made in half-truth and the rest is kept silent, (for a reason) this can be a misrepresentation
What is kept silent is a non-disclosure and there is a duty to reveal the whole truth of the situation
Dimmock v Hallet:
A seller of the land told the purchaser truthfully that there were tenants on the land, however he did not complete the statement by telling the purchaser that the tenants were leaving, misrepresentation
Confidential relationships:
If the relationship is based on trust, then silence may be a representation
E.g. doctor and patient
Tate v Williamson
Main arguments in this case: The case shows how a contract can be set aside (void) if it was entered into by virtue of coercion under presumed undue influence (Class 2a).
The fact of the case: The defendant became the financial advisor to the claimant who was an Oxford University undergraduate and followed an extravagant life style and was heavily in debt. The defendant advised the claimant to sell his estate to him for the amount of £7000. The claimant agreed and the estate was bought by the defendant. In fact the estate was a lot more in value than the price it was sold for. The defendant had not disclosed the real value of the estate to the claimant. same as if it was entered under the ‘utmost faith’, all details must be disclosed if they asked for them or not
The agreement to sell the estate was set aside by the court as it was agreed by coercion. The relationship between the claimant and the defendant was of fiduciary nature which meant that the claimant had trust and confidence in the advice of the defendant which the defendant misused.
Material fact?
This means that it would have led the person to make the contract and did in fact influence the mind of the person making the decision.
Person relied on it, statement of fact, future intention
Must be a statement of fact, not opinion
Could be a statement of future intention, if they do not intend to act out their intention then that will be misrepresentation
Statement of opinion: material fact
if the maker of the statement genuinely believes the opinion that they are stating then it will not be misrepresentation
Bisset v Wilkinson:
The seller of farmland that had never had sheep on it was asked by the buyer asked how many sheep it could have on it, although not a sheep farmer he stated that he thought it would be around 2000. This was false, however he genuinely believed that this was true. Did the buyer want to hear it ect?
If the opinion was not honestly held, it will be regarded as a material fact and not an opinion
Statement of intention: material fact
Generally, a promise to do something in the future is not one of material fact, since a fact must relate to one in existence
It will be held as a material fact if the maker has no intention of carrying out his intention
Made by a party to the contract
A person is not liable for a statement made by others, unless that person is his agent. A third party i.e. newspaper review cannot be misrepresentation
Like privity
Induces the other party to enter the contract
It must lead the other person into entering the contract and be a critical part of the decision making, does it make them enter into the contract?
The person must have relied on the statement made rather than their own judgement, info that they obtained elsewhere
Attwood v Small
Attwood v Small (1838)
The seller of a mine made a false statement to the purchaser about the earnings from the mine. The buyer instructed a surveyor to confirm this and he did (incorrectly). The purchaser bought the mine and then discovered the statement to be untrue, there was no misrepresentation as the purchaser relied on the surveyors report and not the false statement. - didn’t just rely on the statement
It doesn’t matter if the victim could have discovered the truth by taking reasonable steps. -does not have to be reasonable man
Redgrave v Hurd: 4.
Purchaser of a solicitors practice was given a set of accounts to look at.The seller verbally misled the purchaser as to the true earnings. He relied on the statement and didn’t look at the accounts. If he had, he would have seen that the statement was false, it was a misrepresentation as he relied on it
three types of misrepresentation:
- innocent misrepresentation - least severe
- negligent misrepresentation
- fraudulent misrepresentation - most severe
Innocent misrepresentation:
defined by the misrepresentation act 1967 - common law and statute law
A false statement that is made honestly
the person always believed that statement to be true and there’s no negligence in that belief. The remedy will be damages or rescission not both
It is up to the courts, matter of fact
Negligent misrepresentation:
This was developed in the case of Hedley Byrne v Heller
It is a statement that was made by a person who believed the statement to be true but had no reasonable grounds to believe this
Types of negligent misrepresentation:
1) Under common law tort of negligence
2) Under the misrepresentation act - more rights, have to be in a contract, use this one!
- Developed in the case of Hedley Byrne which suggested a claim for a misrepresentation based on negligence would be allowed
Negligence on the misrepresentation Act 1967
S2(1) created a statutory liability for negligent misrepresentation which doesn’t require there to be a special relationship between the parties
This statute only requires for there to be a misrepresentation which results in a contract and the victim suffers loss
It is appropriate where the claimant is unable to prove fraud
Burden of proof:
The victim must prove that there is a misrepresentation, then the burden is on the person making the statement to prove that there were reasonable grounds to believe the statement was true. Use statutory form over Hedley Byrne
Influences on negligent misrepresentation
There are other factors that may influence the findings of negligent misrepresentation.
Howard Marine v Ogden and Sons
The claimant, Ogden, hired two dredging barges from the defendant, Howard Marine (HM), for £1,800 per week to carry out certain excavation works for Northumbrian Water Authority. In order to make an accurate estimate for tender of the work to be completed, Ogden asked HM the capacity of the barge. HM checked Lloyds Register and stated 850 cubic metres. In fact the entry in Lloyds register was wrong. The capacity was in fact much lower. Consequently the work carried out by Ogden took much longer and cost a great deal more to perform. The claimant brought an action for negligent misrepresentation. HM argued that they had reasonable grounds for believing the statement to be true as they had checked Lloyds register.
Held:
The defendant had not discharged the burden of proof by demonstrating they had reasonable grounds for believing it to be true as they had the registration document which contained the correct capacity and there was no reason why they would have chosen Lloyds register over the registration document.
stated capacity - negligent
Fraudulent misrepresentation:
This is to do with deceit, Derry v Peak define it as where there is a statement made without belief in the truth. This includes where the person knows it to be untrue or is reckless as to whether it is true or not.
Derry v Peak
In the prospectus released by the defendant company, it was stated that the company was permitted to use trams that were powered by steam, rather than by horses. In reality, the company did not possess such a right as this had to be approved by a Board of Trade. Gaining the approval for such a claim from the Board was considered a formality in such circumstances and the claim was put forward in the prospectus with this information in mind. However, the claim of the company for this right was later refused by the Board. The individuals who had purchased a stake in the business, upon reliance on the statement, brought a claim for deceit against the defendant’s business after it became liquidated.
Issue in Derry v Peek
It is important to note that the law regarding false misrepresentation was still developing and this was an important case in doing so. In this case, the court was required to assess the statement made by the defendant company in its prospectus to see whether the statement was fraudulent or simply incorrect.
Decision/Outcome of Derry v Peek
The claim of the shareholders was rejected by the House of Lords. The court held that it was not proven by the shareholders that the director of the company was dishonest in his belief. The court defined fraudulent misrepresentation as a statement known to be false or a statement made recklessly or carelessly as to the truth of the statement. On this basis, the plaintiff could not claim against the defendant company for deceit.
