Misrepresentation Flashcards
representation
Statements made before, or at the time of, the contract
Representations may in certain circumstances, become TERMS of the contract and lead to a claim for breach of contract.
This topic is only concerned with REPRESENTATIONS that do not become TERMS and so don’t form part of the contract.
misrepresentation
false statement of fact or law made by one party to another which, while not being a term of the contract, induces the other party to enter the contract
consequences of misrepresentation
As they are not terms there is no breach of contract.
This situation is clearly unfair on the victim so the result of a misrepresentation is that the contract is VOIDABLE.
So, the victim has the choice of:
(1) continuing with the contract
(2) RESCISSION
- discretionary remedy of the court
- it treats the contract as though it never existed
- they would be put in the position they were in before the contract was made
(3) Rescission &/or damages
elements for misrepresentation
1) A FALSE/UNTRUE statement
2) Of material fact
3) Made by a party to the contract
4) Statement made at time/before of contract and intended to be acted upon
5) That induces the other party to enter into the contract
1) A FALSE/UNTRUE statement
A statement is usually written or verbal but it can be anything that influences the other party’s decision such as actions or conduct
(Spice Girls v Aprilia World Service)
Normally a party is not under a duty to volunteer information and cannot be held liable if some unwelcome facts later emerge.
The onus is on the other side to ask questions.
1) A FALSE/UNTRUE statement
- Silence and misrepresentation
There must be a statement to be a misrepresentation so, silence cannot be a misrepresentation.
There is no obligation on a person wishing to enter a contract to make any statement about what is being offered but anything said in that respect must be true.
The onus is on the other side to ask questions (Fletcher v Krell)
1) A FALSE/UNTRUE statement
- Silence and misrepresentation: EXCEPTIONS
a) statement made is a half-truth
- the maker of the statement has a duty to reveal the whole truth of the situation (Dimmock v Hallett)
b) If a statement by the representor is true when made but becomes untrue or inaccurate before the contract is made then the representor must clarify the change. - If the representor remains silent this can be a misrepresentation as the original statement is misleading the victim
- (With v O’Flanagan)
c) if relationship is based on trust then silence by the representor may prove to be a misrepresentation
- e.g. between lawyer and client, parent and child.
- (Tate v Williamson)
d) If the contract is one of ‘utmost good faith’ all material facts must be disclosed in this situation whether asked or not.
- eg application for insurance when non-disclosure would result in the insurance company charging a lower premium that would otherwise be the case.
- (Lambert v Cooperative Insurance Society)
(2) OF MATERIAL FACT
The statement must be one of material fact.
This means that it must have led a person to make the contract & did in fact influence the mind of the person making the contract.
It must be a statement of fact NOT a statement of opinion or merely an advertising puff.
Bisset v Wilkinson
A statement of intention to act in a particular way in the future may be a statement of fact if the representor did not have that intention when making the statement (Edington v Fitzmaurice)
3) made by a party to the contract to the other
The statement must be made by one party to another.
There is no misrepresentation when the untrue statement is made by a third party, i.e. someone not a party to the contract.
eg. newspaper review of an item
4) made before or at the time of the contract
the statement complained of must have been made before or at the time of the contract (Roscorla v Thomas)
5) the statement induces the other party to enter the contract
It is not enough for the victim to prove the statement is untrue.
The statement must be important to the making of the contract and the person making the contract must have relied on the statement rather than his own judgement or information gained elsewhere:
Attwood v Small
not a defence for the maker of the statement to claim:
(1) the victim could have discovered the truth by taking reasonable steps (2) the victim was unreasonable in relying on the untrue statement.
The fact that the untrue statement is relied on is enough to make it a MISREPRESENTATION (Redgrave v Hurd)
types of misrepresentation
1) fraudulent misrepresentation
2) innocent misrepresentation
3) negligent misrepresentation
fraudulent misrepresentation
when the representor had intentionally lied about the fact or been reckless as to its truth
- made a statement that the they KNOW to be untrue
- which is made WITHOUT BELIEF in its truth OR
- or is RECKLESS as to whether it is true or not
Derry v Peek
REMEDIES: rescission and/or damages
innocent misrepresentation
MISREPRESENTATION ACT 1967 clarifies the definition of INNOCENT
MISREPRESENTATION as one when the representor genuinely believes the statement to be true and is not at fault.
Remedies: RECISSION or DAMAGES.
- There is no right to damages however the court has discretion to award damages instead of rescission under s2(2) of the MISREPRESENTATION ACT 1967 if it is equitable to do so.
- They will take into account:
• the loss to the innocent party
• the hardship caused to the representor if the contract is rescinded
negligent misrepresentation
when the representor had been careless about the truth of a statement
types of negligent misstatement:
1) common law TORT OF NEGLIGENCE
2) Misrepresentation Act 1967
1) common law TORT OF NEGLIGENCE
Hedley Byrne v Heller
Various conditions were set out by the House of Lords before such a claim would be successful.
The two main conditions and the ones that cause the most difficulty are that there must be a ‘special relationship’ and ‘proximity’ between the victim and the representor.
2) MISREPRESENTATION ACT 1967
s2(1) created a statutory liability for NEGLIGENT MISREPRESENTATION
All that is needed is for there to be a misrepresentation which results in a contract and the victim suffers loss.
There is no need for any ‘special relationship’ or ‘proximity’
Once the C has proved there was a misrepresentation the onus is then on the D to prove that there were reasonable grounds for him to believe the statement was true.
- This reverses the burden of proof in civil cases when it for the C to prove the case.
Howard Marine v Ogden & Sons
REMEDIES: RESCISSION &/OR DAMAGES
- Contributory negligence applies here so the damages may be reduced
misrepresentation: rescission
Misrepresentation renders a contract voidable.
This means that the contract remains valid unless the innocent party chooses to rescind it on discovering the misrepresentation.
(Alternatively, the innocent party can choose to affirm the contract.)
Rescission means that the contract is “unscrambled” so that both parties are returned to their pre-contract positions.
Each recovers anything that he has made over to the other.
misrepresentation: rescission
- when is it granted?
as rescission is an equitable remedy, the court will only grant it is it is fair in all circumstances to both sides.
rescission is discretionary and the claimant has no automatic right to demand it.
Circumstances when the court will not grant rescission are known as bars to rescission:
(1) Affirmation: the innocent party’s right to rescind is lost if, once he is aware of the full facts, he indicates that he accepts the contract (Long v Lloyd)
(2) Delay/lapse of time (Leaf v International Galleries)
(3) Impossibility of returning parties to their original positions: e.g. perishable or consumed goods.
- This bar does not apply in cases of fraudulent misrepresentation.
misrepresentation: damages
Damages are calculated using the “out of pocket” rule.
the innocent party is returned to the position he would have been in if the misrepresentation and the contract had never been made.
Remoteness of damage is interpreted very widely: all actual damage or loss flowing directly from the misrepresentation is claimable:
The court will award damages even if they are not foreseeable to the defendant, provided causation can be proved.
(Smith New Court v Scrumgeour Vickers)
This is more generous than the equivalent rule in ordinary breach of contract (only losses in the reasonable contemplation of the parties are recoverable) and in Tort - negligence (only losses which are reasonably foreseeable are recoverable). we
