Misrepresentation, Mistake and Illegality Flashcards
(61 cards)
What is misrepresentation?
A false statement made before the contract was entered into that induced one party to contract
What are the four elements to establish misrepresentation?
(i) a false statement;
(ii) of existing or past fact;
(iii) made by one of the contracting parties to the other;
(iv) which induces the other party to enter into a contract.
What does the first element in establishing misrepresentation (i.e. a false statement) mean?
The statement must be false (including half truths)
If advertising land as being ‘fertile and improvable’ or ‘desirable residence’, would this amount to misrepresentation if later turned out false?
No, because while the statement may be false, it is mere advertising ‘puff’ and the law allows some latitude in these instances
A contract arose out of the sale of a medical practice and the initial statement made that the practice was making profit was true. However, the doctor who wanted to sell the practice fell ill and by the time of the sale, the practice profits decreased. Could this be misrepresentation?
Yes, because the facts materially changed at the time the contract of sale was executed - further the doctor was aware of such facts and so was under the duty to disclose
Spice Girls entered into a contract with AWS on a promotional agreement for the latter’s motorcycle. At the time of the agreement, none of the Spice girls declared any intention to leave. However, one left the group at a later date and did not notify AWS. Could this be misrepresentation?
Yes, because there was a duty to disclose this information given the facts materially changed at the time the contact was executed
What is a half-truth?
When one party omits some vital information to induce the other party into entering into the contract.
Vendor of land stated to the buyer that all farms on the land were fully let. Vendor actually falsely implied that he knew of no other facts, misleading the purchaser. However, the tenants of the land recently gave notice to leave. Would this ‘half-truth’ be misrepresentation and could the contract be rescinded?
Yes, because it was misleading to omit such crucial information where the reason for the question - which the purchaser asked - was clear.
What does the second element in establishing misrepresentation (i.e. of existing or past fact) mean?
The statement must not only be false, it must also be one of fact - that is, it is not an undertaking to do something, but rather a statement asserting a given state of affairs
If a statement is made to one party’s ‘best of knowledge and belief’, could it amount to a false statement of existing or past fact?
No, because it is qualified - seller would not be in a position to know better.
A landlord stated that a tenant was ‘desirable’, which later turned out to be false when the sale of the property was executed. Could this amount to actionable misrepresentation?
Yes, because the landlord has sufficient knowledge to state whether their tenants are ‘desirable’ or not - i.e. they are in a position to know better.
Mardon entered into a tenancy agreement with Esso in respect of a petrol station. During the course of negotiations, ‘expert’ advisers employed by Esso had provided an estimate of the sales which the petrol station could expect which was based on inaccurate information and consequently was significantly inflated. The value of the rent on the agreement had been calculated based on this inflated figure. As a result, it was impossible for Mardon to operate the petrol station profitably. Could Mardon have any action for misrepresentation given that the figure purported to be an ‘estimate’ rather than a statement of fact?
The court found that whilst the contract could not be voided for misrepresentation as Esso presented the inflated figure as an estimate rather than as hard fact, given Esso took it upon themselves to employ experts for the purpose of providing an estimate of sales, they owed a duty of care to Mardon to ensure this was done on the basis of accurate information. Mardon was therefore able to recover losses which he had suffered as a result of the defendant’s negligent misstatement.
Is it reasonable to rely on someone’s statements about what is going to happen in the future?
No, it is not. Therefore promises made regarding a future intention would not amount to misrepresentation. But there are few exceptions.
What are the exceptions around promises made regarding a future intention?
Whilst these statements generally do not amount to misrepresentation, there are a few exceptions.
If the representor at the time of making a statement of intention does not intend to actually do it, they misrepresent their existing intention - i.e. they make a promise they never intended to keep.
Prospectus of a company held that funds subscribed to would be invested into the development of the company. Yet, the investments were used to pay off the company’s liabilities and other existing debts. Would this statement of future intention result in an actionable misrepresentation?
Yes, the statement was a deliberate lie and the company never had the intention to hold to the promise of investing the funds as provided for in the prospectus
What does the third element in establishing misrepresentation (i.e. made by one party to another) mean?
The statement must move from Party A to Party B, however, it can also include Party C. If A makes a representation to B (which they know) will be passed on to C, on the faith to contract with A, A may be liable as though they misrepresented directly to C.
What does the fourth element in establishing misrepresentation (i.e. inducing other party to enter into contract) mean?
The wronged party must show that they relied on the misrepresentation (i.e. was a material cause) in entering into the contract.
Investors were induced to lend money to the company by a misrepresentation contained in the company prospectus. However, the investors were also induced by their own mistaken belief that they would have a charge on the assets of the company in relation to the loan. Could this still be misrepresentation?
Yes, because while the misleading statement was not the sole reason for entering into the contract it was a material cause of entering into the contract
If a representee relying on a misleading statement makes their own inquiries and checks the validity of the statement, could the representor counter a claim for misrepresentation?
Yes, because it proves that they did not rely on the statements of the contracting party.
Is the representee under an obligation to investigate or check the accuracy of a statement before entering into a contract?
No, all that is necessary is for them to show that they relied on the statement and was induced accordingly into entering the contract.
However, if they do not check where the court considers it reasonable for them to have done so, or carries out a negligent investigation, this would open up the possibility of a defence of contributory negligence being mounted against the representee for failing to investigate or for investigating negligently.
Can silence amount to misrepresentation? Any exceptions?
No, silence cannot amount to misrepresentation.
However, half-truths, continuing representations and contracts uberrimae fidei can lead to actionable misrepresentation.
A landlord let a house to a tenant knowing that they wanted it for immediate occupation, but did not tell the tenant that the house was in fact uninhabitable. Could this amount to misrepresentation?
In the absence of fraud, no the landlord is under no implied duty to disclose the state of the house.
What are contracts uberrimae fidei?
It is an exception to silence. There is a duty to disclose material facts in some types of contracts in which one party is in a particularly strong position to know the material facts which form the basis of the contract. These are known as contracts uberrimae fidei (utmost good faith). Most common is insurance where disclosure of all material facts must be made to the insurer.
Similarly, parties in a fiduciary relationship may also be subject to an obligation to disclose information.
What are the three categories/types of misrepresentation?
(i) Fraudulent misrepresentation;
(ii) Negligent misrepresentation; and
(iii) Innocent misrepresentation.
