misrepresentation (workbook)

Question 1

Representor

Answer 1

The party who allegedly made the representation.

Question 2

Representee

Answer 2

The party who allegedly received the representation.

Question 3

what is the definition of an actionable misrepresentation?

Answer 3

• unambiguous
• false
• statement of fact
• made to the claimant
• which induces the claimant to enter into the contract
• with the statement maker

Question 4

what is the effect of misrepresentation on a contract?

Answer 4

makes the contract voidable

Question 5

what does voidable mean?

Answer 5

• can avoid the contract - take action to rescind
• can affirm the contract

Question 6

what does unambiguous mean?

Answer 6

The representor will not be liable if the representee has placed its own unreasonable construction on the representation (McInerny v Lloyd’s Bank Ltd)

Question 7

what does false mean?

Answer 7

a statement will not be false if it is substantially correct, and the difference between what is represented and what is actually correct would not have been likely to induce a reasonable person in the position of the claimants to enter into the contracts

Question 8

what is a statement of fact?

Answer 8

• not an undertaking
• must be a statement asserting a given state of affairs

Question 9

what is a mere puff?

Answer 9

The law allows a salesperson a good
deal of latitude in their choice of language eg the ‘desirable residence’ advertised by the estate
agent may leave much to be desired, but there is no misrepresentation, because this is just
‘advertising puff’

e.g., a description of land as ‘fertile
and improvable’ was a ‘mere puff* (Dimmock v Hallett)

Question 10

what are the ways a statement can and cannot be actionable?

Answer 10

can:
- words
- conduct
- statement of law

cannot:
- statements of opinion (with exceptions)
- statements of future intention (with exceptions)
- silence (with exceptions)

Question 11

what does inducement of the claimant to enter into the contract with statement maker mean?

Answer 11

EITHER
representee shows that the statement would have influenced a reasonable person
+
representor cannot show that the statement did not influence this particular representee

OR

representee shows that it was personally induced by the statement

Question 12

does misrepresentation need to be the only reason that a claimant entered the contract?

Answer 12

no

e.g., Edgington v Fitzmaurice:
- induced into a loan by misrep in the company prospectus
- induced by his mistaken belief that he would have a charge on the assets of the company
but still able to successfully claim for fraudulent misrep, even though he admitted he would not have lent the money but for the mistaken belief

Question 13

where will there be no actionable misrepresentation (re inducement)?

Answer 13

(a) The statement was not actually communicated to the representee; or

(b) The statement did not affect the representee’s decision to enter the contract; or

(c) The statement was known to be untrue by the representee.

Question 14

how can a representor test whether a representee was not induced?

Answer 14

where the representee chooses to test the validity of the representor’s statement by making its own investigations (Attwood v Small)

Question 15

true or false: a party cannot bring a claim in misrepresentation when it has relied on its own investigations (rather than the misrepresentation)

Answer 15

true (Attwood v Small)

separate enquiries being made may show the representor’s statement was not relied upon, but do not automatically prevent a claim for misrepresentation (Redgrave v Hurd)

Question 16

when will a statement of opinion be actionable (ie be a statement of fact)?

Answer 16

• representor makes a statement where he is aware of info that directly contradicts this info (Smith v Land and House Corp - stating ‘most desirable tenant whilst knowing something to the contrary)
• the opinion is one which someone with the knowledge of the representor could not reasonably have held (Esso v Mardon - Mardon took a lease of a petrol station after being assured that 200,000 gallons of output per year, which was inaccurate. However, this was presented as an estimate rather than a hard fact, so was not actionable for misrep. Instead, as D has employed experts and owed a duty of care, it was deemed a negligent misstatement.)

Question 17

why will a statement of future intention not normally be a statement of fact?

Answer 17

A representation that something will be done in the future cannot be true or false at the moment it is made; and although you may call it a
representation, if anything it is a contract or promise.

e.g., during divorce proceedings, a wife negotiated a divorce settlement on the basis that she would remain single and not remarry. However, prior to the conclusion of the settlement, she did remarry and the husband sought to rescind the agreement. The court upheld the settlement and dismissed the husband’s claim. (1) the wife had not misrepresented her then current intention; and (2) the wife was under no duty to disclose her change of intention (Wales v Wadham)

Question 18

what is the general rule in relation to silence?

Answer 18

there is no duty to disclose facts which, if known, might affect the other party’s decision to enter the contract

Question 19

what are the exceptions to the general rule in relation to silence?

Answer 19

(a) Half-truths;
(b) Continuing representations; and
(c) Contracts uberrimae fidei.

Question 20

when might Half-truths be an exception to the general rule on silence?

Answer 20

true but misleading statements

e.g., describing a property as ‘fully let’, without disclosing that the tenants have given notice to quit, would be a misrepresentation (Dimmock v Hallett)

Question 21

when might Continuing representations be an exception to the general rule on silence?

Answer 21

when a statement was true at the beginning of a negotiation, but becomes false during negotiations and before signing the contract

e.g., stated income of a medical practice being sold was at a certain level. During negotiations, the income fell to virtually nothing because the man had become ill. He did not reveal this fact. HELD: By remaining silent, he had made a
continuing representation, holding out his original statement as still being true. There was a duty to disclose the change in circumstances and the consequent change in income (With v O’Flanagan)

Question 22

when might Contracts uberrimae fidei (utmost good faith) be an exception to the general rule on silence?

Answer 22

where one party is in a particularly strong position to know the material facts which form the basis of the contract

e.g.,
- a contract of insurance where (at common law) disclosure of all material facts must be made to the insurer
- fiduciary relationship, characterised by trust and obligations of good faith

Question 23

summary of statements of fact

Answer 23

Question 24

summary of categories of misrepresentation

Answer 24

1. fraudulent (tort of deceit)
2. negligent (statutory claim under s2(1) MA 1967)
3. innocent (also a statutory claim under s2(1) MA 1967)

Question 25

what are the elements for fraudulent misrepresentation?

Answer 25

1. proof of fraud, and nothing short of that
2. false representation has been made:
   2a. knowingly;
   2b. without belief in its truth; or
   2c. recklessly, careless whether it be true or false
3. motive/intention will be immaterial
   (Derry v Peek)

Question 26

which of fraudulent and negligent misrep is harder to prove?

Answer 26

fraudulent

Question 27

what is negligent misrepresentation MA 1967?

Answer 27

the defendant will be liable for negligent misrepresentation under s 2(1) unless:
- they can prove that they had reasonable grounds to believe,
- and did believe up to the time the contract was made,
- that the statement was true

Question 28

what does liability in negligent misrepresentation mean for the purpose of remedies?

Answer 28

where a representor is found liable for a negligent misrepresentation, they will be treated as if they had made a fraudulent misrepresentation. this has important ramifications wrt damages.

Question 29

what is the burden of proof in negligent misrepresentation?

Answer 29

the representor must prove that they had reasonable grounds to believe their statement and did believe their statement

Question 30

what is the definition of an innocent misrepresentation?

Answer 30

the representor must prove that:

(a) they had reasonable grounds for belief in the truth of their statement; and
(b) they believed up to the time of the contract that what they were saying was true

Question 31

legal basis and tests for fraudulent / negligent / innocent misrepresentation

Answer 31

Question 32

what remedies are available for misrepresentation?

Answer 32

1. rescission
2. indemnity
3. damages
   3a. fraudulent
   3b. negligent
   3c. innocent
4. exemption clauses
5. non-reliance clauses

Question 33

what is rescission?

Answer 33

setting aside the contract

will usually only be awarded if the parties can be restored to their original position by returning all the property transferred between the parties under the contract

Question 34

what type of remedy is rescission?

Answer 34

equitable and discretionary

Question 35

what is the general rule to rescind in misrep?

Answer 35

• the representee must communicate the intention to do so to the representor; or
• the representee may initiate proceedings for rescission of the contract (to obtain a court order that the contract is rescinded)

Question 36

what are the bars to rescission?

Answer 36

1. affirmation - representee declares their intention to proceed and does an act from which such an intention may be reasonably inferred
2. lapse of time - action for rescission must be brought without delay (delay defeats equities)
3. restitution is impossible - nature of the subject matter has changed or declined in value
4. third party rights accrue - because the effect of a misrep is to make a contract voidable, not void, a person acquiring goods under such a contract is able to pass good title to those goods to an innocent third party who purchases the goods without notice of the misrepresentation. This would prevent restitution.

Question 37

damages of fraudulent misrep

Answer 37

because it is the tort of deceit, the claimant can recover:

all the damage directly flowing the act which is not too remote, whether or not D foresaw the loss (excludes: any benefit gained by C under the contract and no contributory negligence available)

provided that the claimant mitigates as soon as the fraud is discovered

Question 38

damages for negligent misrep

Answer 38

s(2)1 damages:

all the damage directly flowing the act which is not too remote, whether or not D foresaw the loss (excludes: any benefit gained by C - CHECK THIS)

plus: damages may be reduced for contributory negligence where the loss was in part the fault of the representee

AND
s2(2) damages in lieu of rescission (which, if awarded, will reduce the s2(1) damages available:
- nature and seriousness of the
misrepresentation
- loss that would be caused if the contract were upheld; and
- the loss that rescission would cause to the other party
(UCB Corporate Services v Thomason)

Question 39

damages for innocent misrep

Answer 39

not available, although damages in lieu of rescission may be available

Question 40

what other remedies can be awarded for innocent misrep?

Answer 40

1. rescission
2. damages in lieu of rescission
3. indemnity (if applicable)

Question 41

are exemption clauses valid wrt misrepresentation?

Answer 41

no
- unless they are reasonable (UCTA 1977)
- and the claimant has the burden of proof

Question 42

would an entire agreement clause be sufficient to exclude liability for misrep?

Answer 42

doubtful!

Question 43

example of a non-reliance clause wrt misrepresentation

Answer 43

“The parties agree and confirm that neither party has made any representations to the other in relation to this contract or its subject matter, and neither has any party relied on any representation from the other in entering into this contract.”

This will not be allowed for fraudulent misrepresentation.

Note: this may be construed as a clause which attempts to exclude/limit liability for misrepresentation, so will be subject to the reasonableness test in UCTA 1977.

Question 44

summary of categories of misrep + remedies

Answer 44

Question 45

when might a representation become a term of the contract?

Answer 45

if the court decides it is incorporated into the
contract.

Question 46

what happens if a court decides that a representation should become a term of the contract, and that representation is false?

Answer 46

• action for breach of contract; AND
• potentially an action for misrepresentation, if actionable

Question 47

which area of tort law may intervene wrt false statements which induce a representee into a contract?

Answer 47

tort of negligence / negligent misstatement at common

where there is a relationship of sufficient proximity between two parties, the court might find that one party owes a duty of care to the other to take reasonable care that statements made are accurate. This duty would include but not be limited to statements made during contractual negotiations – it could relate to any statements that caused the recipient of the statement loss.