#7 - Misrepresentation - Contract Law

Contract Reading Session 6 Chen-Wishart chapter 5: * Generally there is no duty of good faith i.e. to disclose important facts/attempt to reach agreement. There is a duty not to mislead. * Actionable misrepresentation = an unambiguous, false statement of fact that is made to P which induces him to enter the contract. If this occurs, P can rescind the contract subject to certain bars. To claim damages as well, D must have been "dishonest" or "careless" and the burden is for D to prove that he was not dishonest or careless. * If the misleading statement did not induce P to contract with D (e.g. Hedley Byrne where it induced P to contract with X) then only tortious remedy is available. However a contractual action will generally produce higher compensation amounts than tort. * If the false statement is a term in the contract then there are remedies for breach of contract; if it's a mere representation outside the contract, the 1967 Act provides for damages; if its a "mere puff" then there is no remedy. * A "representation" is itself not actionable but an assertion of the truth and invites reliance on it but without providing an enforceable guarantee. * The distinction between a term and an mere representation is made by looking at the objective intention of the parties. The more important the statement of truth is, the more likely it is to be a term. The court is more likely to find a term if the speaker had specialist knowledge. * If the maker of the statement was not asked to verify it, it is less likely to be a term. Equally if the statement is being passed on by D from another party it is less likely to be a term. If the statement was formally recorded it is more likely to be a term. * A statement can be made by words or conduct. A statement of intent cannot necessarily be taken to mean a statement of fact. * Statements of opinion are only actionable where they are dishonest, unreasonable (is the party in a position to know the truth), or a term. * Puffs are vague and exaggerated laudatory statements. * Statements of law generally don't give rise to actionable misrepresentations but there are exceptions and a statement of law can be considered a statement of opinion. * There is no general duty of disclosure. * There are exceptions to the no-liability rule for non-disclosure: Certain types of contracts are considered contracts of "utmost good faith" or "uberrimae fidei"; Fiduciary contracts; indirect methods (various including where one party knows of the others mistakes, unconscionable bargains, non-commercial contracts of guarantee, onerous or unusual terms, statutory duties of disclosure, tortious duties of disclosure, implied terms); half-truths; failure to correct a statement that new circumstances have rendered untrue. * Inducement = no need for strict causation: it IS enough that it was active in P's mind + strongly inferable from importance of the statement. Generally no bar that the claimant could have but didn't verify the statement. Inducement is imposible * * * * * where P is unaware of the statement, knows of its falsity, is unaffected by the statement, or regards it as unimportant. Fraudulent misrepresentation is where a statement is made knowingly or without belief in its truth (including ignorance) or is reckless as to its truth. Negligent misrepresentation is the tortious rule (see tort session 3) Statutory negligence- see Misrepresentation Act. Easier to succeed under than negligent misrepresentation. Innocent misrepresentation is NOT actionable. Rescission is setting the contract aside i.e. restoring all benefits conferred so that its as though the contract never happened. 1. Requirements of Misrepresentation Attwood v Small (1838) 6 Cl & Fin 232: The purchasers of a mine were told exaggerated statements about its earning capacity by the vendors. The purchasers had these statements checked by their own expert agents, who in error reported them as correct. Six months after the sale was complete the plaintiffs found the defendant's statement had been inaccurate and they sought to rescind on the ground of misrepresentation. Held: There was no misrepresentation because purchaser did not rely on the representations - they relied on that of their experts. Redgrave v Hurd (1881) 20 Ch D 1: R was going to sell H his house at a high value based on the fact that H would also be taking over his solicitor's practice that he claimed brough in PS300 a year. To substantiate this he showed H papers showing the value to be PS200 and papers detailing "other business" which, if H had checked them, would have proved no extra worth to the business so that it was only worth PS200 total. CA said R was entitled to rescission. Jessel MR: He says that (1) where a person makes a statement to gain a contract that he knew at the time to be false or was reckless as to whether it was true he should not be allowed to gain a benefit from it. It is no defence to say he didn't know the statement to be false since he ought to have investigated to be sure that it was true. (2) If a person makes a statement that he now knows to be false so as to gain a contract he cannot insist on keeping the contract. Also, even where P could have investigated and seen that the claim was false, he was under no obligation to do so and this doesn't relieve D of his duties. Smith v Land and House Property Corp (1884) 28 Ch D 7: P offered to sell a hotel to D, saying it was let to a desirable lessee for PS400 a month for 20 more years. It turned out that in fact the lessee was undesirable (he often missed payments) and, based on the business facts, he could never have paid that much rent. CA held that the statement that D was a "most desirable" lessee was not merely an opinion of fact but also contained an assertion as to the fact that P had no evidence to the contrary. Since this was false, it was