#3509 - Misrepresentation - Contract Law

Misrepresentation

• No general duty of disclosure during negotiation

• But duty not to make false statements of fact/law to induce the other party into contracting

• Induces the party to contract but isn’t a term of contract not a mere promise/ contractual term

• Distinguish:

1. Term - parties intended for it to be a term (i.e. to provide warranty/guarantee/promise as to statement’s accuracy (Oscar Chess Ltd v Williams; Dick Bentley Productions v Harold Smith)

2. Promise -an undertaking to do/not to do something creating an expectation protected by law

3. Representation -asserts existence of a given state of affairs, either true or false + invites reliance w/out constituting an undertaking to bring about that state of affairs

• Requirements

1. unambiguous

2. false

3. statement

• some positive conduct (written, oral etc.)

• silence is insufficient (With v O’Flanagan) nor mere failure to disclose

4. of existing fact or law

• NOT if:

1. mere puff – statement that’s too vague

• the more specific, the less likely to be a mere puff

2. honestly held statement of opinion/belief which proves to be unfounded (Bisset v Wilkinson)

1. where representor has greater knowledge/special skill, court will imply that representation must be made w/reasonable care & skill(Esso Petroleum v Mardon)

2. facts are known to both parties = what one says to another is often merely expression of opinion

3. astatement of intent unless D misstates his present intention (Edgington v Fitzmaurice)

• But courts are flexible in defining a ‘statement’ can be made by conduct or words

5. addressed to the party misled

• by direct communication

• by communication to TPw/intent to be passed on to C

6. which induced C to enter into contract

• doesn’t have to besole inducementactively present in representee’s mind (Edgington v Fitzmaurice)

• Ccan’t show inducement where he was:

1. unaware of representation

2. knew it wasn’ttrue

3. didn’t allow it to affect his judgment

4. placed reliance on TP when entering into contract

5. D corrected him & drew attn. to correction prior to any reliance

• not sufficient that C could have discovered the truth he must have actually discovered it!

7. ... and was material (possibly)

• meaning unclearstatement which would affectthe judgment of reasonable man on whether to contract on those terms

• Types

• All entitle representee to rescind but not all give rise to action for damages!!

1. Fraudulent = rescission +tort of deceit (Derry v Peek)

1. proof of fraudfalse representation made either:

1. knowingly

2. w/out belief in its truth

3. recklessly/carelessly whether it’s true or false

• unreasonableness of belief doesn’t constitute fraud but provides evidence of dishonesty

2. D’s motive is immaterial

• deceit is not likely to be invoked fraud is very difficult to prove (Smith New Court Securities v Scrimgeour Vickers Ltd)

2. Negligent - Common Law

• Hedley Byrne- assumption of responsibility(doesn’t have to be voluntary) + foreseeable detrimental reliance of Cobjective test principal factors in determining scope:

1. representor’s knowledge

• the greater his knowledge of representee + purposes for which he’s likely to rely, the more likely it is thathe’s liable

• possibly, requirement of special skill

2. purpose for which statement was made by representor

• w/intent forrepresentee to rely = likely liable

• general public circulation = unlikely liable

3. was it reasonable for representee to rely on the statement?

• made on social occasion =unlikely

• made in commercial context =likely

3. Negligent/Purely Innocent– s2(1) 1967 Act

• Where misrepismade by one contracting party to another, he’s liable for damages unless

1. had reasonable grounds to believe; and

2. did believe up until the time when contract was made

3. that statement he was making was true (operates independently of Hedley Byrne)

• Advantages of using this over common law

1. don’t need to satisfyHedley Byrne

2. burden of proof on representor not easy to discharge (likely to recover even if fails @ common law) (Howard Marine v Odgen)

3. damages = tort of deceit (as if D has been fraudulent)

• C must have recourse to a common law claim where

1. Representation was made by TP - s2(1) only applies where misrepwasmade by contr. party

2. Contract is void ab initio(e.g. b/c of non est factum) = no contract to which s2(1) could apply

4. Innocent misrep – neither negligent/nor fraudulent

• Remedies

• A party induced into contract by misrep. can seek remedy in either:

1. contract

2. tort

3. restitution

1. Rescission –contract set aside for all purposes (retrospectively & prospectively)+ aim to restore parties as far as possible back to position they would have been in but formisrep

• No contr. damages but could claim in tort/statute+ restitution

• Available for all types, subject to court’s discretion to award damages in lieu under s2(2) 1967 Act

• C has a right of electionif chooses to rescind, must notify representor of his decision by:

1. seeking a declaration that contract’s invalid

2. restoring what he’s obtained under contract

3. relying upon misrep as defence to an action on the contract (Redgrave v Hurd)

• If D deliberately makes it hard/impossible for Cgive notice, some evidence of trying will suffice, as long as reasonable in the circumstances (Car & Universal Finance Co v Caldwell)

• C may lose right to rescind by:

1. affirming the contract w/Dafter discovering thetruth

2. BF purchaser for value acquires goods b/f contract has been set aside

3. lapse of time unless fraudulent misrep (Leaf v International Galleries)

4. where it’s impossible to restore parties back to pre-contractual position (main one) - C must make restitution to D for the benefit he received, since D is making restitution to him = C can’t get back what he’s parted with & keep what he’s received

• precise restitution required @common law but in equity party who make substantial but not precise restitution can rescind if he returns the subject matter of contract in altered form + gives acc. of profits made with allowance for deterioration of the product

2. Damages – no claim for contractual damages where contract’ has been rescinded but might claim in tort/under statute/personal restitutionary claim

• Contract rescinded = no contr. damages, could claim under statute/in tort

• Contract not rescinded =claim for contr. damages only if misrep, incorporated as contractual term

1. Fraudulent misrep

• Damages in tort of deceit

• Reliance interest

• Damage directly flowing from inducement, not rendered too remote by C’s own conduct, regardless of whether D could have foreseen such loss

• Aggravated damages possible to compensate C for injury of his feelings

• Loss of opportunity (East v Mauren)

2. Negligent misrep.

1. Common Law

• a tort = reliance interest

• remoteness:liable for all losses reasonably foreseeable consequences of misrep (The Wagon Mound)

• C’s contributory negligence could reduce damages payable to him

2. s2(1) 1967 Act (Royscot v Rogerson)

• measure of damages = tort of deceit

• reliance interest

• damages assessed as if representor was fraudulent

• C’s contributory negligence could reduce amount of damages payable

• remoteness rules of deceit apply (not of negligence)

• reduce practical significance of tort of deceit

• no justification for treating innocent party as if he had been fraudulent!!if Supreme Court doesn’t overrule it, legislation should interfere & apply rules of negligence to measure damages

3. Innocent misrep.

• no damages/not a tort

• rescission/indemnity available in practice rule mitigated by courts finding it was a contractual term, enforceable as collateral contract [although the need for this reduced by s2(2) 1967 Act)

• measure should be less than in s2(1) b/c representor is less culpable

4. Damages awarded in lieu of rescission

• Courts consider

1. nature of misrep

2. loss which would be caused if contract was upheld/ rescinded

• Discretion broad = do what’s equitable

• Most likely to invoke s(2) where representee induced by misrep to enter into bad bargain (WilliamSindall v Cambridge)

• Measure of damages: reliance

• Where C has right to rescind but loses it due to lapse of time...

• Unclear if also loses right to claim damages under s2(2)

1. No - provided he had a right to rescind in the past (Thomas Witter)

2. loss of right to rescind takes away court’s discretion to award damages under s2(2) Government ofZanzibar v British Aerospace

• b. is strongest, consistent...