#14993 - Misrepresentation - Contract Law

Not all statements made by one party in the negotiations for a contract, which is relied on by the other party in entering into the contract and which turns out to be false are actionable. Only a misrepresentation of fact will give rise to liability

• Discount ‘mere puffs’: exaggerated sales hype or vague boasts about the subject matter of a contract are not intended to be relied upon. Such statements do not give rise to liability. But if, judging the matter objectively, the court thinks that the statement was intended to be taken seriously, it will not be dismissed as a mere puff even if it is extravagant. For example, in Carlill v Carbolic Smoke Ball, the advertisement that a 100 reward will be paid by the manufacturers to anyone who contracts influenza after using the ball three times daily for two weeks according to the printed directions was held not to be a ‘mere puff’, because the deposit of 1000 in the bank evidenced seriousness.

• Eg Esso v Marden [1976] where inaccurate estimate of the station’s throughput, opinion, but held to not to be a puff due to RELATIVE EXPERTISE of the person making the statement

• Cf Dimmock v Hallett (1866) where “fertile and improvable land” held to be a mere puff

• Misrepresentation sits alongside other ‘vitiating factors’ – which make the contract voidable (i.e. subject to the remedy of rescission). In addition, there may be the possibility of recovering damages

We are considering statements made by one of the contracting parties about the contractual subject matter, such as assurances that it possesses a certain quality or attribute. These are not statements in which one of the contracting parties promises what they will or will not do.

Some of these statements are terms (I promise it is a Constable). Others are representations (it is a Constable).

(i) The remedy will be different if the statement turns out to be false

• To obtain damages on the expectation measure, the representee might contend that a pre-contractual misrepresentation has become a term within the main contract or a collateral warranty.

• Only a collateral warrenty if Lightman J. in Inntrepreneur Pub v East Crown [2000] endorsed at [23] in Business Environment Bow Lane v Deanwater Estates [2007] (No collateral warrenty arose, :

1. Parties must have intended it to be a collateral warranty. Intention is a question of fact to be decided by looking at the totality of the evidence

2. the test is the ordinary objective test for the formation of a contract: what is relevant is not the subjective thought of one party but what a reasonable outside observer would infer from all the circumstances;

3. in deciding the question of intention, one important consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case, it will be harder to infer that the statement was intended to have a contractual effect because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them;

4. a further important factor will be the lapse of time between the statement and the making of the formal contract. The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal;

5. a representation of fact is much more likely intended to have contractual effect than a statement of future fact or future forecast.”

• If it’s a mere misrepresentation, damages are available under the 1967 Act, but calculated on the less favourable tort measure: to put C into the position he’d have been in if the representation had not been made and not if the representation was true. The claimant can only recover damages where the defendant was at fault.

(ii) Strict liability applies to contractual terms, but if it is a mere misrepresentation D does not have to pay damages if he had reasonable grounds to believe that the statement was true.

Statement can only be a term provided it appears on the evidence to be so intended. Intention is judged objectively and ‘can only be deduced from the totality of the evidence” (Lord Moulton in Heilbut v Buckleton [1913] –ultimate test is INTENTION, OBJECTIVELY ASCERTAINED, also illustrated by Leggatt J in Yam Seng Pte Ltd v International Trade Corp (2013))

The lapse of time between the statement and the making of the formal contract will be significant. “The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal” (Lightman J stated in Inntrepreneur v East Crown [2000])

A further important consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case, it will be harder to infer that the statement was intended to have contractual effect, because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them.

The more important the statement is to contracting parties, the more likely it is to be considered a term (Bannerman v White [1861] where buyer asked if hops was treated with sulphur and said would not buy them if hops treated with sulphur as cannot make beer. Seller assured buyer hops not treated with sulphur. Held statement that hops not treated with sulphur was a TERM and not a MISREPRESENTATION as C had communicated the importance of the term and relied on the seller’s statement)

A really trivial representation might not influence the claimant’s decision to enter the contract at all and thus will not trigger the remedies for misrepresentation, even if false.

Where an expert makes a statement to an amateur, the statement is more likely to be a term of the contract, whereas if an amateur makes a statement to an expert, the statement is more likely to be a mere representation.

In Esso v Mardon [1976], Esso owned a petrol station and was negotiating with Mardon to grant him a tenancy. Esso gave Mardon an inaccurate estimate of the station’s throughput. Mardon took the tenancy but lost money and gave up the business. Esso brought proceedings to repossess the petrol station and Mardon counterclaimed for damages, arguing that Esso was liable for breach of warranty and/or negligent misrepresentation. Esso’s statement appeared to be a mere statement of opinion. But the CA held that, because of Esso’s relative expertise compared with Mardon, they must be deemed to have warranted that the forecast was made with reasonable care and skill.

Esso v Marden is an illustration of the objective version of intention at work. Such a warranty was not what Esso intended to give, judged subjectively, but is what it is taken to have intended.

Esso v Marden also illustrates a representation of fact is much more likely to have contractual effect than a statement of future fact or future forecast.

If the defendant encouraged the claimant to rely on his assurance without seeking external verification of its accuracy, this will readily persuade the court that the statement was a term of the contract. Where, on the other hand, the defendant encourages external verification, this will suggest that, judged objectively, the parties intended the opposite.

In Ecay v Godfrey [1947], E bought a boat from G for 750. The boat was in an appalling condition, and E resold her for only 45. E claimed damages, alleging that G had warranted that she was in good condition. G was a boat expert, while E was an amateur. The judge held that G’s statements were mere representations, first since on the facts he doubted that G had actually given the unequivocal assurances alleged and second, even if he had, he had also asked E whether he was planning to have a survey. The judge reasoned it would have been inconsistent for G to recommend a survey if he was intending to warrant that the boat was in good condition.

A material false representation of fact (or law), addressed to the party misled, which he relies on (which induces him) to enter into the contract.

A statement of opinion which turns out to have been unjustified will not give rise to liability for misrepresentation. In Bisset v. Wilkinson [1927], W purchased land from B to be used for sheep farming. During negotiations, B estimated it would ‘carry two thousand sheep’. Its true capacity turned out to be somewhat less. As W knew that the land had never before been used for sheep farming + vendor not an expert (LACK OF EXPERIENCE), PC held that W was not justified in regarding anything said by the plaintiff as to the carrying capacity as being anything more than an opinion. Thus W had no right to rescind the contract.

• Also in this case the price of land dropped, there might have been a suspicion that purchaser tried this as a way out

However the distinction between fact and opinion is not a clear-cut one. In Bisset the forecast was treated as a statement of opinion principally because B was in no better position than W to...