#2174 - Misrepresentation Requirements - Contract Law

Misrepresentation

Different remedy for different falseness

• When false statement which induces contract is a term within the contract

  • Term = enforceable undertaking to do something

    • When term is breached remedies available are:

      • Specific performance (if sought and appropriate)

      • Damages which put C in position as if contract performed.

      • Termination if sufficiently serious

• When false statement which induces contract is a representation about something outside of the contract

  • Representation = statement which asserts truth of given state of facts and invites reliance on it

    • Without giving an enforceable guarantee of its truth

      • Remedies available:

        • Rescind Contract

        • Claim damages to put C in position as if C had not relied on the statement’s truthfulness (i.e. not entered the contract)

Why this can make a difference

• Rescinding a contract or claiming damages to “undo” the effect of contract

  • is useful if you’ve made a bad bargain

    • Thus you’d try and claim the false statement is a representation about something outside the contract

• Whereas being able to claim your expectation interest

  • Or have opportunity to request specific performance

    • Is better if you’ve made a good bargain

      • Thus you’d try and claim (first and foremost) the false statement is a term of the contract rather than a representation.

• How to distinguish between a term and a representation

  • Intention of Parties manifested by their words and conduct

    • Heilbut, Symons and Co v Buckleton:

      • Importance of truth of statement to the representee

        • More important, more likely term

      • Whether speaker had special knowledge

        • More specialist knowledge, more likely a term

      • Whether innocent party was asked to verify the truth

        • If asked to verify, more likely representation

      • Whether speaker initiated false statement or merely passed it on

        • If not first “false speaker” then less likely term

      • Whether statement was formally recorded

        • If recorded, more likely term (parole evidence rule) (although statement outside of document can be classed as collateral term)

Requirements for Misrepresentation

• 1. Unambiguous, false statement

  • Of existing fact

    • Can be made by words or conduct

  • Of intention that is in fact

    • dishonest

      • Mere statement of intention, if honest, is not actionable

        • Wales v Wadham [1977]:

          • Even if D then fails to act on his intention – he is entitled to change his mind

      • If D states an intention and in fact intends to do something else, however

        • Edington v Fitzmaurice [1885]: D, directors of a company, sent shareholders prospectus inviting subscription for bonds to buy vans. C read prospectus and mistakenly thought would be given charge of company property, so bought some bonds. D only wished to improve cash flow.

          • Bowen LJ

            • State of a man's mind is as much a fact as the state of his digestion.

              • Therefore, misrepresentation as to the state of a man's mind is a misstatement of fact.

    • OR a term of the contract

  • Of opinion that is

    • Dishonest

      • Asserting an opinion that is not genuinely held

        • Is an assertion of existing fact (“I hold this opinion”)

          • That is in fact false (cos you don’t actually hold it)

    • OR Unreasonable

      • Smith v Land and House Property Corp (1884): D, landlord selling flats to C, describes tenant as “most desirable” when in fact tenant an arse who doesn’t pay rent. C later sues.

        • Bowen LJ:

          • Where facts known by both parties equally

            • what one of them says to the other is frequently nothing but an expression of opinion.

              • And mere opinion is not actionable

          • But if the facts are not equally known to both sides,

            • then a statement of opinion by one who knows facts best can involve a statement of a material fact,

              • for he impliedly states that he knows facts which reasonably justify his opinion.

      • Bisset v Wilkinson [1927]: C, knowing no better than D, advised that land not used for sheep before could potentially hold 2000 sheep. C turned out to be wrong.

        • Lord Merrivale

          • In these cases, things to consider are:

            • the material facts of the transaction,

            • the knowledge of the parties respectively and their relative positions,

            • and the actual condition of the subject-matter spoken of,

              • which will lead to conclusion whether opinion honestly and reasonably held.

    • OR a term of the contract

  • Or “Puffs” (vague and exaggerated laudatory statements about contract subject matter) which

    • Are specific enough in the context to constitute a contractual term

      • Carhill v Carbolic Smoke Machine [1893]:

        • SEE CONTRACT WK 1

• Chen Wishart: Arguably s.2(1) of Misrepresentation Act will include statements of intent, opinion and puffs as actionable UNLESS D can prove the expression was HONEST – whereas under common law, C must still prove dishonesty/unreasonableness

• OR 1. Where X fails to disclose

  • That a previously truthful representation has been falsified by later events

    • With v O’Flanagan [1936]: D, the vendor, represented to C, the purchaser, that the medical practise being sold had takings of 2000 per annum. 5 months later, the takings had fallen to 5 per week due to the illness of D. C tried to rescind the contract.

      • Lord Wright:

        • Normally where parties contract

          • Unless duty to disclose

            • They may remain silent even in regard to facts D thinks would be operative on the mind of C

          • And person who says was duty to disclose

            • Has to prove it.

        • Exception =

          • Where circumstances arise during negotiation, but before contract conclusion, that make a previously true statement untrue

            • D is under an obligation to correct himself and point this change of circumstances out.

  • That his representation is a half-truth

    • CPA 1987 s.20

      • Offence for a party, in course of business, to give misleading information about subject matter of contract to a consumer.

  • Information relevant to a decision in a contract of utmost good faith

    • E.g. Contract of Insurance

      • Where insuree fails to disclose to insurer something material that would affect insurer’s decision on what terms of insurance will be

  • Information relevant when there is a fiduciary relationship between the parties

• 2. Made to C

  • Liability only imposed where

    • Smith v Bush [1990]:

      • Contract Law: Statement made to C by D directly

      • Tort Law: Statement made to third party w/ foresight that it will be given to C

        • And it will be relied on by C

• 3. Which induces C to enter the contract

  • Edington v Fitzmaurice [1885]:

    • Cotton LJ

      • Not necessary to show that the misstatement was the sole cause of his acting as he did.

      • If he acted on that misstatement,

        • though he was also influenced by an erroneous supposition [or other factor]

          • Then D will be still liable

  • even if C was offered an opportunity to check veracity and did not (although this may be grounds for contributory negligence)

    • Redgrave v Hurd [1881]:

      • Baggallay LJ:

        • Once representation made by D

          • C is under no duty to investigate claim anymore.

      • Jessel MR:

        • If induced into contract by C

          • C cannot say “if you’d exercised due diligence, you’d of found out the statement was false”

        • D might be negligent in not checking

          • But this will be an issue of quantum for...