#2195 - Remedies For Misrepresentation - Contract Law

Remedies for Misrepresentation

Damages for consequential losses

• Fraudulent Misrepresentation (Tort of Deceit)

  • Derry v Peak [1889]:

    • Requires C to prove D made a false statement

      • Knowingly

      • Without belief in its truth (or recognition of ignorance re: truth)

      • Recklessly, careless whether it is true or false

  • Chen Wishart: is very hard to prove deceit – but Misrepresentation Act 1967 s.2(1) helps out!

• Negligent Misrepresentation (Tort of Negligence)

  • SEE TORT NOTES re: Hedley Byrne v Heller [1964]

• Negligent and Innocent Misrepresentation (C can automatically claim damages as if for fraud unless D proves was not fraudulent)

  • Misrepresentation Act 1967 s.2(1)

    • When C has entered contract under misrepresentation by D and suffered loss

      • If D would be liable for damages if the misrepresentation had been made fraudulently,

        • D shall be so liable notwithstanding that statement was not fraudulent unless he proves that:

          • he had honestly and reasonably believed up to the time the contract was made

            • that the facts represented were true.

    • Howard Marine v Ogden [1964]: C’s agent non-fraudulently represented to D that barges could carry 1600 tonnes, when could only carry 1005 tonnes. D counter- claimed against C for misrepresentation.

      • Bridge LJ (maj):

        • Although D has not proved fraud

          • Under Misrepresentation Act 1967 s.2(1) Unless C can show that had reasonable ground for belief

            • Then C will still be liable

              • In this case, C cannot prove he had a reasonable ground to believe in the greater capacity.

    • Royscot v Rogerson [1991]: D misrepresented terms of hire-purchase of R to C, finance company, who wouldn’t have taken it on had known of misrepresentation. However, R wrongfully disposed of car and defaulted anyway. C sued, D argued car being wrongfully disposed not foreseeable from misrepresentation.

      • Balcombe LJ:

        • Non Fraudulent misrepresentation gives the tortious reliance damages

          • That is, putting X in the position as if he had not entered the contract

        • Wording of stature (“X shall be so liable [as if statement fraudulently misrepresented]” indicates that X is entitled to measure of damages as if under tort of deceit.

          • Therefore, damage from misrepresentation need not be foreseeable, merely direct from misrepresentation.

  • Impact of “fiction of fraud” in s.2(1) claims:

    • Damages calculated as if statement was sole reason for D entering contract

    • No remoteness limit of “reasonably foreseeable” on damages – get em all

    • Smith New Court: damages available for ALL losses due to existing flaws and loss in value after contractual formation.

    • Exempt from contributory negligence

    • Exemplary damages available

  • Criticisms:

    • Chen Wishart: Fair enough that fiction of fraud imposes liability – by why also the measure of damages?

    • Beatons: “Fools should not be regarded as rogues”

      • Tars the negligent with the brush of the fraudster

      • No measure of moral guilt while still dispensing significant damages

        • Chen Wishart: Civil Law not meant to have concern: re moral guilt – aim = only compensate C

          • Counter: Tort has similar considerations, yet has restrictions re: remoteness and causation

• Negligent and Innocent Misrepresentation in lieu of rescission

  • Misrepresentation Act 1967 s.2(2)

    • Requires that:

      • C not be barred from rescission

        • Govt of Zanzibar v British Aerospace Ltd [2000]:

          • If C has been barred from rescission

            • Then s.2(2) won’t help them

            • This section is designed to cut back on parties using rescission where it would be inequitable to do so by awarding them damages instead.

              • S.2(1) is the place where you go to for damages for misrepresentation if you have no right to rescission in the first place.

      • Court has denied C rescission

    • Awards:

      • Sindall plc v Cambridgeshire CC [1994]:

        • Hoffmann LJ:

          • S.2(1) damages = for losses consequential to entering contract

          • S.2(2)Concerned with damage caused by the property not being what it was represented to be

            • And also to protect misrepresentor from losing whole benefit of contract where misrepresentation is both innocent and small

              • Couldn’t possibly have intended damages in lieu to be assessed on principle which would have basically same effect.

        • Evans LJ:

          • S.2(1) and s.2(2) damages are different beasts entirely

            • S.2(1) gives damages as if for fraud

            • S.2(2) gives contract measure of damages

              • Whereby C receives difference between actual value and value which property would have had

                • if misrepresentation had been true

            • Otherwise, C would not receive his loss caused by the misrepresentation

              • since he cannot thereby rescind the contract.

      • Chen Wishart: bear in mind would not be right for C to be denied rescission b/c inequitable on D, and then hit D w/ massive damages liability instead.

      • Burrows: Evans LJ reasoning is odd

        • Why receive contract measure under s.2(2)

          • Which could potentially outstrip C’s reliance interest

            • And give greater damages than if negligent misrepresentation had been proved for a wholly innocent misrepresentation.

Rescission

• Requirements:

  • Must be communicated to the other party (especially before other party invests property in another, in which case, rescission is barred)

    • Car and Universal Finance Co Ltd v Caldwell [1965]: C entered into contract with fraudster (X), X sold car onto UFC. C communicated to police and Automobile Assistance Agency that car had been fraudulently obtained by X.

      • Lord Denning MR (affirmed CoA):

        • General principle = election to rescind does not take effect

          • Unless communicated to the other side.

        • However, this is often impossible in a case of fraud

          • In such cases, should be sufficient if he asserts his intention to rescind "in the plainest and most open manner competent to him."

  • Need not be any breach of contract

  • Bars on rescission overcome:

    • Affirmation

      • Misrepresentation Act 1967 s.1(1)(a):

        • C may elect to rescind the contract owing to misrepresentation

          • Even where the statement has been determined as a term of the contract

        • Chen Wishart: BUT where C has made a good bargain

          • Court must determine whether refusal to continue with contract amounts to rescission or termination

            • Thus if C cannot get termination

              • Then he may have unwittingly rescinded contract by his conduct

                • In turn extinguishing right to superior contractual damages

      • Requires

        • Knowledge of facts giving rise to right to rescind

          • Bear in mind potential of estoppel preventing rescission where C has no knowledge of right to rescind

            • And D then detrimentally relies on C’s subsequent conduct demonstrating that no intention to rescind.

        • Can be express or implied from conduct

          • Continuing the contract can give rise to affirmation by implication

    • Lapse of Time

      • Leaf v International Galleries [1950]: D sold painting to C, said was painted by Constable. After 5 years, C tried to sell, found out not a Constable. C tried to rescind contract.

        • Jenkins LJ:

          • Contracts such as this cannot be kept open and subject to the possibility of rescission indefinitely.

            • The misrepresented party must either verify or disprove the representation within a reasonable time,

              • or else stand or fall by it.

    • Third Party has acquired interest in subject matter of contract

      • Car and Universal Finance Co Ltd v Caldwell [1965]:

        • Had intention to rescind not been overtly expressed by C

          • Then third party would have had right to the chattel and no rescission would have been available

    • Impossibility of Restitution

      • If restitution is impossible b/c contract has been performed/partially performed

        • Then rescission is not available unless (barring money) exact goods can be returned

          • White v Garden:

            • E.g. Become impossible due to consumption/degradation/sold on to third party

        • Although:

          • Erlanger v New Sombrero Phosphate Co [1878]:

            • Held: Court have equitable jurisdiction and will do what is practicably possible

              • To make allowances and allow rescission where parties can almost be put into position by same/alternative means. (e.g. accounts of profits)

          • Chen Wishart: courts should allow monetary substitute for benefit received rather than just bar rescission.

            • Point is not to restore to position parties were before

              • But to prevent unjust enrichment.

    • Inequity

      • Misrepresentation Act 1967 S.2(2):

        • If C can rescind contract or has rescinded contract

          • Court may refuse rescission and award damages in lieu of rescission if it would be equitable to do so, having regard to:

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