11. Misrepresentation Flashcards
Categories of Pre-contract statements
a. Sales puff
b. contractual terms
c. representations
If a contractual term is untrue, what action does the contracting party have?
Action for breach
If a representation in a contract is false, what recourse does a contracting party have?
Action for misrepresentation
Criteria considered when determining whether something is a term or representation
- One party has greater skill or knowledge of the subject matter
- If a verbal statement was repeated in a written contract before agreed
- If the recipient of the statement made clear it was of vital importance
- Whether statement maker invited the other party to verify
- whether there was a lapse of time between statement being made and contract being formed
Factors which suggest something is more likely to be a representation
- Non-expert makes a false preliminary statement to an expert
- Verbal statement not repeated in written contract
- recipient did not make it clear that it was of vital importance
- Statement maker invited other party to verify the statement
- Long lapse of time between statement and contract
Definition of Misrepresentation
An untrue statement of fact made by one party to a contract, by words or conduct, to the other contracting party, which induced the other to enter into the contract
Forms of an ‘untrue statement’ for the purpose of misrepresentation
- verbal
- in writing
- in conduct
Can silence amount to misrepresentation?
Yes
a. where there is a fiduciary relationship between parties
b. contract is one of the utmost good faith
c. there has been a half-truth and
d. statement of fact is true when made but a change of circumstance occurs before the contract is formed which makes the statement untrue (and change not disclosed)
Can misrepresentations be either facts or opinions?
No, they must be statements of fact.
- lying about intention can be a statement of fact because this is a fact of the state of the individual’s mind
- stating opinion for which there are no facts to support it can also be a statement of fact because the statement maker is misrepresenting that they are in possession of facts on which their opinion can reasonably be formulated
Who does the statement have to be made to, to give rise to a claim for misrepresentation
The statement must be made by one contracting party to the other
Must the statement induce the receiver into entering into the contract to constitute misrepresentation?
Yes, but it need not be the sole reason for entering into it
Definition: Fraudulent Misrepresentation
Misrepresentation is fraudulent if made:
- with knowledge it is false or
- without belief in its truth or
- recklessly, not caring whether it is true or false
Remedy for fraudulent misrepresentation
Damages (in the tort of deceit) measured by how much the misrepresentee is ‘out of pocket’ as a result, extending to ALL consequential losses (no consideration of remoteness)
Definition of Negligent Misrepresentation
NM occurs when statements are made carelessly
- even if the belief in the truth of the statement was honestly held it was not held on REASONABLE grounds
Burden of proof for negligent misrepresentation
The maker of the statement must prove that they made the statement on reasonable grounds
- claimant only has to establish the misrepresentation and loss
How are damages assessed for negligent misrepresentation?
Same as fraudulent misrepresentation - all consequential losses are recoverable (amount the claimant is ‘out of pocket’)
Innocent Misrepresentation
When a misrepresentation is made but the misrepresentor can establish their reasonable grounds for believing the statement is true
- no damages available as of right, but rescission may be available
Effect of misrepresentation on the contract
Makes the contract voidable, so the misrepresentee has a choice to affirm of rescind
Can rescission be awarded in addition to damages?
Yes
Goal of rescission
‘hit the rewind button’, restoring all benefits received by both parties to place them in their pre-contract positions
When is the right to rescind ‘lost’
Four bars to rescission
a. Affirmation
b. Undue delay
c. Innocent purchaser has acquired an interest in the subject matter of the contract before rescission
d. impossible to substantially restore goods or property
Assessing whether there is ‘undue delay’: when does the timer start running
NORMAL MISREP.
From the point that the misrepresentation SHOULD have been discovered
FRAUD MISREP.
From the point it was actually discovered
Burden of Proof: Negligent Misrepresentation
The misrepresentor has to prove that the statement was made on reasonable grounds
- the claimant only has to establish the misrepresentation and loss
Are damages available as of right for innocent misrepresentation
No - but rescission may be available of it is not barred
