11. Misrepresentation

Question 1

Categories of Pre-contract statements

Answer 1

a. Sales puff
b. contractual terms
c. representations

Question 2

If a contractual term is untrue, what action does the contracting party have?

Answer 2

Action for breach

Question 3

If a representation in a contract is false, what recourse does a contracting party have?

Answer 3

Action for misrepresentation

Question 4

Criteria considered when determining whether something is a term or representation

Answer 4

1. One party has greater skill or knowledge of the subject matter
2. If a verbal statement was repeated in a written contract before agreed
3. If the recipient of the statement made clear it was of vital importance
4. Whether statement maker invited the other party to verify
5. whether there was a lapse of time between statement being made and contract being formed

Question 5

Factors which suggest something is more likely to be a representation

Answer 5

1. Non-expert makes a false preliminary statement to an expert
2. Verbal statement not repeated in written contract
3. recipient did not make it clear that it was of vital importance
4. Statement maker invited other party to verify the statement
5. Long lapse of time between statement and contract

Question 6

Definition of Misrepresentation

Answer 6

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

Question 7

Forms of an ‘untrue statement’ for the purpose of misrepresentation

Answer 7

1. verbal
2. in writing
3. in conduct

Question 8

Can silence amount to misrepresentation?

Answer 8

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)

Question 9

Can misrepresentations be either facts or opinions?

Answer 9

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

Question 10

Who does the statement have to be made to, to give rise to a claim for misrepresentation

Answer 10

The statement must be made by one contracting party to the other

Question 11

Must the statement induce the receiver into entering into the contract to constitute misrepresentation?

Answer 11

Yes, but it need not be the sole reason for entering into it

Question 12

Definition: Fraudulent Misrepresentation

Answer 12

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

Question 13

Remedy for fraudulent misrepresentation

Answer 13

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)

Question 14

Definition of Negligent Misrepresentation

Answer 14

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

Question 15

Burden of proof for negligent misrepresentation

Answer 15

The maker of the statement must prove that they made the statement on reasonable grounds
- claimant only has to establish the misrepresentation and loss

Question 16

How are damages assessed for negligent misrepresentation?

Answer 16

Same as fraudulent misrepresentation - all consequential losses are recoverable (amount the claimant is ‘out of pocket’)

Question 17

Innocent Misrepresentation

Answer 17

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

Question 18

Effect of misrepresentation on the contract

Answer 18

Makes the contract voidable, so the misrepresentee has a choice to affirm of rescind

Question 19

Can rescission be awarded in addition to damages?

Answer 19

Yes

Question 20

Goal of rescission

Answer 20

‘hit the rewind button’, restoring all benefits received by both parties to place them in their pre-contract positions

Question 21

When is the right to rescind ‘lost’

Answer 21

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

Question 22

Assessing whether there is ‘undue delay’: when does the timer start running

Answer 22

NORMAL MISREP.
From the point that the misrepresentation SHOULD have been discovered
FRAUD MISREP.
From the point it was actually discovered