9. Misrepresentation

Question 1

What is a required for an actionable misrepresentation?

Answer 1

False statement of fact or law made by one party to another to induce them to enter into the contract.

Question 2

For the purposes of misrepresentation, is a statement of fact limited to just present conditions?

Answer 2

No, it can also concern past conditions, but not future events

Question 3

Does the misrepresentation have to be the only reason the innocent party entered into the contract?

Answer 3

No, but it needs to be a substantial reason

Question 4

In what three instances will there be no actionable misrepresentation?

Answer 4

1. Innocent party did not believe the statement
2. The statement was not actually communicated
3. Statement did not affect party’s decision to enter into contract

Question 5

What are the four categories of misrepresentation?

Answer 5

1. Fraudulent
2. Negligent - s.2(1)
3. Negligent mistatement - at common law (Hedley Byrne)
4. Innocent

Question 6

What are the three ways in which fraudulent misrepresentation can arise?

Answer 6

Statement must be made:

1. Knowingly
2. Recklessly (careless as to truth), or
3. Without belief in its truth

Question 7

What effect does the Misrepresentations Act 1967 have on bringing a cause of action for negligent misrepresentation?

Answer 7

Burden of proof is reversed on maker of statement to show it had reasonable grounds for believing its statement was true.
* easier for innocent party to recover.
* Negligent mistatement is treated under the Act as akin to tort of deceit for purpose of calculating damages.

Question 8

To clarify, who has the burden of disproving a claim of negligent or innocent misrepresentation?

Answer 8

Representator
(cf. fraudulent misrepresentation)

Question 9

What is required if a party wishes to rescind for misrepresentation?

Answer 9

They must notify the other party of their intention to rescind, or obtain a court order to that effect

Question 10

What are four bars to rescission?

Answer 10

1. Affirmation
2. Lapse of time
3. Impossibility of restitution
4. Third party acquires rights under contract

Question 11

What is affirmation?

Answer 11

When, upon discovering the misrepresentation and having full knowledge of it, the innocent party carries on with the contract

Question 12

How can a contract be affirmed?

Answer 12

1. Statement affirming it
2. Continued performance

Question 13

With regard to lapse, when does the clock start running for fraudulent misrepresentation?

Answer 13

When the fraud is discovered

Question 14

With regard to lapse, when does the clock start running for negligent and innocent misrepresentation?

Answer 14

When the innocent party discovers or should have discovered the misrepresentation

Question 15

When will third party rights bar rescission?

Answer 15

When a bona fide third party has acquired any rights under the contract

Question 16

If a bona fide purchaser acquires rights under a contract which was formed due to a misrepresentation, will be they be required to return the goods?

Answer 16

Only if they are aware of the misrepresentation

Question 17

What is the measure of damages for fraudulent misrepresentation?

Answer 17

tort of deceit measure - can recover all losses flowing from misrepresentation, irrespective of whether these were foreseeable.

Question 18

What are the damages for negligent misrepresentation at common law?

Answer 18

Tortious damages
* representee can recover all reasonably forseeable losses.
* note that distinction with unlike fraudulent misrep, defendant can raise defence of contributory negligence.

Question 19

What are the damages for negligent misrepresentation under statute?

Answer 19

reliance-based - seek to put party back in position had they never contracted with each other.
* covers all direct losses.

Question 20

Are damages generally available for innocent misrepresentation?

Answer 20

No, except where court awards damages in lieu of rescission.

Question 21

What type of misrepresentation allow representee to claim both rescision and damages?

Answer 21

Negligent under MA and fraudulent mispresentation

Question 22

What types of misrepresentation do the courts have discretion to award damages for in lieu of rescission?

Answer 22

Negligent and innocent only under statute. Not fraudulent
* fraudulent misrep is only recoverable at common law.

Question 23

What is the most likely scenario in which damages in lieu of rescission would arise?

Answer 23

Where the misrepresentation is so minor that it would be inequitable to the person who made the statement to deprive them of the full benefit of the contract.
* court considers - nature of misrep, effect rescission would have, and effect of upholding contract.

Question 24

What is the measure of damages for fradulent and negligent misrepresenation via s.2(1)?

Answer 24

All direct losses incurred as a result of the representation, regardless of their foreseeability.

Question 25

What is the obligation on the innocent party once the misrepresentation comes to light?

Answer 25

Take all reasonable steps to mitigate their loss

Question 26

What is the status of any clause which attempts to exclude liability or limit remedies available for misrepresentation?

Answer 26

Void, unless reasonable

Question 27

What must be a defendant (representator) establish to defeat a claim of misrepresentation, where the representee also conducted independent inquiries?

Answer 27

Representee exclusively relied on his own independent enquiries.

However, if the misrepresentation continues to play a real and substantial part (despite the independent check) then the misrep claim can still succeed.

• note that for fraudulent mispresentation, whether an investigation was carried out is immaterial. Can still claim remedies.