A.5.II. Vitiating Factors - Misrepresentation

Question 1

3 items required for misrep to be actionable

Answer 1

1. It must be a statement of fact, not mere opinion. 2. it must be untrue, 3. it must have induced the innocent party to enter the contract. A misrep renders the contract voidable and may also give rise to damages, depending on the type of misrep.

Question 2

Unfair Contract Terms Act 1977

Answer 2

S8 = if a contract contains terms to restrict liability by misrep or any remedy against said misrep, it will be of no effect except to the extend that it passes the reasonableness test, and it ill be to those claiming it to show it.

Question 3

Edgington v Fitzmaurice

Answer 3

Sometimes, a statement of intention can amount to a misrepresentation - A misrep as to the state of a man’s mind is a mistatement of fact. To be granted remedy for misrep, it does not have to be the sole cause for entering into the contract, but one of the causes.Here he sent out a prospectus saying he would use the money to improve buildings and extend the business, when he had no intention of doing so. Misrep.

Question 4

Bisset v Wilkinson

Answer 4

Generall, a statement of opinion does not amount to a rep. Unlike a fact, an opinion is incapable of proof. The sheep farm where he thought it could contain 2000 sheep where it had never been a sheep farm. This was simply a statement of opinion, not a misrep. This doesn’t work when someone states an opinion they know to be false.

Question 5

Smith v Land and House

Answer 5

Cf Bisset, if the representor knows facts which do not justify the opinion, the statement can amount to a rep. Here they were trying to sell a hotel and claimed the tenant was “most desirable” when in fact they knew him to be a bad payer = This was not a mere expression of opinion, but an actionable misrep. When the facts are not equally well know, the statement of opinion often involves a statement of material fact.

Question 6

Dimmock v Hallett

Answer 6

Exceptions to Silence = Partial revelation. Exception to silence not being a misrep when the silence distorts a positive misrep. He said all the land was let, which was true, but failed to mention they had given notice. The courts draw a distinction beteen factual claims and ‘mere sales talk’, accepting that it is legitimate for someone selling something to put it in the best light = the land was described as ‘fertile and improvable’ - this was held as sales talk as general praise, but more precise claims are likely to be viewed as misrep. However, here the defendant told the other that all the plots were let, which was true, but failed to mention they were all leaving. This was so misleading to the entire situation, that it was held to be a misrep.

Question 7

With v O’Flanagan

Answer 7

Continuing Representation, Silence. Exception to silence not being a misrep when the statement is true when made but later becomes untrue and this is not disclosed. Wanted to buy their medical practice, and said it took in around 2k per year. The C was signed 5 months later, and by that time it was making a lot less money. The buyer wanted rescission and was allowed, because this was one of the reasons for entering the C, and hence was a misrep.

Question 8

Horsfall v Thomas

Answer 8

Because the misrep is only liable if it gave rise to the contract, a party cannot sue against misrep if they didn’t know about it being a misrep.

Question 9

Redgrave v Hurd

Answer 9

However, cf. Horsfall, if the representee had the opportunity to check the accuracy of the rep, but did not do so, does not mean they lose their right to sue for misrep. Here, he wanted to sell his law practice for 300 pounds, told the buyer he could check the papers, which would have shown it was 200. He wasn’t impeded from relying on misrep because he relied on the word, even if he had means to discover it was untrue.

Question 10

Attwood v Small

Answer 10

If the representee decided not to rely on the misrep but on their own judgement or that of their agent, they have no remedy for misrep. The seller of the mine exaggerated its earning capacity, but the buyer had it checked by surveyors, who wrongly confirmed the capacity. He did not succeed in misrep as he wasn’t induced by the misrep from the seller, as he had those facts checked by surveyors.

Question 11

Derry v Peek

Answer 11

Fraudulent Misrep, also know as the tort of deceit. The false statement was be made: 1. Knowingly, 2. Without belief in its truth, or 3. Recklessly carelessly whether it’s true or false. Damages for misrep are available for fraudulent rep in tort for deceit. The general rule is that the claimant should be restored to the position they would have been in if the rep had not been made. Here, they wanted to open a business with horse-drawn and steam-powered carriages. They got an Act passed by parliament that authorized steam carriages, so thought approval by the Board was a mere formality, they sent out brochures saying they had approval. The business failed, they were sued, but they were not held to have committed fraudulent misrep, they believed their statement was true, it was not dishonest.

Question 12

Hedley Byrne v Heller

Answer 12

Negligent Misrep was established here. Where there is a special relationship between claimant and defendant a duty of care could arise, so that there can be liability for a negligent statement if financial loss resulted. Here they wanted to loan money, and there was a guarantor - they talked to the bank about the creditworthiness. They did default in fact, and then sued the bankers for misrep, but they lost because the bank gave it “without responsibility” (probably not possible today because of UCT 77), but the Lords stated obiter that there can be liability for negligent misrep on the normal principles of tort where there is a “special relationship.” It appears this special relationship would arise where the maker of a false statement has some knowledge or skill relevant to the subject matter of the contract, and can reasonably foresee the other party will rely on this.

Question 13

Car Finance v Caldwell

Answer 13

Rescission of the contract. Once the representee finds out about the misrep, they can avoid or affirm the contract. They must let the representor know that they are avoiding the contract. Here, if the representor has disappeared so we can’t find them, an overt act by the representee making their intention clear is enough. They sold a car which was paid by cheque and the buyer disappeared. They notified the police, which effectively rescinded the contract, they took the appropriate measures. The car was in the meantime sold to a dealer and sold to another user. Neither of those two transfer took place as there was no transfer of title - the title had immediately returned to the original sellers when they notified the police and rescinded the contract.

Question 14

Long v Lloyd

Answer 14

Affirmation. Rescission not possible, affirmation. The right to rescind is lost if the representee has affirmed the contract. For the C to be affirmed, the innocent party must have the full knowledge of the misrep, and either declare their intention to continue, or perform an act that infers such an intention. Here, he discovered faults in the lorry he was driving, but undertook a long journey with it. This was considered affirmation.

Question 15

Leaf v International Galleries

Answer 15

Lapse of Time. Rescission not possible, lapse of time. The right to rescind usually only starts to run after discovery of the misrep. Here, he discovered an innocent misrep 5 years after sale of the painting claimed to be by Constable, held to be too long. Doing nothing does not amount to affirmation, but it can be considered evidence of affirmation. Because it was a negligent misrep (the seller believed this to be true), it had been too long. There was an onus to prove or disprove it. If it had been fraudulent, the position would probably have been different, and the time since discovrery of the misrep would be taken into account - this all flows from rescission being an equitable remedy.

Question 16

Doyle v Olby

Answer 16

Damages for misrep in fraudulent misrep in tort for deceit. Usually in tort, the test of remoteness of damages is one of foreseeability, but here The court held that the defendant should pay compensation for all the damage directly going from the fraudulent misrep. The award of damges for fraudulent misrepresentation will always be larger because it’s a generous remoteness test - for fradulent misrep, a person can be compensated for “all the actual damage directly flowing from the fraudulent inducement.” Usually, that includes lost profits.

Question 17

Royscot v Rogerson

Answer 17

Under s.2. MA 1967, damages are avialable for negligent misrep. The court granted damages based on a deceit measure for negligent misrep. Section 2.2. enable a court to grant damages in lieu of rescission in cases of innocent misrep.

Question 18

Zanzibar v British Aerospace

Answer 18

The court held that it as not possible to rescind the contract several years later after the misrep after the planes had been repossessed, and so their right to rescission was lost.

Question 19

Pankhania v Hackney

Answer 19

Statement of fact v statement of law. Selling a car park, told the buyer it was subject to a license agreement that could be terminated with 3 months, but was much more restrictive. This was argued to be a statement of law, and not fact, but it didn’t matter, still a rep.

Question 20

Bolt v Tariq

Answer 20

Statement of fact v statement of law. In this case, there was an exaggerated claim about the chances of winning a case, held to be a statement of opinion and not of fact. A statement of law can be considered a statement of opinion.

Question 21

Wales v Wadham

Answer 21

Continuous representations. Where a statement refers to an intention, the courts ill look at whether it was true when made. Here, husband and wife agreed to a divorce. She said she didn’t want to remarry, and they agreed on a settlement based on that. She changed her mind and remarried shortly. No matter, the courts said, her intention was true at the time she made. Cf. “With”, there it was a statement of fact, not of intention.

Question 22

Cramaso v Earl of Sheffield

Answer 22

Continous reps. The Earl owned moorlands for shooting grouse, and the other wanted to buy it as an investment. He got an email during negotations estimating how much grouse there was. It was misleading because it honestly overestimated the number of grouse. After the new company was formed by the buyer to purchase the land, the Earl didn’t inform that the rep had been exaggerated. The fact of the buyer changing legally didn’t have an effect, it was a continuous rep.

Question 23

Fletcher v Krell

Answer 23

Silence. Usually, caveat emptor! The buyer is required to ask the information, the seller not required to volunteer up all the bad points… Here, she applied to a post as governess without saying she had been married (at this time, that would have been undesirable). Courts held this not to be a rep = silence did not amount to a rep.

Question 24

IMG v Simmonds

Answer 24

Exceptions to silence. Contracts requiring uberrimae fidei. Utmost faith is required in insurance, sales of shares, sale of land (with regards to the title), and certain family arrangements. Here, IMG bought the rights to televize a cricket match between India and Pakistan, knowing the tenuous relationship between the countries may mean they would not happen - they contracted insurance, but had info that the match might not happen. The claim was denied, they sued. The court held that insurance required utmost good faith.

Question 25

Consumer Insurance (Disclosure and Representations) Act 2012

Answer 25

Reformed a lot of the rules regarding insurance for consumers.

Question 26

Insurance Act 2015

Answer 26

Reformed a lot of the business rules for insurance.

Question 27

Banque Financiere v Westgate

Answer 27

Voluntary assumption of responsibility in silence. This can occure where 1. there was a voluntary assumption of responsibility by one party, and 2. there was reliance on that voluntary assumption. This will be difficult to prove in reality, but the court gave the example of a father who engaged an estate agent to advise his son regarding purchasing a property - the estate agent would assume responsibility to the son.

Question 28

Hamilton v Allied Domecq

Answer 28

Voluntary assumption of responsibility in silence. Followed Banque Financiere. Here they owned right to mineral ater. Entered into the contract for the company to market and distribute the water. Claimant wanted them to distribute in the catering sector first, but they didn’t. The company went bankrupt, he sued for misrep, and failed. The court said he had not voluntarily assumed responsibility in silence, he was not under a duty to tell the claimant their strategy - it might be morally questionable, but that is not saying he had a legal duty to speak up.

Question 29

Hayward v Zurich

Answer 29

Inducement. Knowledge that another party’s statement is untrue will prevent action in misrep if it is genuine knowledge - mere suspciion or possession of information which could reveal the lie if checked are not enough. Here, Zurich suspected Hayward might be exaggerating his injuries, but they agreed to settle. The neighbor told the employer the injury was exaggerated and Zurich was able to reopen the case - the fact that hey had a suspicion was not enough to rule out action because it had induced them to enter the contract.

Question 30

Esso v Mardon

Answer 30

Negligent Misrep. The court applied Hedley Byrne. Here the salesperson with 40 years’ experience said a new station would sell 200k gallons per year, they relied on this and built a much smaller station. There were significant losses, and he counter sued based on the reliance on Esso’s negligent misrep (who should have known what the real potential was, that special relationship) and was successful.

Question 31

2.1. of the Misrepresentation Act 1967 - Misrep under statute

Answer 31

Where one party enters into a contract as the result of a misrep by the other, the innocent party can claim damages, unless the other party can prove at the time the contract was made, they believed the statement to be true, and had reasonable grounds for that belief. This creates a type of negligent misrep, but with the burden of proof reversed, so that the person making the statement has to prove they were not negligent.

Question 32

Howard v Ogden

Answer 32

S.2.1. Misrep Act. The burden of proof is heavy. Here they needed to dump a bunch of clay at sea, hired the other company which had barges. The barge owner stated the official numbers from the company of the official register, but the capacity turned out to be lower, and this information would have been at the barge ownner’s head office. He was successfully sued under the statute, saying they had failed to prove they had not been negligent - the statute imposes an ABSOLUTE OBLIGATION not to state facts which the representor cannot prove he had reasonable ground to believe.

Question 33

Spice Girls v Aprilia

Answer 33

S.2.1. Misrep. Made a promotional agreement with the SG for a photo shoot and to sponsor them. They knew one of the five planned to leave. When she left, they were left with unusable material, and sued. They were awarded damages based on the fact that the others knew one of the five of them would leave, and allowing the shooting created a rep that she would remain with the group.

Question 34

4 types of Misrep

Answer 34

1. Fraudulent Misrep. 2. Negligent Misrep. 3. Statutory Misrep. 4. Innocent Misrep. S.2.1 of the Misrep act cover 3 and 4. If they cannot defend, it is 3, it they can prove that their statement was believed to be true at the time of contract and had reasonable grounds for that belief, it’s 4, which avoids liability.

Question 35

4 cases where rescission is impossible

Answer 35

1. affirmation. 2. lapse of time. 3. cannot go back to the pre-contractual situation. 4. rescission would deprive an innocent 3rd of rights acquired over the property which is the subject of the contract. Rescission is an equitable remedy which sets the contract aside and puts the parties back in their pre-contractual situation and available for all 4 types of misrep. Because it is an equitable remedy, it may be refused when inequitable.

Question 36

Re Hop and Malt Exchange

Answer 36

Affirmation. This is common in sales of shares where a misrep is found after buying shares and where the blessed party tries to resell the shares - this is an act of ownership and inconsistent with rescission of the contract.

Question 37

Salt v Stratstone

Answer 37

Lapse of Time. He bought a Cadillac, stated to be brand new. There were ongoing problems that were remedied, but after a year, he asked for his money back.This was refused and he sued. During proceedings, he discovered the car was not new and would have been a misrep. Here a lapse of time was short since discovery of the misrep, and rescission was granted. Also important to rescission, here it was argued that the car was originally unregistered but had since been registered, so the parties couldn’t be returned to pre-contractual position. This was held to not be an impossibility, as registration was a legal concept that did not change the physical entity of the car.

Question 38

Vigers v Pike

Answer 38

Impossible to return to pre-contractual position. This usually happens when the subject matter has been used up or destroyed. Here, by the time the issue of rescission came up, the mine had been used up, so rescission was impossible.

Question 39

Clarke v Dickson

Answer 39

Impossible to return to pre-contractual position. Here he bought shares in a mining company, and after some years the mine was in such bad position they had to close. He realized there had been misrep when he bought the shares, and sought rescission. This was impossible, because the closure of the company meant the shares were worth nothing - he had to sue n deceit and try to recover damages instead.

Question 40

Erlanger v New Sombrero

Answer 40

Impossible to return to pre-contractual position. Where most of the subject matter can be restored to the other party, or if it can corrected, a court may order rescission with compensation for partial loss. Here, it was again a mine, but only partially worked.

Question 41

Halpern v Halpern

Answer 41

Impossible to return to pre-contractual position. Here they agreed to a Jewish arbitration to settle an estate, where they agreed all documents should be destroyed. One didn’t follow the agreements, was sued for rescission. Court agreed that rescission is sometimes impossible, but counter-restitution would be very rare to be impossible. They followed Erlanger and suggested the loss of documents could be compensated financially.

Question 42

White v Garden

Answer 42

3rd Party Rights. Rescission is not possible after a 3P has acquired rights under the contract. They must be a bona fide purchaser for value, so there must be consideration - this is another example of the bar based on impossibility of restitution. Here, he bought 50 tons of iron by persuading him to take payment of a BOE which was accepted by a 3rd. The iron had been resold, but then the BOE was found to be useless as the person didn’t exist. At the time of the second sale, the contract had not been voided (remember it’s voidable, not void) and so that second sale was valid… He owed the iron to the second owner…

Question 43

De Molestina v Ponton

Answer 43

All or Nothing. Partial rescission is not possible. The victim of a misrep was permitted to rescind the whole but not a part of it. If the whole cannot be rescinded, then it can not be rescinded at all - damages will be awarded instead. Rescission is supposed to put the parties back in their original positions, not create a new agreement.

Question 44

Whittington v Seale

Answer 44

Indemnity Payment. The courts can order an indemnity, which is not damages, it is designed to put the parties back in their original positions, only available for obligations necessarily and inevitably created by the contract. He was a poultry breeder renting a farm - the water turned out to be poisoned, his poultry all died and he got very sick. Sued for the poultry, repair and his medical bills. He only got 20pounds to repair the drains (hygienic condition was not a term of the contract), and the only thing that NECESSARILY came from the contract was keeping the farm - it was not necessary to have poultry on it!

Question 45

East v Maurer

Answer 45

Damages. Where a party is induced to enter a contract by misrep, they have a right to damages for any loss, unless it is innocent, where then it will be a the judge’s discretion. Here, they owned two salons very close to each other, sold one and told the buyer they wouldn’t be running the other one. This was important as it would create competition. He lied, continued to work the other one, the buyer failed to make a profit and was unable to sell it. He was awarded damages for his actual losses, and loss of the profit he could have expected. DAMAGES FOR MISREP ARE CALCULATED USING THE TORT MEASURE (put the parties back in the position they would have been in before the tort), RATHER THAN THE CONTRACT MEASURE (position they would have been in had the contract been performed as agreed).

Question 46

Smith v Scrimgeour

Answer 46

Damages, remoteness of damages. Here they bought shares at a premium because they were fraudulently told there were other buyers. Unknown to either party, the shares of the company were even lower than that because the company had itself been shammed… could they claim only for the premium or for the entire loss? All of the loss - the damages had to be assessed to include all the losses flowing naturally from the original fraud.

Question 47

Royscot Trust v Rogerson

Answer 47

Here the courts established that the damages available for statutory misrep were to be the same as for fraudulent misrep, so the damages under s.2.1 are now as a good as where there is fraud, without having to prove a fraud

Question 48

The Wagon Mound N. 1

Answer 48

Remoteness of damages. For common law misrep, the loss must have been a reasonably foreseeable consequence of the misrep - here the liability is limited to the position assessed at the date of the wrong - the same for innocent misrep.

Question 49

Misrepresentation and remedies

Answer 49

Rescission and indemnity are available in all four types of misrep, damages as well. For fraudulent misrep (Derry v Peek), damages cover all the actual damage directly flowing from the misrep. In statutory misrep under s.2.1., the same, all directly damage. In negligent misrep at common law (Hedley Byrne v Heller), liable for any loss that was a reasonably foreseeable consequence of the misrep. In innocent misrep, damages instead of rescission can be awarded under s.2.2.

Question 50

Misrep and Terms

Answer 50

Section 1 of the Misrep Act 1067 states that where a misrep becomes a term of the contract, the innocent party may bring an action for both misrep and breach of contract.

Question 51

AXA v Campbell

Answer 51

Excluding liability for misrep. Any exclusion of liability for misrep must be clearly stated. Axa entered into a contract with Campbell on Axa’s standard terms, with an entire agreement clause that included language about representations, which was considered insufficient. To encompass “representations for all purposes” the language used must go further and express clearly the parties’ intentions to this effect. In this case, the reasonableness test was passed and showed the parties’ clear intention to exclude liability for misrep.

Question 52

Springwell v JPMC

Answer 52

A non-reliance clause operates as an estoppel, preventing a subsequent claim for misrep by the representee, held that where the parties to a contract agree that a certain state of affairs forms the basis of the transaction, they are estopped from asserting that the true facts were different. The parties are allowed to agree to pretty much whatever they want to, nless there is some principle of law or statute, there is nothing that prevents them from assuming that a certain state of affairs exists, even if it is not the case.

Question 53

Pearson v Dublin

Answer 53

Excluding liability for misrep. It is not possible to exclude liability for fraudulent misrep.

Question 54

Misrep Act 1967

Answer 54

Excluding liability for misrep. An exclusion clause will only be effective if the person seeking to rely on it can prove that the clause was reasonable at the time the contract was made. The meaning of ‘reasonableness’ is considered in the UCT 1977.

Question 55

Walker v Boyle

Answer 55

Excluding liability for misrep. The seller of the house told the buyer that there were no disputes as to thte boundaries of the property. Unknown to the seller, this was not true. The innocent misrep appeared to entitle the buyer to rescind the contract, but the contract stated an exclusion clause excluding omissions or mis-statements - this was held to be unreasonable, and the contract was rescinded.

Question 56

Raiffeisen v RBS

Answer 56

Excluding liability for misrep. The key question is whether the clause is trying to make clear the basis on which the parties are entering the contract or whether it’s attempting to rewrite history. If it is rewriting history and the parties are not of equal brgaining power and it is not a consumer contract, it will be viewed as an attempt to exclude liability for misrep and will read according to s.3. of the Misrep Act and its requirement for reasonableness.