Contract 6: Misrepresentation Flashcards
What is a misrepresentation?
False statement of fact or law made by one party to another to induce them into entering the contract.
Does a misrepresentation have to be said or in writing? (what actions can constitute misrepresentation)
Conduct
- vendor covering up defect in product
Silence only if:
- Fiduciary relationship
- Relationship of trust and confidence (partnership)
- Contracts of utmost good faith
- Partial non-disclosure/ half truth if misleading
- failure to correct representation where situation changes before contract is entered into
Can a statement of opinion be a misrepresentation?
Not if it is honestly, genuinely and reasonably held.
Can a statement of intention be a misrepresentation?
Will be misrepresentation if at the time they knew that it was false
Can a promise or statement about a future event be a misrepresentation?
No because they cannot be a statement of fact.
Promise may however be a term.
What does it mean for a statement (potential misrepresentation) to induce a party to enter a contract? What will prevent this from being the case?
Does not have to be the only reason but must be substantial reason
Will not have induced if:
- If innocent party did not believe it to be true
- If statement was not communicated
- If it did not affect the parties decision
- If it was mere puff (cannot have induced party)
What are the different types of misrepresentations?
Fraudulent
Requires that statement was made:
- Knowingly;
- Recklessly (careless to if it was true or not); or
- Without belief in its truth.
Negligent
- Actionable unless the person who made it can prove that they had reasonable grounds for believing, and did believe, that the facts were true
Innocent
- Misrepresentation that is not made fraudulently or negligently
- Maker of statement had reasonable grounds for believing that it was true
What remedies are always available for misrepresentation?
Contract voidable
- can choose to rescind it (parties put back in place as if contract had never been entered)
Damages
- depends on type of misrepresentation
How can a party rescind contract for misrepresentation?
- Innocent party must notify other party of their intention to rescind contract or obtain court order
- Otherwise other party can treat contract as ongoing
- If innocent party rescind contract courts may order indemnity for the party that made misrepresentation
- Purpose is to restore parties back to pre-contractual state
When might rescission not be available?
Affirmation
- If whilst having full knowledge of misrepresentation
- Can be by statement or by conduct (such as continuing performance)
Lapse
- Must rescind in reasonable time
Impossibility of restitution
- Goods in question have declined in value
- Nature of subject matter had changed substantially
3rd Party Rights
- If bona fide 3rd party has acquired any rights under contract (good title)
When does time for lapse of rescission start running for misrepresentation?
Non-fraudulent
- time starts when they discover, or should have discovered misrepresentation
Fraudulent
- when fraud is discovered
What damages are available for fraudulent and negligent misrepresentation?
- Damages to put innocent party back into position they would have been in had representation not occurred
- Innocent party can recover all losses incurred as a result of transaction
- Do not have to prove that losses were reasonably foreseeable
What damages are available for Innocent Misrepresentation?
- Generally no damages available
However, damages can be awarded by courts in lieu of rescission
When are damages in Lieu of Rescission available?
Available at discretion of court for:
- Innocent and negligent misrep
- Not available if right to rescind has been lost
In practice used when misrep is so small that it would be inequitable to deprive other party of benefit of contract
What is included in damages for misrepresentation?
Damages to recover losses incurred as a result of entering into the contract and any incidental expenditure
Minus
- benefit innocent party received
- failure to mitigate losses
