Contract 7 False Preliminary Statement

Question 1

Define misrepresentation

FBI

Answer 1

a false statement of fact made by one contracting party to another before the contract was made and which was one of the factors that induced the other party to enter into the contract

Question 2

In the case where a contractual relationship is not present, what kind of recourse can the innocent party pursue if he has suffered loss from a misstatement of fact?

Answer 2

Misrepresentation cannot be claimed. Action available in tort for negligent mistatement

Question 3

Pros and cons for action on the ground of negligent mistatement over misrepresenation

2 advantages
3 disadvantages

Answer 3

Advantages:
no need of contractual relationship
opinion may be a negligent misstatement, whereas opinion cannot be a misrepresentation

Disadvantages
s.2(1) misrepresentation Act is better for C since the onus of proof is on D to show the statement that before contract he reasonably believed and he did believe was true

remoteness test in contract is less strict (contemplation/ordinary course of thing vs reasonable forseenability)

in tort the duty of care owed still needed to proven for pure economic loss (Hedley Byrne & Co v Heller) that there was a voluntarily assumption of responsiblity and C did rely on it reasonably.

Question 4

Define a term

Recall condition, warranty and innominate term

Answer 4

a term is a part of the contract which if unture, provides a remedy for breach

condition is a term that if breached will make the contract voidable
a warranty is a term that if breached entitles the C for damages but not the right to rescind
innominate term may give rise to either result, depending on the matter and degree

Question 5

Define representation

Answer 5

a statement made by one party to the contract which may have induced the other party to enter into the contract, but does not form part of it

Question 6

Define sales puff

Answer 6

an obviously extravagant claim providing no right of action (red bull does not actually give you wings)

Question 7

The test to determine if a statement is a term or representation

(2) IRea

Answer 7

what were the parties’ intentions at the time of the statement?

would a reasonable man consider the parties’ intention to be that the statement is a term or a representation?

Question 8

4 situations where a statement will be likely to be treated as a term

JIZZ GISS

Answer 8

If the party making the statement has Greater skill/knowledge than the recipient (Dick Bentley Productions ltd) G

if the statement is of vital Importance to the contract and the recipient made this known (Bannerman v White) I

Where the maker of the statement tells the recipient not to bother to verifying/make Sure of it (Schawel v Reade) S

Where the party makes a statement about something which is or should be under his control/Sway (Birch v Paramount Estates ltd) S

Question 9

4 situations where statements likely to be treated as representation

STAR

Answer 9

The recipient of the statement has greater skill/ knowledge (Oscar Chess Ltd v Williams) S

there was a long time lapse between the statement and the contract (Routledge v Mckay) T

The maker of the statement asks the recipient to verify (ascertain) it (Ecay v Godfrey) A

The statement is oral and not repeated in the written contract (Routledge v Mckay). But this is not a definitive rule. the contract could be deemed part written, part oral so the oral part could be a term (Birch v Paramount Estates ltd) R

Question 10

Remedies in contract law for false statement

Consequences for the contract

Remoteness

Answer 10

Damages will be assessed on an expectation loss basis, the aim is to put C in the position he would have been in had the contract been properly performed.

The contract is voidable (can affirm it and claim for damages)

Scope of damage: natural and contemplated (Hadley v Baxendale)

Question 11

For breach of a term in contract, the scope of damages are those which are natural or contemplated (Hadley v Baxendale)

What do natural and contemplated mean in this context

Answer 11

Natural: those which fairly and reasonably should be considered as arising naturally from breach of contract

Contemplated: those which may reasonably be supposed to have been in the contemplated of both parties at the time the contract was made)

Question 12

What are the consequences if the misstatement is a description of goods?

Answer 12

there is a possible breach of the implied term that goods such match their description (recall s.13 SGA 1979, s.3 SGSA 1982; s.11 CRA 2015). remedies for whcih are damages and the option to reject the goods etc.

Question 13

For a statement to be regarded as a misrepresentation, the statement must be a false statement of fact.

How does the court understand ‘false’ and ‘statement of fact’?

Answer 13

The statement must be one of fact, not opinion (Bisset v Wilkinson) unless it is an implied false statement of fact:

the opinion is not genuine

there are no reasonable grounds for the maker to believe it is true

Question 14

Spice Girls v Aprilia World Service BV

Answer 14

Spice spices participated in the filiming of a TV commerical. held that by conduct they did not know or have any reasonable ground to know that one of the members had intended to leave

a representation can be made by conduct

Question 15

Edginton v Fitzmaurice (Company loan)

Answer 15

Directors of a compnay said the purpose of a loan was to expand the business but the true intent was to pay the compnay debt. held that intention was a misrepresentation

an intention could be a misrepresentation if it is proven that the party making it never held that intention.

Question 16

Could silence be amount to a misrepresentation?

(4) FUCK

Answer 16

Silence does not constitute a misrepresentation (Hamilton and Others v Allied Domecq plc) except:

where there is a fiduciary relationship between the parties, eg solicitor and client or trustee and beneficiary F

where the contract is one of the utmost good faith (uberrimae Fidei), eg an insurance contract; U

where a statement of fact is true when made but a change of circumstances occurs before the contract is formed which makes the statement untrue. Failure to disclose the change in circumstances may amount to a misrepresentation (With v O’Flanagan). C

where there has been a half truth (FAKE) (Curtis v Chemical Cleaning and Dyeing) K

Question 17

Elements for a misrepresentation to be held as a breach of contract

FBI

Answer 17

a false statement of fact
made at the time of / before the contract
that induces the representee to enter the contract

Question 18

For a misrepresentation to have induced a representee to enter a contract, it must be shown that:
(2)

Answer 18

there must be reliance on the representation/statement (attwood v small).
the statement only has to encourages entry into the contract and it needs not be the only inducement.

Question 19

How is C’s responsibilty to verify a representation factored in assessing whether a misrepresentation has been made amount to a breach?

Answer 19

the representee’s failure to verify will not prevent a misrepresentation claim (Redgrave v Hurd), unless

the true position was set out in the final contract and C is experienced in the area

cases distinguished where C was a customer (Curtis v Chemical Cleaning & Dyeing Co) or a business partner (Peekay Intermak ltd)

Question 20

Whittington v Seale-Hayne

Answer 20

P rented a few premises to raise prized poultry after being told the places were clean and properly maintained. the premises turned out to be nothing as claimed. Held in favour of P but damages are not available since damages are not the proper consequence of rescinding the contract. Expenses are indemnified instead.

In an action for rescission of a lease on the ground of innocent misrepresentation, C may be only entitled to an indemnity as to what was expended under the terms of the lease.

Question 21

Recall the concept of rescission

Answer 21

Rescission is an optional remedy, available for all forms of misrepresentation. The effect of rescission is that each party returns money properly to each other, and both are released from future obligations.

The innocent party must notify the other of the intention to rescind.

Question 22

Situations where a contract may not be rescinded

TARD

Answer 22

an innocent purchaser acquires an interest in the property before the contract is rescinded

the innocent party affirms the contract

if it is impossible substantially to restore goods/property to the other ( Crystal palace FC (2000) ltd v Iain Dowie (football manager contract). but approximate restoration may be granted (Erlanger v New Sombrero Phosphate Co)

there has been an undue delay (‘delay defeats equity’) from the point at which the misrepresentation should have been discovered. (yet for fraudulent misrepresentation, from the point at which the misrepresentation was actually discovered)

Question 23

How may a court award damages in lieu of rescisson?

statutory authority
court’s direction in awarding the remedy
when the remedy is unavailable.

Answer 23

If the misrepresenation is minor and it would be unjust to allow the other party to rescind the contract

it is made under 2(2) Ｍ Act 1967
it is an equitable remedy so it’s at total discretion of the court
will not be available if rescission itself has been barred

Question 24

Rules for damages if the misrepresentation is fraudulent

Remedies
type of action
onus of proof
damage award principle
remoteness

Answer 24

damages can be claimed in either affirming or rescinding contract

fraudulent misrepresentation - sue in the tort of deceit

proof: C must prove statement was made knowingly or without belief in its truth or recklessly (Derry v Peek)

Damages awarded on tort principles: back to the position they would have been in before contract entered into)

remoteness irrelevant: including profits that would have been made had another contract been entered into (East v Maurer)

Question 25

Rules for damages if the misrepresentation is negligent

Remedies
Legal authority
Onus of proof
remoteness

Answer 25

damages can be claimed in either affirming or rescinding contract

sue under s2(1) MA 1967

proof: C only needs to show that there was a misrepresentation and he suffered loss

Damages awarded on tort priniciples but remoteness does not apply

Reverse proof: In defence, D need to prove that the misrepresentation was made at the time of/before the contract that he had reasonably ground to believe, and did indeed believed the statement he made was true.

Question 26

D’s defence for misrepresentation

can C rescind the contract if D’s defence succeeds?

Answer 26

D must prove that he had reasonable grounds to believe, and did honestly believe up to the time contract was made, that the facts were true

very difficult to established as there are objective and subjective elements to the belief in the truth of the statement

Even if defence succeeds, C may still opt to rescind the contract, provided that it is not barred. it must notify the other party of that intention or the contract is treated as ongoing.

Question 27

To be actionable, the representation must be a false statement of fact in either words or conduct.

Definition of False, Statement.

Can a statement about the future be false?
Can a statement of intention become misrepresentation?

Answer 27

False for these purposes means not substantially correct

Statements of fact are statements of present or past conditions

A statement about future events cannot be a statement of fact, as there is no way of ascertaining its truth

A statement of intention can be misrepresentation if the party making it knew that it was false when they made it.

Question 28

Rule on partial disclosure:

an investor is considering buying an office building, The seller tells the building is fully let. But the seller knew a substantial amout of tenants have already given notice to end the lease. is this actionnable misrepresentation?

Answer 28

Yes

the seller is giving a half-truth that is misleading and related to the fundamental interest of the contract.

Question 29

Rule on failure to correct a representation

Answer 29

They may be actionable since the maker of the statement has a duty to correct the information.

Question 30

Define fraudulent misrepresentation

Answer 30

It requires an element of fraud. the statement was made knowingly or recklessly without belief in its truth. it is very difficult to prove.

Question 31

Can a party exclude liability for misrepresentation

Answer 31

Any attempt to exclude liability or any remedy for misrepresentation will be void unless it is reasonable. truth is such kind of exclusion is unlikely to be reasonaable.

Question 32

How may damages be awarded if C sue relying on S. 2(1) M Act?

Answer 32

Damages under s 2(1) are awarded in accordance with tort principles. The aim of the court is to put the innocent party in the position he would have been if 
the misrepresentation (and the contract) had not been made

The usual foreseeability test for tort does not apply, so damages will be awarded more extensively than ordinary tort. Non- fraudulent misrepresentation will result in the same treatment.