False Preliminary Statements and misrepresentation Flashcards
Define a false preliminary statement
a false statement of fact made by one contracting party to the other before the contract was made and which was one of the factors which induced the other party to enter into the contract’
Define misrepresentation
Misrepresentation is a false statement that induces someone to enter a contract but isn’t a term of the contract itself.
Pre-contractual misrepresentation is a vitiating factor whereby it is deemed to have induced a party to enter into a contract if it would affect the judgement of a reasonable person in deciding whether or not to enter into that contract.
Define a contract term
A contract term is a statement that is actually an explicit promise within the contract
Explain the difference between a false statement vs a false misrepresentation of a contract term
If a statement is purely represented a certain way that is actually a misrepresentation (not an actual term of the contract) the wronged party is only entitled to claim damages if the other party was at fault.
However, If a term (term of a contract that was agreed to) turns out to be false, the party that made it is liable even if they weren’t at fault.
State the Test for Determining if a Statement is a Term
- Intention (Objective Test)
Whether a statement is a term is based on the parties’ intention - Timing of the Statement
- Importance of the Statement
- Expertise of the Parties - Relative positions
- External Verification
What is the general rule regarding silence - does it amount to misrepresentation or simply non-disclosure
English law draws a fundamental distinction between misrepresentation (which gives rise to liability) and non-disclosure or silence (which generally does not).
Therefore the general rule is that silence does not amount to actionable misrepresentation.
- Sykes v Rose (2004)
Define ‘uberrimae fidei’
The term “uberrimae fidei” is Latin for “utmost good faith,” and it refers to contracts that require a higher degree of honesty and disclosure than is demanded in ordinary commercial contracts.
Explain a uberrimae fidei contract
uberrimae fidei contracts are a very limited, exceptional group of contracts that can be avoided by one party if the other party has not disclosed material matters known to him.
In English law, contracts uberrimae fidei are most commonly associated with insurance contracts, but they can also apply to other types of agreements, such as family settlements and contracts for the sale of land.
Parties to an uberrimae fidei contract must disclose all material facts relevant to the agreement. In insurance, for example, the proposer must disclose all known risks to the insurer to allow them to accurately assess the risk and calculate premiums.
A circumstance will be material if it would influence the decision of a prudent insurer to enter the policy or the terms on which it would contract even if it would not have been decisive, in the sense that a prudent insurer would have declined the policy had it been disclosed.
- Pan Atlantic Insurance Co v Pine Top Insurance Co Ltd (1994)
If a party fails to disclose a material fact, the contract may be voidable at the option of the innocent party.
Explain the general rule regarding a Representation that is later falsified (becomes untrue)
General rule: If a statement is true when made but is later falsified by a subsequent event, the maker of the original statement must disclose the new position and will be liable if he keeps silent without doing so.
There is authority to suggest that the ‘continuing representation’ principle applies where the representor accurately states his intention at the outset, then subsequently (but before contracting) changes his mind without informing the other party. This is justifiable on the basis that, at the time of contracting, there is a continuing, and false, representation of fact as to the state of the representor’s mind.
With v O’Flanagan (1936) - the vendor should have disclosed the change in circumstances and the contract was set aside.
Explain the general rule regarding Telling only half the truth - can it amount to misrepresentation?
General rule: Where the representor tells the literal truth, this may nonetheless be misleading in the light of other salient matters which the representor has left out
- Notts Patent Brick and Tile Co v Butler (1886)
Explain the general rule regarding wether conduct can amount to misrepresentation or wether it must be explicit
Misrepresentations usually take the form of words, but sometimes conduct or gestures can ‘make a statement’ that amounts to an actionable misrepresentation. Where simple gestures are concerned, this is fairly obvious, such as where a contracting party, in response to a question, puts his thumb up rather than expressly answering ‘yes’.
Therefore, when someone gives ‘a nod or a wink, or a shake of the head or a smile’ it can amount to misrepresentation
- Walters v Morgan (1861)
Spice Girls Ltd v Aprilia World Service BV (2002) -The Court of Appeal held that the Spice Girls’ conduct before the contract, such as supplying logos and images and participating in photocalls, combined with express assurances about their commitment to the project. Thus the court had relied on this representation by conduct, and was therefore entitled to damages.
Explain the rule that for something to amount to misrepresentation it must be of fact
Only a misrepresentation of fact will give rise to liability. Other sorts of statements, such as general opinions, exaggerated, flippant comments not intended to be taken seriously (‘mere puffs’) statements of opinion, or statements of future intention will not generally be actionable.
As a general rule, a statement of opinion or belief is not the same as a statement of fact, so a statement of opinion which turns out to have been unjustified will not give rise to liability for misrepresentation.
However if, judging the matter objectively, the court thinks that the statement was intended to be taken seriously, it will not be dismissed as a mere puff even if it is somewhat extravagant (Carbolic Smoke Ball Company).
This is easier to judge if the maker of a statement has special knowledge or expertise relative to the other party, the courts tend to treat what appears to be an opinion as nonetheless actionable as a misrepresentation.
State the conditions that need to be satisfied In order for a representation to be considered an actionable misrepresentation,
In order for a representation to be considered an actionable misrepresentation, it generally must satisfy the following criteria:
- The representation must be a false statement of fact, not opinion or intention, made by one party to the other before or at the time of the contract.
- The representation must be material, meaning it would likely influence a reasonable person’s decision to enter into the contract.
- Inducement (Reliance): The representee must have been induced to enter into the contract by relying on the false representation.
- Causation: There must be a causal link between the misrepresentation and the representee’s entry into the contract.
If these criteria are met, the misrepresentation is actionable, and the representee may be entitled to remedies such as rescission of the contract (setting the contract aside) or damages.
The specific remedies available may depend on whether the misrepresentation was fraudulent, negligent, or innocent.
Explain a collateral contract
Collateral Contracts:
Sometimes a statement not in the main contract can be a term in a separate, collateral contract.
A collateral contract is a separate agreement that can add to or contradict the main contract. It requires offer, acceptance, intention to create legal relations, and consideration, which may be entering into the main contract.
This can happen even if the main contract has an ‘entire agreement clause’ that tries to exclude other terms (City & Westminster Properties Ltd v Mudd).
Entire agreement clause a state that all terms are in the main contract, aiming to prevent claims based on external statements. However, they can sometimes thwart the actual intentions of the parties.
Explain why the misrepresentation must have had an impact on the represent
For a misrepresentation to be actionable, it must have caused the representee to contract. This is known as causation or reliance.
Where a misrepresentation has been established, the misrepresentee has a choice whether or not to avoid the contract. It renders the contract voidable. It is incorrect to say that the contract is automatically void.
The courts focus on whether the representee actually relied on the misrepresentation when deciding to enter the contract. If the misrepresentation was a significant factor in the decision to contract, even if not the sole or main reason, it can be considered to have caused the contract.
JEB Fasteners v Marks Bloom & Co (1983) and Edgington v Fitzmaurice (1885).
