*FALSE PRELIMINARY STATEMENTS & MISTAKES*

Question 1

What can a statement made during a contractual negotiation be?

Answer 1

• express term which, if untrue, the innocent party can sue for breach
• a representation which is 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.
• if untrue, the innocent party may have a remedy if the statement amounts to a
  misrepresentation.

Question 2

What does s3 of the Misrepresentations Act 1967 say?

Answer 2

• any clause in a non consumer contract which purports to exclude or restrict liability for a misrepresentation will only be upheld if it satisfies the reasonableness test set out in s11 of UCTA 1977

Question 3

When the exclusion clause doesn’t exist or it fails, then initial focus will be on classification of the false preliminary statements. How does the court determine if it is a term or a representation?

Answer 3

1) does one party have greater skill or knowledge?
- (DICK BENTLEY PRODUCTIONS LTS V HAROLD SMITH)

2) is the oral statement repeated in the written contract?
- if yes more likely T, if no then R (ROUTLEDGE V MCKAY)
- note: court may decide that oral statement is acc term and that contract was made partly in writing and partly orally (BIRCH V PARAMOUNT ESTATES)

3) did the recipient of the statement make it clear that the statement was of vital importance
- yes, T as in BANNERMAN V WHITE

4) did the maker of the statement ask the other to verify it?
- If yes, more likely to be a R under (ECAY V GODFREY)
- if maker tells other not to bother checking it then likely to be term under (Schawel v Reade)

5) was there a lapse of time between the statement and the contract?
- if lapse of time then more like;y to be R (ROUTLEDGE V MCKAY)

Question 4

If the false preliminary statement is an express term of the contract then what is the next step?

Answer 4

• then consider the necessary remedies for that breach

Question 5

What if the false preliminary statement is a misdescription of goods?

Answer 5

• may amount to a breach of the statutory implied condition that goods sold by description must match that description under s13 SGA 1979 , SGSA s3 and CRA 2015 s11
• then must consider damages
• possibility of rejecting goods
• any additional remedies available to buyers dealing with consumers

Question 6

What if the false preliminary statement turns out to be a representation?

Answer 6

• then we look at if its a misrepresentation

Question 7

What is a misrepresentation?

Answer 7

• 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
• often there will be a doubt as to whether one or other aspect of the definition has been satisfied

Question 8

Explain ‘false statement’ in more detail.

Answer 8

• Spice Girls v Aprilia World Service BV [2000]
• conduct should be distinguished from silence ie silence will not amount to a misrepresentation
• exceptions to the rule on silence are:
  (a) where there is a fiduciary relationship between the parties, eg solicitor and client or trustee and beneficiary
  (b) where the contract is one of the utmost good faith, eg an insurance contract
  (c) where there has been a half truth (Curtis v Chemical Cleaning and Dyeing)
  (d) 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).

Question 9

The false statement must be one of fact not opinion. Give two cases which demonstrate this.

Answer 9

• Smith v Land and House Property Corporation
• Bisset v Wilkinson

Question 10

What if the maker of the statement is not the other contracting party?

Answer 10

• then there cannot be a claim for misrepresentation
• can only bring a claim in tort for negligent misstatement or deceit

Question 11

The statement must have been one of the factors which induced the party to enter the contract. Explain this further using case law.

Answer 11

• the statement doesn’t have to be sole reason why a party has entered te contract despite it encouraging them to (Edgington v Fitzmaurice)
• there is no misrepresentation if the buyer had relied solely on their own expert’s report and not on the seller’s statement under Attwood v Small (1938) 6 Cl&F 232.
• however, if the buyer relies partly on an expert’s report and partly on a false statement of
  fact made by the seller, the buyer can claim that the seller has made a misrepresentation.
  The seller’s statement will have been an inducement to enter into the contract even
  though it was not the only inducement.
• a claimant may still claim that a false statement induced them to enter the contract even though they were given the chance to verify the facts (Redgrave v Hurd).
• However, this principle may not be applied where the true position was set out in the contract signed by the claimant under Peekay Intermark Ltd v Australia and New Zealand Banking Group
  Ltd [2006] 2 Lloyd’s Rep 511
• see textbook for contrasting decision in Curtis v Chemical Cleaning and Dyeing

Question 12

Who does the burden of proof lie on to show that the statement was a misrepresentation?

Answer 12

• the party alleging that its a misrepresentation

Question 13

In terms of damages for a misrepresentation how can the innocent party go about rescinding the contract (ie make it voidable)?

Answer 13

• the innocent party must alert the other party that this is what they’ve decided to do
• if the other party has disappeared then the claimant can always ask the court for a formal order of rescission

Question 14

What is the aim of rescission?

Answer 14

• to restore both parties as far as possible to their pre contract positions
• TORTIOUS REMEDY

Question 15

When is the right to rescission barred?

Answer 15

1) if an innocent purchase acquires intent in the property before the contract is rescinded

2) affirmation
- innocent party can affirm or rescind contract
- if the innocent party elects to affirm they cannot change their mind
- can be implied as well as express

3) undue delay
- (Leaf v International Galleries)
- in calculating delay, the misrepresentation will be judged on when it should’ve been discovered

4) where it is impossible for a party substantially to restore goods or property to the other
- if a contract is rescinded the n should be able to return property and pay back money transferred under contract
- this is why it is difficult to rescind contracts for the sale of a business as they are likely to change their positions by entering contracts with third parties

Question 16

If a contract is rescinded then the innocent party can claim something. What is it?

Answer 16

• an indemnity for the expenses necessarily incurred as a result of entering the contract
• indemnity is very restricted and is only available as part of rescission
• see Whittington v Seale Hayne

Question 17

When can the court award damages in lieu of rescission under s2(2) of the Misrepresentations Act?

Answer 17

• only if misrepresentation is non fraudulent
• the court MAY award this depending on whether the false statement was about a minor matter, where it would be unjust to allow the other party to rescind the contract

Question 18

When can the innocent party sue for damages in the tort of deceit?

Answer 18

• when the false prelim statement was made fraudulently
• the party alleging a fraudulent misrepresentation must prove that it was made knowingly or without belief in its truth, or recklessly, whether it be true or false

Question 19

When might a claimant ask for damages under s2(1) of the Misrepresentations Act 1967?

Answer 19

• when the misrepresentation is non fraudulent
• all they have to show is that it causes loss

Question 20

What is the aim under s2(1) of Misrepresentations Act?

Answer 20

• accordance with tort principles
• put C back into position they would have been in if misrepresentation had not been made

Question 21

What must be satisfied for a claimant to recover damages under s2(1) of the Misrepresentations Act? Use a case to support your answer.

Answer 21

• the belief of the defendant must be reasonable, it is not enough that it is an honest belief
• Howard Marine & Dredging

Question 22

Why does the foreseeability rule not apply to damages under s2(1)?

Answer 22

• because damages here are similarly calculated to the way a tort of deceit is calculated for fraudulent misrepresentations
• so in tort of deceit all losses can be recovered even if not foreseeable

Question 23

Can a person claim damages for negligent misstatements? Use a case to support your answer.

Answer 23

• yes, in the tort of negligence
• Hedley Bryne & Co v Heller recognised an exception to the general rule that PEL not recoverable in tort
• here it was due to a negligent misstatement
• a duty of care can extend to careless statements where a ‘special relationship’ exists between the parties.
• it means the statement was relied on, the maker knew it was being relied on, and it was reasonable to rely on it.
• one advantage of suing for negligent misstatement is that the statement need not amount to a misrepresentation as such, eg there need not be a contractual relationship between the parties and the statement need not be one of fact. If, however, misrepresentation can be proved, it is usually better to bring an action under s 2(1) of the Misrepresentation Act 1967, as the burden of proof is reversed and the damages are better (eg as a result of Royscot there is no longer a problem with remoteness of damage under s 2 (1)).
• the claimant in a negligent misstatement claim must prove that the maker of the statement owed them a duty of care and had breached this duty causing loss, and the normal negligence remoteness rules will apply – ie the loss must be forseeable.

Question 24

What are the three types of mistake?

Answer 24

• common mistake (both parties have made the same fundamental mistake)
• cross purpose mistake (where parties at cross purposes about some crucial part of contract)
• unilateral mistake (where only one party is mistaken eg mistake as to identity of the other contracting party)

Question 25

Lit the conditions for a common mistake

Answer 25

• It will not operate if one party is at fault
• The contract must not make express provision on the matter
• The mistake must be fundamental, ie render performance of the contract impossible or radically different from what the parties anticipated.

Question 26

Raffles v Wickelhaus

Answer 26

• an example of cross purpose mistake

Question 27

List the conditions of a unilateral mistake

Answer 27

• only a genuine mistake where the identity of the other party is of vital importance and will render the contract void
• Cundy v Lindsay

Question 28

What happens to the mistaken party and the innocent purchaser if a bona fide purchaser has already acquired the goods?

Answer 28

• one of them is entitled to the goods
• other will be left suing rogue for damages
• mistaken party’s damages claim can be for breach of express term and misrepresentation
• innocent purchaser’s claim in breach of statutory implied condition e.g s12 SGA OR s17 CRA

Question 29

What guidelines should be followed to determine if there is misrepresentation (voidable) or mistake (void)?

Answer 29

1) if the parties are dealing face-to-face, there is a strong presumption that the innocent party intends to deal with the person in front of them (ie the rogue) rather than the person being impersonated.
- in that case, the contract is unlikely to be declared void for mistake, although it might be rescinded for misrepresentation.
2) where dealings are conducted exclusively in writing, the above presumption does not apply.
- instead, the written agreement must be construed to determine with whom the innocent party intended to contract
- if it was with someone other than the rogue then the contract might be void for mistake.
3) the nature of the transaction may indicate to the rogue that it is vital the rogue possess a particular attribute and, if they do not do so, the offer is not addressed to the rogue.
- eg, if someone orally commissions a portrait from an unknown artist passing themselves off as a famous painter, the rogue could not accept the offer.
- in other words, there would be no contract with the rogue.
4) if the person/ entity who the rogue is pretending to be actually exists and is known to the mistaken party (eg a registered company), it suggests that the offer is not addressed to the rogue.
- so, again, there could be no contract with the rogue; it would be void.

Question 30

When is a contract illegal?

Answer 30

• where its formation, purpose or performance involves the commission of a legal wrong, eg breach of a statutory provision or violation of public policy. Consequently, as a general rule, illegal contracts are void and courts will not allow recovery of benefits conferred in the performance of an illegal contract.