LAW - MISREPRESENTATION

Question 1

Misrepresentation Definition

Answer 1

An actionable misrepresentation is an UNTRUE STATEMENT OF FACT WHICH INDUCES a person to enter a contract

Question 2

ACT

Answer 2

Governed by both the common law and the Misrepresentation Act 1967 (MA 1967)

Question 3

Key concept

Answer 3

A party must be able to have a contract set aside and/or claim compensation if there has been misrepresentation.

Question 4

For misrepresentation there must be

Answer 4

An untrue statement of fact and NOT:

• Opinion
• Forecasts/statements of intention
• Trading puffery
• Statements of Law
• Silence or non-disclosure

= which induces a person to enter a contract

Question 5

An untrue statement of fact and not opinion

Answer 5

Opinion cannot be misrepresented if that opinion is incorrect.

It has to be an uninformed opinion ( Bisset v Wilkinson, 1927)

Question 6

Case study - Bissett v Wilkinson (1927)

Answer 6

Case - W entered into a contract to sell B farmland.

     - W told B that the farm could carry 2,000 sheep
     - Land has never been used as a sheep farm
     - After 2 years of unsuccessful farming, B brought an action to cancel contract and get his money back

Issue: Fact or Opinion

Ruling - Sellers statement was a matter of opinion, and thus any statement to capacity would be an estimate

Question 7

The statement must not contradict other facts known by the party giving the opinion

Case study - Smith v Land & House Property Corp (1884)

Answer 7

C - Mr Smith advertised hotel for sale, stated that it was let to Mr Fleck - ‘Desirable tennant’

• Fleck owed rent + court action
• Smith claimed his statement was opinion

I - Fact or opinion - Equal knowledge?

R - Held there was a misrepresentation relied on by LHP, Smith had no reason than otherwise to think that.

Question 8

It is more likely to be an opinion if the giver is not better informed than the receiver.

Case study - ESSO petroleum Ltd v Mardon (1976)

Answer 8

C - Mr Mardon was buying a franchise of ESSO

• Esso estimated that the station would sell 200,000 gallons a year
• Mardon signed a 3 year tennancy- sales were less than half

I - Fact or opinion - Expert knowledge?

R - Held there was a Misrepresentation relied on by Mardon
- Esso professed to have a special knowledge.

Question 9

An untrue statement of fact and not forecasts/statements of intention

Answer 9

• A statement of future intention is not generally a statement of fact
• Unless the person does not intend to perform that future action

Question 10

Case study - Edgington v Fitzmaurice (1885)

Answer 10

C - Edgington lent money to a company on the basis it would be used to expand company
- Directors intended to use it to pay debts

I - Misrep - Forecasts/statements of intention

R - The directors were liable

Question 11

An untrue statement of fact and not trading puffery

Answer 11

• A statement of fact does not include exaggerated advertising or vague boasts.
• The court will decide if a reasonable person would take the statement seriously

Question 12

Case study - Trading puffery

Dimmock v Hallett (1866)

Answer 12

C - Some land was being auctioned off

- Land was described as having 'fertile and improvable"    - It was a poor quality of land    - Dimmock sued on the grounds of misrepresentation 

I - trading puffery

R - The Court of Appeal held that the statement about the land ‘fertile’ was merely a ‘flourishing description’ and did not entitle the buyer to rescind.

Question 13

An untrue statement of fact and not statements of law

Answer 13

• In theory no one can be mislead as to what the law is because everyone is presumed to know the law.
• However if the law is misrepresented it is actionable

Question 14

Statements of law - Case Study

Pankhania v Hackney London Borough Council (2002)

Answer 14

C - The claimants bought a property, part of which was a car park
Council stated that tenants had 3 months notice
- Incorrect as the occupier was protected business Tennant under the Landlord and Tennant act 1954

I - Statements of law

R - The sellers incorrectly stated the law, there was remedy for misrep

Question 15

An untrue statement of fact and not silence or non-disclosure

Answer 15

• The general rule is there there is no legal obligation to disclose a material fact known to them
• ‘caveat emptor’ - let the buyer beware
• There are exceptions to the rule

Question 16

Not silence or non-disclosure case study

Fletcher v Krell (1873)

Answer 16

C - An applicant for a job as a governess failed to disclose the fact she had previously been married and remained silent on the point

I - not silence or non disclosure

R - It was held that there was no misrepresentation

Question 17

There are EXEMPTIONS TO THE RULE

• Representations by conduct

Case Study - R v Barnard (1837)

Answer 17

C - Defendant wore an Oxford undergrad gown to an Oxford shop, to qualify for their credit scheme

I - Representations by conduct

R - There was misrepresentation

Question 18

There are EXEMPTIONS TO THE RULE

• Deliberately concealing defects in goods

Case study - Gordon v Selico (1988)

Answer 18

C - Mr Gordon was to purchase a 99-year lease of a flat owned by the defendant Selico Ltd.
- Flat was poor conditions painted over dry rot

I - Deliberately concealing defects in goods

R - Held by the CoA that painting to conceal amounted to a misrepresentation

Question 19

There are EXEMPTIONS TO THE RULE

• Half-Truths

Case study - Dimmock v Hallett (1866)

Answer 19

C - Farm land was described as having a Tennant but had given notice to quit

I - half-Truths

R - Statement was misleading as it was assumed they wouldn’t be leaving

Question 20

Misrepresentation - INDUCEMENTS

Answer 20

• The statement of fact must induce the party to enter the contract
• If there are misrepresentations that do not induce the party, then they are irrelevant

Question 21

INDUCEMENT - Case Study - Bannerman v White (1861)

Answer 21

C - Bannerman formed a contract with White, regarding the purchase of Hops

 - specifically enquired if the hops had received a sulphur treatment - White assured they were untreated

I - Inducement

R - The assurance WAS a condition of contract.

Question 22

CHALLENGES WITH PROVING INDUCEMENT
Where the representee has the opportunity to discover the truth but fails to take it

Case Study - Redgrave v Hurd (1881)

Answer 22

C - An elderly partner wanted to sell 1/2 his business, he gave the prospective purchaser details of the income and could be checked by documents
- Redgrave didn’t check, income was less than said

I - representee has the opportunity to discover the truth but fails to take it

R - Contract was rescinded on the grounds of innocent misrepresentation, relying on the representations as enough, no duty to inspect the papers.

Question 23

CHALLENGES WITH PROVING INDUCEMENT

- Where the representee tests the accuracy but fails to discover the truth

Answer 23

• If the misrepresentation is fraudulent it will be actionable (policy)
• If it is not fraudulent then it is not actionable because the representee will be relying on his own inspection, and will be induced by that

Question 24

Where the representee tests the accuracy but fails to discover the truth

Case Study - Attwood vs Small (1838)

Answer 24

C - Seller of mine exaggerated claims about the potential

• The purchasers appointed their own sellers
• Accounts really exaggerated income
• Claimant sought to rescind the contract based on reports

I - Third party tests accuracy of statement

R - Claimant was unsuccessful, due to using external party to check

Question 25

CHALLENGES WITH PROVING INDUCEMENT Where there is more than one inducement

Answer 25

- If the misrepresentation is one of several statements which induced the contract it is still actionable - Only one false one is needed if you have relied on the untrue statement to some extent

Question 26

REMEDIES FOR MISREPRESENTATION

Answer 26

1) Remedy of Recession - Sets the contract aside and puts the parties back to where they were 2) Damages - Financial payment to compensate the injured party Choice of category depends on category of misrepresentation - Fraudulent, negligent and innocent The effect of recession is one of restitution It is not always possible to rescind the contract

Question 27

REMEDIES FOR MISREPRESENTATION Case Study - Car & Universal Finance v Caldwell (1964)

Answer 27

C - Mr Caldwell owned a jaguar - A rogue Mr Norris convinced him to sell it for £965 cheque - Cheque bounced - he informed authorities - mr N sold the car, was sold until ended up at Car & UF. I - Recission R - Mr Caldwell had rescinded the contract as he had taken all steps necessary to not be bound by the contract - noted the old maxim.

Question 28

CIRCUMSTANCES WHEN THE RIGHT TO RESCIND MAY BE LOST - Where innocent party affirms the contract by indicating that they wish to continue and not rescind If you want to rescind you must STOP using the goods/services. Case Study - Long v Lloyd (1958)

Answer 28

C - Lloyd advertised a lorry as being in 'exceptional condition'. - mr long went to see it, on a trial run did 11 miles to gallon, he bought it - 2 days later only did 5 miles, many issues, Mr Lloyd fixed it for 1/2 price. - Broke down again Mr long sued. I - Stop using goods/services R - Held the contract had been affirmed, when it was fixed, Mr long chose no expert to 'examine'.

Question 29

CIRCUMSTANCES WHEN THE RIGHT TO RESCIND MAY BE LOST - Where restitution is impossible Case Study - Erlinger v New somber Phosphate Co (1878)

Answer 29

C - E set up a syndicate bought an island, with phosphate mines, sold to new somber for £110,000, sold shares failed had due up a lot of phosphate and could not be put back. I - Where restitution is impossible R - Court ordered recession, promoters should have appointed independent directors, and fully disclosed circumstances

Question 30

CIRCUMSTANCES WHEN THE RIGHT TO RESCIND MAY BE LOST - Lapse of time Case study - Leaf v International galleries (1950)

Answer 30

C - Leah thought he was buying a painting from Inter galleries. IG said it was a Constable. 5 years later when he tried to auction it, leaf was told it wasn't a constable, he claimed recession against IG to get his money back. I - lapse of time R - In essence the court told that there was no breach of contract, no 'operational mistake'. But there was misrepresentation. However after 5 years the right to recession had lapsed.

Question 31

Categories of Misrepresentation - Fraudulent Misrepresentation

Answer 31

- Recovery of all direct loss from relying on the fraudulent misrepresentation regardless of forseeability

Question 32

Fraudulent Misrepresentation - Case Study Doyle V Olby (1969)

Answer 32

C - Mr Doyle bought a business from Olby. Said all business was behind the counter. But 1/2 came from travelling sales - Doyle sustained heavy losses - Judge awarded £1,500 in deceit as a result I - Damages for fraudulent misrepresentation R - Increased damages to £5,500, Mr Doyle could claim for all damage flowing directly from the deceit.

Question 33

Categories of Misrepresentation - Common Law negligent Mis-statement

Answer 33

- This is a false statement made with no reasonable grounds for believing it to be true - Hedley Bryne V Heller (1964) established liability for negligent mis-statement - Provides for recovery of compensation for financial damage through reliance by the claimant on statements made negligently by the defendant.

Question 34

Case Study - Hedley Bryne V Heller (1964)

Answer 34

C - HB had a customer, Escipower Ltd put in a large order. HB checked their financial position, so asked their bank to get a report from EpLTD bank, Heller & Partners. - Said it was good position, but wrote "without responsibility on the part of this bank" - EpLTD went into liquidation - HB sued Heller I-Common Law negligent Mis-statement R - The HoL found for Heller because of the exclusion clause.

Question 35

Mis-statements

Answer 35

- Principle also applies to mis-statements made during pre-contractual negations - To apply, there must be a 'special relationship' between parties. - Under the tort of negligence, damages must be reasonably foreseeable and the loss must not be remote.

Question 36

SPECIAL RELATIONSHIP - Not fully defined on the Hedley Bryne Case, Includes:

Answer 36

- A reliance by the claimant on the defendants specialist skill and judgement - Reasonable expectation of knowledge on part of the defendant - Reasonability for the claimant to rely on the defendent

Question 37

Misrepresentation Act 1967

Answer 37

- Introduced negligent misrepresentation - Enacts the category of wholly innocent misrepresentation - Supersedes the common law remotely of fraudulent misrepresentation

Question 38

Negligent Misrepresentation Under the Act S2(1)

Answer 38

2 Main reasons for its use: 1) The burden of proof is reversed 2) The remedies are recession and/or damages. The person who made the representation will be liable to the same remedies as if they were fraudulent.

Question 39

Act S2(1) Case Study - Royscot v Rogerson (1991)

Answer 39

C - Rogerson acquired on hire purchase a used car. Got finance company Royscott Trust Ltd. - The dealer filled wrong amounts in application making it below policy of 20%, Rogerson sold car, Royscott sued car dealer as figures were wrong. I - Negligent R _ Car dealer was liable, had to pay losses incurred to Royscott Trust.

Question 40

Negligent Misrepresentation Under the Act Wholly Innocent Misrepresentation S2(2)

Answer 40

- This is a 'false statement made by a person at the time had reasonable grounds to believe it was true' - At common law the remedy for misrepresentation was recession ONLY - Under the act, recession is still available, BUT court's now have the discretion to award damages in lieu of recession

Question 41

Act Wholly Innocent Misrepresentation S2(2) Case Study - William Sindall Plc v Cambridgeshire CC (1994)

Answer 41

C - Sindall agreed to buy land from CC after they were told the council were aware of no easements. But a private sewer was found after completion. Sindall sued for recession misrepresentation and common mistake I - Innocent mis-statement R - Held, damages would have been awarded, but found not to have been misrepresented.

Question 42

Exemption / Limitation Clauses - S3

Answer 42

- S.3 of misrepresentation Act 1967 was replaced by S.8 unfair contract Terms Act 1977. - It states that for the misrepresenter to exclude liability for the mis-statement they must show the clause satisfies the tests reasonableness - This applies for all contracts and not just business contracts