Lecture 14-Misrep Remedies Flashcards
Misrep Remedies
1.Rescission
2.Damages
Both can be claimed
Types of Misrepresentation
Innocent: a representation that is neither fraudulent nor negligent
Negligent: where a statement is made carelessly or without reasonable grounds for believing its truth
Fraudulent: where a false representation has been made knowingly, or without belief in its truth, or recklessly as to its truth.
Remedies for the types
Rescission is available for all misrepresentation.
Damages and recission may be awarded for fraudulent and negligent misrepresentation.
Damages may be awarded instead of rescission for innocent.
What is rescission? (+ Act)
EQUITABLE REMEDY
Rescission unwinds a contract to the beginning.
It can be used without going to court – so someone can rescind the sale of goods by returning the goods and cancelling their payment.
Misrepresentation Act 1967 – s1
Rescission Limitations
- Restitution impossible
- Third Party rights
- Affirmation
- Lapse of time
Restitution Impossible
If the parties cannot be restored to their original positions, restitutio ad integrum is said to be impossible, and rescission will ordinarily be barred.
A typical example is where the subject matter of the contract has been used up, altered, or destroyed.
Traditionally this was thought to be in ‘entirety’.
Entirety Case
Erlanger v New Sombrero Phosphate [1838]
Rescission was granted even though the valuableness of the contract was not entirely used.
‘Practical Justice’ Case
Salt v Stratstone Specialist Ltd [2015]
Rescission may be granted in the interests of practical justice through also awarding compensation
Affirmation
Once a representee has become aware of the misrepresentation then they should take action to rescind the contract.
If they do not a court may consider them to have affirmed it.
Acknowledgement of the misrepresentation, but the C’s actions do not challenge the misrepresentation.
Affirmation Case
Long v Lloyd [1958]
Rescission cannot be granted once the goods have been accepted
Lapse of time
In contrast, lapse of time can run from date of contract even though misrep has not been discovered where the misrepresentation is innocent
Lapse Case
Leaf v International Galleries [1950]
5-year delay in discovering the misrepresentation
Lapse of Time Contrast Case
Salt v Stratstone Specialist Ltd
Unlike Leaf v International Galleries, the misrepresentation here was negligent, and where the misrepresentation is negligent or fraudulent, the time should be counted from the date of discovery of the misrepresentation, rather than the date of the misrepresentation
Third Party Rights
Rights acquired by legitimate third party from the representor cannot be defeated by rescission.
Timing is of the essence.
Third Party Rights- 2 Requirements
1.The third party must have acquired their interest in good faith and for value (not having any knowledge or understanding of the misrep)
2.The third party must have acquired their interest without any notice of the defect
Manager Case
Crystal Palace FC v Dowie [2008]
It would not be just to that club to make an order the effect of which was to place D under an employee’s obligations to P. A manager could not perform two employment contracts at the same time- the club had acquired third party rights.
‘Practical justice’ required the order of damages
Communication Case
Car and Universal Finance Co Ltd v Caldwell [1965]
If a party to a contract, by deliberately absconding, put it out of the power of the other party to communicate his intention to rescind, then he could not insist on his right to be made aware of the election to determine the contract and the innocent party must be allowed to exercise his right of rescission
Prior to Misrepresentation Act 1967
Representee could sue in tort law via tort of deceit for fraudulent statements or negligent misstatement for negligent misrepresentations following Hedley Byrne
There was no remedy for innocent misstatement and the two potential tort claims were difficult to establish
Law Reform
Criticism – the difficulty in proving fraud even when there had been gross misrepresentation.
Law Reform Committee (now the Law Commission) reported….
Tenth Report ‘Innocent Misrepresentation’ (Cmnd 1782, 1961-2)
The Misrepresentation Act 1967
THE MISREPRESENTATION ACT 1967 GOVERNS CONTRACT LAW IN IN SITUATIONSWHERE MISREPRESENTATION IS INVOLVED PRIOR TO PARTIES ENTERING INTO A CONTRACTUAL AGREEMENT.
THE ACT NOW ENSURES THAT PARTIES HAVE AN ACTION TO PURSUE IN CONTRACT LAW AS WELL AS THE LAW OF TORT.
S 2(1) 1967 ACT – DAMAGES
Removed lack of a remedy in contract for negligent misstatements.
Eliminates distinction between negligent and fraudulent misrepresentations.
Claimant has to prove they entered a contract as a result of relying upon a misrepresentation.
HOW DOES IT APPLY?
Once she shows that a misrepresentation has been made, it is for the representor to show that he had reasonable grounds to believe the representation was true.
Reasonable Grounds Case
Howard Marine & Dredging Co [1978]
The D based a misrepresentation on information within the Lloyd’s Register, which was false. The ships’ documents had the correct figures, but the seller did not check them. The court held that the seller was liable in damages. Because it had documents in its possession giving the correct figures, it had failed to show that it had reasonable grounds for its belief in the wrong figures.
S 2(2) 1967 ACT
Rescission an ‘all or nothing’ remedy.
S 2(2) provides court with the discretion to award damages (instead of) ‘in lieu of rescission’.
The contract in question will stand as valid but the representee induced to enter it will receive damages as the remedy for the misrepresentation.
S2(2) Applies to?
Innocent + Negligent
S 2(2) APPLICATION
Salt v Stratsone [2015] EWCA Civ 745
For damages to be available in lieu – rescission has to be potential remedy at trial or available when it was claimed
S 2(2) & FRAUDULENT MISREP
s 2(2) only applies to misrepresentations made other than fraudulently.
If fraudulent then a court has no power to order damages be paid in lieu of rescission.
Claimant can insist in rescission providing no bars to the remedy apply.
DAMAGES AND MISREPRESENTATION
Fraudulent misrepresentation
Awarded under tort of deceit and are tortious not contractual – all losses flowing from the fraud are recoverable.
There is no remoteness requirement with regard to reasonable foreseeability
NEGLIGENT MISREPRESENTATION
Can be claimed/awarded under tort of negligent misstatement but requires duty of care and special relationship.
In contract can be awarded via s 2(1) 1967 Act – advantage is that burden of proof falls on representor to show reasonable grounds for belief rather than C having to establish duty of care in tort.
