misrepresentation Flashcards
definition
An actionable misrepresentation requires a false statement of** fact or law** to be made by one party to another to induce them to enter into a contract.
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False Statement of Fact or Law
- either word or conduct
- ‘False’ for these purposes means not substantially correct.
- Statements of fact are statements of present or past conditions.
- A statement of opinion is not a statement of fact, as long as the opinion is honestly, genuinely, and reasonably held.
- A promise goes beyond a statement of fact, and is therefore not a representation (but it may be a term of the contract).
- A statement about future events cannot be a statement of fact, as there is no way of knowing the truth when the statement is made.
- A statement of intention may be a misrepresentation if the person making the statement knew that it was false when they made it.
silence
Silence will not usually amount to an actionable misrepresentation—there needs to be a false statement.
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Uberrimae Fidei (Utmost Good Faith)
- There are certain contracts, known as contracts uberrimae fidei or contracts of utmost good faith, where it is incumbent on the parties to** make full disclosure**. The reason is that one of the parties has knowledge essential to the contract which is impossible for the other party to check.
- Silence is not acceptable in a contract of this nature, and failure to discloseis an actionable misrepresentation. The doctrine of utmostgood faith is therefore very important in insurance law.
Partial Nondisclosure
A partial nondisclosure, or ‘half truth’, is essentially a statement that is technically true, but misleading. It can amount to an actionable misrepresentation.
Failure to Correct a Representation
- There may be an actionable misrepresentation if a representation made at the outset of negotiations is initially true, but it becomes false before the contract is entered into.
- The maker of the statement has a duty to correct the information, as
silence in this situation is not acceptable.
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Induces the Innocent Party to Enter into
the Contract
- For there to be an actionable misrepresentation, the false statement of fact or law must have induced the innocent partyto enter into the contract.
- The misrepresentation does not have to be the only reason the innocent party entered into the contract, **but it needs to be a substantial reason. **
- When the courts are considering inducement, they will need to consider whether the representation was material, and whether,** viewed objectively**, a reasonable person in the claimant’s position would have been influenced by the false statement.
types of misrepresentation
- fraudulent
- neglient
- innocent
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fraudulent misrepresentation
The requirement for fraudulent misrepresentation is that
the statement was made (1) knowingly, (2) recklessly, that is,
careless whether it be true or false, or (3) without belief in its
truth.
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negligent misrepresentation
- Negligent misrepresentation is a cause of action for damages in contract created by the Misrepresentation Act 1967 (‘MA’).
- Under the MA, any misrepresentation is actionable unless theperson making the statement can prove that they had reasonable grounds for believing, and did believe, until the contractwas entered into, that the facts represented were true.
innocent misrepresentation
The maker of the statement has reasonable grounds for believing that it is true.
remedies
- contract is voidable
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voidable contract
- The innocent party can choose whether to **rescind **the contract , or carry on with it and possibly claim **damages **for any losses arising as a result of the misrepresentation.
- recission
Rescission is available for all three types of misrepresentation.
Rescission essentially sets aside—unwinds—the contract. Parties are put back to the position they would have been had the misrepresentation never taken place. - Rescission is an equitable remedy and is therefore available only at the discretion of the court,rather than as of right, like damages.
- notification required
The innocent party must notify the other party of their intention to rescind the contract or obtain a court order to that effect. In the absence of notification or a court order, the party that has made the representation is entitled to treat the contract as ongoing. - indeminity
If the innocent party rescinds the contract, the court may order an **indemnity **from the party who has made the misrepresentation. The purpose of the indemnity is to assist in restoring the parties to their pre-contractual position, and it is paid
to cover any expenses or obligations necessarily incurred as a result of entering into the contract.
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Bar to recission
a. Affirmation
If upon discovering the misrepresentation the innocent party decides to carry on with the contract, they are said to affirm it.Affirmation can be by way of a statement made to the party who made the misrepresentation or** by conduct**.
b. Lapse of time
If the innocent party delays in rescinding, they may lose the right altogether through lapse of time. For this purpose, except in cases of fraudulent misrepresentation, the clock starts running when the innocentparty discovers the misrepresentation, or when they should have discovered it (if earlier).In the case of fraudulent misrepresentation, the clock starts to run from the date the fraud is uncovered.
c. impossibility of restitution
if it is impossible to to restore the parties to their pre-contractual position because the goods in question have declined in value or the nature of the subject matter has changed substantially, the innocent party loses the right to rescind and will only be able to bring an action for damages.
d. 3rd party rights
If a bona fide third party has acquired any rights under the contract (good title), rescission will not be possible
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damages
- Fraudulent Misrepresentation
An action for fraudulent misrepresentation is based on the tort of deceit and so any claim for damages will be made on a tortious basis. Such damages are intended to** put the innocent party back into the position they would have been in had the representation not been made. Where the representation is fraudulent, the innocent party can recover all their losses incurred** as a result of the transaction. They do not need to prove that their losses were reasonably foreseeable. - Negligent Misrepresentation
The MA creates a right of action for damages for negligent misrepresentation.The measure of damages is the same as for fraudulent misrepresentation - Innocent Misrepresentation
As a general rule, damages are not available for innocent misrepresentation. - Damages in Lieu of Rescission
Under the MA, the court has discretion to award damages instead of ordering rescission for negligent or innocent misrepresentation (but not fraudulent misrepresentation), ifit would be equitable to do so. However, such damages are not available if the right to rescind has been lost by reason of any of the bars mentioned above
