Misrepresentation Flashcards
What is a Misrepresentation?
4 Requirements?
A misrepresentation is a false statement of fact or law made by one party to another, which, whilst not being a term of the contract, induces the other party to enter the contract
1• Unambiguous false statement of existing fact or law
2• Addressed to the party misled
3• Intended to be acted upon
4• Material / which induces the making of the contract
Effects of a misrepresentation?
The effect of an actionable misrepresentation is to make the contract voidable, giving the innocent party the right to rescind the contract and/or claim damages
Mere Puffs?
Not a misrepresentation
Dimmock v Hallett (1866)
With v O’Flanagan [1936] Facts
- Involved a doctors practice
- Involved the sale of a doctors practice
- Questions regarding the value of it
- Worth about £2000 a year, true
- When sale happened, not longer true
- False when the sale took place
- Amounted to actionable misrepresentation
- The day of the effectiveness of the contract, statements should be true on that day
- If the statements become no longer true, they can be a misrepresentation
With v O’Flanagan [1936] Principle
- The day of the effectiveness of the contract, statements should be true on that day
- If the statements become no longer true, they can be a misrepresentation
Conlon v Simms [2006] Facts
• Involved a partnership (solicitors)
• Simms was a dodgy guy, on a watch list
• He was suspended from practicing
• Practicing certificate was suspended
• Manage to convince Conlon that everything was fine
• Law society brought proceedings against him
• Found he did many wrong things
o Fraud, violation of ethics.. etc
• Brought an action to get money from Conlon’s firm
• They argued that he misrepresented himself
• Court accepted misrepresentation
• But they did not induce Conlon to enter into the relationship
• They were not Induced to enter the relationship
Conlon v Simms [2006] Principle
Non-disclosure may be a misrepresentation
Are statements of opinion/belief or intention Misreps?
No
X’s statement of opinion or belief:
• Bisset v. Wilkinson (1927)
X’s statement of intention:
• Wales v. Wadham
Bisset v. Wilkinson (1927) Facts
- B bought land from W, wanted to farm sheep
- Land was in NZ, they lived in UK
- W said land was great, can support 2000 sheep
- Both parties knew that W lived in UK and did not farm sheep
- Found out land was not that good
- Court found that W was not an expert, not a statement of fact
Bisset v. Wilkinson (1927) Principle
X’s statement of opinion or belief cannot be a Misrepresentation
Wales v. Wadham Facts
- Husband left wife for another women
- Wife said she wont remarry in divorce, got more money
- Before conclusion of divorce, she agreed to get remarried
- Did not tell court
- Husband contested agreement
- Court said no, not a misrepresentation
- At the time, she did not intend to get remarried
Wales v. Wadham Principle
X’s statement of intention cannot be a Misrepresentation
Pankhania v Hackney London Borough Council [2002] Facts
- P bought property from D
- Induced by a representation the council made
- Said other living were contractual
- Can terminate upon 3 months notice
- Not true, misrep
- Misrep of law
- Protected under L&T Act 1954
- P’s action was accepted
- It was innocent misrep
- Able to claim damages
- Could not rescind the contract
Pankhania v Hackney London Borough Council [2002] Principle
Representations of law may be misrepresentations
Kleinwort Benson Ltd v Lincoln City Council (1999) Facts
o K made a loan to company owned by M
o M said it was policy to deal with debts
o Did not deal with the debt
o K said it was a contractual promise, if not, it was a representation
o Held: it was neither
• It was a statement of intention
• Statement was no longer true
• Misrepresentation is a statement of fact
Kleinwort Benson Ltd v Lincoln City Council (1999) Principle
Misrepresentation is a statement of fact
Misrepresentation must be addressed to who?
- addressed to the party misled
Commercial Banking Co. of Sydney v. R.H. Brown & Co. (1972)
Commercial Banking Co. of Sydney v. R.H. Brown & Co. (1972) Principle
The misrepresentation must be addressed to the party misled
Misrep must be intended to be acted upon? True or False
cases (2)
True
Peek v Gurney [1873]
Andrews v Mockford [1896]
Peek v Gurney [1873] Facts
- P purchased shares on the basis of false representations
- Court held that this perspective only applies for the first people who applied for shares
- It is clearly addressed to that party
- If the statement is intended to be passed on to others, it is a misrepresentation
Peek v Gurney [1873] Principle
Misrep must be intended to be acted upon
Andrews v Mockford [1896] Facts
- Shares were at low price
- Wanted to sell more
- Sent ‘expert’ to south Africa
- Said they found gold
- This was false
- An attempt to sell shares
- Court said A can sue
- Intended to be acted upon
Andrews v Mockford [1896] Principle
Misrep must be intended to be acted upon
Misrepresentation:
Induced?
Material?
The misrepresentation must be an inducement to entering the contract, i.e. misled party must have actually relied on it (and in that sense must also be a material one)
An inducement suffices, need not be the only one
cases (2)
Smith v Eric S Bush [1990]
Edgington v Fitzmaurice [1885]
Types of Misrepresentation? (3)
1) Fraudulent Misrepresentation
2) Negligent Misrepresentation
3) Innocent Misrepresentation
Fraudulent misrep: requirements (3)
Derry v Peek (1889)
A) Knowingly
B) Without belief in its truth, or
C) Recklessly, careless as to whether it is true or false
Derry v Peek (1889) Facts
• Tramway company
• Special act for the company
• Act said carriages would be move by horsepower
• Said, if they got consent, they could you steam power instead
• D bought shares with the knowledge that they were changing to steam power
• D brought an action
• Court: not enough to just establish a false statement
• Must also establish liability on the defendant
• Defendant must know he is not telling the truth
• P was not acting acting fraudulent
o They honeslty believed they were changing
Derry v Peek (1889) Principle
a Fraudulent misrep must be
• False
• Made knowingly
• Made wrecklessly
Duty of Care principle applies to which type of misrep?
Negligent misrep
Hedley Byrne v. Heller (HL1964) Facts
- Was a firm of ad agents
- Wanted to work for Easy power
- Wanted to make sure they could pay
- Easy power’s bank was Heller
- Heller said they were good
- Hedley relied on this statement
- Hedley lost money in unpaid bills
- Court:
- if you are in a position in responsibility, you have a duty of care.
- You must make sure that your statements are accurate
- Was there a special relationship between the 2 parties
- Problem: they were not entering into a contract with each other
- Requirements for tort of negligence:
- A) Person making statement knows that party relying on it will rely without further enquiry
- B) Person making the statement is aware of the purpose for which the statement is required
- C) Reasonable for innocent party to act on statement without further enquiry
- D) Statement acted on to innocent party’s detriment
- E) Reasonable person in that situation would not have made the statement
Hedley Byrne v. Heller (HL1964) Principle
5 requirements for Tort of Negligence misrep
- A) Person making statement knows that party relying on it will rely without further enquiry
- B) Person making the statement is aware of the purpose for which the statement is required
- C) Reasonable for innocent party to act on statement without further enquiry
- D) Statement acted on to innocent party’s detriment
- E) Reasonable person in that situation would not have made the statement
Esso Petroleum v. Mardon [1976] Facts
- Post Hedley v Heller
- M hired E for a period of 3 years
- M did what he could to sell more petrol, but still lost money
- E tried to take the site back from M
- M said E made a misreprersentation about how much petrol he would sell in a year
- Court said it was misrepresentation
- who knows better than E
- E are experts, in a much better position to know
Esso Petroleum v. Mardon [1976] Principle
Statement of opinions or belief may be a misrepresentation if the person is a expert or in a position to know
Caparo v. Dickman (HL1990) Facts
?
Caparo v. Dickman (HL1990) Principle
?
Innocent Misrep Cases (2)
Newbigging v Adam (1866)
Whittington v Seal Hayne (1900)
Newbigging v Adam (1866) Facts
- N was induced to enter a partnership contract by misrepresentation
- Was it innocent or not?
- Court said remedy for innocent misrepresentation is rescission of the contract
Newbigging v Adam (1866) Principle
Innocent misrep
•Court said remedy for innocent misrepresentation is rescission of the contract
Two Main Remedies to Misrep?
Damages (common law)
Rescission of the contract
Contractual claim for Misrep?
No
Unless it has become a term of the contract
Damages are available when? (2)
Tort (where misrepresentation was fraudulent or negligent)
Under ss. 2(1), 2(2) Misrepresentation Act 1967 (includes for innocent misrepresentation)
What is Rescission?
try to put X into position he was in before the contract, and trying to ensure X is not unjustly enriched at Y’s expense, i.e. contract set aside both retrospectively and prospectively
Can C get both damages and rescission?
Yes
- In tort or s.2 Misrep Act 1967
Not for breach of contract
C has 2 choices for remedies to Misrep?
1) Rescind contract
OR
2) Affirm contract + Seek Damages
Car & Universal Finance v Caldwell [1965]
Inntrepreneur Pub Co (CPC) Ltd v Sweeney [2002]
Car & Universal Finance v Caldwell [1965] Facts
• D sold his car to a man called Norris (rogue)
• Paid by cheque, bounced
• Norris sold car to P
• D found out and wanted his car back
• Both innocent parties
• Was there a rescission in the original contract between D and Norris
• It was voidable because of the fraudulent misrep
• Because D did everything he could to get out of the contract
o Title cannot be passed to P
• Rescission has happened
o P does not own the car
o Still belongs to D
• Stage the contract was rescinded Is really important
Inntrepreneur Pub Co (CPC) Ltd v Sweeney [2002] Facts
?
Inntrepreneur Pub Co (CPC) Ltd v Sweeney [2002] Principle
?
How to rescind a contract?
Islington BC v. UCKAC (CA 2006)
X (the misrepresentor) must be made aware that Y is rescinding the contract
Islington BC v. UCKAC (CA 2006) Facts
?
Islington BC v. UCKAC (CA 2006) Principle
?
When can you Lose Right to Rescind? (5)
- Affirmation of the contract,
- Third party rights intervening
- Lapse of time
•Impossibility of restitution
(ex: car is no longer driveable)
•Misrepresentation Act 1967 s2(2)
More equitable to award damages
List of Remedies (4)
Tort of Deceit
Tort of Negligence
s. 2(1) Misrepresentation Act 1967
s. 2(2) Misrepresentation Act 1967
Remedy for fraudulent misrep?
Tort of Deceit
Tort of Deceit: must show? (4)
A) Representor made a misrepresentation
B) Representation was made fraudulently
C) Representor intended that representee (or someone in his position) should act upon it
D) Representee did act upon it and suffered loss by so doing
Negligent Misrep Remedies
Tort of Negligence
s. 2(1) Misrep Act 1967
- Damages are better under the Act
Tort of Negligence (5) + case
Hedley Byrne & Co Ltd v Heller Partners Ltd (1964)
A) Person making statement knows that party relying on it will rely without further enquiry
B) Person making the statement is aware of the purpose for which the statement is required
C) Reasonable for innocent party to act on statement without further enquiry
D) Statement acted on to innocent party’s detriment
E) Reasonable person in that situation would not have made the statement
s.2(1) Misrepresentation Act 1967 (4)
- Fiction of Fraud
- Ask, if misrepresentor knew it was untrue, would it be misrepresentation - The other party of the contract must be the one who committed the misrepresentation
- Shift of the burden of proof
- It shifts to the representor to prove they had reasonable belief in the truth of the statement
- If innocent misrep, he will be able to prove why he thought that - Has to be loss suffered
- An actual loss
Howard Marine v. Ogden Facts
o O wanted to hire 2 barrages from H
o H wrote a letter about the cost
o O wanted to know how much they could carry
o H said wrong answer, based on a recollection
o Real weight was less
o Court said it was misrepresentation under the Act
• Places a high burden on the defendant
Howard Marine v. Ogden Principle
Reverse burden of Proof for s. 2(1) Misrep Act 1967
Innocent Misrep Remedies
s. 2(2) Misrepresentation Act 1967
s. 2(2) Misrepresentation Act 1967: Damages or rescission?
Traditionally, no damages; rescission only:
•De Lassalle v. Guildford
•if innocent misrepresentation, discretion of court to order damages in lieu of rescission
Cannot receive both rescission and damages
Courts discretion under s. 2(2) Misrepresentation Act 1967?
Principles for exercise of court’s discretion under s.2(2): very wide
•William Sindall PLC v. Cambridgeshire CC
William Sindall PLC v. Cambridgeshire CC Facts
• W agreed to buy development land from C
• Before the sale was complete, asked if there were rights of easements or any public rights affecting the land
• C said, as far as they are aware, there are no rights affecting the property other than those in the contract
• Sale was completed
• W later discovered a private foul sewer that was built on the land in the 1970s
• Argued C made a misrepresentation and brought an action for the contract to be rescinded
• Held:
o No misrepresentation by C
o But if there was any, damages would be awarded under s.2(2) of the Misrepresentation Act 1967
• No rescission
William Sindall PLC v. Cambridgeshire CC Principle
No misrepresentation by C
But if there was any, damages would be awarded under s.2(2) of the Misrepresentation Act 1967
• No rescission
What if X had right to rescind, but has lost it (e.g. because of lapse of time?) Does he lose right to s.2(2) damages too??
Thomas Witter Ltd. v. TBP Industries Ltd.
Floods of Queensferry Ltd. v. Shand Construction Ltd.
Misrepresentation Question Structure?
•Is it a misrepresentation?
•What type of misrepresentation?
Fraudulent,
negligent,
innocent
•Remedies
oRescission
oDamages
oTort of deceit vs tort of negligence vs Misrepresentation Act 1967, 2(1) or 2(2)
oPossible contract claim? (breach?)
What is a Promise?
- maker of statement accepts (or appears to accept) obligation to do or not to do something
- Becomes a term of the contract
- If broken, it is a breach of contract claim
What is a representation?
- statement asserting a given state of facts is true
* Misrepresentations are not part of the contract
Oscar Chess Ltd v Williams (1957) Facts
• W traded in old car and got new one from O
• W described car as 1948 Morris, according to manual
• It was really a 1939 model
• Difference in value was about £115
• Not W’s fault
• Someone else altered log book to say 1948
• Was it a representation?
• They were both mistaken, but no
• If it was a breach of contract
• If condition, allowed to terminate contract
• If warranty, only payment for money damages
• It might be a misrepresentation
• W didn’t know the truth
• Would be an innocent misrepresentation
o Only remedy for this is the payment of damages
• Held: W is not an expert
• If it was the car dealer (expert), he had a reason to know
• Objective test,
o Not misrepresentation
• Not a breach of contract
Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd [1965] Facts
- H sold D a car
- Said it had about 20,000 miles since last service
- Reality, a lot more than that
- Was it part of the contract or side representation?
- Objective test applied
- Held: intended to be a representation
Dimmock v Hallet [1860] Facts
- Purchase of a farm
- 3 parts of land
- 1 part was called fertile and improvable
- Court held that it was just a Puff.
- Made statement about tenants
- Was false
- Was this a mirepresentation?
- Held: yes
Lambert v Co-Operative Insurance Society Ltd [1975] Facts
- L signed an insurance proposal form for jewelery
- Didn’t ask about previous convictions
- She didn’t say anything, her husband was convicted of theft in the past
- One of the terms of the insurance policy stated that if omitted facts, contract will be void
- Husband was convicted again afterwards
- L didn’t say anything again
- Later, their jewelery was stolen
- Claim was turned down
- Hadn’t disclosed her husband’s conviction
- Held: the later conviction was enough to invalidate the insurance claim
- It was a fraudulent mirespresentation
Gordon v Selico (1986) Facts
- G entered into contract with S to buy 99 yr lease on a flat
- Wasn’t in good condition
- Reason was because of Dry Rot
- S painted over the dry rot
- G got a survey of the property
- Didn’t find dry rot
- Survey said they cant guarantee that there was no dry rot
- Was painting over the dry rot a misreprentation?
- Held: it was a fraudulent misrepresentation
- Knew it was there
- Attempted to conceal it
Dimmock v Hallet [1860] Principle
Mere Puffs are not representations
Edgington v Fitzmaurice [1885] Facts
- E was shareholder
- Received a circular addressed to him that requested loans
- F bought a lease and needed money to improve the property
- None of this was true
- Circular was misleading
- It was an attempt to not go bankrupt
- Was this misrepresentation?
- Argued it was merely a statement of intention
- Court so no, it was not intention
- It was a lie
- Misrepresentation was present
Edgington v Fitzmaurice [1885] Principle
A lie about the facts will be a misrepresentation
Smith v Eric S Bush (1990) Facts
• S got a copy of a survey report
• E prepared the report
• S relied on the survey
• Chimney was in a bad state
• Contract had a clause they attempted to limit the liability of the surveyor
• Was there an actionable misrepresentation by sayin the chimney was ok
• Court said 4 factors:
o Bargaining power of the parties (who has more)
o The practicality of getting alternative advice (how practical was this)
o How difficult was the task being undertaken?
o What are the practical consequences of the decision?
• Court: loss should be beared by surveyor
• Was an actionable misrepresentation
o Surveyor was more likely to be insured than S
o We want surveyors to tell the truth
Smith v Eric S Bush (1990) Principle
An inducement suffices: need not be the only one
Court created 4 factors
o Bargaining power of the parties (who has more)
o The practicality of getting alternative advice (how practical was this)
o How difficult was the task being undertaken?
o What are the practical consequences of the decision?
4 Factors in Smith v Eric S Bush (1990) in determining if there is an actionable misrep?
o Bargaining power of the parties (who has more)
o The practicality of getting alternative advice (how practical was this)
o How difficult was the task being undertaken?
o What are the practical consequences of the decision?
Horsfall v Thomas Facts
o sale of a gun
o buyer didn’t look at it
o seller tried to conceal a defect in the gun
o would had been an actionable misrepresentation, but buyer didn’t look at it
Horsfall v Thomas Principle
C cannot show the misrep induced the contract if he did not know of the misrep
Representation did not induce the contract
Atwood v. Small Facts
o involved a sale of a mine o various statements were made o buyers checked statements with own experts, knew it was untrue o bought the mine anyway o tried to later get out of contract o court said no
Atwood v. Small Principle
C cannot show the misrep induced the contract if he knew it was untrue
Redgrave v. Hurd Facts
o R was a solicitor, wanted a partner o H applied o H said he had clients worth a lot of money o Wanted proof o H produced a stack of papers o Didn’t really look through it o Info was false o Court said it was not a misrepresentation
Redgrave v. Hurd Principle
C cannot show the misrep induced the contract if he did not allow the misrep to affect his decision
Doyle v Olby (Ironmongers) ltd [1969] Facts
• D bought business from O
• Several fraudulent claims made about the business
• IT was a fraudulent misrepresentation
• he knew he wasn’t telling the truth
• Damages
o Might be a breach of contract in addition to the misrepresentation (important)
o Contractual damages are separate from misrepresentation damages
Doyle v Olby (Ironmongers) ltd [1969] Principle
- IT was a fraudulent misrepresentation
* he knew he wasn’t telling the truth
Royscot Trust Ltd v Rogerson[1991] Facts
- Car dealer and finance company
- Car dealer induced company into a higher agreement
- Company sued dealer for misrep
- Dealer was liable for all of the losses
- Under the Act, damages are better because you get all losses that are suffered
Royscot Trust Ltd v Rogerson[1991] Principle
damages are better under the Act than in common law
East v Maurer [1991] Facts
•involves hair salons •M owned 2, agreed to sell one to E •M wanted to go abroad •E assumed there would not be as much competition •M didn’t go abroad •E lost money •Was this a misrep by M? oDid he lie?
•Court said yes, he lied
o But the appeal was about how much damages
o Must look at profits that E would have made if M didn’t take all of his clients
East v Maurer [1991] Principle
Damages for fraudulant misrep
o Must look at profits that E would have made if M didn’t take all of his clients
Aim: put X into position he would have had if tort not committed
Contributory Negligence ?
- if both parties are negligent, but one is more than the other
- amount of damages awarded is reduced to reflect that fact
- if using tort of deceit, don’t reduce the damages
Thomas Witter Ltd. v. TBP Industries Ltd. Facts
• Involves carpets • Manufacturers have audit accounts • There was an one off expense • Made it look more profitable than it actually was • Not £120,000, but really £50,000 • What kind of misrep is this? o Reckless o Negligent misrepresentation o Turned into innocent misrepresentation • Rescission was no longer available o Damages? • Held: o They could recover damages
Thomas Witter Ltd. v. TBP Industries Ltd. Principle
if X had right to rescind, but has lost it:
He can still collect damages
Contradicts :
Floods of Queensferry Ltd. v. Shand Construction Ltd
Floods of Queensferry Ltd. v. Shand Construction Ltd Principle
• Held:
o Can only get damages if it is possible to rescind that contract
• Is this equitable?
o Not fair to give damages if they cannot have rescission
Whittington v Seal Hayne (1900) Facts
• P had poultry on their farm • Induced to enter a lease with D • Misrep that the property was sanitary o Not true, water was poisoned o Poultry fell ill and died • Can the lease be rescinded? • What about rates to the local authority? • What can be recovered? • Held: o Recover rent, rates, but not consequential loss • Removal expences, loss of profits, medical expenses, and loss of poultry o Only direct loses o They would of unjustly benefited the P
Whittington v Seal Hayne (1900) Principle
Innocent Misrep
Damages instead of rescission (impossible)
Erlanger v New Sombrero Phosphate Co (1873) Facts
• D were promoters of phosphate company
• Sold to P for £110,000
• Tried to rescind the contract
• Argued there was a duty to disclose that they bought the mine a few days earlier for £55,000
• Argued Cannot rescind because they were working the mine
• Held:
o P was entitled to rescind the contract
o Did have to give up the profits made by working the mine
o Must be actual destruction of the subject in matter
Erlanger v New Sombrero Phosphate Co (1873) Principle
Impossible to rescind if subject in matter is destroyed
Leaf v International Galleries [1950] Facts
• P bought a painting
• It was misrepresented that the painting was from Constable
• Did not discover this until 5 years later
• Held:
o Can no longer be rescinded because this lapse was too long
o Only claim he could make for damages, but did not ask for it
Leaf v International Galleries [1950] Principle
o Can no longer be rescinded because this lapse was too long
o Only claim he could make for damages, but did not ask for it
Lapse of time
Long v Lloyd [1958] Facts
• D advertised a lorry for sail, said it was exceptional condition
• False, there were many issues
• P reported issues to D
• D agreed to pay for some repairs
• Next day, P went out again and it broke down
• P wanted money back
• Entitled to rescission?
• Held:
o By asking for repair money, he affirmed the defect
o Amount to affirmation of the contract
Long v Lloyd [1958] Principle
o By asking for repair money, he affirmed the defect
o Amount to affirmation of the contract
Can I limit my own liability for misrepresentation?
Not for fraudulent misrep
Yes, for negligent and innocent misrep
s. 3 Misrep Act 1967
Term must be reasonable under s.11(1) UCTA 1977
Walker v Boyle
Walker v Boyle (1982) Facts
- P negotiated with D to purchase her house
- P sent various inquiries to D with many questions
- Are you aware of any disputes regarding boundaries or anything of that nature?
- D asked her husband, he said no
- But there was one with a neighbor
- D thought it was settled
- Was this actionable misrep?
- Condition said they could not get out of sale because of the misrep
- Held:
- Used s. 3
- Not reasonable
- Sale annulled
Walker v Boyle (1982) Principle
Possible to limit liability for misrep under s.3 Misrep Act 1967
Reasonableness test
s. 11(1) UCTA 1977
Brownlie v Campbell Facts
?
Brownlie v Campbell Principle
?
Heilbut, Symons & Co. v Buckleton Facts
o H&S were rubber merchants who were underwriting shares of what they called a rubber company
o B called H about shares
o Manager states that they were “bringing out a rubber company”
o Based on this statement, B purchased a large number of shares
o Shares weren’t for a rubber company, did very poorly
o B sued for breach of warranty
o Held:
• B succeeded at trial
• Innocent misrepresentation gave no right to damages
Heilbut, Symons & Co. v Buckleton Principle
Innocent misrep gave no right to damages
Zanzibar v British Aerospace (Lancaster House) Ltd Facts
• Z wanted to buy a jet from B
• Entered into a contract with a finance company, who purchased the jet and leased it to Z
• Plane had issues
• Returned to B for repairs, but issues remained
• Z stopped paying instalments
• Finance company took possession and sold the plane
• Z brought an action to rescind the contract and get damages
• B made misrepresentation about jet
• B claimed rescission was impossible, jet had been sold
• Held:
o Z had no right to rescission or damages
• Plane had been sold (cannot rescind)
• S.2(2) damages were unavailable because they depend on the right to rescind the contract
• Only available as a substitute for rescission
Zanzibar v British Aerospace (Lancaster House) Ltd Principle
- S.2(2) damages were unavailable because they depend on the right to rescind the contract
- Only available as a substitute for rescission
