Misrepresentation

Question 1

What is misrepresentation?

Answer 1

a false statement of fact that induces one party to enter into the contract
- somebody tells you something that is not true

Question 2

At what stage of the contract does misrepresentation occur?

Answer 2

the formation of a contract, usually during the offer/negotiation stage

Question 3

False statement?

Answer 3

the statement is usually written or verbal but it could be anything that influences the persons decision i.e. conduct

Spice Girls Ltd v Aprilia

the statement must be false, the extent of the knowledge will define what type of misrepresentation it will be, it cannot be silence - Fletcher v Krell

Question 4

What are the key elements of misrepresentation?

Answer 4

• a false statement
• of material fact
• made by a party to the contract
• that induces the other party to enter the contract

Question 5

False statement: Spice Girls v Aprilia

Answer 5

Spice Girls signed a sponsorship with Aprilia. While the agreement was being negotiated, Geri had given notice to leave the group and A were unaware of this. When they filmed promotional videos, all girls were present and when Geri left, it made the videos worthless. Their conduct suggested that none of them intended to leave which was a misrepresentation

Question 6

Silence: Fletcher v Krell

Answer 6

A woman applied for a job of governess, she did not disclose that was divorced and was not asked if she was. In Victorian times, she wouldn’t have gotten the job if she was divorced, not a misrepresentation as she was under no duty to disclose this and was not asked about it.

Question 7

Silence exceptions:

Answer 7

Silence cannot be an exception UNLESS:
1. Change of circumstances
2. The making of a half-truth
3. Confidential relationships

Question 8

Change of circumstances

Answer 8

The statement may be true when it is made, but it can become a misrepresentation if it becomes false before the contract is made

With v O’Flanagan :

The claimant purchased a medical practice from the defendant. The claimant was induced to buy the practice by the defendant’s statement that the practice took £2,000 per annum. This statement was true at the time it was made. However, subsequently the defendant became ill and many patients went elsewhere. By time the sale was completed the practice was virtually worthless.

Held:

Where a statement is rendered false by a change in circumstances there is a duty to disclose the change. A failure to do so will result in an actionable misrepresentation.

Question 9

Half truth:

Answer 9

If a statement is made in half-truth and the rest is kept silent, (for a reason) this can be a misrepresentation
What is kept silent is a non-disclosure and there is a duty to reveal the whole truth of the situation

Dimmock v Hallet:
A seller of the land told the purchaser truthfully that there were tenants on the land, however he did not complete the statement by telling the purchaser that the tenants were leaving, misrepresentation

Question 10

Confidential relationships:

Answer 10

If the relationship is based on trust, then silence may be a representation
E.g. doctor and patient

Tate v Williamson

Main arguments in this case: The case shows how a contract can be set aside (void) if it was entered into by virtue of coercion under presumed undue influence (Class 2a).

The fact of the case: The defendant became the financial advisor to the claimant who was an Oxford University undergraduate and followed an extravagant life style and was heavily in debt. The defendant advised the claimant to sell his estate to him for the amount of £7000. The claimant agreed and the estate was bought by the defendant. In fact the estate was a lot more in value than the price it was sold for. The defendant had not disclosed the real value of the estate to the claimant. same as if it was entered under the ‘utmost faith’, all details must be disclosed if they asked for them or not

The agreement to sell the estate was set aside by the court as it was agreed by coercion. The relationship between the claimant and the defendant was of fiduciary nature which meant that the claimant had trust and confidence in the advice of the defendant which the defendant misused.

Question 11

Material fact?

Answer 11

This means that it would have led the person to make the contract and did in fact influence the mind of the person making the decision.
Person relied on it, statement of fact, future intention
Must be a statement of fact, not opinion
Could be a statement of future intention, if they do not intend to act out their intention then that will be misrepresentation

Question 12

Statement of opinion: material fact

Answer 12

if the maker of the statement genuinely believes the opinion that they are stating then it will not be misrepresentation

Bisset v Wilkinson:
The seller of farmland that had never had sheep on it was asked by the buyer asked how many sheep it could have on it, although not a sheep farmer he stated that he thought it would be around 2000. This was false, however he genuinely believed that this was true. Did the buyer want to hear it ect?

If the opinion was not honestly held, it will be regarded as a material fact and not an opinion

Question 13

Statement of intention: material fact

Answer 13

Generally, a promise to do something in the future is not one of material fact, since a fact must relate to one in existence
It will be held as a material fact if the maker has no intention of carrying out his intention

Question 14

Made by a party to the contract

Answer 14

A person is not liable for a statement made by others, unless that person is his agent. A third party i.e. newspaper review cannot be misrepresentation
Like privity

Question 15

Induces the other party to enter the contract

Answer 15

It must lead the other person into entering the contract and be a critical part of the decision making, does it make them enter into the contract?
The person must have relied on the statement made rather than their own judgement, info that they obtained elsewhere

Attwood v Small

Question 16

Attwood v Small (1838)

Answer 16

The seller of a mine made a false statement to the purchaser about the earnings from the mine. The buyer instructed a surveyor to confirm this and he did (incorrectly). The purchaser bought the mine and then discovered the statement to be untrue, there was no misrepresentation as the purchaser relied on the surveyors report and not the false statement. - didn’t just rely on the statement
It doesn’t matter if the victim could have discovered the truth by taking reasonable steps. -does not have to be reasonable man

Question 17

Redgrave v Hurd: 4.

Answer 17

Purchaser of a solicitors practice was given a set of accounts to look at.The seller verbally misled the purchaser as to the true earnings. He relied on the statement and didn’t look at the accounts. If he had, he would have seen that the statement was false, it was a misrepresentation as he relied on it

Question 18

three types of misrepresentation:

Answer 18

1. innocent misrepresentation - least severe
2. negligent misrepresentation
3. fraudulent misrepresentation - most severe

Question 19

Innocent misrepresentation:

Answer 19

defined by the misrepresentation act 1967 - common law and statute law
A false statement that is made honestly
the person always believed that statement to be true and there’s no negligence in that belief. The remedy will be damages or rescission not both
It is up to the courts, matter of fact

Question 20

Negligent misrepresentation:

Answer 20

This was developed in the case of Hedley Byrne v Heller
It is a statement that was made by a person who believed the statement to be true but had no reasonable grounds to believe this
Types of negligent misrepresentation:
1) Under common law tort of negligence
2) Under the misrepresentation act - more rights, have to be in a contract, use this one!

1. Developed in the case of Hedley Byrne which suggested a claim for a misrepresentation based on negligence would be allowed

Question 21

Negligence on the misrepresentation Act 1967

Answer 21

S2(1) created a statutory liability for negligent misrepresentation which doesn’t require there to be a special relationship between the parties
This statute only requires for there to be a misrepresentation which results in a contract and the victim suffers loss
It is appropriate where the claimant is unable to prove fraud

Question 22

Burden of proof:

Answer 22

The victim must prove that there is a misrepresentation, then the burden is on the person making the statement to prove that there were reasonable grounds to believe the statement was true. Use statutory form over Hedley Byrne

Question 23

Influences on negligent misrepresentation

Answer 23

There are other factors that may influence the findings of negligent misrepresentation.
Howard Marine v Ogden and Sons

The claimant, Ogden, hired two dredging barges from the defendant, Howard Marine (HM), for £1,800 per week to carry out certain excavation works for Northumbrian Water Authority. In order to make an accurate estimate for tender of the work to be completed, Ogden asked HM the capacity of the barge. HM checked Lloyds Register and stated 850 cubic metres. In fact the entry in Lloyds register was wrong. The capacity was in fact much lower. Consequently the work carried out by Ogden took much longer and cost a great deal more to perform. The claimant brought an action for negligent misrepresentation. HM argued that they had reasonable grounds for believing the statement to be true as they had checked Lloyds register.

Held:

The defendant had not discharged the burden of proof by demonstrating they had reasonable grounds for believing it to be true as they had the registration document which contained the correct capacity and there was no reason why they would have chosen Lloyds register over the registration document.

stated capacity - negligent

Question 24

Fraudulent misrepresentation:

Answer 24

This is to do with deceit, Derry v Peak define it as where there is a statement made without belief in the truth. This includes where the person knows it to be untrue or is reckless as to whether it is true or not.

Derry v Peak

In the prospectus released by the defendant company, it was stated that the company was permitted to use trams that were powered by steam, rather than by horses. In reality, the company did not possess such a right as this had to be approved by a Board of Trade. Gaining the approval for such a claim from the Board was considered a formality in such circumstances and the claim was put forward in the prospectus with this information in mind. However, the claim of the company for this right was later refused by the Board. The individuals who had purchased a stake in the business, upon reliance on the statement, brought a claim for deceit against the defendant’s business after it became liquidated.

Issue in Derry v Peek
It is important to note that the law regarding false misrepresentation was still developing and this was an important case in doing so. In this case, the court was required to assess the statement made by the defendant company in its prospectus to see whether the statement was fraudulent or simply incorrect.

Decision/Outcome of Derry v Peek
The claim of the shareholders was rejected by the House of Lords. The court held that it was not proven by the shareholders that the director of the company was dishonest in his belief. The court defined fraudulent misrepresentation as a statement known to be false or a statement made recklessly or carelessly as to the truth of the statement. On this basis, the plaintiff could not claim against the defendant company for deceit.

Question 25

Remedies for innocent misrepresentation (long)

Answer 25

Rescission - equitable remedy. they want to put the party back to the position they were in before the contract ever happened
This is because the misrepresentation induced the contract, and had the misrepresentation party known the truth, there would have been no contract.
Will not be available in the following positions:
1. restitution to the original pre-contract position is impossible:
Clarke v Dickson - The claimant was misled into becoming a partner, rescission was not available - he could not return the partnership as the firm had become a limited company
2. The contract is affirmed - carry on with contract
This means that the innocent party decides to carry on with the contract despite being aware of the MR. The right to seek to rescind is then lost.

Long v Lloyd:

The claimant purchased a lorry from the defendant. The lorry was advertised in a newspaper which described the lorry as being in exceptional condition. The claimant phoned the defendant to arrange a viewing and was told it was in first class condition. He went to view it the following day and was told it was capable of doing 40 mph and 11 miles to the gallon. The claimant test drove it and found that the speedometre was not working and he had to pull a wire for the accelerator as this was not working also. The claimant still decided to purchase the lorry. On the first journey the claimant noted certain faults with the lorry and contacted the defendant who offered to pay half the repairs. The claimant accepted this. However, on a further journey the lorry broke down completely and the claimant wished to rescind the contract and brought an action against the defendant for innocent misrepresentation.

Held:

By accepting the offer of payment for half the repairs when he became aware of the defects, the defendant had lost his right to rescind as he had affirmed the contract.

Delay:
If there is a delay in bringing the claim.
The contract has been completed and then, after a delay, the claimant realises there has been a misrepresentation and tries to claim for this, this is because the courts can assume that if no issues have arisen in a short period, then nothing majorly can be wrong.

Leaf v International gardens:
1944 the claimant bought a picture from the defendant, claimant was told it was by the famous artist constable, tried to sell it 5 years later and realised it was a fake, Rescission was not allowed due to the delay in bringing the claim

4. A third party has gained rights over the property:

If someone else had claimed an interest in the goods, rescission won’t be available as this would be unfair on the innocent third party.

Lewis v Averay:
The complainant, Mr Lewis, was a postgraduate that wanted to sell his car. He met with somebody interested in buying the car, who was actually a rogue that was impersonating a famous actor, Richard Greene. They agreed on the price of £450 for the car and the rogue wanted to pay by cheque. Mr Lewis asked for identification before he agreed to accepting the cheque, with the rogue presenting a pass for Pinewood Studios and his name and photograph. Once the rogue had the car, he sold it onto the defendant, Mr Averay, for £200. The cheque he had given to Mr Lewis bounced, but the rogue had disappeared and could not be found.

Issues
The complainant argued that there was a mistake to the identity of the buyer, which meant that the contract with the rogue did not exist. Mr Lewis argued that the title had not passed, which means the car was still his property. The issue in this case was what the effect of mistaken identity was on a contract and whether there was a valid contract between Mr Lewis and the rogue for the car.

Decision / Outcome
It was held that the mistake to the real identity of the rogue did not prevent a valid contract being created between him and Mr Lewis. There was a face to face interaction, where the law presumes contract. However, this was fraud and impersonation by the rogue, which would render a contract voidable and it could be set aside. Yet, this must be done before a third party acquires the rights. In this case, the contract was not set aside before Mr Averay, in good faith, purchased the car.

Damages are not usually available for innocent misrepresentation, and are not an ‘as of right’ remedy.
However if rescission is not available due to past scenarios, the court has the discretion to award damages in place of rescission due to S2(2) of the misrepresentation act

Question 26

Negligent misrepresentation - remedies

Answer 26

remedies are rescission and or damages, rescission is available in the same circumstances as before. If Hedley Byrne used, damages calculated according to tort
contributory negligence also applies, so may be deduced accordingly
If it is under misrepresentation act, damages also calculated according to a tort measure

Question 27

Fraudulent misrepresentation - remedies

Answer 27

remedies are rescission and damages in the tort of deceit, the damages aim to put the victim in the position they were in before the misrepresentation occurred. However, they will sometimes award compensatory damages in some circumstances

Question 28

Damages in Contract v Tort

Answer 28

The aim in contract is to put the claimant in the position as if the contract had been performed

The aim in tort puts them in their pre-incident position, it does not care about a loss of bargain like contract does