Misrepresentation Flashcards
What constitutes a misrepresentation?
Misrepresentation is a false statement of fact (or law) made by one party to another that induces the latter to enter into a contract. For it to be actionable:
The statement must be untrue or misleading.
It must be a statement of fact, not mere opinion or sales talk.
It must have induced the claimant to enter the contract.
Can a misrepresentation be made by conduct?
Yes, a misrepresentation can be made by conduct. Any behavior or action that conveys false information or creates a misleading impression can constitute a misrepresentation. For example:
Concealing defects (e.g., painting over mold to hide it).
Using gestures or actions that mislead the other party about a key fact.
When might an incorrect opinion amount to a misrepresentation?
An incorrect opinion can amount to a misrepresentation when:
The person giving the opinion has special knowledge or expertise and the recipient relies on it.
The opinion implies a false underlying fact (e.g., stating an item is of excellent quality when it’s defective).
The person expressing the opinion doesn’t genuinely believe it.
What are the categories of misrepresentation?
There are three primary categories:
Fraudulent Misrepresentation: A false statement made knowingly, without belief in its truth, or recklessly without caring if it’s true or false.
Negligent Misrepresentation: A false statement made carelessly, without reasonable grounds for believing its truth (usually actionable under common law or the Misrepresentation Act 1967 in the UK).
Innocent Misrepresentation: A false statement made with reasonable grounds for belief in its truth.
When is the remedy of rescission available?
Rescission is available when:
The misrepresentation induced the contract.
The aggrieved party seeks to undo the contract, restoring both parties to their pre-contract positions.
However, rescission might not be available if:
The contract has been affirmed.
Restitution to the original position is impossible.
There is an excessive delay in seeking rescission.
Third-party rights have intervened.
Leaf v International Galleries [1950]
The plaintiff (Leaf) purchased a painting titled “Salisbury Cathedral” from International Galleries.
The painting was described as being by the famous artist John Constable, a key selling point for the plaintiff.
Five years later, the plaintiff discovered the painting was not by Constable but a forgery or by another artist.
The Court of Appeal dismissed the plaintiff’s claim.
KEY PRINCIPLES:
Timing of Rescission:
The plaintiff’s claim for rescission was barred because they waited five years to bring the claim. Rescission must be sought promptly after discovering the misrepresentation.
Mistake vs. Misrepresentation:
The court distinguished between a mistake about the quality of the painting (not actionable) and a misrepresentation.
Although the gallery incorrectly described the painting, the misrepresentation was innocent, not fraudulent or negligent.
Bar to Rescission - Lapse of Time:
Rescission was not granted because a significant time lapse occurred between the purchase and the plaintiff’s discovery. The doctrine of laches (delay) applied.
Key Principle:
A delay in seeking rescission can bar the remedy, even in cases of innocent misrepresentation.
Significance:
This case emphasises the importance of acting promptly when seeking rescission for misrepresentation and highlights the limitations of rescission in cases of innocent misrepresentation, particularly where there has been a lapse of time.
Esso Petroleum v Mardon [1976]
Esso Petroleum (the claimant) leased a petrol station to Mardon (the defendant) and provided him with a sales estimate of 200,000 gallons per year.
The estimate was based on the petrol station being visible to a main road, but a subsequent planning decision changed the station’s access, significantly reducing visibility.
Despite this, Esso did not revise the sales estimate.
Mardon, relying on the estimate, entered into the lease and incurred substantial losses as sales fell far below expectations.
Mardon refused to pay rent, and Esso sued to recover arrears. Mardon counterclaimed for misrepresentation and breach of duty.
KEY PRINCIPLES:
A party with special knowledge or expertise (like Esso) owes a duty of care to avoid making careless statements or estimates, particularly when these are intended to induce reliance.
Statements of opinion can amount to misrepresentation or negligent misstatement if they are made without reasonable grounds and are based on expertise.
Damages for negligent misrepresentation are assessed based on the tort of negligence.
Significance:
This case extends liability for negligent misstatements in contractual negotiations, especially where one party relies on the expertise of the other.
It bridges principles from contract and tort law, emphasizing the duty of care in pre-contractual dealings.
Spice Girls Ltd. v Asprilla World Service BV [2002]
Aprilia World Service BV (AWS), a motorcycle company, entered a sponsorship agreement with Spice Girls Ltd for a promotional campaign. The agreement involved the Spice Girls endorsing Aprilia’s products.
Before the agreement was signed, the Spice Girls participated in a photoshoot and promotional video as a group, suggesting all members would continue participating.
Unknown to AWS, one of the members, Geri Halliwell, had already decided to leave the group before the sponsorship agreement was finalised.
Shortly after the agreement was signed, Halliwell left the Spice Girls, rendering the sponsorship campaign far less valuable to AWS.
AWS refused to pay for the campaign and counterclaimed for damages, alleging misrepresentation by the Spice Girls Ltd.
KEY PRINCIPLES:
Misrepresentation can be made by conduct, not just words. Participating in activities that create a false impression can constitute misrepresentation.
A party has a duty to disclose material facts if their conduct suggests something contrary to their knowledge.
Damages can be awarded for losses caused by misrepresentation, reflecting the impact on the aggrieved party’s position.
Bell v Lever Bros [1932]
Lever Bros Ltd, a large company, employed Bell and Snelling as senior executives in its subsidiary. Lever Bros later decided to restructure and sought to terminate their contracts.
To achieve this, Lever Bros offered Bell and Snelling a significant compensation package (£30,000) for early termination of their contracts, which they accepted.
After the agreements were executed, Lever Bros discovered that Bell and Snelling had previously committed breaches of their contracts (by engaging in private cocoa trading), which would have justified their dismissal without compensation.
Lever Bros sought to rescind the agreement on the grounds of mistake, arguing that they would not have offered compensation if they had known about the breaches.
KEY PRINCIPLES:
A common mistake must relate to a fundamental fact that forms the essence of the contract to render it void.
Mistakes about ancillary or non-fundamental matters (like the existence of prior breaches in this case) will not void a contract.
The courts prioritise commercial certainty and the finality of contracts.
Significance:
This case is a landmark in the law of mistake, setting a high threshold for when a contract can be rescinded due to common mistake.
It clarified that not every mistake about material facts will void a contract; the mistake must undermine the agreement’s entire purpose.
