Misrepresentation and mistake

Question 1

What are the elements of an actionable claim in misrepresentation?

Answer 1

Elements:
1. unambiguous
2. false
3. statement of fact
4. addressed to the claimant
5. induces the claimant to enter into the contract

Question 2

What does statement of fact include?

Answer 2

It must be a statement asserting a given state of affairs

Can be conduct or statement of law

Mere puff / advertising puff does not qualify as a representation

Question 3

What are generally not actionable statements of fact?

Answer 3

• statements of opinion
• future intention
• silences

However, there are exceptions where these can lead to actionable statements

Question 4

What does inducement mean?

Answer 4

The representation must have caused the representee to enter the contract

Question 5

What is the first question the court considers when determining inducment?

Answer 5

1. was the representation material?

Material representation = a statement that relates to an issue that would have influenced a a reasonable person. This is an objective test

If the statement is material, inducement is generally inferred as a matter of fact (burden is with defendant to rebut the inference)

Question 6

What happens to the burden of proof if the statement is not material?

Answer 6

Inducement is not inferred as a matter of fact - the claimant must prove that they were subjectively induced

• might not have influenced the reasonable person, but it did induce me

Question 7

When will there not be inducement?

Answer 7

a) the statement was not actually communicated to the representee
b) the statement did not affect the representee’s decision to enter the contract
c) the statement was known to be untrue by the representee

Question 8

What happens if the claimant does not see or hear the attempted misrepresentation?

Answer 8

They cannot be induced by it
No inducement = no actionable misrepresentation

Question 9

What happens if the claimant has conducted their own research?

Answer 9

The misrepresentation does not have to be the only reason the claimant enters into the contract

A party cannot bring a claim in misrepresentation when it relied not on the misrepresentation, but its own investigation.

However, if the misrepresentation continues to play a real and substantial part (despite independent research), the claim may still succeed

Question 10

What is the exception to the general rule that a statement of opinion is not an actionable statement of fact?

Answer 10

If the representor is considered to have greater knowledge

• statement of opinion which lacks reasonable grounds from people with superior knowledge/experience
• opinions not actually held - provided that the opinion expressed is not one the representor believed

Question 11

What is the exception to the general rule that a statement of future intention is not actionable?

Answer 11

Statements of intention by people with no such intention

• If the statement maker knows they cannot do what they state, then they are misrepresenting their existing intention

Question 12

When is a statement of future intention NOT actionable?

Answer 12

It is not a misrepresentation if the representor makes a promise regarding a future intention, but is prevented from following that course of conduct or if circumstances change

Question 13

What are the exceptions to the rule that silence does not amount to a statement of fact?

Answer 13

• half-truths - misrepresentation to make statements which are technically true but misleading
• continuing representations - obligation to correct representations which become false
• relationships of good faith (contract of insurance - must disclose facts to the insurer)

Question 14

What is the result of a continuing representation?

Answer 14

This results in a negligent misrepresentation if the defendant cannot discharge the burden of proof

Question 15

What is the effect of misrepresentation on the contract?

Answer 15

The contract is voidable (not void)

The contract is valid, until the representee decides to set it aside (rescind) –> remedy of rescission

Question 15

What are the bars to rescission?

Answer 15

• Affirmation - refers the contract to be affirmed AFTER (if contract is signed before fraud/misrepresentation is reasonably discovered, this is not affirmation)
• Lapse of time - bring claim promptly
• Restitution is impossible
• Third party rights accrue

Question 16

What is the effect of UCTA on an exemption clause for misrepresentation?

Answer 16

The clause will be of no effect unless it satisfies the requirement of reasonableness

Question 17

Is a reduction of contributory negligence available for a fraudulent claim in misrepresentation?

Answer 17

No

Remedies available are rescission and damages

Question 18

Who bears the burden of proof for a negligent and innocent claim in misrepresentation?

Answer 18

The representor - must show they have reasonable grounds to believe true

Question 18

When is contributory negligence a potential reduction?

Answer 18

For claims in negligent misrepresentation

Question 19

What are the alternative claims for misrepresentation?

Answer 19

• Representations distinguished from terms of a contract (breach of contract)
• Negligent misstatement at common law (tort of negligence) - relationship of sufficient proximity

Question 20

What is the effect of mistake on the contract?

Answer 20

The contract is void - it is declared a nullity from its beginning

Question 21

What are the categories of mistake?

Answer 21

1. Common mistake
2. Mutual mistake
3. Unilateral mistake - only one party is mistake and the other party knows/deemed to know of the mistake

Question 22

When is a unilateral mistake as to identity void?

Answer 22

If mistake is about identity

Question 23

When is the mistake as to identity only voidable for misrepresentation?

Answer 23

If the mistake is about attributes

There is no operative mistake and the contract may be voidable, but not void

Question 24

What is the general rule for mistake of identity in face-to-face transactions?

Answer 24

The seller intended to deal with the person in front of them (attributes not identity)

Contract unlikely to be void for mistake, but could be voidable for misrepresentation as the contract is one of attributes not identity

Question 25

What happens when after a voidable contract for sale of goods, the goods are sold to a third party?

Answer 25

If contract of sale of goods is voidable - as long as third party does not know about/have reason to suspect the deception = third party has acquired good title and the claimant cannot recover the goods

Seller likely to have no remedy

Question 26

What happens if there is a contract potentially void for mistake and the goods are sold to a third party?

Answer 26

A contract void for mistake means the contract is void from the outset - the buyer has no title and cannot pass title to the third party

Third party would have to return the goods to original seller

Question 27

What happens for distance selling transactions?

Answer 27

In writing/distance, the courts are more likely to find there is a mistake of identity (not attributes)

Not every distance selling transaction results in the court finding the contract void by mistake

Question 28

What are the elements of a fraudulent misrepresentation?

Answer 28

1. False representation is made
2. That false statement must be made: knowingly; without belief in its truth; or recklessly

The burden of proof is on the claimant

Question 29

What is the time bar for negligent and innocent misrepresentation claims?

Answer 29

Time is counted from the date the contract is entered into

Question 30

Is remoteness applicable for damages for fraudulent and negligent misrepresentation?

Answer 30

No - all losses flowing from misrepresentation are recoverable and remoteness is not applicable

Question 31

Is mistake as to quality an operative mistake?

Answer 31

No this will not be a common mistake - if the mistake is about the kind of item or its quality, this is not operative

Question 32

Why does it matter if there is a mistake or misrepresentation?

Answer 32

• Mistake renders the contract void. Therefore, whether an item has been sold to a 3rd party purchaser for value is irrelevant - the item is returned
• Misrepresentation gives remedy of rescission, but rescission cannot be used where you have a third party purchaser for value. Can only get damages

Question 33

What can the third party purchaser do where they have been sold goods which are found to be void for mistake?

Answer 33

Party A (seller) can get their goods back under mistake. Party C (third party purchaser) will have to sue Party B (fraudster) for breach of contract under s12 SoGA - implied term as to ownership. They can get damages

Question 34

What is the presumption as to mistake or misrepresentation?

Answer 34

If it is a face-to-face transaction, it is likely to be misrepresentation, unless this is rebutted (attributes not identity). If it is a long distance transaction, it is more likely to be mistake (and void)

Question 35

What are the key elements of an actionable misrepresentation?

Answer 35

A false statement of fact which induces another party to enter into a contract

• statements of opinion are generally not actionable

Question 36

When will rescission be barred in an actionable misrepresentation claim?

Answer 36

If there is a bona fide third party purchaser for value - it cannot be transferred back to the original party

Rescission is barred if a third-party purchase for value without notice has purchased the asset

Question 37

Common mistake as to fact or quality fundamental to the agreement

Answer 37

• General rule is that mistake about the quality of goods does not void the contract
• Exceptions where the mistake is so severe that the contract will be void for mistake as to quality - where mistake makes subject matter ‘essentially different’ from that intended

Question 38

Res extincta common mistake

Answer 38

Res extincta: where the goods perish at the time the contract was made, unknown to both parties. There is no formation of a contract (buyer would not be compelled to pay for the perished goods)