Misrepresentation in Contract Flashcards
3 elements of Misrepresentation
(1) There is a statement of fact (as opposed to statement of opinion);
(2) The statement relates to existing or past fact (as opposed to future fact); and
(3) The statement was made during negotiations before contract was made.
(1) A false Statement of Fact (Bisset v Wilkinson) (farm capacity)
- Vendor of a holding, told prospective purchaser that farm capacity was 2000 sheep despite never having farmed sheep
- 2 years of unsuccessful farming made them realise it could not hold 2000 sheep
- purchaser sought misrepresentation to get deposit back
- Held: statement made by vendor was merely an opinion, not intended to be a serious representation
(2) Existing of past fact
(Ware v Johnson) (orchard crop)
- Plaintiff agreed to buy orchard which had been planted but not grown yet
- during negotiations, defendant stated the orchard would produce a crop in the next season
- the vines failed to grow in the next season
- plaintiff sought damages for misrepresentation
- Held: defendant liable for misrepresentation, statement implies a statement of present fact
(3) Pre - Contractual Statement
(what statements do not constitute misrepresentations)
(i) Puff
(ii) Silence
(iii) Statements of opinion
(iv) Statements of intention
(v) Statements of law
Pre contractual statements - (I) Puff
(Dimmock v Hallet) (non fertile land)
Puff - promotional statement usually exaggerated
- H won a bid at auction for piece of land
- Later discovered that it was not “very fertile and improvable” as described in the sales particulars
- Held: the description was a “mere flourishing description” and should not have been taken as positive representation of fact
Pre contractual Statements - (ii) Silence
(March Construction Ltd v Christchurch City Council) (under priced tender)
Silence - silence does not constitute misrepresentation, must be some positive statement or conduct
- March construction tendered for works to council
- in tender, employee made mistake and under priced
- after the tender was accepted March discovered the mistake
- March sought relief claiming council’s silence constituted misrepresentation
- Held: no misrepresentation by council, no legal obligation to point out mistake in tender price
Exceptions to (ii) Silence
(a) Distortion of a positive representation
(b) Subsequent discovery that the statement was false
(c) Statement becomes untrue
(d) Guarantees - A creditor failure to disclose (non-disclosure of) unusual aspects in a guarantee amounts to a misrepresentation.
Exception to silence -
(a) Distortion of positive Representation
(Wakelin v RH & EA Jackson Ltd) (lunch bar)
Positive Representation - Where the positive representation operates only as a half truth what is left unsaid constitutes a misrepresentation
- Plaintiff purchased defendants lunch bar
- During negotiations, defendant stated closest takeaway bar was half a mile away and that the council would not grant permission for any further takeaway bars in the area
- Defendant knew of competing business starting in the close vicinity within a short time but kept silent
Held: defendants silence regarding competing business distorted truth of first representation therefore constituting misrepresentation
Exception to silence -
(b) Subsequent Discovery that the statement was false
(no case)
Representor subsequently discovers that the statement he/she made to induce the contract was false but fails to correct that erroneous statement.
- this silence may amount to representation
Exception to silence -
(c) Statement becomes untrue
(With v O’Flanagan) (medical practice)
original statement made becomes untrue as a result of subsequent circumstances and representor fails to take positive steps to correct it
- negotiations were entered into for medical practice sale
- Vendor represented to purchaser that practices takings were $2000 per annum
before contract was signed, practice had fallen off due to Vendor illness - purchaser took posession and found almost non existent practice
- Held: Vendor had duty to communicate change of circumstances, failure to do so constituted misrepresentation
Pre contractual Statement - (iii) Statements of opinion
(Exceptions)
statement of opinion - where it is clear what is given is merely an opinion, a prudent person is expected to make further inquiry
Exceptions
(a)The representor never held the opinion in the first place (that is, he or she lied).
(b)Although the representor did hold the opinion, no reasonable person could have held it.
(c)Although the statement was clearly couched as an opinion, the representor implied that he or she knew facts that justified the opinion.
(d)The facts were not equally known to the parties, and an opinion was given by one who should have known the facts or who was in a far stronger position to ascertain those facts.
Pre Contractual Statements - (iv) Statements of Intention
(Eddington v Fitzmaurice) (debenture prospectus)
Do not usually give rise to an action in misrepresentation
Exception - will be regarded as misrepresentation if at the time the statement was made the representor did not intend or have the ability to put that intention into effect
- Plaintiff subscribed for debentures of defendants company based on prospectus issued by defendant
- prospectus stated the capital raised would be used to develop the company
- defendant intended to use the money to pay off existing liabilities
- Plaintiff sought action for repayment of the money
- Held: Defendants statement in prospectus was a misrepresentation as he never intended to use the money that way
Pre Contractual Statements - (v) Statements of Law
(Exceptions)
(a) wilful misrepresentations of the law;
(b) statements of mixed law and fact;
(c) representations as to the nature or effect of private rights (as opposed to common law or statutorily given rights); and
(d) statements of law where the representor knows or should suspect that the representee will rely on the representor’s superior knowledge of the law.
5 elements of Actionable Misrepresentation - (s35)
(1) There must be a misrepresentation;
(2) (The misrepresentation was) made by or on behalf of the Defendant [the Representor];
(3) (The misrepresentation was) made to a contracting party [Representee];
(4) [The Representee was] induced to enter into [the contract] by the misrepresentation.
(5) the fifth element comes from the case of Savill
Savill - The representor must have intended the misrepresentation to induce the representee to enter into the contract
Actionable misrepresentation -
(1) Misrepresentation
There must be a misrepresentation (s35)
- use the three elements of misrepresentation to establish if there is one
Three elements of misrepresentation:
(1) There is a statement of fact (as opposed to statement of opinion);
(2) The statement relates to existing or past fact (as opposed to future fact); and
(3) The statement was made during negotiations before contract was made.
