The statement of misrepresentation must be an inducement Flashcards
Basic principles - materiality and questions of fact
Misrepresentation must be a real and material inducement to the buyer to enter the contract but not the decisive factor. - buyer must prove this. Even if the misrepresentation is material, it may still be able to be established on the facts that there was no inducement.
What happened in the case of Smith v Chadwick 1884?
The claimant purchased shares in a company but later sought to end the contract on the grounds that the prospectus contained a statement that Mr Grieve MP was a member of the Board of Directors. Although the statement was untrue, during cross examination, the claimant admitted that the statement had not influenced him when he purchased the shares. On that basis, there was no inducement and so the statement was not actionable.
Types of situations in which have not been dealt with so far - The representee tests for accuracy but fails to discover the truth
Where the misrepresentation is fraudulent, if the representee checks the accuracy of the statement this probably does not alter the conclusion that the misrepresentation has induced him to enter the contract. key case is Pearson & Son Ltd v Dublin Corporation [1907] AC 351; where it was stated obiter that if a misrepresentation is fraudulent the representee’s test for accuracy will not prevent reliance on the misrepresentation.
4.3 The representee asks a third party to check the accuracy of the statement and the third party fails to discover the truth
following the authority of Pearson v Dublin Corporation) it is probably the case that where the representation is fraudulent, the representee is still treated as having been induced by the misrepresentation even where s/he has asked a third party to check the statement and the third party has not discovered the truth (see also Morris v Jones [2002] EWCA Civ 1790). If misrepresentation only negligent or innocent - representee will not be treated as having been induced.
What was held in the case of Attwood v Small?
In this case the seller of a mine made some false statements (but non-fraudulent) statements about the mine’s earning capacity. The buyer then hired a third party expert to inspect the mine to verify the statements made. The third party then confirmed that the statements were true and so the buyer entered the contract. When it was discovered that the statements were false, the buyer wanted to end the contract for misrepresentation. The House of Lords held that the statements did not induce the buyer to enter the contract and so they were not actionable. Instead, the buyer had been induced to enter the contract by the inspection carried out by the third party.
The representee the is given an opportunity to discover the truth, but fails to take the opportunity
The general rule is that the representee is still induced by the misrepresentation, even if the misrepresentation was innocent. - Redgrave v Hurd 1881 - So was there an actionable misrepresentation? It could be argued that the buyer was induced by his failure to verify the statement. The Court of Appeal held that the buyer remained induced by the original false statement.
What is the principle nowadays?
Nowadays, whilst the same decision would be made, any claim for damages (a separate remedy from ending the contract- see below) might be affected however, the amount of damages might be affected by the Law Reform (Contributory Negligence) Act 1945 which applies where “any person suffers damage as a result partly of his own fault and partly of the fault of any other person”.
