Topic 4: Misrepresentation Flashcards
Define misrepresentation
A false statement of existing or past fact that induces another to enter a contract
What are the elements required for an actionable misrepresentation?
(i) a false statement
(ii) of existing or past fact
(iii) made by one party to the other
(iv) that induces the other party to enter into the contract
What are the types of remedy for misrepresentation/
Rescission
Damages
Does silence usually amount to a false statement?
No
Is there usually a duty to disclose facts?
No
What are the exceptions to the rule that there is no duty to disclose facts?
Contracts of the ‘utmost good faith’
Continuing representations
Implied representations or ‘half-truths’
What case sets the precedent that continuing representations require disclosure of facts?
With v O’Flanagan (1936)
Briefly outline the facts and decision of With v O’Flanagan (1936)
A statement about the profits from a doctor’s practice made to a prospective purchaser of the business
True at the time it was stated, but profits declined after the statement but prior to entry into the contract to sell
Held: The original statement was a ‘continuing statement’ so the defendant was under an obligation to ensure it remains accurate
Which cases set the precedent that half-truths are actionable misrepresentations?
Dimmock v Hallett (1866)
Spice Girls Ltd v Aprilia World Service BV (2002)
Briefly outline the facts and decision in Dimmock v Hallett (1866)
Seller told buyer that all he farms win the land are fully let
The seller knew that one of the tenants had just served notice to leave
Held: the original statement was a misleading ‘half-truth’
Briefly outline the facts and decision in Spice Girls v Aprilia World Service BV (2002)
Spice Girls entered into a sponsorship contract with Aprilia, if the SG promoted their product
SG made a statement: “The Spice Girls will promote the motorcycles”, implying the entire group
SG knew that Ginger Spice had declared her intention to leave
Held: misleading ‘half-truth’ statement
Can a false statement be inferred from one party’s conduct? Give an example
Yes, e.g. paying for goods by cheque when the buyer knows there are insufficient funds
What must a fact be distinguished from?
Advertising ‘puffs’
Which case sets the precedent that it is reasonable for a claimant to rely on the defendant’s statement?
Esso Petroleum Co Ltd v Mardon (1976)
Briefly outline the facts of Esso Petroleum Co Ltd v Mardon (1976)
Claimant entered into a contract to rent a petrol station from the defendant
Defendant made a statement about the predicted profits from the petrol station – these were false
Held: it was reasonable for C to rely on the statement because D had more (and exclusive) knowledge of profits from petrol than C
Can misrepresentation be established based upon statements of intention?
No
What precedent was set by Edgington v Fitzmaurice (1885)?
If the person making the statement of intention does not have that intention at the time the statement was made, this may amount to an actionable misrepresentation
Briefly outline the facts and decision of Edgington v Fitzmaurice (1885)
Company prospectus stated that the funds raised would put back into the company to develop it and increase profits
There was no intention of this at the time – the directors knew that the funds would be used to pay off company debts
Company went insolvent
Held: actionable misrepresentation
Briefly outline the facts and decision of East v Maurer (1991)
The seller of one of two hairdressing salons stated that he would not continue to work at the one he retained (i.e no competition for the buyer)
This was not his intention
Held: actionable misrepresentation
Can statements about the law, if false, be actionable misrepresentations? Why/why not?
No, because everyone has access to the law and should verify such statements for themselves
Can a misrepresentation be communicated through a third party? Give precedent
Yes: Cramaso LLP v Ogilvie-Grant (2014)
Which case establishes that a claimant must show that they relied on the statement when entering into the contract?
Edgington v Fitzmaurice (1885)
What does the case JEB Fastners v Marks, Bloom & Co (1983) show?
There will not be an actionable misrepresentation if the represented would have entered into the contract anyway, despite the misrepresentation
Is there a duty to check the accuracy of the statement made? Give precent
No: Redgrave v Hurd (1881)
Define ‘fraudulent misrepresentation’. What case gives this definition?
When a false representation has been made
(a) knowingly;
(b) without belief in its truth; or
(c) recklessly, careless whether it be true or false
Derry v Peek (1889)
What remedy is available for a fraudulent misrepresentation?
Rescission and damages in the tort of deceit
Define ‘innocent misrepresentation’
When the representee does not mean to deceive and is not negligent
What are the remedies for innocent misrepresentation?
Rescission or damages in lieu of recession under s 2(2) Misrepresentation Act 1967
Define ‘negligent misrepresentation’
When a person makes a false statement which he may honestly believe to be true but without reasonable grounds for believing it to be true
What are the remedies available for negligent misrepresentation?
Rescission and damages under s 2(1) Misrepresentation Act 1967
Is a contract that has been entered into based on a misrepresentation void or voidable?
Voidable
How is a voidable contract rescinded?
The contract is treated as valid up to the point of the court case or the choice to rescind
The parties are then put in the position that they were before the contract, e.g. ordered to give back what they received under the contract
Indemnity may be ordered for expenses that were incurred in pursuance of a contract that is subsequently rescinded
What can misrepresentation be a defence for?
Breach of contract
What are the four bars to rescission?
Impossibility
Third party rights
Victim has affirmed the contract
Lapse of time
What case establishes that a bar to rescission will be when the victim affirms the contract?
Long v Lloyd (1958)
What case establishes that a bar to rescission will be lapse of time
Leaf v International Galleries (1950)
What does s 2(2) Misrepresentation Act 1967 govern?
The court’s discretionary ability to award damages in lieu of rescission
Why can rescission be harsh on the defendant?
The other party may just be trying to get out of a bad bargain and the representer may stand to lose a lot if the contract is set aside
What is the measure of damages?
The tort of deceit
What is the measure of damages in the tort of deceit? What case gives this measure?
Claimant can claim for all losses stemming from having entered into the contract as a result of the deceit, not just reasonably foreseeable losses (as is the case in negligence)
Smith New Court v Scrimgeour Vickers (1997)
How doe s 2(1) of the Misrepresentation Act 1967 work?
C must establish that there was an actionable misrepresentation (even if only innocent)
D must then prove that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts were true
If D cannot prove this, they are liable in damages for misrepresentation
Any claim against a third party who makes a negligent statement must be in tort law
Do losses need to be reasonably foreseeable to be claimable? Gove the case for this
No – Royscot Trust Ltd v Rogerson (1991)
Define ‘actionable duress’
Improper threats brought to bear on one party by the other to coerce them into entering into a contract
What is the remedy for duress?
Contract voidable at the choice of the victim
Innocent party can also choose to affirm the contract
What are the three types of duress?
Physical duress
Duress against goods
Economic duress
What is the case that governs physical duress?
Barton v Armstrong (1976)
Briefly outline the facts and decision in Barton v Armstrong (1976)
A threat to kill the other party if he did not execute a deed (illegitimate pressure)
There were also commercial motives for Barton to execute the documents
Held: the threat does not have to be the only reason why the victim entered into the contract, as long as it was a reason
What case governs duress against goods?
Astley v Reynolds (1731)
Briefly outline the facts of Astley v Reynolds (1731)
Astley pawned goods to Reynolds in return for £20
Astley tried to pay several times and Reynolds demanded more money, which Astley eventually paid
Held: contract set aside and money returned
What case governs economic duress?
Atlas Express v Kafco (1989)
Briefly outline the facts and decision of Atlas Express v Kafco (1989)
Kafco had a contract to supply wicker baskets to Woolworths
Atlas had a contract with Kafco to deliver these baskets
Atlas turned up and treated to drive away unless Kafco agreed to pay more
Atlas agreed, otherwise they would have gone out of business
Held: this promise was unenforceable because it was a form of economic duress
What factors are necessary to establish economic duress?
Illegitimate pressure or threat
That this pressure caused the other to enter into the contract
How is illegitimate pressure tested for?
On a case-by-case basis using the factors identified in DSDN Subsea Ltd v Petroleum Geo-Services ASA (2000)
What factors to test for illegitimate pressure were identified in DSDN Subsea Ltd v Petroleum Geo-Services ASA (2000)?
(a) Whether there has been an actual or threatened breach of contract
(b) Whether the person allegedly exerting the pressure had acted in good or bad faith
(c) Whether the victim had any realistic practical alternative but to submit to the pressure
(d) Whether the victim protested at the time
(e) Whether the victim affirmed and sought to rely on the contract
What is ‘bad faith’ in the context of illegitimate pressure?
Where one party recognises that the other is in a very weak bargaining position and uses this to get money
What was established in CTN Cash and Carry Ltd v Gallaher Ltd (1994)?
It is difficult to establish a case of economic duress when the threat complained of amounts to a threat to do a lawful act
What was established in Dimskal Shipping Co SA v International Transport Workers’ Federation (The Evia Luck) (1992)?
It must be found that the claimant would not have entered into the contract had it not been for the threat and that he had no reasonable alternative but to enter into the contract
Define ‘undue influence’
When the influence which induced a party to enter into a contract is such that it is deemed by equity to be unconscionable for the other party to enforce their legal rights under the contract
Which case consolidated how undue influence can be established?
Royal Bank of Scotland v Etridge (No 2) (2002)
What are the two types of undue influence?
Actual undue influence
Presumed undue influence
What is the difference between actual and presumed undue influence?
Actual: undue influence is established as a question of fact
Presumed: based on the parties’ relationship and the nature of the transaction, the courts may presume that undue influence has been exercised
What two factors must be established to raise the presumption of undue influence?
(a) A relationship of trust and confidence
(b) The transaction calls for an explanation
Which relationships will always be relationships of trust and confidence in the law governing presumed undue influence?
Parent/child
Solicitor/client
Doctor/patient
Religious advisor/follower
Will every disadvantageous transaction call for an explanation? Which case sets this precedent?
No: National Westminster Bank v Morgan (1985)
What type of transaction classes as one which ‘calls for an explanation’?
One that is so unusual that it is not accountable on the ground of friendship, relationship, charity, or other ordinary motives on which people act
What is the remedy for undue influence?
The court will not enforce the contract, or rescission if the contract has been fully or partly performed
If a third party puts undue influence on one party to a transaction, under what circumstances can that party claim undue influence?
(1) Proving undue influence, either actual or presumed
(2) Then it must be established that the other party has notice of the undue influence
When does one party to a contract have notice of undue influence from a third party?
If they actually knew of the indue influence or if they have been ‘put on inquiry’ that there might have been undue influence
What are the steps the party must take if the other party has been subject to undue influence by a third party?
The influenced party should attend a private meeting with the other party (e.g. a bank) without the third party
The risks of the transactions should be explained
The bank advises the party to take independent legal advice
The solicitor must tell the party that they will be unable to challenge the transaction on the grounds of undue influence
