Vitiating Factors and Misrepresentation

Question 1

What is a representation?

Answer 1

A representation doesn’t create a contract though it may affect a contract.
A representation can be described as a statement of fact which induces the other party to enter into a contract, or otherwise activate detriment.

There are NO promises made.

Question 2

What is the key remedy for misrepresentation?

Answer 2

Rescission of the contract, that is the contract can be set aside.
This remedy is designed to put the parties in the position they would’ve been had they not contracted.

If you’re faced with a problem question, you need to consider whether a claim could be brought in tort for damages.

Question 3

What is the general rule for damages for misrep?

Answer 3

The general rule is that the P can’t get any damages

Question 4

What is the exception for the rule to no damages for misrep?

Answer 4

Where the misrepresentation has been incorporated into the contract as a term. In this sense, the misrep may have a dual feature; a misrepresentation and a promise at the same time.

If in a problem question, the first thing to do is consider whether the term is incorporated into the contract as a term. If it is and it turns out to be false, there is a remedy of damages for breach of contract.

Further problem that the representation can be a collateral warranty, but the courts are very reluctant on finding one.

Can’t get damages for innocent misrep, but you can if it’s a term of the contract.

Question 5

How do you know whether a representation is a mere puff?

Answer 5

1. How specific the statement is - Carlill v Carbolic Smoke Ball
2. Audience at which the statement is aimed at - Mitchell v Valherie

Question 6

Dimmock v Hallett

Answer 6

Contract to convey farmland. Old farmer described the land as ‘fertile and improve-able’.
Held: was merely a puff. Had no legal effect. They used the reasoning in Carlill v Carbolic Smoke ball. In that case, the statement made was specific and hence was a representation, here the statement was too general and unspecific

Question 7

Carlill v Carbolic Smoke Ball

Answer 7

Advertisement that stated anyone who contracted influenz having used the carbolic smoke ball three time daily for two weeks would be paid 100 pounds. Was the statement of 100 pounds a mere puff?
Held: Not a mere puff, but a term of the contract because it was precise and specific

Question 8

Mitchell v Valherie

Answer 8

Advertisement that stated there was nothing to spend on property, it was in perfect presentation and immaculate style.
Unfortunately, house is falling down as the foundations were weak.
P bought house which required a large sum of money and then also had to spend more money redoing the foundations.

Held: the perfect presentation and immaculate style was a puff. But the “nothing to spend” was specific enough and was a misrep.
In their reasoning, the court said take into account the audience which the statement is addressed to.
If the purchaser o the property had been sophisticated investors, it would be possible to accept all of the statements in the advertisements as puffs. But the purchasers here were not investors, but consumers of modest income wanting to buy a house.

Question 9

How do we know if a misrep is a term?

Answer 9

1. Importance of the statement to whom it is made - Couchman v Hill
2. Knowledge of the parties regarding the matter - Dick Bentley v Harold Smith
3. Time of statement
   Amongst other things..

Question 10

EK v Godfried

Answer 10

Where a statement is made and the person making the statement asks the other to verify whether it’s true or not, won’t be treated as a term.

Question 11

Couchman v Hill

Answer 11

Pregnant cow case.
The cow was put up for auction. There was no warranty given as to it’s condition during the auction. P asked seller (D) whether the cow was pregnant. P didn’t want a pregnant cow on his hands and if cow was pregnant then he wasn’t going to purchase it.
D said cow not pregnant, this wasn’t true.

Held: It was a term of the contract because of the importance of the information.

Question 12

Dick Bentley v Harold Smith

Answer 12

Seller of the car was a dealer. 
The seller (D) made a statement about the cars mileage. This was not true, the mileage was actually much higher than D claimed. 

Held: D was in a better position to know whether the statement was true or not and because of that, it was a term.

Question 13

What can constitute a misrepresentation?

Answer 13

1. Conduct as well as words - Jones v Dumbrok

2. Usually where the conduct changes the representation to become false Gorden v Savaco

Question 14

Jones v Dumbrok

Answer 14

D kept his mouth shut and complete negotiations knowing it was false. This was misrepresentation by conduct because he hadn’t disclosed the representation had become false.

Question 15

Gorden v Savaco

Answer 15

Vendor of a house covered up some dry rot. He wished to ensure that purchasers and their surveyors did not see it. He didn’t say anything about it, just covered it up.

Held: Misrep by conduct.

Question 16

Can misrep occur by silence?

Answer 16

Generally, there is no rule where parties enter into a contract, that they must disclose material facts. There is no duty of disclosure because it’s difficult to decide what is to be disclosed in various cases.

There are exceptions:

1. Silence by the representor that makes their statement only partially true.
2. Contract of guarantee e.g. if I guarantee your debt, you are required to disclose circumstances that are not obvious in relation to your debt.
3. Where the contract specifies that you must disclose, then obviously you have to.

Question 17

Dimmock v Hallett

Answer 17

A statement made by the vendor of an estate that the farms were fully let.
It made estate more valuable because you were buying land that was fully let.
D omitted to say that one of the tenants had given notice to quit.
So statement was partially true, but their silence rendered it partially true.

Question 18

With v O’Flannagan

Answer 18

Involving a medical practice. Negotiations began and one doctor wants to buy the practice off another. At the point, practice is worth 2,000 pounds.
Doctor selling becomes very sick and isn’t able to practice, hence losing patients.
By the time sale was concluded, practice was worth less because it was a practice without any patients.

Held: Circumstances had changed and silence had caused a misrepresentation.

Question 19

What is a misrepresentation?

Answer 19

A misrepresentation is a false statement that does not accord with true facts, past or present.
The intentions of the person making the statement are not relevant in determining whether it’s true or false.

Elements:

1. A misrepresentation must be a statement of fact, or a statement of opinion presented as a statement of fact, or a statement of intention as a statement of fact
2. Must be addressed to the mislead party
3. Must be a material statement
4. There must be actual inducement

Question 20

How to determine whether a representation is false?

Answer 20

Krakowski v Eurolynx Properties says that it is an objective test. What would a reasonable person understand this statement to be saying?

Question 21

Are statements of intention actionable?

Answer 21

The rule here is no statement of intention is actionable unless the court can present it as a statement of fact.

Question 22

How does a court present a statement of intention as a statement of fact?

Answer 22

Where the statement can be shown to be that person’s current/present intention. It’s currently what they intend Edington v Morris

Question 23

Eddington v Morris

Answer 23

Involved essentially a company fraud and they were desperate to find a misrepresentation.

Question 24

Are statements of opinion actionable?

Answer 24

Generally, they are not actionable. Bissit v Wilkinson

Though there are exceptions:
1. Where the person asserts factually that the facts support their opinion. Smith v Landhouse Property Corporation

Question 25

Are statements of law actionable?

Answer 25

A statement of law is not actionable unless it is fraudulent - Public Trustee v Tailor

Question 26

What is the second requirement to be a misrepresentation?

Answer 26

The misrepresentation must be addressed to the party who is mislead. Peek v Gurney
Usually this is obvious, but where the statement has been passed through a third party, then it is only actionable if the person making the statement intends it to be passed to/through the third party.

Question 27

What is the third requirement?

Answer 27

The statement of fact must be material. This filters out trivial statements. Nicholas v Thompson

Question 28

What is the fourth requirement?

Answer 28

See Gould v Vaggelas
Situations where misrep isn’t a reason for entering into the contract:
1. Where A makes a representation to B and B is unaware of it. It can’t influence B if B doesn’t know about it
2. A makes statement t B and B is well aware that the statement is false
3. Where B enters into the contract for an entirely other reason(s)

Question 29

Types of actionable misrep?

Answer 29

1. Fraudulent Misrep
2. Negligent Misrep
3. Innocent Misrep

Question 30

When do you have an action?

Answer 30

You only have an action if it is fraudulent or negligent for damages.
If it is innocent, the only remedy is rescission.

Question 31

What is fraud?

Answer 31

Derry v Peak
Three are three situations where a statement is fraudulent:
1. A makes statement to B knowing it’s false
2. A makes statement to B believing it to be false
3. A makes statement to B recklessly, being careless as to whether it’s true or false. (in this case, there need not be an intention to deceive)

Question 32

Derry v Peak

Answer 32

Company prospectus said the company was entitled to steam power when running it’s trams. To do this, one would need permission.
Company was aware of this and they were setting up for that purpose and seeking investors.
Disastrous for investors because they entered into contract and then permission was refused to run steam power trains.

Held: D not fraudulent because they honestly believed they were entitled to run these trains. They were not reckless or careless.

Question 33

Krakowski v Eurolink Property Limited

Answer 33

Just to be clear, the courts have said that a person can be fraudulent without having evil intentions. So motive is not relevant in Australia.

Question 34

Hadley Burn v Heller

Answer 34

Liability for negligent statement.
Where there is an assumption of responsibility.
If say, there’s a contractual relationship. Also if there’s an assumption of responsibility, then a DOC arises.

Question 35

Remedies for Innocent Misrep

Answer 35

CAN’T GET DAMAGES. The only remedy is rescission.

Only get damages if the innocent misrep is a term of the contract.

Question 36

What are the bars to rescission?

Answer 36

1. When you affirm the contract. Need certain knowledge if you’re wanting to affirm. You need to know that in law, you have a right to rescind. Coastal estates.
2. A lapse of time where you wait for too long, it stops you from electing to rescind.
   Restitution impossible bar on rescission. In order to rescind, the purpose is to put the parties in the position they would have been. If it’s not possible to return them to the way they were, then not possible. However Alati v Kruger says you don’t have to put them in the EXACT position they were.
3. Third parties are protected
4. Case where the contract has been fully executed. Usually where there is a contract for the sale of land. McNamara

These bars are not limited to misrep

Question 37

Rescission

Answer 37

YOU MUST ELECT TO RESCIND.

Question 38

Henjo Investments

Answer 38

At common law, there is no liability where people are silentt. There are exceptions under common law and ACL.
THis is the first case.
Court said in considering liability under ACL for remaining silent, court needed to ask whether there was a duty on the facts to disclose?
Duty depends on the facts of the case.
This case: concerned a liquour license. P wanting to buy a restaurant, he went along, saw allthese people in the bar area drinking etc.
He bought it. However, D failed to disclose that drinking in this area was forbidden under terms of the license. So the existing owners were actually contravening their liquour llicense.

Held: There was a duty. The duty was not discharged even when P had instructed their solicitors to do so, who had failed to do so.

Question 39

Demagogue v Ramensky

Answer 39

Different test.
Instead they say:
1. Whether there is a reasonable expectation, whether the facts give rise to this expectation, that the facts that the D remained silent about, should be disclosed

Question 40

Miller v BMW Australia Finance

Answer 40

This case said expectation of disclosure depends on nature of parties.
An expectation doesn’t merely arise becuase one party knows that the matter which they remain silent about is likely to be important to the other. That isn’t enough.
Facts: two large commercial parties.
Difficulty in the ACL for accidental non-disclosure because s2(2) refers to doing or refusing to do an act which suggests some deliberation rather than doing something inadvertently or by accident.

Question 41

Byer v Dorotea

Answer 41

Statement by the vendor that the apartment would be bigger and better than those closeby.
Held: What mattered under ACL was particular audience it was directed to and the facts. It was specific enough, so not puff.

Question 42

Gould v Vaggelas

OH MY GOD. REVIEW

Answer 42

This case: Gould holdings purchased a tourist resort for a large sum. Mr and Mrs Gould created a company, and who would control them, that company being Gould Holdings.
After two years, the venture became unsuccessful and Gould Holdings defaulted.
The vendors claimed from Goulds as guarantors the amount owing by Gould Holdings. They claimed from Goulds because the Gould Holding company had gone into liquidation.
Goulds counterclaimed, seeking damages for deceit from vendors and the Vaggelases on the basis that the respondent have misrep-ed to Mrs Gould that the business was very profitable and had submitted false figures as to occupancy rates and financial returns.

Goulds were the one who brought the claim.
First issue is nature of fraudulent and misrep.
In order to bring a claim, necessary to show the fraudulent conduct indued person to enter into contract.
Do this by inference. In this case, there clearly was inducement.

Question 43

Damages for fraudulent misrep

Answer 43

Damages are treated similar to Tort of Deceit.
Damages can be awarded for any loss flowing from the deceit. Professional Services of Australia v Computer Accounting and Tax

Question 44

Negligent Misstatement

Answer 44

Damages are assessed on a Tort measure. Put the P back into the position. Kenny v NGICA

Question 45

Professional Services of Australia v Computer Accounting & Tax

Answer 45

In this case, because parties had entered into a contract, the deceit caused them the loss of an opportunity for other investments, so loss of opportunity.
Held: damages could be awarded on the basis that an opportunity was lost.

Question 46

Kenny v NGICA

Answer 46

Involving an overvaluation of property.
As a result, the bank lent more money than the property was worth. Though the bank took out insurance on the basis of that valuation to cover the value of security.
Because of the negligent misstatement, the value of the property was lower than the value of the insurance.
The borrower defaulted, bank sold property and insurance were liable to bank for the initial value of property i.e. what the negligent misstatement said.
They had to pay.

Held: The amount that the insurance company could recover was the full amount paid under the insurance policy i.e not difference between real and negligent value.

Question 47

Exclusion of liability for misrep?

Answer 47

It is possible to exclude for negligent or innocent, but never fraud. An exclusion clause for fraudulent misrep will never work. Commercial Banking of Sydney v RH Brown