Vitiating factors - misrepresentation

Question 1

Categories of pre- contract statements

Answer 1

• Sales puff (ie extravagant sales talk that is not meant to be believed and so is not
  actionable if untrue).
• A contract term (which will give rise to an action for breach if untrue; and
• A representation (which may be actionable as a misrepresentation).

Test is common intention of the parties when they entered the contract.

Question 2

Misrepresentation - defintion

Answer 2

• An untrue statement
• of fact
• made by one party to a contract, by words or conduct, to the other contracting party,
• which induced the other to enter into the contract

Question 3

An untrue statement

Answer 3

May be oral, in writing or by
conduct.

Silence may amount to misrepresentation:
(a) where there is a fiduciary relationship between the parties;
(b) where the contract is one of the utmost good faith (eg an insurance contract);
(c) where there has been a half- truth; and
(d) where a statement of fact is true when made but a change of circumstances occurs before
the contract is formed that makes the statement untrue, and the change is not disclosed.

Question 4

Types of misrepresentation - Fraudulent misrepresentation

Answer 4

Misrepresentation is only fraudulent if made:
* with knowledge that it is false; or
* without belief in its truth; or
* recklessly, not caring whether it is true or false.

Damages is how much the misrepresentee is ‘out- of- pocket’.
Damages extend to all consequential losses. Remoteness of loss
does not come into it.

Question 5

Types of misrepresentation - Negligent misrepresentation

Answer 5

Statements that were made carelessly.

Misrepresentor liable to pay damages where, although the belief in the truth of the
statement was honestly held, it was not held on reasonable grounds.

C has to establish misrepresentation and loss. D then has to prove it was honest and reasonable to avoid paying.

Damages assessed in same way as fraudulent misrepresentation.

Question 6

Types of misrepresentation - Innocent misrepresentation

Answer 6

If has reasonable grounds to believe their statement was true then not negligent.

Whilst damages may not available, the misrepresentee may still be able
to rescind the contract, if rescission is not barred.

Question 7

Rescission

Answer 7

Setting aside a contract. Puts you back to the start.

Available for all types of misrepresentation and may be awarded
in addition to damages.

Equitable remedy.

Question 8

Rescission - bars to rescission

Answer 8

(a) Affirmation. The innocent party on discovering the misrepresentation may elect to treat the
contract as continuing – and doing nothing may amount to affirmation. Once affirmed cannot change their mind and rescind.

(b) Undue delay.
Court looks at when misrepresentation should have been discovered not when, other than for fraudulent misrepresentation.

(c) Where an innocent purchaser has acquired an interest in the subject matter of the
contract before purported rescission of the contract.

(d) Where it is impossible substantially to restore goods or property.