Chapter 14: Misrepresentation

Question 1

define misrepresentation

Answer 1

pre-contractual descriptive statement/statement of fact that is wrong. False or misleading statements become relevant when that statement is material and induces a party to enter into a contract.

Question 2

define innocent misrepresentation

Answer 2

false statement was made by accident
Equitable cause of action: Rescission – put the parties in the position they would have been in had the contract never been entered into in the first place

Question 3

describe barriers to rescission in innocent misrepresentation case

innocent misrep. claim won’t be successful if…

Answer 3

1. Affirmation: approving the contract after you know the truth
2. Laches: undue delay in bringing the action (waited an unreasonable amount of time)
3. Restitutio in integrum is impossible – we can’t put the parties back into the position they would have been in had the contract never been entered into in the first place
4. Execution of the contract: enforced relatively strictly in sales of land and securities; otherwise a derivative of laches
5. Third party rights: can’t do harm to interests of innocent third parties

Question 4

define fraudulent misrepresentation

Answer 4

false statement was made on purpose

Common law remedy for tort of deceit

Damages and perhaps rescission

Question 5

3 fundamental elements of misrepresentation

Answer 5

Statement of fact that is false (can’t be puffs/obviously exaggerated sales talk, opinions, etc.)
* But opinion can have impregnated statement of fact

Relevant Materiality: misstatement must relate to a matter that would be considered by a reasonable person to be relevant to their decision to enter into the agreement in question

Reliance and Inducement: misrepresentation must have induced parties to enter into the contract
* Usually assumed (they wouldn’t have made the contract otherwise) unless:
1. The representee knew the true state of affairs; or
2. The representor can show some conduct by the representee that indicates that the representee was not relying on the representation (hard to prove)

Question 6

Derry v Peek

Prospectus: steam powered trams vs horses

Answer 6

Where rescission is claimed it is only necessary to prove that there was misrepresentation of a material fact, however honestly it may have been made

However, in order to sustain an action of deceit (which would allow one to claim damages through the tort of deceit), there must be proof of fraud

TEST FOR FRAUD MISREPRESENTATION: Fraud will be demonstrated if it can be shown that a false representation has been made: 1) knowingly; or 2) without belief in its truth; or 3) recklessly, careless whether it be true or false. In other words, the essential ingredient for fraud is the absence of an honest belief in the truth of the statement made.
* Objective test: Under the circumstances would a reasonable person likely believe the statement they were making to be true.
* It is not enough to establish a misrepresentation: A man who forms an honest belief about something (even carelessly) and makes a false statement may be blameworthy but he is not fraudulent, falls short of fraud

Question 7

Smith v Land and House Property Corp

“most desirable tenant” goes bankrupt

Answer 7

1. When parties have equal knowledge of the relevant facts, what is said is an opinion. Mere puffs/opinions are typically not misrepresentations bc they are not usually relied upon by a reasonable person – they do not induce.
2. However, when the party giving the opinion has superior or special knowledge/expertise regarding the nature of the information that would suggest reliance on the representation, that it is a material fact, and can amount to a misrepresentation of material fact
3. Prima facie, the vendor knows everything and the buyer knows nothing

Hotel owner knows what kind of a tenant Fleck is, potential buyer doesn’t: therefore owner is misrepresenting the facts as he didn’t represent them truthfully

Question 8

Ennis v Klassen

BMW 733i is really a BMW 728

Answer 8

1. Misrepresentation is (1) a statement of fact that is false (2) must be substantial/material in nature (go to the root of the contract) and (3) must have induced the party to enter into the contract. The fact that there is an honest belief in the representation is irrelevant!
2. An inspection may not be enough to dislodge a misrepresentation that goes to the root of the contract – the representor will have to go further and correct the initial misrepresentation.
3. In the absence of fraud, the only remedy available for misrepresentation is rescission (not damages).
4. Even if a sale and delivery of a chattel has taken place, execution of the contract will not necessarily be a bar as long as the right to rescind has been exercised within reasonable time after execution. (What will constitute reasonable time is a question of fact to be determined according to the circumstances of each individual case.)