Contract - misrepresentation

Question 1

Preliminary statements

Three categories of ‘preliminary’ (i.e. pre-contract) statements.
Which is possibly actionable as a misrepresentation?

Answer 1

1. Sales puff
2. A contract term - if false, will be breach of contract
3. A representation - if false, possibly actionable as misrep

Question 2

Preliminary statements

Primary test for determining whether something was a term of the contract, or a representation?
Factors if the primary test can’t be determined? (5)

Answer 2

What was the common intention of the parties?
If can’t be determined, court will consider:
1. Whether one party had greater skill or knowledge of the subject matter than the other
2. Whether a statement made verbally was repeated in a written contract
3. Whether recipient of statement made clear it was of vital importance
4. Whether statement maker invited the other party to verify it
5. Length of time between statement being made and contract being formed (the longer the amount of time, more likely it is to have been a representation)

Question 3

Preliminary statements

Determining whether something is a term or a representation - if one party had greater skill or knowledge?

Answer 3

• If an expert makes a false preliminary statement to a non-expert, may well be deemed to be a term;
• If a non-expert makes a false preliminary statement to an expert, more likely to be considered a representation

Question 4

Preliminary statements

Determining whether something is a term or a representation - if maker of the statement invited the other party to check it?

Answer 4

More likely to be a representation than a term if the person making it told the other person to check it.

Question 5

Preliminary statement

1. If preliminary statement is determined to be a term?
2. If preliminary statement is determined to be a representation?

Answer 5

1. Then, if broken, will give rise to breach of contract
2. If a representation only, may be actionable in misrep.

Question 6

Definition of misrepresentation?

Answer 6

Untrue statement of fact made by one party to a contract (A) to another party (B), which induced B to enter into the contract.

Question 7

Definition of misrepresentation

Form of an ‘untrue statement’?

Answer 7

• Can be oral, in writing, or by conduct
• Silence won’t usually be sufficient, subject to exceptions

Question 8

Definition of misrepresentation

Circumstances in which silence may amount to misrep?

Answer 8

• where there is a fiduciary relationship
• where the contract is one of utmost good faith (e.g. an insurance contract)
• where there is a half-truth
• where a change in circumstances, which renders an earlier, true, statement inaccurate is not disclosed

Question 9

Definition of misrepresentation

Requirement for the statement to have been one of fact?

Answer 9

• Yes, i.e. not a statement of opinion, or of a future intention
• But: if one party actually lies about an intention, or states an opinion which has no reasonable basis in fact, these will be statements of fact (e.g. if a seller landlord tells a buyer landlord that the existing tenant is ‘a great tenant’, when they’re actually in arrears)

Question 10

Definition of misrepresentation

Can a misrepresentation be made by someone who is not a party to the contract?

Answer 10

No

Question 11

Definition of misrepresentation

Need for the statement to have induced the other party into entering into the contract?

Answer 11

• Yes - pften described as representee relying on the statement
• e.g. won’t have relied on it if they had appointed an expert to verify the representation, and then relied solely on the expert’s report
• Does not need to be the only inducement to enter into the contract - just needs to have been a reason for doing so

Question 12

Types of misrepresentation

Answer 12

1. Fraudulent
2. Negligent
3. Innocent

Question 13

Fraudulent misrep

When will misrep be fraudulent?

Answer 13

If made:
a) with knowledge that it is false; or
b) without belief in its truth; or
c) recklessly, not caring whether true or false.

Question 14

Fraudulent misrep

Measure of damages for fraudulent misrep?

Answer 14

• According to principles in tort - will put the innocent party into the position they would have been in, had the misrepresentation not been made
• Damages extend to all consequential losses - remoteness is irrelevant.

Question 15

Negligent misrep

When will person making a statement be liable for negligent misrep?
Burden?

Answer 15

• Where belief in the truth of the statement was not held on reasonable grounds (even if honestly held)
• Claimant has to establish misrepresentation and loss; defendant has to prove that the belief was honestly and reasonably held

Question 16

Negligent misrep

Measure of damages for negligent misrep?

Answer 16

Same as for fraudulent - based on principles of tort law - all consequential losses recoverable, and aim is to put innocent party in the position they would have been in had the misrepresentation not been made.

Question 17

Innocent misrep

When will misrep be innocent?

Answer 17

If the misrepresentor can establish that they had reasonable grounds to believe their statement was true.

Question 18

Innocent misrep

Measure of damages for innocent misrep?

Answer 18

• No damages available as of right
• Party who was misrepresented to may be able to rescind the contract, if rescission is not barred.

Question 19

Remedy avaialable for any type of misrep?

Answer 19

• Misrep makes the contract voidable (but not automatically void)
• Party who was misrepresented to can choose to rescind the contract
• Purpose of rescission is to place both parties back into their pre-contractual positions

Question 20

Nature of rescission as a remedy?

Answer 20

Equitable, and awarded at the discretion of the court. Barred in certain circumstances.

Question 21

Rescission

What are the four bars to rescission?

Answer 21

• affirmation - innocent party elects to treat the contract as continuing
• undue delay
• innocent purchaser acquires an interest in the subject matter of the contract before purported rescission
• where it is impossible substantially to restore goods or property

Question 22

Bars to rescission

Case law on undue delay as a bar to rescission? (Constable)
Principle?

Answer 22

• Claimant bought a painting which he’d been told was a Constable
• Five years later, he found that it wasn’t one, and tried to rescind
• He could have examined the painting immediately; five-year delay meant that he couldn’t rescind
• Court might look at when the misrep should have been discovered, rather than at when it actually was (does not apply to fraudulent misrep)

Question 23

Bars to rescission

Undue delay and fraudulent misrep?

Answer 23

In fraudulent misrep cases, time runs from when the misrep was actually discovered, not from when it should have been discovered.

Question 24

Bars to rescission

Innocent party acquires an interest?

Answer 24

• If innocent party acquires an interest before the contract is rescinded, then rescission will be barred
• e.g. someone (X) fraudulently buys a car from a seller (B), and then X sells the car on to someone else (C). If C buys the car before B tries to rescind the contract, then rescission will be barred