misrepresentation

Question 1

misrepresentation definition

Answer 1

a misrepresentation may be defined as a material statement of facts made in pre contract negotiations which was intended to induce and in fact did induce the formation of a contract, and is untrue.

if it is subsequently included in a contract, then the usual issue of condition, warranty, or innominate terms becomes relevant

the effect of misrepresentation is to render a contract voidable not void

Question 2

honest statement of opinion versus statement of fact

Answer 2

if the statement was made by someone as an honest statement of opinion or based on interpretation of facts, this is not misrepresentation
- unless they had no reasonable grounds to believe this will be true

Bisset v. Wilkinson (1927)
The vendor of land expressed an opinion to the buyer that in his
judgement the land would support 2000 sheep. The vendor
had no special knowledge, and consequently the court held
that it was an honest statement of opinion which did not
constitute a misrepresentation

Question 3

smith vs land and house property corporation

Answer 3

Smith v. Land and House Property Corporation (1884)

The landlord described the tenant of a flat he was selling as ‘most desirable’, although he had previously had difficulty persuading the tenant to pay his rent. The court held
that the vendor’s statement was not a mere expression of opinion- it was an untrue assertion that nothing had occurred which could be regarded as rendering the tenant
an undesirable tenant.
These cases seem to indicate that an actionable misrepresentation will not arise if the opinion is honestly held; if the person making the statement of opinion could not reasonably have held such a view, then his statement will be treated as being one of
fact, and accordingly a misrepresentation

Question 4

statement of intention

Answer 4

a person who promises to do something in the future then breaks the promise is liable for breach of contract if the promise forms part of the contract. Otherwise there will be no liability unless he had no such intention at the time of making the statement

Edgington v. Fitzmaurice [1885]
A company invited the public to lend money, stating that it was to
be used to finance future expansion. The true intent was to pay
off debts. This was held to be a misrepresentation of fact- this
being that it was the company’s present intent to use the money
for expansion when in fact the intention was to use it to meet
existing liabilities

Question 5

effect of silence

Answer 5

a party who makes a false statement in the belief that it is true comes under an obligation to disclose the truth should he subsequently discover that he was mistaken or there has been a change of circumstance

With v. O’Flanagan [1936]
A doctor informed a potential buyer of his practice that it was worth
£2000 per year. The contract was finally agreed some months
later by which time most of the patients had gone elsewhere
because the doctor had been seriously ill. Failure by the doctor
to inform the buyer of the reduced value was held to be a
misrepresentation

Question 6

disclosure

Answer 6

contracts of utmost good faith i.e insurance

fiduciary relationships - examples include parent and child, solicitor or accountant and client

Question 7

inducement

Answer 7

for a misrepresentation to be actionable, there must be reliance or inducement

if the misrepresentee did not rely on the statement, or knew it was untrue, or did not know of its existence, then it is not an actionable misrepresentation

Horsfall v. Thomas [1862]
The claimant purchased a gun which had a concealed defect. His action
for misrepresentation failed as he hadn’t inspected the gun before
purchasing it. Therefore the misrepresentation did not induce him to enter the contract as he was unaware of it.

Question 8

inducement - 2

Answer 8

where the representee did not rely on the misrepresentation, but on his own judgement

Question 9

half truths

Answer 9

where a person states a true fact which by virtue of what is not expressed conveys a misleading impression

Dimmock v. Hallett [1866]
A vendor of land stated that certain farms were let, but he should also have disclosed that the
tenants had given notice to quit

Question 10

partial reliance

Answer 10

gives rise to an actionable misrepresentation

Edgington v. Fitzmaurice [1885]
The plaintiff relied not only on the misrepresentation in the
prospectus, but also on his incorrect belief that a debenture
holder would have a charge upon the property of the company.
Regardless of this partial reliance, he was successful in his
claim for rescission

Question 11

types of misrepresentation

Answer 11

fraudullent
innocent
negligent

Question 12

innocent misrepresentation

Answer 12

neither fraudulent or negligent. occurs when a representor believes the facts he presented were true and that he could prove he had reasonable grounds for believing those statements. burden of proof is important here

entirely innocent misrepresentation gives no right to damages, however where recission is available is may be possible to recover an indemnity, which falls short of any measure to damages

Whittington v. Seale-Hayne [1900]
Facts
Whittington purchased a poultry farm based on a representation that the farm was
sanitary and in good condition
Issue
Could the contract be rescinded where the farm was not sanitary and in good
repair?
Decision
No, but an indemnity was awarded
Reasoning
An indemnity allows for consequential losses to be compensated for, not due to the
misrepresentation, which did not give rise to a cause of action. Costs were
awarded for repairs to the farm, profit and rent

Question 13

fraudulent misrepresentation

Answer 13

difficult allegation to prove, the claim is usually made for negligent misrepresentation

Derry v. Peek [1889]
In a company prospectus the defendant stated the company had the right to use steam powered
trams as oppose to horse powered trams. However, at the time the right to use steam powered
trams was subject of approval of the Board of Trade, which was later refused. The claimant
purchased shares in the company in reliance of the statement made and brought a claim based
on the alleged fraudulent representation of the defendant.

Held: The statement was not fraudulent but made in the honest belief that approval was
forthcoming.
Lord Herschell defined fraudulent misrepresentation as a statement which is made either:
i) knowing it to be false,
ii) without belief in its truth, or
iii) recklessly, careless as to whether it be true or false.
11

Question 14

negligent misrepresentation

Answer 14

statement made carelessly without confirming its accuracy, governed by the 1967 misrepresentation act the effect of which for practical acts is to reverse the burden of proof. maker of statement must establish he believed and had reasons to believe the accuracy of the statement made

Howard Marine and Dredging Co Ltd v. Ogden [1978]
The claimant, Ogden, hired two dredging barges from the defendant, Howard Marine (HM), for
£1,800 per week to carry out certain excavation works for Northumbrian Water Authority. In
order to make an accurate estimate for tender of the work to be completed, Ogden asked HM
the capacity of the barge. HM checked Lloyds Register and stated 850 cubic metres. In fact
the entry in Lloyds register was wrong. The capacity was in fact much lower. Consequently
the work carried out by Ogden took much longer and cost a great deal more to perform. The
claimant brought an action for negligent misrepresentation. HM argued that they had
reasonable grounds for believing the statement to be true as they had checked Lloyds
register.

Held: The defendant had not discharged the burden of proof by demonstrating they had
reasonable grounds for believing it to be true as they had the registration document which
contained the correct capacity and there was no reason why they would have chosen Lloyds
register over the registration document.

Question 15

remedies for misrepresentation

Answer 15

if a statement is made during pre contractual negotiations and the same statement appears as a term of the written contract, the 1967 act states the misrepresentee may rescind for misrepresentation even though the same statement later became a contract term

The effect of a misrepresentation is to make the contract voidable
not void. As a result, the contract is valid unless and until it is
set aside by the representee. On discovery of the
misrepresentation, the representee (the party to whom the
statement was made) may elect to affirm the contract

Question 16

rescission

Answer 16

remedy is the right to bring the contract to an end, and to claim damages, available for any category of misrepresentation, the effect being to terminate the contract from the beginning. election to rescind must be communicated, but if the other party cannot be traced the requirement of notice can be waived

lost in following circumstances
- lapse of time

Leaf v. International Galleries [1950]
The claimant purchased a painting from the defendant. Both parties believed that the painting
was by the artist Constable. In fact 5 years later the claimant discovered the painting was not a
Constable. The claimant brought an action based on misrepresentation.
The claim based on misrepresentation was successful. However, since it was an innocent
misrepresentation, the claimant had lost the right to rescind the contract through lapse of time.
With innocent misrep the time starts to run from the date of the contract not the date of
discovery

Question 17

affirmation

Answer 17

Long v. Lloyd [1958]
The claimant purchased a lorry from the defendant. The lorry was advertised in a newspaper which
described the lorry as being in exceptional condition. The claimant phoned the defendant to arrange
a viewing and was told it was in first class condition. He went to view it the following day and was
told it was capable of doing 40 mph and 11 miles to the gallon. The claimant test drove it and found
that the speedometre was not working and he had to pull a wire for the accelerator as this was not
working also. The claimant still decided to purchase the lorry. On the first journey the claimant noted
certain faults with the lorry and contacted the defendant who offered to pay half the repairs. The
claimant accepted this. However, on a further journey the lorry broke down completely and the
claimant wished to rescind the contract and brought an action against the defendant for innocent
misrepresentation.
Held: By accepting the offer of payment for half the repairs when he became aware of the defects,
the defendant had lost his right to rescind as he had affirmed the contract.

Question 18

damages

Answer 18

fraudulent misrepresentation

damages available at common law for fraudulent misrepresentation. measure of these damages is based on an action in the tort, based on putting the injured party in the same position in which he would have been if wrong wasn’t committed

in contrast, if damages had been in contract, measure of these would have been assessed on basis of placing the party in the same position in which he would be had the contract been performed. in cases of fraud, courts are more likely to be generous awarding damages

Question 19

doyle v olby (1969)

Answer 19

Here is a concise summary of Doyle v Olby Ironmongers Ltd:

Doyle purchased a business after fraudulent misrepresentations by Olby about its profitability and operations.

The trial judge awarded £1,500 based on contractual principles (the position if the statements had been true).

In reality, Doyle had suffered losses of £5,500.

Doyle appealed, arguing damages should not be assessed on contractual principles.

The Court of Appeal held that damages for fraudulent misrepresentation are assessed in the tort of deceit, not contract.

Lord Denning MR stated that in fraud, the defendant is liable for all losses directly flowing from the fraudulent inducement, even if they were not reasonably foreseeable — unlike contractual damages, which are limited by contemplation of the parties.

Question 20

negligent misrepresentation damages

Answer 20

at common law the measure of damages is in tort, and therefore the normal rule applies that the loss must be reasonable foreseeable

Question 21

negligent misstatement at common law

Answer 21

Here is a concise summary of Hedley Byrne & Co Ltd v Heller & Partners Ltd:

Hedley Byrne sought a credit reference from Heller (the bankers of a company seeking credit).

Heller carelessly stated the company was financially sound, knowing the purpose of the request.

The company later went into liquidation, causing Hedley Byrne financial loss.

The House of Lords held that, in principle, a duty of care can arise for negligent misstatements causing pure economic loss where there is a “special relationship” (sufficient proximity) between the parties.

However, Heller avoided liability because the reference was given “without responsibility,” which acted as an effective disclaimer.

The case established that liability for negligent misstatement can arise independently of contract, provided there is a special relationship and no valid disclaimer.