9. Misrepresentation - revision notes PDF

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MisrepresentationRescission: misrepresentation; duress; undue influence; exploitation of weaknessMisrepresentation always  rescindSome  recover damages in tort or under the statutory controlRepresentation = contractual promise: remedies for breach & for misrepresentationTerms or Mere Repre...

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Misrepresentation Rescission: misrepresentation; duress; undue influence; exploitation of weakness

Misrepresentation always  rescind Some  recover damages in tort or under the statutory control Representation = contractual promise: remedies for breach & for misrepresentation

Terms or Mere Representation: verification; importance; special knowledge; opinion; …

If the representation has become incorporated as a term, one will have to advise on liability and remedies for both misrepresentation and breach of contract. [keep the two distinct]  Looking first at misrepresentation  Going on later to the possibility of incorporation as a term triggering remedies for breach of contract  Cannot assert both where it is inconsistent to do so: e.g. one cannot rescind for misrepresentation and recover damages for breach of contract because rescission wipes away the contract from the start so that there can be no possible breach of contract. Requirements of Misrepresentation 1) False statement of Fact (or Law) - Statements of opinion; statements of intention; silence (a) Statement of Opinion - Smith v Land  If the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion. ‘a most desirable tenant’  What appears to be a statement of opinion may contain an actionable statement of fact. - Bisset v Wilkinson  The best-known illustration of the principle that a statement of mere opinion is not an actionable misrepresentation.  “as both parties knew, the claimant had not previously carried on sheep-farming on the land.” Distinguish: the ‘opinion’ was not being put forward by someone who professed to have special expertise, as against the other party, in relation to the matter stated. (b) Statement of Intention - Edgington v Fitzmaurice  There is a false statement of fact implicit in a dishonest statement of intention.

 It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact.  The claimant had sufficiently relied on that misrepresentation in entering into the contract.

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(c) Silence: No Duty of Disclosure Staying silent does not in itself constitute a misrepresentation. Generally, there is no duty to disclose to the other that it is making a mistake in entering into a contract, not to disclose information to the other contracting party. However, there is a misrepresentation where one fails to correct one’s earlier representation which has been falsified by a subsequent change of circumstances during the negotiations. With v O’Flanagan The representation continued from the time he made it to the point where the contract was signed and thus the contract was entered into on the basis of a misrepresentation. If a statement has been made which is true at the time, but which during the course of the negotiations becomes untrue, then the person who knows that it has become untrue is under an obligation to disclose to the other the change of circumstances.

2) Reliance - Redgrave v Hurd  CA held that it was sufficient for rescission that the defendant had relied on the misrepresentation so that it did not matter that he had not taken the opportunity presented to discover the truth.  In order to take away his title to be relieved from the contract on the ground that the representation was untrue, it must be shewn either that he had knowledge of the facts contrary to the representation, or that he stated in terms, or shewed clearly by his conduct, that he did not rely on the representation.  Contributory negligence does not bar rescission where one has relied on a misrepresentation. - Edgington v Fitzmaurice  It is not necessary to shew that the misstatement was the sole cause of his acting as he did. If he acted on that misstatement, though he was also influenced by an erroneous supposition, the defendants will be still liable. - Hayward v Zurich Insurance Co  To satisfy the required element of inducement/reliance, in the context of rescission (or damages) for fraudulent misrepresentation, it was not necessary for the claimant to believe the truth of the representation.  Unusual facts: the claimant was induced into entering into the contract by the misrepresentation even though it did not believe that those misrepresentations were true.

 What is meant by Rescission

 Rescission (setting aside) wipes away a contract from the start. It is the remedy that goes with a contract being ‘voidable’. Referring to both the wiping away and the consequential restitution.  Where a contract has been partly or fully performed, the rescinding party will want (and is prima facie entitled to) restitution of the benefits it has conferred on the other party. - Whittington v Seale-Hayne  Innocent Misrepresentation: the defendant admits liability so far as regards anything which was paid under the contract, but not in respect of any damages incurred by reason of the contract.  Restitution consequent on rescission: an indemnity can be given for expenses that have necessarily been incurred which the other party would itself have had to incur. But the other losses claimed were not of benefit to the defendant. They therefore fell outside the scope of the restitutionary indemnity and could only have been compensated by an award of damages.

 Bars to Rescission Affirmation (i.e. has continued with the contract after knowing of the misrepresentation) Third party rights (where a third party has acquired rights to property transferred under the contract, as illustrated by mistaken identity case Cundy v Lindsay, 688-689) Counter-restitution impossible Lapse of time   

Erlanger v New Sombrero Phosphate Co, HL Counter-restitution must be possible if rescission is to be granted. A party seeking rescission and restitution must not itself be left unjustly enriched. Not to insist on precise specific counter-restitution. Rather the courts should apply the equitable approach of aiming for ‘practical justice’ by making flexible use of monetary counter-restitution for benefits that cannot be directly returned.

- Leaf v International Galleries  Rescission was barred by the length of time that had passed.  Mistake about the quality of the subject-matterdoes not avoid the contract Subject matter=a specific pictureparties agreed in the same terms on the same subject matter  Term as to the quality of the subject-matter: condition or warranty Condition: has accepted/deemed to have accepted, the goods in performance of the contract cannot be thereafter rejected, but is relegated to claim for damages[lapse of a reasonable time]  Misrepresentation: innocent misrepresentation is much less potent than a breach of condition a claim to rescission for innocent misrepresentation must at any rate be barred when a right to reject for breach of condition [the most material] is barred. [doubtful!!!] contracts cannot be kept open and subject to the possibility of rescission indefinitely.  Can rescind for a non-fraudulent misrepresentation even though the representation had been incorporated as a term of the contract and even though the contract had been fully executed. MO

- Salt v Stratstone Specialist  Restitution impossible: the physical entity that a car is does not change Depreciation, intermittent enjoyment  still could determine the terms of restitution Rescission is prima facie available if ‘practical justice’ can be done.  Lapse of time: the ground on which rescission became available only became known on disclosure of documents  no undue delay on the part of Mr Salt.

 How does one Rescind? - Car and Universal Finance Co v Caldwell  While communication to the other contracting party that one is rescinding the contract is normally required, an overt act showing that one is rescinding the contract is sufficient where communication is not possible, at least where the other contracting party is a fraudster.  Contract had been validly rescinded by the defendant informing the police and AA.

 Damages for Misrepresentation  Fraudulent misrepresentation: Tort of Deceit - Derry v Peek, HL

 In order to sustain an action of deceit, there must be proof of fraud. Fraud is proved when it is shewn that a false representation has been made: no honest belief  Whether there were reasonable grounds for believing it If a person making a false statement had shut his eyes to the facts, or purposely abstained from inquiring into them, honest belief was absent  just as fraudulent as if he had knowingly …  If fraud be proved, the motive of the person guilty of it is immaterial. - Doyle v Olby  The measure of damages is the tort ‘reliance’ measure which seeks to put the claimant into as good a position as if no representation had been made.  The remoteness test for the tort of deceit is not ‘reasonably foreseeability’ as in the tort of negligence, but rather the wider test of ‘directness’. the person is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement.

 Negligent Misrepresentation Actionable in the Tort of Negligence - Esso Petroleum v Mardon  If a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another – be it advice, information or opinion – with the intention of inducing him to enter into a contract with him, he is under duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable.

 If he negligently gives unsound advice, misleading information or erroneous opinion, and thereby induces the other side to enter into a contract, he is liable in damages.  This case made clear that Hedley Byrne is applicable to a negligent misrepresentation inducing the representee to enter a contract with the misrepresentor. - MO  Burden of proof: it is for the misrepresentor to prove that it had reasonable grounds for making the statement [i.e. that it was non-negligent]

 ‘damages in lieu of rescission’ - Salt v Stratstone  Exercise of discretion under section 2(2):

 The purpose of section 2(2) was not to add to the misrepresentee’s remedies but to give the courts a discretion to cut back the remedy of rescission where the misrepresentation has been, for example, trivial or wholly innocent and rescission would cause undue hardship to the misrepresentor.

 Exemption of liability for misrepresentation: MO sec.3

 What counts as an exemption clause falling within Section 3?

 Does the clause pass, or fail, the reasonableness test?...