Misrepresentation Contract Law Lecture notes PDF

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Lecture 11 – MisrepresentationVitiating FactorsThese factors can affect the validity of the contract:MisrepresentationMistakeFrustration - Unforeseen events.Duress - Threats that compel a party to enter into a contract.Undue Influence and Unconscionable Bargain - Protection of consumers.IncapacityIl...

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Lecture 11 – Misrepresentation Vitiating Factors These factors can affect the validity of the contract: Misrepresentation Mistake Frustration • Unforeseen events. Duress • Threats that compel a party to enter into a contract. Undue Influence and Unconscionable Bargain • Protection of consumers. Incapacity Illegality and public policy

When a court declares a contract void, the parties are obliged to return to the situation they were before the contract was concluded. • Eg; return the sums or goods received. When a contract is voidable, the innocent party who suffered the vitiating factor, they have the opportunity to uphold the contract. • They can also rescind the contract and returning the parties to the situation they were before the contract.

Misrepresentation What are the consequences when a contract entered into the contract relying on a false statement by the other party. The innocent party was induced to enter into a contract, no real will to enter into the contract • It can then be invalidated if this was the case. Parties do not owe a duty of care to each other in English law • When a contract is negotiated, parties make a lot of statements. Must parties reveal everything in negotiation? • Parties do not owe a duty of disclosure. They should get the information they need and deemed responsible for wanting to enter into the contract or not. Different to when parties offer information that is FALSE.

Statements During Negotiations

Puff: big, bold statements. Representation: this statement can induce someone to enter into a contract. Term of Contract: Difference between a representation and a term of contract changes how much damages can be got.

What Qualifies as a ‘Misrepresentation’? A false and unambiguous statement of existing or past facts or law that one party (the representor) made to the other (the representee) before or during the conclusion of the contract, and that induce the other to enter into the contract.

1) False and unambiguous statement or misleading behaviour… Active action by the representor to create a false impression. Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB 805: Per Denning LJ ‘any behaviour, by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other ... If it conveys a false impression, that is enough.’ •

Statement: o Eg; saying that there is no defect within the laptop and knowing that’s not true.

Sykes v Taylor-Rose [2004] All ER (D) 468 A famous case, the vendor of a house did not disclose that a murder occurred there.

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Behaviour: o This is more complicated. Need to be interpreted. o Gordon v Selico established that misleading behaviour can constitute misrepresentation.

Spice Girls Ltd v Aprilia World Service [2000] They were going to shoot an ad knowing they were breaking up soon, so the value of the ad fell once they did and they were sued for misrepresentation. The behaviour was misleading as the ad company wouldn’t have booked them if he knew they were going to break up. They actively suppressed facts.

Generally, inaction is not sufficient. Seller doesn’t disclose the defect, in principle this doesn’t quality as misrepresentation. There is no duty to disclose information during negotiations (Fox v Mackreth (1788) 2 Cox and Turner v Green [1895]). Keates V Cadogen [1851]. However, there are 5 important exceptions to this rule: a) b) c) d) e)

Half-truths or misleading statements (Dimmock v Hallett (1866)). Change of circumstances (Davies v London and Provincial Marine Insurance Co (1878). Active attempt to conceal a defect (Schneider v Heath (1813). Fiduciary or confidential relationship. Contracts uberrimae fidei/ Contracts of utmost good faith (Lambert v Co-operative Insurance Society [1975]).

2) … of existing or past… Representation must be false before or at the moment when the innocent party enters into the contract. • Once the contract is signed then it isn’t about misrepresentation anymore (frustration). Different if one of the parties had the absolute knowledge that the fact will change in the future. Similarly, if the situation changes before the contract is signed, the original statement can qualify as misrepresentation – With v O’Flanagan (1936)

3) … facts or laws… Doesn’t occur if the misinformation qualifies as an opinion. 1) a certain fact (for instance, the mileage of a car, or the characteristics of a land site, or the authorship of a painting); Supporting authority: Bisset v Wilkinson [1927] AC 177 2) legal attributes (for instance the presence of a possessory title to the good, or the presence of a licence to build); 3) or existing laws and regulation (including foreign laws).

4) … that mislead one party… False statement is not enough, it must have misled the party to enter into the contract. Misinformation must therefore be directed towards the representee party. Eg; Peek v Gurney.

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If you retell the information to someone else who acts on it then it doesn’t count (unless they know you will pass it on to other parties) eg; Pilmore v Hood (1838) o Eg; if the intention is not for the influencer to buy your good, it is for them to spread the info and have other people buy the goods.

5) … to enter into a contract. Not enough to make a false statement that his mislead the party, it must be demonstrated that the innocent party would not have entered into the contract without the misinformation. • There must be a causal link. • Misrepresentation must have been one of the factors for entering into the contract. Reliance. a) The representation must be material. In other words, it must have induced the party to enter into the contract. Smith v Chadwick (1884) b) It must be known to the representee. Horsfall v Thomas c) It must be intended to be acted upon. Peek v Gurney (1873) d) It must be acted upon. Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd (2006) Crucially, reliance is much less important if the misrepresentation is fraudulent. In this case, misrepresentation applies even if the innocent party would have entered into the contract anyways. Edgington v Fitzmaurice (1885) Lapse of time can remove misrepresentation.

Not a Misrepresentation Opinions: Do opinions qualify as misrepresentation? NO. • Distinguishing opinions from facts is difficult. The key case here is Bisset v Wilkinson (1927) dealing with the selling of land to be used for sheep farming. Other case is Smith v Land and House Property Corporation (1884) – opinion that the tenant was “a most desirable tenant”, while he failed to pay the rent multiple times. Sometimes they can count as misrepresentations: • When the party stating the opinion has a clear knowledge of the subject (Esso Petroleum co Ldt v Mardon). • One party ought to know certain facts but failed to investigate them

Expressions of Intentions, Promises, Predictions: Represent a situation that has not occurred. BUT if they make a promise with the intention to break or know they can't perform then it amounts to a misrepresentation. Key case is Edgington v Fitzmaurice (1885). In the words of Bowen LJ: “There must be a misstatement of existing fact: but the state of a man’s mind is as much a fact as the state of his digestion. 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.”

Remedies for Misrepresentation

Remedies: Rescission of Contract Available for all types of misrepresentation. Contract is set aside, and the two parties are put in the situation they were in before the contract was made. • parties required to return the benefits received from each other under the contract (eg; return the good or the payment). The rescission rests on the decision of the innocent party. • we say that the contract is “voidable”. Limits to rescission: • If the aggrieved party affirms the contract after discovering the misrepresentation (ie., continue with the contract). Long v Lloyd [1958] • If the aggrieved party waits too long before acting. Leaf v International Galleries [1950] • Where restoring the parties to the original positions would be impossible eg if goods are destroyed. Clarke v Dickson [1858] and goods altered Vigers v Pike [1842]. • Where rescission would affect the rights of third parties. Crystal Palace Football Club (2000) Ltd v Dowie [2007]

Remedies: Damages Damages are available when misrepresentation has been done fraudulently under the tort of deceit OR negligently under the tort of negligence.

Tort of deceit – Fraudulent Misrepresentation. Derry v Peek [1889] (leading case brought 3 criteria). 1. the misrepresentor must have known that the representation was false or; 2. the misrepresentor did not believe in the truth of his statement or; 3. the misrepresentor did not care whether the statement was true or false.

Ludsin Overseas Ldt v Eco3 Capital Ltd [2003] (more modern interpretation). 1. The Defendant makes a false representation to the Claimant. 2. The Defendant knows that the representation is false, alternatively he is reckless as to whether it is true or false. 3. The Defendant intends that the Claimant should act in reliance on it. 4. The Claimant does act in reliance on the representation and in consequence suffers loss. Innocent party will be put in the position he/she would had been had the deceit not occurred. • ALL the gains that the innocent party would have accrued from the contract.

Tort of Negligence – Negligent Misrepresentation Dealt with common law cases on the tort of negligence and the Misrepresentation Act 1967 Tort of Negligence 1. Hedley Byrne & Co Ltd v Heller & Partners Ltd, a. Duty of care because of “special relationship” eg; bank and client. b. Client relied on the statement (just special relationship is not enough). 2. plea available for both statements of fact/law and opinions. Misrepresentation Act 1967 • Under section 2, presumption of negligence if innocent party demonstrates a misrepresentation. o This allows them to apply for damages. • Burden to prove lack of negligence and reliance is on the defendant...