Misrepresentation ( Important Cases) PDF

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MISREPRESENTATIONHeilbut, Symons and Co. v Buckleton [1913] AC 30 Intention (words and conduct)Emphasised the role of intent where one party makes a promise to another where one party may opt to rely upon that information in choosing to contract.Facts: The defendants, Heilbut et al, were merchants d...

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MISREPRESENTATION Heilbut, Symons and Co. v Buckleton [1913] AC 30 Intention (words and conduct) Emphasised the role of intent where one party makes a promise to another where one party may opt to rely upon that information in choosing to contract. Facts: The defendants, Heilbut et al, were merchants during the rubber trade boom of the 1910’s who claimed to underwrite shares in a rubber trading corporation (‘Filisola Rubber and Produce Estates Ltd’). The claimant, Buckleton, contacted this corporation to enquire about shares purchasing, to which a manager at Hilbut et al responded positively, insinuating the creation of a new rubber company, which persuaded Buckleton to make a sizable purchase for shares in the organization. The subsequently formed rubber production company proved to have far fewer available resources than anticipated and thus suffered greatly in its initial performance, causing Buckleton to sue for breach of warranty as the company’s original representation had implicated far greater resources. Issue: Whether the defendant’s agent’s remarks as to the new rubber company’s resource pool could be considered a simple representation or a binding contractual promise. Held: At first instance, the Court contended that Heilbut et al had made an innocent misrepresentation, however, upon appeal it was determined that no fraudulent misrepresentation had occurred as the defending party had not been ‘reckless’ as to the truth of the statement regarding their resources pool and further there was no clear intent that their remarks regarding their resources should amount to a binding contractual promise to act in parallel to their written agreement. → Intention → animus contrahendi Oscar Chess v Williams [1957] 1 WLR 370 The steps to be taken in identifying a warranty Facts: The defendants sold a Morris car to the claimants, who were motor traders, for £290. The defendants provided a copy of the vehicles first registration indicating that the car was first registered in 1948. Some eight months later the claimants became aware that the car had actually been registered in 1939 and was therefore only worth £175. The defendant honestly believed that the car was a 1948 model. The claimants claimed damages for breach of contract. Issue: The issue in this context was whether the statements given by the defendants constituted a warranty as to the age of the car. Held: The Court of Appeal found that the defendants’ comments did not constitute a warranty. More importantly, the court set out a number of considerations that should be made when assessing whether a statement is a warranty. (1) Where an assumption is fundamental to a contract, it does not mean that it is a term of the contract. (2) The term warranty means a binding promise as well as a subsidiary, non-essential, term of a contract. (3) A warranty must be distinguished from an innocent misrepresentation. (4) Whether a warranty is intended must, judged objectively, be based on the parties’ words and behaviour. (5) Where one party makes a statement, which should be within his own knowledge, but not the knowledge of the other, it is easy to infer a warranty. If the party states that it is not within his knowledge and is information passed from another, a warranty is less easily inferred. (6) An oral representation repeated in writing suggests a warranty, but the issue is not conclusive. Neither is the fact that it is not stated in writing.

[Chen-Wishart] Additionally, misrepresentation here because the private seller (without special knowledge) stated the model of the car Bannerman v White (1861) 10 CB NS 844 Principle: representation is more likely to be viewed as amounting to a contractually binding term where the reperesentee expressly informs a representor of the significance of the representation to the contract (importance of truth to statement) Facts: The claimant, Bannerman, formed a contract with the defendant, White, regarding the purchase of hops, intending to use them to produce beer. The claimant specifically enquired as to whether the hops had received a sulphur treatment as it is only possible to make usable beer from hops that have not received this treatment. Furthermore, the claimant expressly stated that he would be unwilling to buy the hops if they had been treated. The defendant assured the claimant that the hops were untreated, however in fact the hops had received sulphur treatment and were subsequently useless to the claimant; thus Bannerman brought an action against White for damages, contending that the statement regarding treatment ought be viewed as a contractual term which White had thus breached. Issue: Whether the defendant’s assurance regarding whether the hops had received a Sulphur treatment constituted a representation or a contractually enforceable term. Held: The Court found for the claimant, viewing that the matter of whether the hops had received Sulphur treatment was indeed a contractual term rather than a mere representation. The Court placed particular emphasis on the fact that the claimant had communicated the significance and consequence of the treatment to the defendant, meaning they were reasonably aware of its importance and that the claimant was only contracting on these grounds. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 Established that a representation from an experience party to an inexperienced party is likely to be interpreted as a contractual term rather than a representation. Facts: The claimant, Dick Bentley, was aware of the defendant, Harold Smith’s, reputation as an expert in prestige cars and requested that the defendant keep an eye out for a well vetted and kept Bentley car, as he wished to purchase one. When the defendant obtained a Bentley, he informed the claimant and recommended it to him, stating that the vehicle had been previously owned by a German man who had replaced some of the car’s original parts and had only driven approximately 20,000 miles on the car since the replacements, meaning the car was in good shape. The claimant subsequently purchased the vehicle, however faults soon developed. As per warranty, the defendant made some repairs, yet with the development of more faults it became apparent that the car had in fact travelled many more miles than originally believed since the replacement of parts. The claimant thus brought an action against the defendant for breach of contract and seeking damages. In response, the defendant asserted he had made an innocent misrepresentation. Issue: Whether the defendant’s statement as to the quality of the vehicle could be deemed a term of contract given his expertise as a prestige car dealer. Held: The Court found for the claimant, viewing the statement as a contractual term. They determined that as the defendant had greater expertise, as a car dealer, the claimant was reasonably entitled to rely upon a representation from them regarding the subject of their expertise.

[Chen-Wishart] Term was found (car dealer made a false statement about the mileage of the car) because he was ‘in a position to know, or at least find out the history of the car … stated a fact that should be within his knowledge’ Spice Girls Ltd v Aprilia World Service Principle: Misrepresentation through conduct Ratio: The claimants worked together as a five girl pop group. The defendants had signed a sponsorship agreement, but now resisted payment saying that one of the five, Geri, had given notice to leave the group, substantially changing what had been promised. The girls acknowledged that Geri had said she would leave, but insisted that no real intention to leave had existed. Held: Generally, a person who is about to enter into an agreement is under no duty to disclose material facts which he knows but which the other party does not know. Here the group knew that the other party was relying upon a representation, and could not discharge the requirement to show that they did not know of its falsity, and were liable in damages to the defendant. Esso Petroleum v Mardon [1976] QB 801. Facts: The plaintiff, Mr Mardon, entered into a tenancy agreement with the defendant, Esso Petroleum, in respect of a petrol station owned by the latter. During the course of the negotiation of the agreement, ‘expert’ advisers employed by the defendant had provided an estimate of the sales which the petrol station could expect which was based on inaccurate information and consequently was significantly inflated. The value of the rent on the agreement had been calculated based on this inflated figure. As a result, it was impossible for the plaintiff to operate the petrol station profitably. Issue: The issues were: firstly, whether the plaintiff could have any action for misrepresentation given that the figure purported to be an ‘estimate’ rather than a statement of fact; secondly, whether the defendant owed any duty of care to the plaintiff so that he could bring his claim in the tort of negligence. Held: The Court of Appeal held that the contract could not be voided for misrepresentation as the defendants presented the inflated figure as an estimate rather than as a hard fact. On the other hand, as the defendant had taken it upon themselves to employ experts for the purpose of providing an estimate of sales, they owed a duty of care to the plaintiff to ensure that this was done on the basis of accurate information. The plaintiff was therefore able to recover the losses which he had suffered as a result of the defendant’s negligent misstatement. Edgington v Fitzmaurice (1885) 24 Ch D 459 Contract law – False representation - Debentures Facts: The directors of a business provided a prospectus which contained a range of debentures, in order to invite subscriptions. The directors stated that the debentures were in order to enable the business to complete alterations to the buildings of the company, to develop trade and to purchase vans and horses. However, it was later discovered that the real reason for issuing the debentures was for the directors to pay off other liabilities. The plaintiff forwarded money for the debentures that had been offered having relied upon the statements contained in the prospectus. However, he also was mistaken as he thought the debenture was to provide him a charge on the company’s property. The company later became insolvent and the plaintiff claimed for the money he believed he was owed.

Issue: The issue for the court was whether the statement that was made by the directors of the company would qualify as a false misrepresentation. If this was established by the court, it also had to be considered whether the reliance of the plaintiff on the statement would enable him to claim for the money, despite the fact that the plaintiff had also erroneously relied on the prospectus. Held: The court held that the misstatement of the reasoning behind issuing the debentures was a material misstatement of fact and that the plaintiff had been influenced by this statement. On this basis, the directors were found liable for an action of deceit, despite the fact that the plaintiff had also been influenced by his own mistake regarding the debentures. Derry v Peek (1889) 14 App Cas 337 Tort law – False representation, Fraudulent misrepresentation PRINCIPLE CASE THAT FRAUDULENT MISREPRESENTATION EXISTS (FIRST CASE TO MENTION) Facts: In the prospectus released by the defendant company, it was stated that the company was permitted to use trams that were powered by steam, rather than by horses. In reality, the company did not possess such a right as this had to be approved by a Board of Trade. Gaining the approval for such a claim from the Board was considered a formality in such circumstances and the claim was put forward in the prospectus with this information in mind. However, the claim of the company for this right was later refused by the Board. The individuals who had purchased a stake in the business, upon reliance on the statement, brought a claim for deceit against the defendant’s business after it became liquidated. Issue: It is important to note that the law regarding false misrepresentation was still developing and this was an important case in doing so. In this case, the court was required to assess the statement made by the defendant company in its prospectus to see whether the statement was fraudulent or simply incorrect. Held: The claim of the shareholders was rejected by the House of Lords. The court held that it was not proven by the shareholders that the director of the company was dishonest in his belief. The court defined fraudulent misrepresentation as a statement known to be false or a statement made recklessly or carelessly as to the truth of the statement. On this basis, the plaintiff could not claim against the defendant company for deceit. Long v Lloyd [1958] 2 All ER 402 Contract law – Sale of goods – Innocent misrepresentation Facts: The plaintiff was a haulage contractor who saw an advert for the sale of a lorry which was described as in ‘exceptional condition’. The plaintiff saw the vehicle the following day and the defendant stated that the lorry could drive at 40mph. Also, during a test drive, the defendant stated that the vehicle did 11 miles to the gallon. The plaintiff noticed defects on the vehicle and purchased the vehicle for a reduced price, paying half of the cost that day. Two days later, the plaintiff drove the vehicle and discovered serious issues and that the petrol tank was 8 miles to the gallon, rather than 11 and told the defendant. Following this, the plaintiff allowed his brother to take the lorry on a business trip where it again had broken down. The plaintiff brought an action to rescind the contract on the basis of innocent misrepresentation. Issue: The issue for the court was to establish under which circumstances the plaintiff could rescind the contract for the sale of the lorry between the parties. Specifically, this required the court to consider the statements made by the defendant regarding the condition of the lorry.

Held: The court rejected the claim of the plaintiff. It was held that innocent misrepresentation allowed the plaintiff to rescind after the contract had been executed, but that the plaintiff would lose such a right after the goods had been accepted. In sending the lorry on the business trip with his brother, the plaintiff had construed final acceptance of the vehicle and had therefore lost the right to rescind the agreement. William Sindall v Cambridgeshire Country Council Facts: The claimant purchased some land after being reassured that the land was free from underground piping. A pipe was found – an old sewer Issue: Could the contract be rescinded (claimed)? Decision: No, damages under s 2(2) of the Misrepresentation Act awarded instead Reasoning: Ask whether rescission is appropriate, look at losses incurred on both sides due to the misrepresentation, financially adjust under s 2(2). The land value had decreased substantially, so it would be unjust to rescind for a minor issue where rescission would cost the vendor disproportionately more than the rectification of the issue Context → check Chen-Wishart again Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 Measure of Facts: The complainant, Mr Doyle, decided to purchase an Ironmonger’s business from the defendants, Olby (Ironmongers) Ltd. He purchased the business for £4,500 and the stock at £5,000. It had been detailed that the business would be ‘all over the counter’, but it turned out that half of business was through a travelling salesman. The complainant made heavy losses and although he had managed to sell the business to a third party for £3,700, he had suffered debts as a consequence. Issues: The court had awarded Mr Doyle £1,500 for the deceit of the business sale. This figure was based on the cost of employing a part time traveller. The complainant appealed this decision to the Court of Appeal. Held: The Court of Appeal held that the damages the complainant should receive must be increased to £5,500. Mr Doyle should be entitled to recover his losses and all damages that directly result from the deceit of buying the business. The award he had received was based on damages for breach of contract, which were different to fraudulent misrepresentation. The damages should put the complainant into the position he would have been in if there had been no false representation by the defendant in the course of the sale. The defendant cannot say they could not have reasonable foreseen this loss. Thus, this case established that damages for breach of contract are different from those of fraud and conspiracy. Royscott Trust v Rogerson [1991] 2 QB 297 Court of Appeal The defendant, a car dealer, mis-stated the particulars of a sale by hire purchase to the finance company, the claimant. The finance company operated a rule whereby they would only advance money if a 20% deposit was paid by the company. The defendant stated the price of the car was £8,000 and the deposit paid was £1,600 leaving the loan advanced of £6,400. This was the amount the customer needed to borrow, although the price and deposit values stated were false. The customer later defaulted on the hire purchase agreement and sold the car on. The claimant brought an action against the defendant seeking damages of

£3,625 representing the difference between £6,400 paid to the defendant minus the sum of £2,774 paid by the customer before defaulting. The defendant argued that there was no loss since the defendant acquired title to the car which was worth £6,400. The trial judge accepted neither submission. He held that if the figures on the hire-purchase agreement had shown a deposit of £1200 and a cash price of £6,000, then the Finance Company would have paid £4,800 to the Dealer and would have had no recourse against it since the deposit would have been correctly shown as £1200. Because the Finance Company were induced to pay an extra £1600, that was the relevant loss suffered by the Finance Company. Both parties appealed. Held: Damages under s. 2(1) Misrepresentation Act 1967 should be assessed on the basis of damages available in the tort of deceit not general contractual principles. This applies in the absence of fraud. The wording of s.2(1) was clear and not capable of an alternative construction.

Misrepresentation Tutorial Notes No duty of disclosure – doesn’t have to say everything but what is said must be the truth (honest) Misrepresentation is a statement made before the contract Warranty v/s Misrepresentation: terms, happen within the contract / before the contract False statement through conduct (without saying anything) is also applicable Spice Girls v Aprilia General rule: statement of opinion does not amount to misrepresentation; the exception is when one of the parties is knowledgeable (Esso Petroleum v Mardon) Fraudulent Misrepresentation: Derry v Peek → knowing / intending / deliberately lying and deceiving the other party Negligent Misrepresentation: Hedley Byrne v Heller → duty of care → in negligent misrepresentation, there must be reasonable duty of care owed (in certain situations) Innocent Misrepresentation: Negligence v Innocence: lenient on lay people and strict on companies (lay people giving a false statement → innocent misrep) Statutory (MA ’67) → Assume it is immediately fraudulent S2(1) → Fraud / Negligence Another party to contract (unless statement maker/receiver are within the contract) Loss experienced Fiction of fraud (negligence = fraudulent) Reversed burden of proof (shifts to statement maker) Whenever there is a third-party representation, only use common law route (not statutory) Question 3 → circumstances change → supervening falsification → you have to disclose this (duty to disclose) or you are liable to misrepresentation → With v O’Flanagan Misrepresentation II – Remedies a) Rescission – retrospectively + prospectively, or b) Damages → measure/level of damages a. Common Law (Tort) i. Tort of deceit (fraudulent) → all losses, even those not foreseeable (no limit to the amount of losses) → Doyle v Olby (Ironmongers) Ltd ii. Tort of negligence (negligent) → there is a duty of reasonable care in providing information → only compensate for reasonably foreseeable losses → Hedley Byrne v Heller iii. Rescission with indemnity → Wihttington v Seale-...