Misrepresentation Problem Question PDF

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01/05/2019 Week 5 Contract: Misrepresentation Problem Question Thomas wishes to buy a large limousine for use in his small taxi and wedding hire business. He visits the showroom of Remington Garages Ltd, which operates a garage specializing in the sale of second-hand limousines. Thomas likes a car m...

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01/05/2021 Week 5 Contract: Misrepresentation Problem Question Thomas wishes to buy a large limousine for use in his small taxi and wedding hire business. He visits the showroom of Remington Garages Ltd, which operates a garage specializing in the sale of second-hand limousines. Thomas likes a car made by Leroy Cars Ltd that he sees on the forecourt. Pandora, a salesperson employed by Remington Garages Ltd, tells Thomas that the car is 3 years old and has only 30,000 miles on the milometer. Thomas has not heard of Leroy Cars before and is concerned about the availability of spare parts, but Pandora tells him that Leroy Cars is a well-established firm with a good track-record in providing spare parts. Thomas agrees to buy the car for £45,000 and signs a contract, which contains the following provision: “Remington Garages is not liable for any promises, statements or representations made by its employees or agents before or after the conclusion of this contract, except where made by its managing director and confirmed in writing”. A month after delivery of the car, Thomas finds that it is 5 years old and that its milometer has been changed. He is advised by an independent valuer that it is in fact worth only £25,000 owing to its age and greater mileage, but that if these had been as stated by Pandora, it would have been worth £50,000. (damages : Edgington v Fitzmaurice) After finding out these matters, Thomas sends the car out on a last job (a friend’s wedding arranged a month previously), intending to return it to Remington Garages on the following day. However, Remington Garages rejects Thomas’ attempt to return the car and denies liability to him on any ground. Thomas then discovers that Leroy Cars has recently gone into liquidation and that the availability of spare parts for its products is in doubt. Discuss. Age of car and milometer: can T recover damages or rescind the contract? The first issue is whether Pandora (P)’s statement that the car has done 30,000 miles and is 3 years old constitutes a representation or a contractual term. If the statement is secondary to the main purpose and the maker of the statement undertakes that the statement is true, it will be a warranty (Dawsons v Bonnin [1922]). The key distinction between contractual terms and representations is that neither party intend a representation to have contractual effect, whereas a contractual term will exist where the parties intend to be legally bound. The facts of the present case are similar to Dick Bentley v Harold Smith where a statement that a car for sale had only done 20,000 miles when in fact it had done more was held by the Court of Appeal to constitute a contractual warranty and the purchaser was entitled to recover damages. Dick Bentley was distinguished from Oscar Chess where the maker of the statement that a car was first registered in 1948 honestly believed that to be the case, whereas in Dick Bentley there was no reasonable foundation for D’s misstatement because he ought to have checked the details of the car. In the present case, there is no reasonable foundation for P’s misstatement because although the limousine is second-hand, Remington Garages specialise in

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01/05/2021 second-hand limousines and so should have found out that the milometer had been changed. Alternatively, the garage could have changed the milometer, in which case there is no reasonable foundation for P’s statement. This is important because it makes P unable to rebut the existence of the warranty by showing that she was innocent and that it would not be reasonable in the circumstances to bind Remington Garages by such a contractual warranty. Therefore the statement does constitute a warranty. Consideration is present because T promised to pay £45,000. The warranty has been breached and so T can recover damages for breach of contract. Whether or not the exclusion of liability clause is effective will be considered below. Availability of spare parts and nature of Leroy Cars: can T recover? Unlike above, P’s statement that Leroy Cars is a well-established firm with a good track-record in providing spare parts is intended by neither party to have contractual effect and so will constitute a representation rather than a contractual term. The next issue is whether the representation constitutes a misrepresentation or a mere opinion. T will be able to recover damages or rescind the contract for a misrepresentation but not for a mere opinion. The key element is whether P had sole knowledge of the facts. In Bisset v Wilkinson, the Privy Council held that the claimant’s representation was a statement of opinion honestly held rather than a misrepresentation. This is because given that there had never been sheep on the land in question, D had no more knowledge than P and so D’s representation was an estimation as to the sheep carrying capacity of land rather than an opinion based on knowledge. This can be distinguished from Smith v Land, where a landlord’s opinion was held to be a statement of material fact rather than opinion because of his knowledge of the tenant’s failure to pay full rent. Given that P works in the second-hand limousine industry, she will have greater knowledge than T of the facts concerning Leroy Cars and so her statement of opinion is likely to constitute a statement of fact, actionable as a misrepresentation if the following requirements are satisfied: 1. The misrepresentation must be unambiguous This is satisfied because the statement was not at all ambiguous; it described clearly Leroy Cars and specified their previous ability to provide spare parts for limousines. 2. The misrepresentation must be false This, however, is not satisfied because P’s statement was not false; P was stating her honest opinion that Leroy Cars was a well-established firm which had a good trackrecord in providing spare parts. Therefore there is no misrepresentation; P merely expressed an honest opinion which preceded the unfortunate liquidation of Leroy Cars. T cannot recover from Remington Garage for this statement.

The contractual exclusion clause

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01/05/2021 Given that T is unable to recover for P’s second statement which is merely an honest opinion rather than a misrepresentation, the exclusion clause will only apply to P’s first statement which concerns age and mileage. The exclusion clause relates to the “promises, statements or representations” of the garage’s employees or agents and therefore applies to the contractual warranty which arose from P’s statement. S3(1)(b) of the Misrepresentation Act 1967, as amended by Schedule 4 of the Consumer Rights Act 2015, provides: (1) If a contract contains a term which would exclude or restrict— (b) any remedy available to another party to the contract by reason of such a misrepresentation, that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is for those claiming that the term satisfies that requirement to show that it does. S11(1) UCTA 1977 provides that “the requirement of reasonableness is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made”. The issue is therefore whether it is reasonable for Remington Garage to exclude liability for their employee’s statement with regard to the circumstances known or which ought reasonably to have been known to the parties at the time of contracting. An application of the statutory test for reasonableness provides that the contractual exclusion term is not reasonable. For example, it is very unlikely that the managing director will sell cars on the forecourt; instead his employees will deal with the majority of customers and so the term will exclude liability of lots of statements. Similarly, in general, car salesmen often make many statements during the course of a sale and the provision that the garage will only be liable for statements written down means that the employees or agents of the director will be able to make misrepresentations which may induce the purchaser to enter into a contract and such a purchaser will be unable to either recover damages or rescind the contract. Such an outcome would be deeply unsatisfactory because it would lead to injustices being suffered by innocent parties such as T. This would be contrary to the current trend to protect consumer rights more than ever before, following the Consumer Rights Act 2015. Following Overbrooke v Glencombe where it was held that a principal may still enforce a term excluding or limiting the liability of his agent for fraudulent misstatements despite S3, it is possible that employees can limit or exclude liability for such statements of their employees. Counsel for P would seek to argue this analogy. However, whilst in theory S3 does not prevent principals from excluding or limiting liability of their agents, as shown above, the reasonableness test as provided by S3 MA and S11(1) UCTA results in the exclusion clause being invalid. Therefore T can recover damages for P’s breach of contractual warranty in the form of the age and mileage of the limousine. Remedies

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01/05/2021 The question arises whether T can rescind the contract or recover damages for breach of contract. S2(1) MA 1967 will apply to enable rescission of the contract or damages to be awarded if it would be more equitable for the court to do so, for either a misrepresentation or a breach of contract (i.e. where the misrepresentation has become a term of the contract, (S1(a)). As stated above, the facts of P’s first statement are similar to Dick Bentley and so damages are likely to be awarded. This is contrary to the general rule in Salt v Stratstone that rescission rather than the award of damages remains the first port of call following S2(1), although given that P’s statement is a contractual warranty rather than a misstatement, damages rather than rescission will be available. The next question is how the court will determine the damages available to T. In Smith New Court, the House of Lords departed from the ‘normal method’ of compensation by damages, whereby T would receive the difference between the price paid and the real value of the limousine (or shares in Smith). Instead, the first instance judgement was upheld and the plaintiff was awarded the total loss incurred (the difference between the price paid, 82.25p per share and the real value of the shares because of the undiscovered fraud, 44p) because an award of lesser damages (the difference between 82.25p and the real value of the shares without the undiscovered fraud, 78p, was found to have been unrealistic. In the present case however, it would not be unrealistic to award T the difference between the price paid, £45,000 and the real value of the shares, £25,000, i.e. to award £20,000 because T could have resold the limousine at almost £45,000, whereas the shares were no longer worth more than 50p each because of the fraud. Therefore it is likely that T can recover £20,000 from Remington Garages. Although it is undesirable that in the absence of rescission, T cannot compel the garage to accept the limousine back, (because its already diminished value will further depreciate over time and he can no longer obtain spare parts from Leroy Cars), it is more likely that damages rather than rescission will be available because of the statement being a warranty.

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