Seminar 8 - Misrepresentation - Student Question PDF

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SEMINAR 8: MISREPRESENTATIONKnowledge Objectives: Define and apply the test for actionable misrepresentation; and To Define and identify the various categories of misrepresentation; and Know and be able to apply the remedies available for each category of misrepresentation.Skills: Team Work and Prob...

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SEMINAR 8: MISREPRESENTATION Knowledge Objectives: Define and apply the test for actionable misrepresentation; and To Define and identify the various categories of misrepresentation; and Know and be able to apply the remedies available for each category of misrepresentation. Skills:

Team Work and Problem Solving

Required Reading: Stone & Devenney, The Modern Law of Contract, (13th Edition), (2020), Chapter 8, 281-312

Additional Reading: Stone & Devenney, Cases and Materials on Contract Law, (4th Edition), (2017), Chapter 8, pp. 355-402

Key Statutes and Cases for this Seminar The Misrepresentation Act 1967 Bisset v Wilkinson (1927) AC 177 Smith v Land and House Property Corp (1884) 28 Ch D 7 Esso Petroleum Ltd v Mardon [1976] QB 801 With v O’Flanagan [1836] Ch 575 Keates v Earl of Cadogan (1851) 20 LJCP 76 Lambert v Co-Operative Insurance Society [1975] 2 Lloyd's Rep 485 JEB Fasteners v Bloom [1981] 3 All ER 289 Horsfall v Thomas [1862] 1 H&C 90 Edgington v Fitzmaurice (1885) 29 Ch D 459 Atwood v Small (1838) 6 Cl & Fin 232 Redgrave v Hurd (1881) 20 Ch D 1 Derry v Peak (1889) 14 App Cas 337 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 Howard Marine & Dredging v Ogden [1978] QB 547 (CA) Clarke v Dickson (1858) EB & E 148 Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 Car and Universal Finance Co v Caldwell [1965] 1 QB 525 Museprime Properties Ltd v Adhill Properties Ltd (1990) 61 P. & C.R. 111 Long v Lloyd [1958] 1 WLR 753 Leaf v International Galleries [1950] 2 KB 86 Phillips v Brooks [1919] 2 KB 243 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 East v Maurer [1991] 1 WLR 461 Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745 Royscot Trust v Rogerson [1991] 2 QB 297

S. Pearson & Son Ltd v Dublin Corporation [1907] AC 351 Whittington v Seale-Hayne (1900) 82 LT 49 Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573

Question Graham is an art dealer with a degree in 18 th century art and has a shop on Regent St. in London. On Monday, Jemima enters the shop and seems greatly enchanted by a painting of a goat with its head stuck in a jam-jar. She asks who painted it and Graham says it is by the famous portrait painter Van Basten, and worth £10,000. Greatly impressed by this, Jemima says, “Well I never usually buy expensive art, but I’m obsessed with pictures of goats and buy every one I see” and so pays £10,000 cash for the painting. Graham in fact knows the painting is by his niece Doreen and effectively is worthless. On Tuesday, Danny enters a shop and sees a painting of a shepherd chasing a rabbit which he assumes is by Rijkaard, a great Dutch painter from that era, for sale for £3000. He says to Graham “I love Rijkaard and think that is an excellent price for one of his works. I will take it.” Graham is aware that the painting is not by Rijkaard at all but is instead by a different painter from a different country and so worth a lot less. He says nothing and sells the painting for £3000. On Wednesday, Percy enters Graham’s shop and inquires about a picture of a hedgehog climbing a giraffe’s leg. He asks about the origins of the painting and Graham lies that it is by Gullit, a famous Flemish painter. He offers Percy a book on Gullit which lists all of his paintings. If Percy read the book, he would discover Graham’s lies, but forgets to read it. Nevertheless, Percy has heard about Graham’s reputation for sharp practice and so asks his nephew, who has an art degree, to assess who painted it. The nephew replies that the painting was by Gullit. As a result, Percy buys the painting for £4000, but then discovers it is actually by Laura, Graham’s wife, an art forger. On Thursday, a delivery of art from Graham’s deceased aunt arrives at Graham’s shop which he has been left in her will. Most of these paintings are 20th century sculpture. He doesn’t have time to sort out the paintings and leaves them by the door. Mary is passing the shop and sees the sculptures. She thinks one of them is by Bergkamp, a modern Dutch sculptor . Graham replies “I don’t know much about modern art and I know even less about sculpture. However, I know my aunt was a big fan of Bergkamp, so I’d say it’s by him. How much are you willing to pay?”. Mary googles a relevant website and replies that most of Bergkamp’s sculptures sell for about £1000. Mary doesn’t have this sort of money and so exchanges the sculpture for her scooter, which is worth about that amount. Later that evening, Graham drives off on the scooter and crashes it. He decides to sell it to Peter for scrap.

On Saturday, Jemima discovers the painting is not by Van Basten and Danny realizes his painting is not by Rijkaard. Both want to rescind the contract. On Sunday, Percy discovers that the painting was painted by Graham’s wife, realizes the painting is worthless and wants to rescind the contract. On Monday, Mary realizes the sculpture is not by Bergkamp, and wants to recover her scooter. Discuss Graham’s liabilities to Jemima, Danny, Percy and Mary and any remedies they may each be able to claim . The following structure is recommended: 1. Go through the question and spot the possible misrepresentations 2. For each misrepresentation decide if it is a false statement of fact 3. You should decide whether or not the statement induced the misrepresentee to enter into the contract 4. If the misrepresentation is actionable you should classify it as fraudulent, negligent or innocent (use case law and statute to support your conclusions) 5. You should then advise on the possible remedies Misrepresentation is based on common law rules and concerned with the situation where a false statement leads a contracting party to enter a contract which would have otherwise not been agreed to. The core elements of misrepresentation are: 1 – a false statement made by one contracting party to the other, 2 – must be a statement of existing fact or law, not opinion and 3 – the statement must have induced the other to enter into the contract. If misrepresentation is found, remedies can be sought through rescission; which allows the parties to be restored to their original positions or through damages depending on the type of misrepresentation whether: fraudulent, negligent or innocent. Damages are found in the Misrepresentation Act 1967. Jemima v Graham On Monday, Jemima enters the shop and seems greatly enchanted by a painting of a goat with its head stuck in a jam-jar. She asks who painted it and Graham says it is by the famous portrait painter Van Basten, and worth £10,000. Greatly impressed by this, Jemima says, “Well I never usually buy expensive art, but I’m obsessed with pictures of goats and buy every one I see” and so pays £10,000 cash for the painting. Graham in fact knows the painting is by his niece Doreen and effectively is worthless. A false statement made by one contracting party to the other is set out in Dowie v Crystal Palace FC (2007). Graham’s false statement to Jemima would be his assurance that the portrait was painted by Van Basten and worth £10,000, when in reality, it was painted by his niece. The second aspect is that the statement must be of existing fact or law, not an opinion. However, there are three different situations in which a statement of opinion may be treated as facts: a) the opinion must not be contradicted by other facts known to the person giving it, b) where the statement of opinion comes from an expert, it amounts to a representation and c) the statement of intention to act

in a particular way in future may be interpreted as a statement of fact. Bowen LJ stated in Smith v Land and House Party Corp (1884), that ‘a statement of opinion usually involves a statement of fact, for he implies that he knows facts which justify his opinion’. This applies to Graham as he is fully aware that the painting is by his niece and not Van Basten, but he fails to mention that to Jemima, therefore, contradicting facts known to him. The third aspect is that misrepresentation must induce the contract as in Edgington v Fitzmaurice (1885) which Bowen LJ established that the party’s state of mind is relevant; ‘if his state of mind was disturbed by D’s misstatement, the fact of him making a mistake makes no difference’ statement need not be the only inducement. JEB Fasteners v Bloom (1981), provides that the statement plays a real and substantial part. Whereas Museprime Properties v Adhill Properties (1990), provided the objective test ‘on whether representations would have induced a reasonable person to enter a contract?’ If misrepresentation would have induced a reasonable person, the inducement will be presumed. The statement maker will have to prove that the claimant was not induced . If the misrepresentation would have not induced the claimant, it won’t be presumed. The claimant would then have to prove that they were in fact induced to enter a contract. Jemima’s state of mind was definitely influenced by Graham’s statement as herself admitted that she never usually buys expensive art, but always makes an exception with pictures of goats as she is obsessed. A reasonable person in Jemima’s position would have most likely entered a contract with Graham due to his representations as Graham would have been trusted for being the owner of an art shop, essentially knowing well what he is talking about. Redgrave v Hurd (1881), set out that the defendant’s reliance on the plaintiff misrepresentation was enough. Jemima’s reliance on Graham’s statement is enough. The burden of proof is in Graham and he will need to prove that he did not induce Jemima to enter a contract. Considering that there is a misrepresentation, Jemima could sought remedies through rescission, but the contract is not automatically void at common law as the choice remains with the innocent party as in Museprime v Adhill. The innocent party in this case is Jemima and she can rescind the contract if she wishes to. On the other hand, damages can be gained by the Misrepresentation Act 1967. Derry v Peak (1889), considers fraudulent misrepresentation where Lord Herschell set out that a false representation must have been made ‘1 – knowingly, 2 – without belief its truth and 3 – recklessly or careless on whether it be true or false’. Dishonesty from the defendant will have to be shown by the claimant. Graham;s false representation was made knowingly, without belief on its truth and carelessly as he is aware that he is misleading Jemima because the painting is in fact her niece’s and not from Van Basten. Damages covers all loses flowing from misrepresentation and there is no need for it to be foreseeable. It establishes tortuous measure of damages. Useful cases: Doyle v Olby / Smith and New Court v Scrimgeour Vickers S.2 (1) Misrepresentation Act 1967 establishes that the person making will be liable if the representation is fraudulent unless he/she proves they had reasonable grounds to believe the representation, Howard Marine & Dredging v Odgen or believed the representation up to the time of contracting. Graham will most likely be liable for misrepresentation as

he had no reasonable grounds to believe and did not believe it to be true up to the time of contracting. Jemima can sought damages. Danny v Graham On Tuesday, Danny enters a shop and sees a painting of a shepherd chasing a rabbit which he assumes is by Rijkaard, a great Dutch painter from that era, for sale for £3000. He says to Graham “I love Rijkaard and think that is an excellent price for one of his works. I will take it.” Graham is aware that the painting is not by Rijkaard at all but is instead by a different painter from a different country and so worth a lot less. He says nothing and sells the painting for £3000. Dimmock v Hallet / Lamber v Co-Operative Insurance. As mentioned above, for misrepresentation to apply, there must be a false statement from one party to the other and the statement must be of existing fact or law. The false statement is made by Danny, who assumes that the painting is by Rijkaard. On the other hand, there is a general rule that misrepresentation cannot be made by silence. Even when one party is aware that the other is contracting on the basis of a misunderstanding, there still will not be liability. As in Keates v Earl of Cadogan (1851), which held that there is ‘no obligation on the defendant to say anything, and no allegation of deceit’. Graham knows that the painting is not by Rijkaard but remains silent about it, selling it for £3,000. As there is no obligation on Graham to tell the truth, there is no misrepresentation. Therefore, Danny will not be able to rescind his contract. Percy v Graham On Wednesday, Percy enters Graham’s shop and inquires about a picture of a hedgehog climbing a giraffe’s leg. He asks about the origins of the painting and Graham lies that it is by Gullit, a famous Flemish painter. He offers Percy a book on Gullit which lists all of his paintings. If Percy read the book, he would discover Graham’s lies, but forgets to read it. Nevertheless, Percy has heard about Graham’s reputation for sharp practice and so asks his nephew, who has an art degree, to assess who painted it. The nephew replies that the painting was by Gullit. As a result, Percy buys the painting for £4000, but then discovers it is actually by Laura, Graham’s wife, an art forger. Redgrave v Hurg / Museprime Properties v Adhill Above is set out that a false statement by one party to the other is required for misrepresentation. Graham’s lie about the painting belonging to a famous Flemish painter constitutes as a false statement. The statement must be of existing fact or law and as mentioned previously, where the statement of opinion comes from an expert, it amounts to a representation . This was established in Esso Petroleum Ltd v Mardon (1976) where an expert opinion was sought and proper care had been taken in giving the opinion, which would be a statement of fact. Percy asked his nephew, an art graduate, to assess the painting and his nephew claimed that Graham was correct. Third element for misrepresentation is that it must induce the contract. However, issues are raised when experts get their misrepresentations wrong as in Atwood v Small (1838) where false statements had been deemed correct by experts and the purchasers could not sought misrepresentation as they did

not only rely on the defendant’s representation, but also experts’. As Percy sought out an expert’s opinion, his nephew’s, misrepresentation could not be sought, meaning that Percy would not be able to rescind his contract. Mary v Graham On Thursday, a delivery of art from Graham’s deceased aunt arrives at Graham’s shop which he has been left in her will. Most of these paintings are 20th century sculpture. He doesn’t have time to sort out the paintings and leaves them by the door. Mary is passing the shop and sees the sculptures. She thinks one of them is by Bergkamp, a modern Dutch sculptor . Graham replies “I don’t know much about modern art and I know even less about sculpture. However, I know my aunt was a big fan of Bergkamp, so I’d say it’s by him. How much are you willing to pay?”. Mary googles a relevant website and replies that most of Bergkamp’s sculptures sell for about £1000. Mary doesn’t have this sort of money and so exchanges the sculpture for her scooter, which is worth about that amount. Later that evening, Graham drives off on the scooter and crashes it. He decides to sell it to Peter for scrap. False statement made by one contracting party to the other is established when Graham assumes that the painting is by Bergkamp. Secondly, the misrepresentation must be a statement of existing fact or law, not an opinion. This is observed in Bisset v Wilkinson (1927), which held that it was not a misrepresentation as the farmer’s view on the matter was only an opinion, not a statement of fact. Esso v Mardon, expert opinion constitutes as fact. Graham’s assurance that his aunt was a big fan of Bergkamp may constitute as an opinion, but his belief that it might be by him might be considered a statement of fact. If it is the latter, then the first exception; that opinion must not be contradicted by other facts known to the person Smith v Land & House (greater knowledge), may apply to Graham as in reality, the paintings are from the 20th century and not modern but he provides the statement through facts that justifies his opinion. The third element is that misrepresentation must induce thee contract as mentioned earlier. The state of Mary’s mind was disturbed by Graham’s statement that the painting was by Bergkamp and the objective principle can be applied to establish that a reasonable person would have been induced to enter a contract with Graham due to his representations. Category of misrepresentation: negligent and innocent. If misrepresentation is found, Mary can sought out rescission. However, rescission can be lost where restitution is impossible or due to the effect on third parties. There is a general rule that there must be a restituo in integrum, but restitution is impossible where goods have been destroyed, consumed or mixed with others and cannot be retrieved shown in Erlanger v New Sombrero Phospate (1878). Clarke v Dickson (1858), if goods are destroyed ‘cannot both eat your cake and return your cake’. Consequently, a bar to rescission rises when rescission would affect the rights of third parties. In such cases, courts will not force third parties to part with goods as in Philips v Brooks. Mary’s scooter has been destroyed by Graham and sold to Peter, making restitution impossible and creating an effect on third parties, Peter.

Damages (negligent representation) * S.2 (1) MA – fiction of fraud & Royscot v Rogerson Damages (innocent misrepresentation) * S.2 (2) MA – Court can award damages in lieu of rescission

Alternatively, she can pursue damages as a remedy. S.2 (1) Misrepresentation Act 1967 states that ‘where a person has entered into a contract after a misrepresentation by another party and has suffered a loss, the person making the misrepresentation would be liable for damages had it been made fraudulently’. That applies unless the person can prove he/she had reasonable grounds to believe the representation up to the time of the contract was made. Considering this, Graham’s misrepresentation convince Mary to enter a contract and it will fall on him to prove whether he believed the misrepresentation to be true. If he is unable to prove that, Mary will be able to claim damages as a remedy....