Law of Contract Misrepresentation Revision Notes

What is a Misrepresentation ? Professor McKendrick defines misrepresentation as µA misrepresentation may be defined as an unambiguous, false statement of fact or law which is addressed to the party misled, which is material and which induces the contract¶ It can be also said to mean: a misleading or untrue statement of fact or law made by one party to another that is not incorporated as term of contract which induces the other party to enter into the contract. A statement includes conduct A representation can be made orally or written and also conduct. The case of Walters v Morgan (1861) held that the law can now take into account body languages such as µA nod or a wink, or a shake of the head or a smile from the purchaser intended to induce the vendor to believe the existence of a non-existence fact¶ (And this may amount to misrepresentation) Statements A statement of fact must be verified. Means a statement about something capable of being verified. Three categories of statements have not been held to constitute statements of existing facts and do not amount to an actionable misrepresentation 1) A mere puff is not a statement of fact ± mere puff means mere sales talk or a statement so vague that no reasonable person would rely on it. No liability Dimmock v Hallett (1866) ± µFertile and improvable¶ Mere puffs - ³talking up´ the product - ³It¶s a great little bus; I¶d stake my life on it!´ ³This washing powder washes whiter than white´ 2) Statement of opinions is not a false statement of fact if sincerely held. Bisset v Wilkinson (1927) (If honestly held) ± It does not give rise to an actionable misrepresentation. 3) A statement of future intention is not a statement of fact unless D had no such intention. Edgington v Fitzmaurice 1885

Where a statement of opinion implies hidden facts then it is a misrepresentation ± Smith v Land and house property (1884) µA most desirable tenant¶

Silence Silence does not amount to a misrepresentation and the contracting party has no duty to disclose materials know to that party but not to the other party. Inducement . However such statement can now amount to misrepresentation (but this was not always the case) Kleinwort Benson ltd v Lincoln city council (1999) ± Held misrepresentation of law should now give a representee a cause of action on the same basis as if misrepresentation had been of an existing fact. Made by one party to another A party can be a representative of whom the con tract is made or the statement can is a statement made on behalf of another party but the statements must be linked to the contract. 5) A contract involving fiduciary relationships ± one party of whom reposes trust and confidence in the other.(half truth) ± Dimmock v Hallet (1866) ± no duty to offer information but if they do it should be whole information 3) Changes of circumstances before contract is concluded ± Statements are true when made but later become false by the time the contract has been formed. doctor and patient.The opinion of someone with specialist knowledge and skills indicates a statement of fact even if it expressed as an opinion will amount to a misrepresentation ± Esso v Mardon (1796) Statement of law A false statement of law is not a statement of fact and therefore cannot amount to misrepresentation.Held F had no duty to disclose and had not made any misleading reference to proceedings so no grounds to refuse SP of the compromiseKeates v Cadogan (1851) ± Held failure to disclose information does not amount to misrepresentation However there are 5 exceptions where silence is not misrepresentation 1) Misrepresentation by conduct ± Spice girls v Aprilia world service (2000) ± misrepresentation by conduct as participation of all 5 band members in commercial induced other party into the contract 2) Partial revelation . Maker has duty to correct statement at the time he becomes aware it is no longer true. Example Solicitor and client. With v O¶flanagan (1936) 4) Contracts of utmost good faith (Uberrimae Fidei) Example insurance. the law imposes duty to disclose. Turner v Green (1895) . There is a duty to disclose all materials facts whether or not these are asked for. agent and principle. sales of land and shares contracts.

Negligent Misrepresentation (at common law) y y Also tort of negligent misstatement Damages may be recoverable for negligent misstatement which causes financial losses . Effectively person who makes fraudulent statement is strictly liable for any loss which follows and tests of causation do not apply . Material inducement ± Edgington v Fitzmaurice.The means by which a right is enforced or by which the violation of a right is prevented or compensated. The burden of proof is on the plaintiff he who asserts fraud must prove it. y Key element ± Dishonesty.The innocent party must have relied on the statement to make his decision. (Difficult to prove D knows its untrue) y Derry v Peek (1889) ± Lord Herschell established 3 propositions 1) There must be proof of fraud and nothing short of that is sufficient 2) Fraud is proved when shown a false representation has been made. knowingly. 3) if fraud is proved the motive of the person guilty of it is immaterial. or without belief in its truth or reckless or careless whether it be true or false. Fraudulent misrepresentation . However the statement does not need to be the sole reason but must be a reason for entering the contract ± JEB fastenders (1885) No inducement if misrepresentation is not heard by the other party. The standard of proof is high.need not show that loss is directly caused by statement. The maker of the statement here either knows 1) the statement is untrue 2) has no belief that its true and 3) is reckless as to whether or not it is true. Difficult to prove fraud in lord Herschell requirements. Not inducement if party relies on own judgement ± Attwood v Small (1836) and offering chance to discover the truth does not prevent claim Redgrave v Hurd (1881) Remedies What is a remedy? . merely that statement induced person to enter K [cf Slough Estates v WHDC].as well as being a ground for setting aside K is also tort of deceit. Types of Misrepresentation Fraudulent Misrepresentation y y Fraudulent misrepresentation constitutes the tort of deceit. y This type recovers all losses from misrepresentation and it doesn¶t matter whether it was foreseeable or not.

whether knowingly or unknowingly. BUT Edgington v Fitzmaurice (1885) statement of opinion as to future intention is a misrepresentation where it is not true at the time: viz. negligent and innocent. . Is representation one which would affect judgment of reasonable man in deciding whether or not to enter contract? (But if representor has been fraudulent then he cannot be heard to argue that representation was immaterial). however case of Hedley Bryne v Heller (1964) has allowed damages to be recoverable for negligent misrepresentation and then under the misrepresentation act 1967 y Hedley Bryne ± HOL held could be liability for negligent misrepresentation provided conditions have been fulfilled. but to pass on a customer (P) who was proposing to deal with a client of the D bank. Plaintiff¶s bank told P who acted on information to its detriment. Not a misrepresentation as true statement of policy when it was made.y Damages was only available at common law for fraudulent misrepresentation.D refused to guarantee repayment of loan made by P to D¶s subsidiary but gave P a letter of comfort saying it was D¶s policy to ensure that subsidiary business was in position to meet its liabilities to P under the loan arrangement. Held that D liable to P because they knew information was wanted not by the plaintiff¶s bank for its own purposes. Directors guilty of misrepresentation where in prospectus they stated intention to use proceeds to expand business but actually intended to use it to pay debts. One of which was that there is a special relationship between the parties Innocent Misrepresentation y ‡ ‡ The maker of the statement made the statement in good faith Issue is contractual fairness but really this is tort and equity not contract!!!! Law disapproves of persons inducing others to enter contracts by deception.not a contractual promise but representation of fact as to D¶s policy at the time but no undertaking that this would not change in future. Representation is not a promise (or it would be contractual term) but merely an assertion of a statement of fact which invites reliance Kleinwort Benson v Malaysia Mining Corp [1989] 1WLR 379 .D bank misrepresented to plaintiff¶s bank financial standing of one of P¶s customers. Representation must be addressed to party misled or to a third party with the intention that it be passed on to the representee Commercial Banking Co of Sydney v RH Brown and Co [1972] Lloyds Rep 360 . Held . Different consequences follow according to whether statement is contractual or noncontractual: contractual statements are terms of contract and breach of them gives rise to action for breach of contract non-contractual statements are misrepresentations which may allow a party to claim rescission (make contract voidable) ‡ ‡ ‡ ‡ ‡ ‡ Lecture structure: i) Define misrepresentation ii) Consider different types of misrepresentation: fraudulent.

. Contrast JEB Fasteners v Marks [1983] P failed to recover against D who negligently prepared accounts for a company which P acquired. P failed as Court of Appeal held representation did not play a ³real and substantial´ part in inducing P to proceed. P had seen accounts but had reservations about them but decided to proceed with take-over as they wanted to obtain services of two directors of the company. Still this was sufficient. P took over company because of the two directors and not due to the accounts.Must be a reason for entering K but need not be sole one .see Edgington .P induced to subscribe for shares in part by prospectus but also in reliance on his mistaken belief that he would have a charge on the company¶s assets. Take-over not a success and P sued D alleging they had been negligent in preparing accounts.

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