CONTRACT LAW GROUP WORK- MISREPRESENTATION (UNIT 1)

A general definition of a misrepresentation is a false statement of fact that one party makes at or

before the time of contracting and uses to persuade the other party to sign the contract. The term

misrepresentation also relates to both the incorrect statement and the act of making the false statement

It is a vitiating factor, however even if it is not a part of the contract, it may still have legal

significance. It must be noted ,that there exists a stark difference between a representation and a

misrepresentation, that is, a mere representation is a factual claim made by one party to the other

during contract-creating negotiations that was meant to serve as an enticement to enter into a contract

but was not intended to be a legally binding clause, but if such a claim proves to be untrue, there has

been misrepresentation. A statement must meet certain criteria in order to be actionable

misrepresentation. These criteria are that a false statement must relate to a current fact or a past

incident; opinions or predictions about future behaviour are not actionable as well as, it must have

persuaded the opposing party to sign the agreement.

It is also salient to consider that statements of intention and opinions are generally held not to be

misrepresentation. There are exceptions to this principle and can be illustrated in the case of

Edgington v Fitzmaurice1, where a company in its prospectus stated that money lent to the

company would be used to expand the business, whereas, as the directors well knew, it was to be used

to pay existing debts, the apparent statement of intention was regarded by the court as a statement of

fact and an actionable misrepresentation. It therefore means that while a statement indicating one’s

intention to do a particular task as part of a contract, if such intention is a statement of fact and is

false, then it may amount to misrepresentation. In the words of Bowen LJ, ‘the state of a man’s mind

is as much a fact as the state of his digestion.’ In relation to statements of opinion, correctly expressed

opinion is not a representation of reality, and its untruth does not give rise to a claim for remedy in the

absence of fraud. This is exemplified in the case of Bisset v Wilkinson2 , where based on B's claim

that the land "would hold two thousand sheep," W entered a contract with B to buy land in New

Zealand. B or anybody else had never before raised sheep on the property. W counterclaimed
1
Edgington v Fitzmaurice (1885) 24 Ch D 459
2
Bisset v Wilkinson [1927] AC 177
for rescinding the contract on the grounds of deception when B sued W for the remaining

purchase amount. The Privy Council determined that the charge of misrepresentation was

unsuccessful since B's remark was only an opinion, honestly held. On the other hand, if it is

established that the representor did not hold the stated position, the opinion may be regarded

as a fraudulent misrepresentation as it is typically based on reality and may indicate that the

representor has knowledge of facts which would justify his opinion.

The exception to this rule can be seen in the case of Smith v Land and House Property

Corporation3 a situation in which the seller of a hotel that was being sold at auction claimed

in the auction particulars that the hotel had been "leased to a most desirable tenant," when in

fact the tenant had fallen far behind on the rent. It was decided that the "opinion" expressed

about the renter would be taken as a statement of fact because it implied that nothing had

happened during their landlord-tenant relationship to make them consider the tenant to be

"undesirable." It therefore means that if it can be demonstrated that: the speaker did not hold

the opinion or that an honest person with his knowledge could not have held it, or he alone

was in a position to be familiar with the information necessary to form the opinion, there is a

distortion of fact for which a remedy lies.

With misrepresentation being false statements being made, the question then arises of

whether silence could amount to misrepresentation, causing the contract to be vitiated. This

requires the examination and analysis of existing case law. Lord Campbell stated in Walters

v Morgan4, there being no fiduciary relation between vendor and purchaser in the

negotiation, the purchaser is not bound to disclose any fact exclusively within his knowledge

which might reasonably be expected to influence the price of the subject to be sold. Simple

reticence does not amount to legal fraud; however, it may be viewed by moralists.

3
Smith v Land & House Property Corporation (1884) 28 Ch D 7
4
Walters v Morgan (1861) 3 DF & J 718
Contrastingly, the case of Dimmock v Hallett, 5when a seller of a building characterized the

premises as ‘fully let’, but omitted to disclose to the purchaser that the tenants had issued

notice to depart (‘failure to disclose the complete truth, when a statement is made,)

exemplifies that where silence distorts a positive representation, it would amount to

misrepresentation.

5
Dimmock v Hallett (1866) LR 2 Ch App 21