MISREPRESENTATIO

N
KAYIRA J
MISREPRESENTATION AND ILLEGAL CONTRACTS; REPARATION:
DELICT AND TORT;

• The question is whether the statements were made to induce i.e. whether the other party
entered into the contract because of the inducement to his or her detriment. In Law of
Contract, the only misrepresentation which has legal effect is that which had made the
other party to rely on it (and enter into a contract) and then suffer detriment (i.e. altering
his position).
• Misrepresentation is where a statement of fact was wrongly stated such that a person
relied on that wrong point in order to enter into an agreement.
WHAT IS A REPRESENTATION

• Here we are looking at a representation of fact.

• It is a representation of fact made by a representator and the statement whilst not part of
the contract induced the representee into entering into the contract.
• Therefore a misrepresentation is a representation that is not true.
• The representor’s state of mind and a degree of carefulness is irrelevant to classifying a
representation as a misrepresentation but only to determining the type of
misrepresentation, if any.
• Smith v House Property Corporation [1884] 28 Ch. 128
• A vendor described his property in August as ‘being let to Mr Fredirick Fleck ( a most
desirable tenant) at a rental of 400pounds a year (clear of rates, taxes, insurance, etc) for
an unexpired term of 27.5 years, thus offering a first-class investment”. In fact the Lady
Day rent had been paid by instalments under pressure and no part of Midsummer rent had
been paid. It was held that the description of Fleck as ‘most desirable’ tenant was not a
mere expression of opinion. It was an untrue assertion that nothing had occurred which
could be regarded as rendering him an undesirable tenant.
• Edington v Fitzmaurice [1885] 29 Ch. 459

“The state of a man’s mind is as much a fact as his state of digestion. It is true that it is very difficult to
prove what the state of a man’s mind at a particular time is, but if it can be ascertained it as much a fact
as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of
fact”
• In this case, a company issued a prospectus which invited a loan from the public and indicated that
this loan would be used for the improvement of buildings and the extension of the business. This was
untrue, since the intention from the first had been to expend the loan upon the discharge of certain
existing liabilities. It was held that the prospectus was a fraudulent misrepresentation of a fact. The
company had not made a promise which they might or might not keep, they had simply told a lie
• In addition to having induced the representee to enter into the contract, it is said that the representation must be
material
• Attwood v Small [1838] 6 CLFin 232
• A vendor accompanied an offer to sell a mine with statements as to its earning capacities which were exaggerated and
unreliable. The buyers agreed to accept the offer if the vendor could verify his statements and they appointed
experienced estate agents to investigate the matter. The agents, who visited the mine and were given every facility for
forming a judgement, reported that the statements were true, and ultimately the contract was completed.
Held:
• By the House of Lords that an action to rescind the contract for misrepresentation must fail, since the purchasers did
not rely on the vendor’s statements, but tested their accuracy by independent investigations and declared themselves
satisfied with the result.
SIGNED DOCUMENTS

• If a party to a contract signs the contract document, he is bound by its contents whether he read the terms or not unless there is a
misrepresentation.
• In Selemani and Another vs. Advanx (Blantyre) Ltd (1995)1 MLR, 262, Nyirenda, J stated at 268:
“Counsel has a point and the law is more than settled that a party to a contract who signs a contractual document which contains
terms and conditions is bound by them. It will invariably be no excuse for the party to say that they did not see or read the clauses or
say they were not brought to their attention.”
• The Learned Judge then, quoted with approval, the following statement by Scrutton, J in L’Estrange vs. Gracob (1934) 2 K.B,394:
“In case in which the contract is contained in a railway ticket or other unsigned document, it is necessary to prove that an alleged
party was aware, or ought to have been aware, of its terms and conditions. These cases have no application when the document has
been signed. When a document containing contractual terms is signed, then, in the absence of fraud, or, I may add, misrepresentation,
the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”
• Again Phekani vs. Automotive Products Limited 16(1) MLR, 427, in a contract between the parties there was an exclusion clause in the following
words: “I hereby agree that Automotive Products Limited is not responsible for loss or damage to the vehicle herein described and its contents whether
from fire, theft or any cause whatsoever beyond the Company’s reasonable powers of control.”
• The Plaintiff signed the contract. Later the Plaintiff’s car caught fire. He then sued. The Defendant argued that by virtue of the exemption clause; they
were not liable. The Plaintiff counter – argued that the exemption clause was not brought to his attention and that the Defendants were therefore liable.
• Answering to the Plaintiff’s counter-argument; Tambala, J stated at 433:
“The plaintiff’s reaction to this clause was that it was not drawn to his attention when he left his car with the defendants. This argument would not assist the
plaintiff, since he signed the document containing the term which limits or excludes the defendants’ liability. The learned authors of Cheshire and Fifoot,
Law of Contract, (9 ed), at 151, state:
“If the document is signed it will normally be impossible, or at least difficult, to deny its contractual character, and evidence of notice, actual or constructive,
is irrelevant. In the absence of fraud or misrepresentation, a person is bound by a writing to which he has put his signature, whether he has read its contents
or he has chosen to leave them unread. The plaintiff’s position is, therefore, untenable.”
• These both cases were quoted with approval by Kapanda, J in Zeyaur Rahman Hashmi vs. DHL Express, Civil Cause No. 423 of 2005
• In instances where a party is induced to sign a contract because of a misrepresentation of the other party or being induced by a stranger who
does not know the contents of the contract – question is should the person be excused from being bound because the party appending his
signature is mistaken as to the contents of the contracts such that the documents he wanted to sign is in effect different from the one he is
appending his signature to;
• As a general rule, the contract is binding and it is irrelevant whether he read or understood the contents.
• However, in the 16th Century, there was exception for deeds under the maxim scriptum predictum no est factum suum (non est factum31 rule)
• By this rule, a party that can prove that it did genuinely sign a document mistakenly or that the document signed is fundamentaly different
from the one, intended, it may be allowed to renege from the signature. In National Bank of Malawi vs. Dairy Board Malawi Limited,
Comm. Cause No. 34 of 2007, Mtambo, J stated:
• “As a general rule, a party is bound by their signature to a document so that the court will not allow them to renege from it. However, in
exceptional circumstances such as where they can prove to the court on a balance of preponderances that there was no consensus ad idem
between the parties or that the document they signed is fundamentally different from the one they intended to sign, they can be allowed to so
renege.”
SILENCE IS NOT MISREPRESENTATION

• The failure to disclose a material fact which might influence the mind of a prudent
contractor does not give the right to avoid the contract, even though it is obvious that the
contractor has a wrong impression that would be removed by disclosure. Tacit
acquiescence in the self-deception of another creates no legal liability, unless it is due to
active misrepresentation or to misleading conduct. Therefore there is no general duty of
disclosure in the case of a contract of sale, whether of goods or of land;
TYPES OF MISREPRESENTATION

• There are 3 classes [types]

• Fraudulent Misrepresentation
• Negligent Misrepresentation
• Innocent Misrepresentation
• INNOCENT MISREPRESENTATION
Statement of fact which the maker believed to be true
• NEGLIGENT MISREPRESENTATION
• Statement of fact(s) which are untrue which the maker of that statement has the onus to prove that he had reasonable ground to believe
that the statements were true.
• Hedly Bryne & Co Ltd v Heller & Partners Ltd [1964] A.C. 465 / 2 All E.R. 575
The plaintiffs entered into an advertising contract on behalf of Easipower to terms under which they would themselves be liable if
Easipower defaulted. Wishing to check on Easipower’s credit, they asked their bank to inquire into the defendants, who were Easipower’s
bankers. Relying on their replies, they continued to place orders and suffered substantial loss when Easipower went into liquidation. The
House of Lords held that that the Plaintiff’s action failed since the defendants replies had been given ‘without responsibility’, but they also
stated that, but for this disclaimer, an action for negligence could lie in such circumstances.
• Therefore in this landmark case, the House of Lords held that in some circumstances, an action would lie in tort for negligent misstatement.
• FRAUDULENT MISREPRESENTATION
• Here, the term fraudulent has a broader meaning.
• It includes all untrue statements made knowingly or recklessly or without believing them to be true
• Derry v Peek [1889] 14 A.C. 17
• A company after submitting its plans to the Board of Trade, applied for a special Act of Parliament authorising it to run trams in Plymouth by
steam power. The Act was ultimately passed provided that the trams might be moved by animal power, of, if the consent of the Board of Trade
were obtained, by steam or mechanical power. The directors, believing that this consent would be given as a matter of course, since the plans
had already been submitted to the Board of Trade without encountering objection, thereupon issued a prospectus saying that the company had
the right to use steam power instead of horses. The respondent took shares upon the faith of this statement. The Board of Trade refused their
consent, and the company was ultimately wound up.
• Held :
• By the House of Lords, (reversing the decision of the Court of Appeal), that an action of deceit against the directors claiming damages for
fraudulent misrepresentation must fail.
• Lord Heschell
• The prospectus was … inaccurate. But that is not the question. If they [the directors] believed that the consent of the Board of Trade was practically
concluded by the passing of the Act, has the plaintiff made out, which it was for him to do, that they have been guilty of a fraudulent
misrepresentation? I think not. I cannot hold it proved as to any one of them that he knowingly made a false statement, or one which he did not believe
to be true or was careless whether what he states was true or false. In short, I think they honestly believed that what they asserted was true.
• The House of Lords established the principle that the absence of honest belief is essential to constitute fraud. If a representor honestly believes his
statement to be true, he cannot be liable in deceit, no matter how ill-advised, stupid, credulous or even negligent he may have been.
• Lord Hershell (defining fraud)
• It means a false statement made (1) knowingly or (2) without belief in its truth or (3) recklessly, careless whether it be true or false
• But the learned judge admitted the rule is accurately and comprehensively contained in the short formula that a fraudulent misrepresentation is a
false statement which, when made, the representor did not honestly believe to be true.
• The important feature of this decision is the instance of the House of Lords that the disntinction between negligence and fraud must never be blurred.
Fraud is dishonest, and it is not neccessariry dishonest, though it may be negligent, to express a belief upon grounds that would not convince a
reasonable man.
• In order to prove fraud, there is need to show that the representor either knew that the statement was false or was
reckless as to whether the statement was true or not.
Gross v Lewis Hillman Ltd [1969] 3 All E.R. 1476
• In testing the honesty of the representor’s belief, his statement must not be considered according to its ordinary
meaning, but according to its meaning as understood by him
• Carelessness is not dishonesty but if a man is reckless, the court may be justified in concluding that the person was
not honest.
• Gross v Hillman
• Derry v Peek
• As per Hailshire L J
REMEDIES FOR MISREPRESENTATION

• RECSISSION
• A misrepresentation renders the contract voidable at the presentation / option of the representee i.e. valid
unless set aside by the representee upon discovery of the misrepresentation. See: Hashmi vs. DHL Exprerss
(supra)
• When he discovers the misrepresentation, he has the choice of affirming or rescinding the contract.
• He will affirm the contract if he declares his intention to proceed with the contract nonetheless.
• It can be by actual declaration or the affirmation can be inferred by conduct, however this inference must be
such as would be inferred by a reasonable person.
• The contract can be rescinded if the representee makes it clear that he no longer wants to be bound by the
contract.
• The effect of this rescission will render the contract void ab initio.
• Car and Universal Finance Co Ltd v Caldwell (1964) 1 All E.R. 290
• The defendants sold and delivered a car to X in return for a cheque that was dishonoured the next day, by which time
both the car and X had disappeared. The defendant immediately notified the police and the Automobile Association
and requested them to find the car. While the search was proceeding, X sold the car to M Ltd motor dealers, who had
notice of X’s defective title. Ultimately, M Ltd sold the car to the plaintiffs who bought it in good faith
• Held :
• That the defendant, by setting the police and the Automobile Association in motion, had sufficiently envinced his
intention to rescind the contract. As soon as he made this clear, the ownership of the car reverted to him and therefore
the later sale by M Ltd vested no title in the plaintiffs, the innocent purchasers.
• Abrams S S v Westville Shipping Co. Ltd (1923) A.C. 773 Lord Atkinson
• Where one party to a contract expresses by word or act in an unequivocal manner that by reason of fraud or essential
error of a material kind inducing him to enter into the contract he has resolved to rescind it, and refuses to be bound
by it, the expression of his election, if justified by the facts, terminates the contract, puts the parties in statu quo ante
and restores things, as between them, to the position in which they stood before the contract was entered into
• An election, once it has been unequivocally made, whether in favour of affirmation or of rescission, is determined
forever. It cannot be revived. If the representee elects to rescind the contract, the general rule is that within a
reasonable time he must communicate his decision to the representor, for the latter is entitled to treat the contract
nexus as continuing until he is informed of its termination.
• The effective date is the date it is communicated to the misrepresentation and it is not necessary to obtain special
judgement on effect of rescission.
RESTITUTIO IN INTERGNUM

• This is not necessarily a remedy but will follow from rescission.

• The Court can make any necessary orders to restore the parties to the status quo.
• Redgrave v Hord (1881) 20 Ch. 1
• Bisset v Wilknson (1927) A.C. 177
DAMAGES

• If the representee chooses not to rescind the contract or he has lost his chance to rescind
the contract, he may bring an action in damages. Sometimes the representee may opt not
to rescind the contract and instead sue for damages.