Misrepresentation

Introduction.

 Mere Puff v Misrepresentation.

 Under English law, no general duty to disclose information during negotiations
BUT a false representation is actionable.
 Motive behind falsehood does not play a role in the determination of whether a
misrepresentation exists BUT motive is essential in the determination of type of
misrepresentation.
 Once misrepresentation is established the contract is voidable.
What is a misrepresentation? Under the
misrepresentation act - statutory
 Definition:
(1) A false statement of existing fact or law compared to an opinion or future
intent
(2) Made by one party to the other party of the contract. negligent
misrepresentation at common law.
(3) The misrepresentation should occur Before the time of formation of the contract,
not after. If it is after then cant claim that the party relied on the misrepresentation
before entering in to the contract
(4) Reason for misrepresentation is Intended to induce the other party to enter the
contract and was such an inducement (party was induced)
False statement of fact or law v statement
of opinion.
 Bisset v Wilkinson:
Claimant wished to purchase farm land to use as a sheep farm. Asked the seller how
many sheep the land would hold and he estimated that it would carry 2,000 sheep.
Seller had never used it as a sheep farm himself. In reliance of this statement the
claimant purchased the land and discovered that the estimate was wrong. The
claimant therefore, brought an action for misrepresentation.

The Privy Council held: statement of opinion not a statement of fact and therefore a
false statement of opinion does not give rise to an actionable misrepresentation.
When a statement of opinion amounts to a
statement of fact.
 A statement of opinion may amount to an actionable misrepresentation if the party making it was
in a position to know the facts.
 Smith v Land and House Property Corp: The claimant wished to purchase a hotel. When asked
about one of the tenants the seller said he was most desirable. The tenant however was late in
paying his dues and was about to go bankrupt. Held: Seller made a statement of fact rather than
opinion as he was in a position to know the facts. The court says that the seller knew the facts
e.g. that the tenant would not pay his dues, upon which the statement was based, so when the
statement was made, the seller could have justified their statement based on a set of facts, so if
young re in a position to know the facts on which your opinion is based, then your opinion
counts to actionable misrepresentation. The seller here knew more about tenant than the buyer so
there was also am imbalance of knowledge here.
 Bowen Lj in Smith v Land and House Property Corp: “The facts are equally known to both
parties, what one says to the other is frequently nothing but an expression of opinion … But if the
facts are not equally well known to both sides, then a statement of opinion by one who knows the
facts best involves very often a statement of material fact, for he impliedly states that he knows
facts which justify his opinion.”
When a statement of future intent amounts
to an actionable Misrep.
 Statement of future intention is not a statement of existing fact. Thus, no liability if a party fails
to carry out her stated intention.
 BUT if the representor never has the intention of carrying out her stated intent – this is a
misrepresented his present intention.
 Edgington v Fitzmaurice:

The company prospectus (issued by companies to attract investors) stated the purpose of the sale of
shares was to raise money to invest in the company. In the prospectus it made it seem like the
company was doing very well. They said they would reinvest the money that people invest in into
the company in order to grow. In fact, the company was actually in financial difficulty and was
selling shares to pay off debts. It was never for money to reinvest in to their company. Although this
was a statement of future intent, it led to an actionable misrepresentation

Held: Even though the statement was one of future intent, it amounted to a misrepresentation as the
defendant had no intention of using the money to reinvest.
False statement of law amounts to an
actionable misrepresentation.
 Pankhania v LB Hackney:
The defendant stated to the claimants that the current occupiers of the property were
contractual licensees, and the agreement could be terminated on the provision of a 3-
month notice. The clm hearing this, bought the property. The current occupant were
actually protected under the Landlord and Tenant Act 1954. This was a
misrepresentation as to law.
Held (HC): Misrepresentation of law is an actionable misrepresentation.
Silence will not generally amount to
actionable misrepresentation.
 Smith v Hughes (1871) LR 6 QB 597

The claimant was shown a sample of what he thought were old oats, he wanted
old oats for horse feed. They were in fact new oats. The claimant wanted the oats
for horse feed and new oats were of no use to him. While the seller knew of the
mistake on the part of the claimant, he did not correct it. The claimant brought an
action against the seller based on misrepresentation.

Held: No misrepresentation as silence can not amount to a misrepresentation. The

defendant had not mislead the claimant to believe they were old oats.
BUT: Contracts of utmost good faith (e.g. insurance contracts) or
representor in a fiduciary position.

 In certain types of transactions i.e., of utmost good faith (e.g., insurance) or where
the representor is in a fiduciary position - a duty to disclose all material facts
exists. Silence amounts to misrepresentation here so this is an exception.
 HIH Casualty and General Insurance Ltd v Chase Manhattan Bank :
 Chase Manhattan advanced a loan to finance the production of certain films.
Chase Manhattan required insurance and specified the agent that must be used to
obtain it. HIH provided insurance for the event that the film did not make enough
revenue to repay the loan. While obtaining the insurance policy the agent failed to
disclose a report that suggested the films were unlikely to make a profit. The
films did not make enough money and the bank claimed under the insurance
policy. Held: contract is voidable, actionable misrepresentation under contract of
utmost good faith, silence here amounts ot actionable misrepresentation
Representation becomes false because of a later
change of circumstances.
 With v O'Flanagan:
The claimant purchased a medical practice from the defendant. Before the contract
was concluded the defendant stated that the practice made a revenue of £2,000 per
annum. While true when made, the defendant subsequently fell ill and many patients
went elsewhere. By time the sale was completed the practice was virtually worthless.
The def didn’t tell the clm about the decreased value of their medical practice

Held: Where a statement becomes false because of a change in circumstances there is

a duty to disclose the change. A failure to do so will result in an actionable
misrepresentation.
Inducement and Reliance – 2nd prong .

 Once it has been established that a false statement has been made it is then
necessary for the representee to demonstrate that the false statement induced her
into enter the contract.
 Court presumes inducement if the misrepresentation would have induced a
reasonable person to enter into the contract. The onus of proof is then placed on
the representor to show that the representee did not in fact rely on the
representation.
 Where the misrepresentation would not have induced a reasonable person to enter
into the contract, then the onus of proof is upon the representee to show that the
misrepresentation did in fact induce him to enter into the contract.
Inducement and the ‘But for’ test.

 While the representation need not be the sole inducement, the claimant must
establish that the representation played a ‘real and substantial’ role in inducing
her to enter into the contract.
 The claimant must prove that ‘but for such representation’ she would not have
entered into the contract.
Limitations to inducement. – Attwood v
Small
 Limitation: no reliance if the representee (or their agent) check the validity of the
statement.
 Attwood v Small: The defendant gave exaggerated accounts and reports to the
claimant who wished to purchase the estate. The claimant had his accountants
check the documents and they found them to be accurate. After the purchase the
discovered that the accounts had exaggerated the income generated by the estate.

Held: By getting his own experts to check the documents the claimant had not
relied on the accounts but his own judgment, although it was a misrepresentation.
Clm cannot say that they were induced in to the contract due to the
misrepresented false statement, as the clm checked out the reliability of the
statement before entering in to the contract.
Opportunity to verify statement.

 If the representee is given the opportunity to verify the statement but does not in
fact do so, she is still able to demonstrate reliance.
 Redgrave v Hurd:
A solicitor wished to purchase into the partnership in a firm of solicitors. He was told
the partnership made an annual revenue of £300 and was given the opportunity to
look at the accounts. He however, declined the offer and after the conclusion of the
contract discovered that the annual income was £200.

Held: He was entitled to rescind the contract as he relied on the statement. The fact
that he had declined the offer to check the books reinforced rather than negated that
reliance.
Types of misrepresentation- under the
act.
 Once it has been established that a false statement was made and that it induced
the representee into the contract, it is necessary to determine the type of
misrepresentation in order to determine the available remedy.
 A misrepresentation can be classed as either:
(1) Fraudulent misrepresentation.
(2) Negligent misrepresentation under s.2 (1) Misrepresentation Act 1967.
(3) (Wholly innocent misrepresentation.

Recall Negligent misstatement at common law.

Fraudulent misrepresentation.

 Derry v Peek - Fraudulent misrepresentation is a statement which is made to deceive by either:- a

fraudulent intention
1) The representor knowing it to be false, e.g. knowing that the car is damaged you telling the
representee that the car is in perfect condition
2) without belief in its truth , e.g., you have a car and because you’ve never done the servicing on
time, you don’t think the car is in very good condition, but , when the clm come you tell them it is in
goof condition- you are making a statement without belief in its truth. You don’t know for a fact that
the cat is damaged, but you don’t believe it is . Again you are trying to deceive
3) recklessly, careless as to whether it be true or false. They make the statement to deceive you so they
made the statement recklessly just to induce you in to the contract.
 Note: the motive of the representor is immaterial. E.g. representor knows his statement is false but
makes it for the betterment of the other party (Polhill v Walter).
 Deceit is a difficult matter to prove and is not lightly invoked in the courts.
Negligent Misrepresentation under the act
Section 2 (1) Misrepresentation Act 1967.
 s.2(1) Misrepresentation Act 1967.
 A negligent misrepresentation is a statement made without reasonable grounds for belief
in its truth. So the misrepresentation is not made completely recklessly, you just don’t
have reasonable grounds or belief in its truth, you were not trying to deceit.
 The burden of proof is on the representor (usually def) to show she actually had
reasonable grounds for believing the statement to be true. This burden of proof is
difficult to discharge. For the clm this is a goof option as the def has the burden of proof.
Once the clm proves actionable misrepresentation, then the burden of proof is passed on
to the def to prove that they had reasonable grounds for believing in the statement to be
true. If the def is unable to prove this, then negligent misrepresentation under the act will
have to be established. If the def is able to prove that there is reasonable grounds for
believing in the statement, then it is a very difficult burden for the def to prove this.
Howard Marine v Ogden [1978] QB 574

The claimant wished to rent 2 barges from the defendant (HM) and asked what their
capacity was. HM checked Lloyds Register (bible of shipping world) which stated their
capacity to be 850 cubic meters. This was incorrect, the capacity was in fact much lower. As
a result it took the claimant much longer to complete the work and cost a great deal more to
perform. The claimant brought an action for negligent misrepresentation and HM argued
that they had reasonable grounds for believing the statement to be true as they went and
checked the Lloyds register.

Held: The defendant had not discharged the burden of proof as they had the actual
registration document of the barges which contained the correct capacity and there was no
reason why they would have chosen Lloyds register over the registration
document. Therefore the defs did not prove that they had reasonable grounds for believing
the statement to be true
Negligent misrepresentation at common
law.
 Negligent misrepresentation at common law used to require a pre-existing
contractual relationship between the parties or the existence of a ‘fiduciary
relationship’. So was very limited in its scope. (Nocton v Lord Ashburton)
 BUT, Hedley Byrne v Heller: no prexisting conntractual relationship or
fiducirary relationship, but a special relationship i.e. some sort of proximate
relationship so the whole world cannot claim reliance. BUT Smith v Eric S bush.
Negligent misrepresentation at common
law v MA Act.
 1) Act does not require that there be a special relationship between the parties.
 2) Difference in burden of proof.
 3) Measure of damages recoverable under section 2(1) is the measure of
damages for the tort of deceit i.e. recovery of actual loss directly flowing
from the misrepresentation, whether or not that loss was reasonably
foreseeable. Under common law, only loss that is foreseeable will be recovered,
there is a limit. However, under the act, there is no foreseeability limitation, so
you can recover all damages regardless of whether they were foreseeable or not,
as long as you can prove that the loss arose from the misrepresentation.
 4) For lability under the Act to be established, it is necessary that the false
statement was made by the defendant not a third party.
Wholly Innocent Misrepresentation.

 An innocent Misrepresentation exists where the representor (def) can

demonstrate reasonable grounds for belief in the truth of the statement. Thus it is
neither fraudulent, nor negligent.
 E.g. hassans is selling his car, the mot records the mileage of the car, the last one states the
mileage tested today is 68,000. the pedometer also says this. This is reasonable grounds
for belief in truth of the statement. It turns out to be untrue as it turns out that the first
owner of the car had broken the pedometer and it is acc 168,000.
 So here you did. Make a false statement and you did do it to induce the other party into
the contract, and they did rely on this, actionable misrepresentation is established, the clm
wil say this is negligent misrepresentation as they know the burden of proof is on the def.
 But def is able to demonstrate that they had reasonable grounds for believing in the truth,
now it becomes a wholly innocent misrepresentation. The statement is false, but it was not
done for fraud/deceiving. There should be some sort of remedy available for the clm.
Remedies.

 Remedies available for misrepresentation are dependent on the type of misrepresentation.

 For all types the remedy of rescission is available (BUT see s 2(2) MA). This is putting the
parties back in their pre-contractual position. Each party gives back the benefit which they
have received under the contract. E.g. Hassan sells the car to Alex for £5000. Alex was
induced into to the contract as a result of a false statement made by Hassan saying the car
was in good condition when It was not; Clm goes to court, proves actionable misrep,
regardless of which type, recission can be established, Hassan gets his car back, Alex gets
his £5000 back.
 Damages might also be possible , damages are under the tort of deceit
 However, it is not always possible to rescind the contract and in some circumstances the
right to rescind may be lost.
 A contractual claim for damages does not lie for misrepresentation BUT damages may be
recoverable in tort where the misrepresentation was made fraudulently or negligently.
Moreover damages may be claimed under the Misrepresentation Act.
Remedies for fraudulent
misrepresentation.
 Innocent party is entitled to rescind the contract and claim damages.
 The damages that are awarded are not based on contractual principles but on the tort of deceit i.e.
put the other party in the position which he would have been in had he not acted upon the
misrepresentation to his detriment.
 No requirement that the damages are foreseeable.
 Doyle v Olby per Lord Denning:

"On principle the distinction seems to be this: in contract, the defendant has made a promise and
broken it. The object of damages is to put the plaintiff in as good a position, as far as money can do
it, as if the promise had been performed. In fraud, the defendant has been guilty of a deliberate
wrong by inducing the plaintiff to act to his detriment. The object of damages is to compensate the
plaintiff for all the loss he has suffered, so far, again, as money can do it. In contract, the damages
are limited to what may reasonably be supposed to have been in the contemplation of the parties. In
fraud, they are not so limited. The defendant is bound to make reparation for all the actual
damages directly flowing from the fraudulent inducement.”
Remedies for negligent
misrepresentation at common law.
 Once again the award of damages seeks to put the claimant in the position which
he would have been in had the tort not been committed.
 The representor will be liable for all losses which are a reasonably foreseeable
consequence of the misrepresentation.
 Rule of contributory negligence applies where the representee has also been at
fault (damages will be reduced accordingly)
Remedies for negligent
misrepresentation.
 S.2(1) Misrepresentation Act 1967 states that the same remedies are available
where the statement was made negligently as if it were made fraudulently. Thus
damages based on the reliance measure.
 The reliance measure can encompass the loss of profit which the claimant would
have obtained from entering into some other transaction if the misrepresentation
had not been made.
 Royscott Trust v Rogerson
Remedies for innocent
misrepresentation.
 Under s.2(2) Misrepresentation Act 1967 the remedies for an innocent
misrepresentaion are rescission OR damages in lieu of rescission. The claimant
cannot claim both.
 Damages are assessed on normal contractual principles i.e. difference between the
actual value received and the value which the property would have had if the
representation had been true.
 Note: the power to award damages is discretionary, it is not a right of the claimant
(compare with fraudulent and negligent mis-representation under the MA)
Bars to rescission.

 The right to rescind the contract may be lost where:

1) A third party acquires rights,
2) The representee affirms the contract,
3) Through lapse of time, or
4) Restitution in integrum impossible.
3rd party acquires rights.

 Equity’s Darling BUT if the representee does an act to rescind the contract before a
sale has taken place the 3rd party has not acquired any rights.
 Car & Universal Credit v Caldwell [1964] 2 WLR 600

Mr Caldwell sold his Jaguar car on the 12th of January to a rogue, Norris, who paid
by cheque. The next day Mr Caldwell presented the cheque to the bank but it
bounced. Mr Caldwell wished to rescind the contract of sale and reported the
incident to the police. He also contacted the Automobile Association to try to locate
the car. The rogue sold the car on to a third party three days later.

Held:

Mr Caldwell had successfully rescinded the contract. He had taken all steps possible
to demonstrate that he no longer wished to be bound by the contract.
Affirmation.

 Affirmation: After becoming aware of the misrepresentation, the representee does an act to adopt the contract
or demonstrates a willingness to continue with the contract.
 Long v Lloyd [1958] 1 WLR 753

The claimant purchased a lorry from the defendant which had been described in the advert as being in very good
condition. The defendant also told him that the lorry was “in first class condition.” During the test drive, the claimant
discovered that the speedometre and the accelerator were not working. He however, decided to proceed with the
purchase. After the purchase he found further faults and contacted the defendant who offered to pay half of the cost
of repairs. The claimant accepted the offer. Subsequently however, the lorry broke down completely and the brought
an action against the defendant for innocent misrepresentation.

Held:

By accepting the offer of payment for half the cost of repairs when he became aware of the defects, the defendant
had lost his right to rescind as he had affirmed the contract.
Lapse of time

 The right to rescind will be lost after a lapse of time.

 Negligent or fraudulent: time starts to run from discovery of misrepresentation.
 Wholly innocent: time runs from the moment the contract was entered into.
 Leaf v International Galleries [1950] 2 KB 86

The claimant purchased a painting from the defendant. Both parties believed that
the painting was by the artist Constable. Five years later the claimant discovered
the painting was not by Constable and brought an action based on
misrepresentation.

Held: The claimant had lost the right to rescind the contract through lapse of time.
Restitution in original condition
is impossible
 Where it is impossible to restore the parties to their pre-contractual position, e.g.
where the goods have perished or have been consumed, the right to rescind will
be lost.
 Can you see a problem with this limitation?