Contract Law - Misrepresentation Super Review

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MISREPRESENTATION

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1. The representation must be an unambiguous statement of fact or law
2. It must be addressed to the party misled
3. It must be an inducement to entry into the contract

• POSSIBLY it must also be material
  

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AMBIGUOUS STATEMENT OF FACT OR LAW

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• representor not liable if interpretation is substantially correct and difference between representation and what is actually correct would not have induced reasonable person in position of claimant to enter contract
• Even if representee has correct representation, representor not liable if he HONESTLY believed in truth of his statement
• representor guilty of fraud if makes ambiguous statement intending to bear meaning which to his knowledge is untrue and if the statement is reasonably understood in that sense by representee
  

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STATEMENTS OF OPINION OR BELIEF, MERE PUFFS

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• Mere statement reflect belief or opinion has no legal effect
• Must be positive assertion that fact stated is true
• If person making statement has no knowledge of facts, then inferred it is opinion or belief
• If belief or opinion are within knowledge of person, will taken as statement of fact...this applies when person has honest belief/opinion but is also in position to check facts but fails to do so...implied representation of reasonable grounds for belief/opinion
  
• puffs are so vague as to have no legal effect. Crucial test however is a verifiable fact and so if claim is precise enough, there might be liability (Carlill v Carbolic Smoke)

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Bisset v Wilkinson [1927] [misrepresentation, statement of opinion]

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• C purchased 2 pieces of land from D for purpose of sheep farming; D said he believed land would be suitable for 2000 sheep; C bought land in that belief but both parties knew D had not carried sheep farming on the land and in fact, land would not hold 2000 sheep
• D not liable, his statement nothing more than expression of his opinion on the subject

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Edgington v Fitzmaurice (1885) [misrepresentation, statements of future intention]

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• C was shareholder who received circular issued by directors of company requesting loan with interest to grow their business; however, money was in fact to be used to pay off company's debt, not grow the business; C, who had taken on debentures, claimed repayment of his money on ground it had been obtained from him by misrepresentation
• court held untrue statement as to future intention was a misrepresentation of fact

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Pankhania v Hackney London BC [2002] [misrepresentation, statement of law becomes statement of fact]

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• particulars of commercial property for sale by auction described it as being sold subject to a 'license' which was terminable on 3 months' notice;
• court held that this 'license' was actually a tenancy and protected by statute; buyer had entered into contract to buy property on representation that National Car Parks Ltd had a license that was terminable on 3 months' notice, and successful in claim for damages as a result of misrepresentation; court held had been misrepresentation as to legal character of the 'license'

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With v O'Flanagan [1939] [misrepresentation, change of circumstances]

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• during course of negotiations for sale of medical practice, vendor made representations to purchaser that it was worth £2000 a year; by time contract signed 4 months later, value of practice had declined to only £250 because vendor had been ill
• failure of vendor to disclose state of affairs to the purchaser amounted to misrepresentation; person who knows that statement that was true is now untrue is under an obligation to disclose the change

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Horsefall v Thomas [1862] [claimant must be aware of misrepresentation]

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• buyer of gun did not examine it prior to purchase, defect in gun was concealed
• court held that concealing the defect did not affect C's decision to purchase since he was unaware of misrepresentation he could not have been induced into the contract by it, claim failed

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Attwood v Small [1835] [misrepresentation, reliance]

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• purchasers of a mine were told exaggerated statements as to its earning capacity by vendors; purchasers had these statements checked by their own experts who erroneously reported them as being correct; 6 months after sale complete, C discovered D's statement had been false; sought to rescind contract on basis of misrepresentation
• there was no misrepresentation since purchasers did not rely on representation made by vendor but relied on verification of their own experts

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Derry v Peek (1889) [fraudulent misrepresentation]

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• D were directors of company authorised by statute to run animal power tramways or with consent of BoT with steam power; issued prospectus indicating use of steam power, but BoT refused consent; C acting in reliance upon representation in prospectus had obtained shares in company
• tort of deceit HoL held that in absence of evidence that D believed statement in prospectus to be untrue, had not committed tort of deceit
• MEANING OF FRAUDULENT:
• fraud is proved when it is shown a false representation had been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false

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Hedley 
Byrne 
& 
Co 
Ltd 
v 
Heller 
& 
Partners
 Ltd
[1964]
 [negligent misrepresentation]

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• C was advert agency that asked D bank for reference in respect of one of its clients, which was customer of the bank; bank replied agency could assume client would be able to meet its financial obligations; client was unable to do so
• HoL held negligent statements could attract liability and it would extend to pure economic loss, liability arises IF:

1. D carelessly makes a false statement to the claimant
2. the circumstances are such that it is reasonable to assume the statement will be relied upon
3. there is a special relationship between the parties

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special relationship

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party making the statement:

• has special knowledge or skill in relation to the subject matter of the contract (Harris v Wyre Forest District Council [1988] council was mortgagee, valuation of property, disclaimer challenged by home buyer)
• AND
• can reasonably foresee that the other party will rely upon their statement (Chaudry v Prabhakar [1988] buying a car, claiming to know car is good, car was not good)

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Esso
 Petroleum
 Co 
Ltd 
v 
Marden
 [1976] [negligent misrepresentation]

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• during negotiations for franchise of petrol station, Esso rep said station would sell A LOT annually since it was near major road so Marden contract on this basis; local authority though insisted on particular orientation and location of station to be more on a minor road, sales were much lower, Marden lost all his money, Esso claimed back rent; Marden argued relationship with Esso was special and created duty of care under Hedley Byrne principle
• court held failure to disclose the change in circumstances amounted to negligent misrepresentation under Hedley Byrne

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More misrepresentation cases 1

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• Smith v Land & House Property Corp (1884) Fleck turned out to be a crap tenant in a hotel purchase; A statement of opinion, from a knowledgeable party to one who is not, is a representation. If false, it is actionable. Innocent misrepresentation allows rescission.

• Kleinwort Benson Ltd v Malaysian Mining Corp [1989] comfort letter has no legal effect; The comfort letter referred to company policy at that time, a representation of fact as the policy at the time when the statement was made. There was nothing to stop the company changing its policy, not a promise that they would not change their policy for the future.
  

• East v Maurer (1991) D had falsely represented that he personally would not be working at his other salon. P failed to make a profit, and discovered that D was working full time at his salon.; Damages for deceit should compensate the plaintiff for all losses suffered, including loss of profits that could reasonably have been anticipated.
  

• Notts Patent Brick v Butler [1886] buyer asked seller solicitor if there were any restrictions on land, solicitor said did not know any but in reality just had not bothered to check, literally true but a misrepresentation, there were restrictions, rescission allowed
  

• Jones v Bowden [1813] Seller did not disclose that the goods were not damaged by sea water. Because of the custom of this particular trade, that the seller should disclose this particular type of problem. The buyer can rescind.
  

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More misrepresentation cases 2

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• Clef 
Aquitaine 
SARL
 v 
Laporte 
Materials 

(Barrow)
Ltd 
[2000] C agreed to purchase and distribute S's products in France, on the understanding that the prices at which S were offering the products to C were the lowest available. It later transpired that S had been selling the products to bulk customers in the UK at much lower prices; not necessary for C to show that it had made a loss. It was enough to show that without the fraud it would have entered into a more profitable arrangement; if the misrepresentation had not been made C would have secured a more advantageous arrangement on price; Although it could have been discovered had C made more extensive enquiries, C could not be criticised for failing to do so since it had reasonably assumed that the business relationship was based on trust and openness.
  
• Raiffeissen Zentral Bank Osterricht AG v Royal Bank of Scotland [2010] it was necessary for RZB to show that the alleged representations played a real and substantial part in inducing it to contract, although not necessarily that the representations were the sole inducement. It would not be sufficient, however, if RZB could only show that the representations supported or encouraged RZB in deciding whether to enter into the transaction.
  
• Barton v Armstrong [1976] see previous notes in duress
  
• S Pearson & Son v Dublin Corp (1907)
  
• Redgrave v Hurd (1881) solicitor purchased into a partnership where was told a higher income than actually was; he did not check the books though he was offered...enhanced reliance rather than negated it
  

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More misrepresentation cases 3

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• Polhill v Water (1832) A representor knew his statement was false, but his motive was to benefit his principal, not himself, or to injure anyone else. Despite good motives, this was still deceit.
  
• Angus v Clifford (1891) If a person who makes a false statement entertains a bonâ fide belief that the statement is true, an action of deceit cannot be maintained against him on the ground that he formed his belief carelessly or on insufficient reasons. If he had formed no belief whether the statement was true or false, and made it recklessly without caring whether it was true or false, an action of deceit will lie against him. But not so if he carelessly made the statement without appreciating the importance and significance of the words used, unless indifference to their truth is proved.
  
• Caparo 
Industries 

Plc 
v 
Dickman
 [1990] foreseeable, proximity, fair-just-reasonable; auditors were not aware of the existence of Caparo nor the purpose for which the accounts were being used by them
  
• Smith v Eric Bush (1990) not unreasonable for the purchaser of a modest house to rely on the surveyors' evaluation, as it was such common practice. In this way the court extended Hedley Byrne liability to proximate third parties
  
• James McNaughton Paper Group v Hicks Anderson (1991) statement must be made for a specific purpose, other wise there would be no special realtionship.(1) the purpose for which the statement was made. (2) the purpose for which the statement was communicated . (3) the relationship between the advisor, the advisee and any relevant third party. (4) the size of any class to which the advisee belongs. (5) the state of knowledge of the advisor. (6) reliance by the advisee.'
  
• Henderson v Merrett Syndicates (1995) the Lords reasserted the underlying principle that liability under Hedley Byrne was a voluntary assumption of responsibility for performing the given task by a person rendering professional or quasi-professional services irrespective of whether there was a contractual relationship between the pages...establishes possibility of concurrent liability in tort and contract

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More misrepresentation cases 4

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• Mutual Life and Citizen's Ins v Evatt (1971) plaintiff can’t claim their economic cost loss cause by the negligent misstatement to the defendant. Because the defendant was Insurance Company although they give an advice but the financial advice they had given was not an expert in their professional.
  
• Howard Marine & Dredging v A Ogden & Sons [1978] dredging barge capacity was less than stated in reliable Lloyd's ref book BUT D had not discharged the burden of proof by demonstrating they had reasonable grounds for believing it to be true as they had the registration document which contained the correct capacity and there was no reason why they would have chosen Lloyds register over the registration document.
  
• Oscar Chess v Williams [1957] statement relating to the age of the car was not a term but a representation. The representee, Oscar Chess ltd as a car dealer, had the greater knowledge and would be in a better position to know the age of the manufacture than the defendant.
  
• William Sindall plc v Cambridgheshire cc (1994) seller was not liable for damages for misrepresentation if he had taken reasonable steps to make known to the purchaser what he himself knew...old sewer unknown, found by buyer after purchase also market crash, land value plummeted
  
• Government of Zanzibar v British Aerospace (2000) sale of plane that turned out faulty, it was eventually sold by finance company, Gov tried to sue plane company; contract could not have been rescinded because the plane had been sold. So counter restitution was impossible. It followed that s 2(2) damages were unavailable, because damages are dependent according to the provision's wording on the right to rescission. Damages are available only as a substitute for rescission when the court believes damages are more equitable
  

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More misrepresentation cases 5

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• Doyle v Olby (1969) Doyle, purchased a business from the defendant, Olby, as a result of a several fraudulent misrepresentations relating to the profitability and operations of the business. Mr Doyle could claim for all damage flowing directly from the deceit which was not rendered too remote by Mr Doyle's own conduct, whether or not the defendants could have foreseen such consequential loss. The plaintiff's position before the fraudulent inducement should be compared with his position at the end of the transaction.
  
• Smith New Court Securities v Scrimgeour Vickers (1997) employee of Scrimgeour, Mr Roberts, fraudulently told Smith New Court that there were close rival bids for buying shares in a company that after massive share purchase revealed to be victim of fraud; liable for misrep; (1) the defendant must make reparation from all damage coming directly from the transaction(2) foreseeability is irrelevant(3) the full price paid can be recovered, minus any benefits he received resulting from the transaction(4) a general rule is that benefits include changes in market price, but this is not to be inflexible to prevent full compensation(5) that general rule does not apply when misrepresentation continues to operate after acquisition, inducing the claimant to retain the asset, or the claimant is locked into holding the property(6) consequential loss is recoverable...(7) ...subject to mitigation once fraud is discovered.
  
• Royscott Trust Ltd v Rogerson (1991) D mis-stated particulars of car to C finance company; Damages under s. 2(1) Misrepresentation Act 1967 should be assessed on the basis of damages available in the tort of deceit not general contractual principles. This applies in the absence of fraud. The wording of s.2(1) was clear and not capable of an alternative construction....extent of damages available under s 2(1) for negligent misrepresentation...the appropriate measure of damages was the same as that for common law fraud, or damages for all losses flowing from a misrepresentation, even if unforeseeable.
  
• Downs v Chappell [1997] C purchased bookstore relying on accounts prepared; Had the plaintiff known of the deceit he would not have purchased the business, and therefore damages were to be calculated on that basis.
  
• Whittington v Seale-Hayne [1900] Indemnities can be claimed under English Law for any consequential costs of a contract not turning on an Innocent Misrepresentation (in this case rent and similar). no indemnity if right to rescind is barred
  

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More misrepresentation cases 6

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• Standard Chartered Bank v Pakistan National Shipping Corporation (no.2) [2002]
  
• Gran Gelato Ltd v Richcliff Ltd (1992) A solicitor owes a professional duty of care to the client and no-one else.
  
• Car and Universal Finance Ltd v Caldwell [1961] man was sold stolen car and given fake cheque; took all necessary steps to avoid contract, successfully rescinded; An unequivocal act communicating the wish to rescind a contract can override third party rights. The communication does not need to go to the misrepresentor.
  
• Long v Lloyd [1958] bought truck that turned out crap, he persevered and waited until after 2nd breakdown before claiming for rescission, was barred, taken to have affirmed contract through perseverance
  
• Leaf v International Galleries [1950] Rescission must take place within a reasonable time...painting was not an original; innocent misrep claim succeeded BUT time barred from claim
  
• Clarke v Dickson [1858] could not rescind since shares now worthless
  
• TSB Bank v Camfield [1995] wife thought financial responsibility limited, it was not, bank had failed to to be aware of her rights, she was allowed to rescind, no true consent to charge
  
• De Molestina v Ponton [2002] Recission of part only of an agreement was not possible.