GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL Chapter 22 Misrepresentation.

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Chapter 22

Misrepresentation

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• Already looked at when “representations” may become terms of a contract

• Now have to look, in a wider sense, at the effect on contracts of misrepresentation in the tortious sense.

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• A representation is a statement of a material fact (or sometimes an opinion) made by one party to another during negotiations intended to and actually inducing the other to enter into the contract.

• If it is false, it is a misrepresentation

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• It has to be a statement. But sometimes silence can be a statement in certain circumstances. This is usually rare but can occur in three ways.

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• First, if there is a failure to inform of changed circumstances this can count. So, in With v O’Flanagan (1936) a doctor stated in negotiation that his practice pulled in £2,000 a year, but failed later to inform the potential purchaser when he later got sick, this dropped to £5!

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• Second, if the contact requires utmost good faith disclosure, silence can be a misrepresentation (such as insurance contracts).

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• Third, a half-truth can be misrepresentation such as putting beauty board up to hide damp. In Nottingham Patent Brick and Tile Co v Butler (1886) a solicitor said he was not aware of any restrictive covenants affecting a particular piece of land. He didn’t say he had just not read the title documents and this counted as a misrepresentation!

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• Usually need a statement of fact

• Opinion can count if person making it is in the best position to form an opinion– Esso Petroleum v Marsden

• Oil Co rep told propspective garage owner about expected sales levels of a location

• Actionable – represented that this was being done with skill and care in calculating the figure

• Had he said it was a guess, would be different.

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• Bissett v Wilkinson– Rep that land would take 2000 sheep– Not actionable– Made it clear was his opinion only– Pr aware Vr had no special knowledge or skill

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Statements of Intention

• Can a statement of future intention be a statement?

• Edington v Fitzmaurice (addition)– Prospectus stated its object of issuing debentures

was to complete alterations to buildings.– Not true – D claimed this was only a statement of

intention, not of fact and only the intention was not carried out

– CA rejected – Bowen LJ• “A misrepresentation as to the state of a man’s mind is…a

misstatement of fact”

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The Seaflower (addition)

• Owners of ship said they would obtain approval of a particular oil company within 60 days.

• Charterers of ship claimed this a misrep – should have known (or did know) they wouldn’t get the approval.

• Ct held that this was just a statement of intention, not fact…

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• Must INDUCE party to enter the K so if you don’t rely on it, no claim.– Attwood v Small – statement about potential of mine

wrong, but buyer had commissioned his own survey…

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The Kinds of Misrepresentation• An innocent misrepresentation is one that

is neither negligent nor fraudulent.

• A fraudulent misrepresentation is one that is made knowing it is false or made recklessly as to whether it is true or false. Can get damages in tort in deceit

• A negligent misrepresentation is one made without reasonable grounds for the belief. Can get damages on Hedley Byrne

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Consequences - Recission

• May be able to set aside contract for misrep – purely discretionary as equitable

• When can you rescind for misrep?

• It depends on whether the misrep is innocent or fraudulent/negligent.

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If Innocent

• Contract must not yet have been executed• Legge v Croker

– Sale of land – said no public right of way – wrong– Emerged after sale completed – therefore contract

executed – could not rescind– Sale of Goods Act, 1980 limits this rule – s.44….

• This rule does not apply if misrep is not innocent – but the rest of the rules apply even if it is innocent….

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If Fraudulent or Negligent

• Don’t have the rule that cannot operate if contract executed…

• Affirmation– Learn of the misrep, and proceed on – taken

to have affirmed the K– Re Hop and Malt Exchange and Warehouse

Co• Bought shares – misleading prospectus – learned

of it – continued to deal with shares – taken to hav treated K as subsisting

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• Delay– Leaf v International Galleries

• Innocent misrep about artist and painting• Sought rescission 5 years later – lapse of time

made it inequitable to rescind

– May be different if F or N Misrep• O’Kelly v Glenny

– Solicitor lied about value of estate – heiress sold it– 10 years later – sued for R – had transaction set aside

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• Effect on Third Parties– If it would effect a bona fide third party who

purchased for full value?– White v Garden

• D sold iron to A – A resold to P – A paid by forged bill of exchange – D seized iron in P’s possession

• Clear F misrep – rescind K? No…effect of recission would have been to deny P the ownership of goods it got in good faith and for full value

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If not possible

• If it is impossible to restore parties to original position – wont get R

• Vigers v Pike– Subject was a mine – Rec sought when the

mine was fully worked out.– Could not be restored to pre-K positions.

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Recision and the SOGASOSA, 1980

• Rule – innocent mispre gives no right to recission where contract executed– S.44, 1980 – K for sale of letting or HP of

goods or services – can sue on innocent misrep for recission even though K has been performed.

– You need to show the misrep was a term of the K though – i.e. Oscar Chess etc.

– Quite limited – court may allow K to subsist and order payment of monies etc

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Misrep and Disclosure

• The idea here is that in some cases silence (i.e. failing to say something) can amount to a misrep – which may entitle one to recission.

• Simple logic – you don’t say something, your silence intimates that the “something” doesn’t exist

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• Silence can be misrep if the K is one which required uberrimae fides – duty to disclose in such cases

• Insurance is the big deal here• Principle – insurer knows nothing, insured knows

everything…should disclose it all• If you don’t, Ins can avoid K – pay back premia• Rule set out in Carter v Boehm – all material

facts to be disclosed• Sometimes statute intervenes