Transcript Chapter 22

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
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