Misrepresentation
A misrepresentation is a false statement of fact made by one
party to another, which, whilst not being a term of the contract, induces the
other party to enter the contract.
The
effect of an actionable misrepresentation is to make the contract voidable,
giving the innocent party the right to rescind the contract and/or claim
damages.
1.
FALSE STATEMENT OF FACT
An
actionable misrepresentation must be a false statement of fact, not opinion or
future intention or law.
(A)
STATEMENTS OF OPINION
A
false statement of opinion is not a misrepresentation of fact. See:
- Bisset v Wilkinson [1927] AC 177.
However,
where the person giving the statement was in a position to know the true facts
and it can be proved that he could not reasonably have held such a view as a
result, then his opinion will be treated as a statement of fact. See:
- Smith v Land & House Property Corp. (1884)
28 Ch D 7.
Some
expressions of opinion are mere puffs. Thus, in Dimmock v Hallet (1866) 2 Ch
App 21, the description of land as 'fertile and improvable' was held not to
constitute a representation.
(B)
STATEMENTS AS TO THE FUTURE
A
false statement by a person as to what he will do in the future is not a misrepresentation
and will not be binding on a person unless the statement is incorporated into a
contract.
However,
if a person knows that his promise, which has induced another to enter into a
contract, will not in fact be carried out then he will be liable. See:
- Edgington v Fitzmaurice (1885) 29 Ch D 459
- Esso Petroleum v Mardon [1976] QB 801.
(C)
STATEMENTS OF THE LAW
A
false statement as to the law is not actionable misrepresentation because
everyone is presumed to know the law. However, the distinction between fact and
law is not simple. See:
- Solle v Butcher [1950] 1 KB 671.
(D)
SILENCE
Generally,
silence is not a misrepresentation. The effect of the maxim caveat emptor is
that the other party has no duty to disclose problems voluntarily. Thus if one
party is labouring under a misapprehension there is no duty on the other party
to correct it. See:
- Smith v Hughes (1871) LR 6 QB 597.
However,
there are three fundamental exceptions to this rule:
(i) HALF TRUTHS
The
representor must not misleadingly tell only part of the truth. Thus, a
statement that does not present the whole truth may be regarded as a
misrepresentation. See:
- Nottingham Brick & Tile Co. v Butler
(1889) 16 QBD 778.
(ii) STATEMENTS WHICH BECOME FALSE
Where
a statement was true when made out but due to a change of circumstances has
become false by the time it is acted upon, there is a duty to disclose the
truth. See:
- With v O'Flanagan [1936] Ch 575.
(iii) CONTRACTS UBERRIMAE FIDEI
Contracts
uberrimae fidei (contracts of the utmost good faith) impose a duty of
disclosure of all material facts because one party is in a strong position to
know the truth. Examples would include contracts of insurance and family
settlements.
A
material fact is something which would influence a reasonable person in making
the contract. If one party fails to do this, the contract may be avoided. See:
- Lambert v Co-Operative Insurance Society
[1975] 2 Lloyd's Rep 485.
Where
there is a fiduciary relationship between the parties to a contract a duty of
disclosure will arise, eg, solicitor and client, bank manager and client,
trustee and beneficiary, and inter-family agreements.
(E) OTHER REPRESENTATIONS
The
term 'statement' is not to be interpreted too literally:
- In Gordon v Selico Ltd (1986) 278 EG 53, it
was held that painting over dry rot, immediately prior to sale of the property,
was a fraudulent misrepresentation.
- In St Marylebone Property v Payne (1994) 45 EG
156, the use of a photograph taken from the air, printed with arrows
(misleadingly) indicating the extent of land boundaries, was held to convey a
statement of fact (which amounted to actionable misrepresentation).
2.
THE MISREPRESENTATION MUST HAVE INDUCED THE CONTRACT
The
false statement must have induced the representee to enter into the contract.
The requirements here are that (a) the misrepresentation must be material and
(b) it must have been relied on.
(A) MATERIALITY
The
misrepresentation must be material, in the sense that it would have induced a
reasonable person to enter into the contract. However, the rule is not strictly
objective:
In
Museprime Properties v Adhill Properties [1990] 36 EG 114, the judge referred,
with approval, to the view of Goff and Jones: Law of Restitution that, any
misrepresentation which induces a person to enter into a contract should be a
ground for rescission of that contract. If the misrepresentation would have
induced a reasonable person to enter into the contract, then the court will
presume that the representee was so induced, and the onus will be on the
representor to show that the representee did not rely on the misrepresentation
either wholly or in part. If, however, the misrepresentation would not have
induced a reasonable person to contract, the onus will be on the misrepresentee
to show that the misrepresentation induced him to act as he did. See:
- Museprime Properties v Adhill Properties
[1990] 36 EG 114.
(B) RELIANCE
The
representee must have relied on the misrepresentation.
There
will be no reliance if the misrepresentee was unaware of the misrepresentation.
See:
- Horsfall v Thomas [1862] 1 H&C 90.
There
will be no reliance if the representee does not rely on the misrepresentation but
on his own judgment or investigations. See:
- Attwood v Small (1838) 6 CI & F 232.
(Note:
this rule does not apply where the misrepresentation was fraudulent and the
representee was asked to check the accuracy of the statement: Pearson v Dublin
Corp [1907] AC 351.)
There
will be reliance even if the misrepresentee is given an opportunity to discover
the truth but does not take the offer up. The misrepresentation will still be
considered as an inducement. See:
- Redgrave v Hurd (1881) 20 Ch D 1.
There
will be reliance even if the misrepresentation was not the only inducement for
the representee to enter into the contract. See:
- Edgington v Fitzmaurice (above)
3.
TYPES OF MISREPRESENTATION
Once
misrepresentation has been established it is necessary to consider what type of
misrepresentation has been made. There are three types of misrepresentation:
fraudulent, negligent and wholly innocent. The importance of the distinction
lies in the remedies available for each type.
(A) FRAUDULENT MISREPRESENTATION
Fraudulent
misrepresentation was defined by Lord Herschell in Derry v Peek (1889) as a
false statement that is "made (i) knowingly, or (ii) without belief in its
truth, or (iii) recklessly, careless as to whether it be true or false."
Therefore, if someone makes a statement which they honestly believe is true,
then it cannot be fraudulent. See:
- Derry v Peek (1889) 14 App Cas 337.
The
burden of proof is on the plaintiff - he who asserts fraud must prove it.
Tactically, it may be difficult to prove fraud, in the light of Lord
Herschell's requirements.
The
remedy is rescission (subject to exceptions discussed later) and damages in the
tort of deceit (see later).
(B) NEGLIGENT MISREPRESENTATION
This
is a false statement made by a person who had no reasonable grounds for
believing it to be true. There are two possible ways to claim: either under
common law or statute.
(i) NEGLIGENT MISSTATEMENT AT COMMON LAW
The
House of Lords have held that in certain circumstances damages may be
recoverable in tort for negligent misstatement causing financial loss:
- Hedley Byrne v Heller [1964] AC 465.
Success
depends upon proof of a special relationship existing between the parties. Such
a duty can arise in a purely commercial relationship where the representor has
(or purports to have) some special skill or knowledge and knows (or it is
reasonable for him to assume) that the representee will rely on the
representation. See:
- Esso Petroleum v Mardon [1976] (above)
- Williams v Natural Life Health Foods (1998)
TheTimes, May 1.
The
remedies are rescission (subject to exceptions discussed later) and damages in
the tort of negligence (see later).
(ii) NEGLIGENT MISREPRESENTATION
UNDER s2(1) MISREPRESENTATION ACT 1967
Section
2(1) of the Misrepresentation Act 1967 provides:
"Where
a person has entered into a contract after a misrepresentation has been made to
him by another party thereto and as a result thereof he has suffered loss,
then, if the person making the misrepresentation would be liable to damages in
respect thereof had the misrepresentation been made fraudulently, that person
shall be so liable notwithstanding that the misrepresentation was not made
fraudulently unless he proves that he had reasonable ground to believe and did
believe up to the time the contract was made that the facts represented were
true."
This
provision does not require the representee to establish a duty of care and
reverses the burden of proof. Once a party has proved that there has been a
misrepresentation which induced him to enter into the contract, the person
making the misrepresentation will be liable in damages unless he proves he had
reasonable grounds to believe and did believe that the facts represented were
true. This burden may be difficult to discharge as shown in:
- Howard Marine & Dredging Co v Ogden &
Sons [1978] QB 574.
Remedies:
recent case-law has shown that the remedies available are as those available in
fraud unless the representor discharges the burden of proof. In particular,
damages will be based in the tort of deceit rather than the tort of negligence
(see later).
(C) WHOLLY INNOCENT MISREPRESENTATION
This
is a false statement which the person makes honestly believing it to be true.
The
remedy is either
(i) rescission with an indemnity, or
(ii) damages in lieu of rescission under the
courts discretion in s2(2) Misrepresentation Act 1967 (see below).
4. REMEDIES FOR MISREPRESENTATION
Once
an actionable misrepresentation has been established, it is then necessary to
consider the remedies available to the misrepresentee.
(A) RESCISSION
Rescission,
ie setting aside the contract, is possible in all cases of misrepresentation.
The aim of rescission is to put the parties back in their original position, as
though the contract had not been made.
The
injured party may rescind the contract by giving notice to the representor.
However, this is not always necessary as any act indicating repudiation, eg
notifying the authorities, may suffice. See:
- Car & Universal Finance v Caldwell [1965]
1 QB 525.
BARS
TO RESCISSION:
Rescission
is an equitable remedy and is awarded at the discretion of the court. The
injured party may lose the right to rescind in the following four
circumstances:
(i) AFFIRMATION OF THE CONTRACT
The
injured party will affirm the contract if, with full knowledge of the
misrepresentation and of their right to rescind, they expressly state that they
intend to continue with the contract, or if they do an act from which the
intention may be implied. See:
- Long v Lloyd [1958] 1 WLR 753.
Note
that in Peyman v Lanjani [1985] Ch 457, the Court of Appeal held that the
plaintiff had not lost his right to rescind because, knowing of the facts which
afforded this right, he proceeded with the contract, unless he also knew of the
right to rescind. The plaintiff here did not know he had such right. As he did not
know he had such right, he could not be said to have elected to affirm the
contract.
(ii) LAPSE OF TIME
If
the injured party does not take action to rescind within a reasonable time, the
right will be lost.
Where
the misrepresentation is fraudulent, time runs from the time when the fraud
was, or with reasonable diligence could have been discovered. In the case of
non-fraudulent misrepresentation, time runs from the date of the contract, not
the date of discovery of the misrepresentation. See:
Leaf v International Galleries [1950] 2 KB 86.
(iii) RESTITUTION IN INTEGRUM IMPOSSIBLE
The
injured party will lose the right to rescind if substantial restoration is
impossible, ie if the parties cannot be restored to their original position.
See:
Vigers v Pike (1842) 8 CI&F 562.
Precise
restoration is not required and the remedy is still available if substantial
restoration is possible. Thus, deterioration in the value or condition of
property is not a bar to rescission:
Armstrong
v Jackson [1917] 2 KB 822.
(iv) THIRD PARTY ACQUIRES RIGHTS
If
a third party acquires rights in property, in good faith and for value, the
misrepresentee will lose their right to rescind. See: Phillips v Brooks [1919]
2 KB 243 under Mistake.
Thus,
if A obtains goods from B by misrepresentation and sells them to C, who takes
in good faith, B cannot later rescind when he discovers the misrepresentation
in order to recover the goods from C.
(v) NOTE:
The
right to rescind the contract will also be lost if the court exercises its
discretion to award damages in lieu of rescission under s2(2) of the
Misrepresentation Act 1967.
For
innocent misrepresentation two previous bars to rescission were removed by s1
of the Misrepresentation Act 1967: the misrepresentee can rescind despite the
misrepresentation becoming a term of the contract (s1(a)), and the
misrepresentee can rescind even if the contract has been executed (s1(b)).
Generally, this will be relevant to contracts for the sale of land and to
tenancies.
(B)
INDEMNITY
An
order of rescission may be accompanied by the court ordering an indemnity. This
is a money payment by the misrepresentor in respect of expenses necessarily
created in complying with the terms of the contract and is different from
damages. See:
- Whittington v Seale-Hayne (1900) 82 LT 49.
(C) DAMAGES
(i) FRAUDULENT MISREPRESENTATION
The
injured party may claim damages for fraudulent misrepresentation in the tort of
deceit. The purpose of damages is to restore the victim to the position he
occupied before the representation had been made.
The
test of remoteness in deceit is that the injured party may recover for all the
direct loss incurred as a result of the fraudulent misrepresentation,
regardless of foreseeability:
- Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158
- Smith New Court Securities v Scrimgeour
Vickers [1996] 4 All ER 769.
Moreover,
damages may include lost opportunity costs, eg loss of profits. See:
- East v Maurer [1991] 2 All ER 733.
In
Archer v Brown [1984] 2 All ER 267, the court held that the plaintiff was
entitled to aggravated damages in deceit for the distress he had suffered.
The
claimant will not be entitled to recover damages after the date he discovered
the misrepresentation and had an opportunity to avoid further loss:
Downs v Chappell [1996] 3 All ER 344.
(ii) NEGLIGENT MISREPRESENTATION
The
injured party may elect to claim damages for negligent misrepresentation at
common law. The test of remoteness in the tort of negligence is that the
injured party may recover for only reasonably foreseeable loss (Esso Petroleum
v Mardon [1976] QB 801).
Alternatively,
the injured party may claim damages for negligent misrepresentation under s2(1)
of the Misrepresentation Act 1967. This will be the normal course to pursue as
s2(1) reverses the burden of proof. Damages will be assessed on the same basis
as fraudulent misrepresentation rather than the tort of negligence, ie 'direct
consequence' rather than 'reasonable foreseeability'. See:
- Royscott Trust Ltd v Rogerson [1991] 3 WLR 57
(iii) WHOLLY INNOCENT MISREPRESENTATION
In
cases of non-fraudulent misrepresentation, s2(2) of the Misrepresentation Act
1967 gives the court a discretion, where the injured party would be entitled to
rescind, to award damages in lieu of rescission. Damages under s2(2) cannot be
claimed as such; they can only be awarded by the court. Section 2(2) states:
"Where
a person has entered into a contract after a misrepresentation has been made to
him otherwise than fraudulently, and he would be entitled, by reason of the
misrepresentation, to rescind the contract, then, if it is claimed, in any
proceedings arising out of the contract, that the contract ought to be or has
been rescinded the court or arbitrator may declare the contract subsisting and
award damages in lieu of rescission, if of opinion that it would be equitable
to do so, having regard to the nature of the misrepresentation and the loss
that would be caused by it if the contract were upheld, as well as to the loss
that rescission would cause to the other party."
It
is not clear from the above words if the right to damages will be lost if the
representee has lost the right to rescind (See Cheshire & Fifoot, p301-2;
Treitel, p333). According to Thomas Witter v TBP Industries (1996) (below),
this will not be a bar provided the plaintiff had such a right in the past.
It
is not yet clear what the measure of damages is under s2(2):
- According to Treitel (p337) and to Chitty,
damages under s2(2) may be lower than the damages awarded under s2(1). Chitty
suggests the possibility of a special measure to compensate the injured party
for the loss of the right to rescind.
- ·According to Cheshire & Fifoot,
compensation should be limited to an indemnity (p305). This was in substance
the view taken by the High Court in:
- Thomas Witter v TBP Industries [1996] 2 All ER
573.
5.
EXCLUDING LIABILITY FOR MISREPRESENTATION
Any
term of a contract which excludes liability for misrepresentation or restricts
the remedy available is subject to the test of reasonableness. Section 3 of the
Misrepresentation Act 1967, as amended by s8 of UCTA 1977, provides that:
"If
a contract contains a term which would exclude or restrict:
a) any liability to which a party to a contract may be subject by reason of any
misrepresentation made by him before the contract was made; or
b) any remedy available to another party to the contract by reason of such a
misrepresentation,
that term shall be of no effect except insofar as it satisfies the requirement
of reasonableness as stated in s11(1) of the Unfair Contract Terms Act 1977;
and it is for those claiming that the term satisfies that requirement to show
that it does."
(Section
11(1) UCTA 1977 provides that "… the term shall have been a fair and
reasonable one to be included having regard to the circumstances which were, or
ought reasonably to have been, known to or in the contemplation of the parties
when the contract was made.")
Cases Of MisrEpresentation
1. FALSE STATEMENT OF FACT
Bisset v Wilkinson [1927] AC 177
The
plaintiff purchased from the defendant two blocks of land for the purpose of
sheep farming. During negotiations the defendant said that if the place was
worked properly, it would carry 2,000 sheep. The plaintiff bought the place
believing that it would carry 2,000 sheep. Both parties were aware that the
defendant had not carried on sheep-farming on the land. In an action for
misrepresentation, the trial judge said:
"In
ordinary circumstances, any statement made by an owner who has been occupying
his own farm as to its carrying capacity would be regarded as a statement of
fact. … This, however, is not such a case. … In these circumstances … the
defendants were not justified in regarding anything said by the plaintiff as to
the carrying capacity as being anything more than an expression of his opinion
on the subject."
The
Privy Council concurred in this view of the matter, and therefore held that, in
the absence of fraud, the purchaser had no right to rescind the contract.
Smith v Land & House Property Corp (1884)
28 Ch D 7
The
plaintiff put up his hotel for sale stating that it was let to a 'most
desirable tenant'. The defendants agreed to buy the hotel. The tenant was
bankrupt. As a result, the defendants refused to complete the contract and were
sued by the plaintiff for specific performance. The Court of Appeal held that
the plaintiff's statement was not mere opinion, but was one of fact.
Edgington v Fitzmaurice (1885) 29 Ch D 459
The
plaintiff shareholder received a circular issued by the directors requesting
loans to the amount of £25,000 with interest. The circular stated that the
company had bought a lease of a valuable property. Money was needed for
alterations of and additions to the property and to transport fish from the
coast for sale in London. The circular was challenged as being misleading in
certain respects. It was alleged, inter alia, that it was framed in such a way
as to lead to the belief that the debentures would be a charge on the property
of the company, and that the whole object of the issue was to pay off pressing
liabilities of the company, not to complete the alterations, etc. The plaintiff
who had taken debentures, claimed repayment of his money on the ground that it
had been obtained from him by fraudulent mis-statements.
The
Court of Appeal held that the statement of intention was a statement of fact
and amounted to a misrepresentation and that the plaintiff was entitled to
rescind the contract. Although the statement was a promise of intent the court
held that the defendants had no intention of keeping to such intent at the time
they made the statement.
Esso Petroleum v Mardon [1976] QB 801
Esso's
experienced representative told Mardon that Esso estimated that the throughput
of petrol on a certain site would reach 200,000 gallons in the third year of
operation and so persuaded Mardon to enter into a tenancy agreement in April
1963 for three years. Mardon did all that could be expected of him as tenant
but the site was not good enough to achieve a throughput of more than
60,000-70,000 gallons. Mardon lost money and was unable to pay for petrol
supplied. Esso claimed possession of the site and money due. Mardon claimed
damages in respect of the representation alleging that it amounted to (i) a
warranty; and (ii) a negligent misrepresentation.
The
Court of Appeal affirmed the finding of negligence under the principle of
Hedley Byrne v Heller (1964). On the issue of warranty, Lord Denning MR stated:
"…
it was a forecast made by a party, Esso, who had special knowledge and skill.
It was the yardstick (the "e a c") by which they measured the worth
of a filling station. They knew the facts. They knew the traffic in the town.
They knew the throughput of comparable stations. They had much experience and
expertise at their disposal. They were in a much better position than Mr Mardon
to make a forecast. It seems to me that if such a person makes a forecast
-intending that the other should act on it and he does act on it- it can well
be interpreted as a warranty that the forecast is sound and reliable in this
sense that they made it with reasonable care and skill. … If the forecast
turned out to be an unsound forecast, such as no person of skill or experience
should have made, there is a breach of warranty."
Solle v Butcher [1950] 1 KB 671
In
1931 a dwelling house had been converted into five flats. In 1938 Flat No. 1
was let for three years at an annual rent of £140. In 1947 the defendant took a
long lease of the building, intending to repair bomb damage and do substantial
alterations. The plaintiff and defendant discussed the rents to be charged
after the work had been completed. The plaintiff told the defendant that he
could charge £250 for Flat 1. The plaintiff paid rent at £250 per year for some
time and then took proceedings for a declaration that the standard rent was
£140. The defendant contended that the flat had become a new and separate
dwelling by reason of change of identity, and therefore not subject to the Rent
Restriction Acts. This was held to be a statement of fact. (Note: this is a
case on Mistake.)
Smith v Hughes (1871) LR 6 QB 597
The
plaintiff farmer asked the manager of the defendant, who was a trainer of
racehorses, if he would like to buy some oats, and showed him a sample. The
manager wrote to say that he would take the whole quantity. The plaintiff
delivered a portion of them. The defendant complained that the oats were new
oats, whereas he thought he was buying old oats, new oats being useless to him.
The plaintiff, who knew that the oats were new, refused to take them back and
sued for the price. There was a conflict of evidence as to what took place
between the plaintiff and the manager. The court ordered a new trial. Blackburn
J stated:
"…
on the sale of a specific article, unless there be a warranty making it part of
the bargain that it possesses some particular quality, the purchaser must take
the article he has bought, though it does not possess that quality. And I agree
that, even if the vendor was aware that the purchaser thought that the article
possessed that quality, and would not have entered into the contract unless he
had so thought, still the purchaser is bound, unless the vendor was guilty of
some fraud or deceit upon him. A mere abstinence from disabusing the purchaser
of that impression is not fraud or deceit, for, whatever may be the case in a
court of morals, there is no legal obligation on the vendor to inform the
purchaser that he is under a mistake which has not been induced by the act of
the vendor."
Nottingham Brick & Tile Co v Butler (1889)
16 QBD 778
The
buyer of land asked the seller's solicitor if there were any restrictive
covenants on the land and the solicitor said he did not know of any. He did not
say that he had not bothered to read the documents. The court held that even
though the statement was literally true it was a misrepresentation. There were
restrictive covenants and the contract could be rescinded.
With v O'Flanagan [1936] Ch 575
During
the course of negotiations for the sale of a medical practice, the vendor made
representations to the purchaser that it was worth £2000 a year. By the time
when the contract was signed, they were untrue. The value of the practice had
declined in the meantime (to £250) because of the vendor's inability to attend
to it through illness. Lord Wright MR quoted:
"So
again, if a statement has been made which is true at the time, but which during
the course of negotiations becomes untrue, then the person who knows that it
has become untrue is under an obligation to disclose to the other the change of
circumstances."
Therefore,
the failure of the vendor to disclose the state of affairs to the purchaser
amounted to a misrepresentation.
Lambert v Co-Operative Insurance [1975] 2
Lloyd's Rep 485
In
1963 Mrs Lambert signed a proposal form for an insurance policy to cover her
own and her husband's jewellery. No questions were asked about previous
convictions and Mrs L gave no information about them. She knew that her husband
had been convicted some years earlier of stealing cigarettes and fined £25. The
company issued a policy providing that it should be void if there was an
omission to state any fact material to the risk. The policy was renewed from
year to year. In 1971 the husband was convicted of conspiracy to steal and
theft and sentenced to 15 months imprisonment. Mrs L knew of the conviction but
did not disclose it and the policy was renewed. In 1972, seven items of the
insured jewellery, valued at £311, were lost or stolen.
Mrs
L's claim was repudiated on the grounds that she had failed to disclose her
husband's first and second convictions. The judge dismissed the wife's claim on
the ground that the 1971 conviction was a material fact and that a prudent
insurer, knowing of it, would not have continued the risk. This decision was
upheld by the Court of Appeal.
2.
THE MISREPRESENTATION MUST HAVE INDUCED THE CONTRACT
Museprime Properties v Adhill Properties
[1990] 36 EG 114
In
a sale by auction of three properties the particulars wrongly represented the
rents from the properties as being open to negotiation. The statements in the
auction particulars and made later by the auctioneer misrepresented the
position with regard to rent reviews. In fact, on two of the three properties
rent reviews had been triggered and new rents agreed. The plaintiff company
successfully bid for the three properties and discovered the true situation.
They commenced an action for rescission. The defendant company countered with
the defence that the misrepresentations were not such as to induce any
reasonable person to enter into the contract.
It
was held that the plaintiff's had established, and indeed that the defendants
conceded, that misrepresentation had occurred and any misrepresentation is a
ground for rescission. The judge referred, with approval, to the view of Goff
and Jones: Law of Restitution (see Lecture p2-3), that the question whether
representations would have induced a reasonable person to enter into a contract
was relevant only to the onus of proof. Here the plaintiffs had established
their claim to rescission of the contract on the ground of material
misrepresentation because the inaccurate statements had induced them to buy the
properties. They would therefore be awarded the return of their deposit,
damages in respect of lost conveyancing expenses and interest.
Horsfall v Thomas [1862] 1 H&C 90
The
buyer of a gun did not examine it prior to purchase. It was held that the
concealment of a defect in the gun did not affect his decision to purchase as,
since he was unaware of the misrepresentation, he could not have been induced
into the contract by it. His action thus failed.
Attwood v Small (1838) 6 CI&F 232
The
purchasers of a mine were told exaggerated statements as to its earning
capacity by the vendors. The purchasers had these statements checked by their
own expert agents, who in error reported them as correct. Six months after the
sale was complete the plaintiffs found the defendant's statement had been
inaccurate and they sought to rescind on the ground of misrepresentation. It
was held in the House of Lords that there was no misrepresentation, and that
the purchaser did not rely on the representations.
Redgrave v Hurd (1881) 20 Ch D 1
The
plaintiff solicitor advertised for a partner who would also purchase his
residence. The Defendant replied and during two interviews, the plaintiff
represented that his business was bringing in either about £300 a year, or from
£300-£400 a year. At a third interview the plaintiff produced summaries of
business done, which showed gross receipts below £200 a year. The defendant
asked how the difference was made up and the plaintiff produced a quantity of
letters and papers which, he stated, related to other business which he had
done. The defendant did not examine the books and papers thus produced, but
only looked cursorily at them, and ultimately agreed to purchase the house and
take a share in the business for £1,600. The trial judge came to the conclusion
that the letters and papers, if examined, would have shown business of only £5
or £6 a year. Finding that the practice was utterly worthless, the defendant
refused to complete the contract, and the plaintiff brought an action for
specific performance. The Court of Appeal gave judgment for the defendant. Lord
Jessel MR stated:
"If
a man is induced to enter into a contract by a false representation it is not a
sufficient answer to him to say, "If you had used due diligence you would
have found out that the statement was untrue. You had a means afforded to you
of discovering its falsity, and did not choose to avail yourself of them."
I take it to be a settled doctrine of equity, not only as regards specific
performance but also as regards rescission, that this is not an answer unless
there is such delay as constitutes a defence under the Statute of Limitations.
That, of course, is quite a different thing."
Edgington v Fitzmaurice (1885) 29 Ch D 459
For
full facts, see above. The plaintiff was induced to lend money to a company by
(a) the statement of intent, and (b) his mistaken belief that he would have a
charge on the assets of the company. He was able to claim damages for deceit
even though he admitted that he would not have lent the money, had he not held
this mistaken belief.
3.
TYPES OF MISREPRESENTATION
Derry v Peek (1889) 14 App Cas 337
A
special Act incorporating a tramway company provided that the carriages might
be moved by animal power and, with the consent of the Board of Trade, by steam
power. The directors issued a prospectus containing a statement that by this
special Act the company had the right to use steam instead of horses. The
plaintiff bought shares on the strength of this statement. The Board of Trade
refused to consent to the use of steam and the company was wound up. The
plaintiff brought an action for deceit.
It
was held by the House of Lords that in an action for deceit, it is not enough
to establish misrepresentation alone; something more must be proved to cast
liability on the defendant. There is an essential difference between the case
where the defendant honestly believes in the truth of a statement although he
is careless, and where he is careless with no such honest belief. Fraud is
established where it is proved that a false statement is made: (a) knowingly;
or (b) without belief in its truth; or (c) recklessly, careless as to whether
it be true or false. If fraud is proved, the motive of the person making the
statement is irrelevant. It matters not that there was no intention to cheat or
injure the person to whom the statement was made. The defendants were not
fraudulent in this case. They made a careless statement but they honestly
believed in its truth.
Hedley Byrne v Heller [1964] AC 465
Hedley
Byrne were a firm of advertising agents. They intended to advertise on behalf
of Easypower Ltd. They wanted to know if Easypower were creditworthy, and asked
their bank, the national Provincial, to find out. The National Provincial got
in touch with Easypower's bankers, Heller & Partners. Heller told the
National Provincial, "in confidence and without responsibility on our
part," that Easypower were good for £100,000 per annum on advertising
contracts. Hedley Byrne relied on this statement in placing orders on behalf of
Easypower and, as a result, lost more than £17,000 when Easypower went into
liquidation. They sought to recover this loss as damages.
In
the House of Lords, Lord Pearce stated that a man may come under a special duty
to exercise care in giving information or advice. Whether such a duty has been
assumed must depend on the relationship of the parties. Was there such a
special relationship in the present case as to impose on Heller a duty of care
to Hedley Byrne as the undisclosed principals for whom National Provincial was
making the inquiry? The answer to that question depends on the circumstances of
the transaction. A most important circumstance is the form of the inquiry and
of the answer. Both were plainly stated to be without liability. The words clearly
prevented a special relationship from arising.
Williams v Natural Life Health Foods Ltd
(1998) The Times, May 1.
See
Law Report.
Howard Marine v Ogden [1978] QB 574
The
defendants wished to hire two barges from the plaintiffs. The plaintiffs quoted
a price for the hire in a letter. At a meeting, the defendants asked about the
carrying capacity of the barges. The plaintiffs' representative replied it was
about 1,600 tonnes. The answer was given honestly but was wrong. It was based
on the representative's recollection of the deadweight figure given in Lloyd's
Register of 1,800 tonnes. The correct figure, 1,195 tonnes, appeared in
shipping documents which the representative had seen, but had forgotten.
Because of their limited carrying capacity, the defendant's work was held up.
They refused to pay the hire charges. The plaintiffs sued for the hire charges
and the defendants counter-claimed damages.
By
a majority, the Court of Appeal found the plaintiffs liable under s2(1) as the
evidence adduced by the plaintiffs was not sufficient to show that their
representative had an objectively reasonable ground for disregarding the
carrying capacity figure given in the shipping document and preferring the
figure in Lloyd's Register.
4.
REMEDIES FOR MISREPRESENTATION
(A)
RESCISSION
Car & Universal Finance v Caldwell [1965]
1 QB 525
Caldwell
sold his car to Norris. The cheque was dishonoured when it was presented the
next day. He immediately informed the police and the Automoblie Association of
the fraudulent transaction. Subsequently Norris sold the car to X who sold it
to Y who sold it to Z who sold it to the plaintiffs. In interpleader
proceedings one of the issues to be tried was whether the defendant's conduct
and representations amounted to a rescission of the contract of sale. It was
held that the contract was voidable because of the fraudulent misrepresentation
and the owner had done everything he could in the circumstances to avoid the
contract. As it had been avoided before the sale to the third party, no title was
passed to them and the owner could reclaim the car.
Long v Lloyd [1958] 1 WLR 753
The
defendant advertised for sale a lorry as being in 'exceptional condition' and
he told the plaintiff purchaser that it did 11 miles to the gallon and, after a
trial run, all that was wrong with the vehicle. The plaintiff purchase the
lorry and, two days later, on a short run, further faults developed and the
plaintiff noticed that it did only about 5 miles to the gallon. That evening he
reported these things to the defendant and the plaintiff accepted the
defendant's offer to pay for some of the repairs. The next day the lorry set
out on a longer journey and broke down. The plaintiff wrote to the defendant
asking for the return of his money. The lorry had not been in a roadworthy
condition, but the defendant's representations concerning it had been honestly
made. The Court of Appeal held that the plaintiff was not entitled to
rescission of the contract as he had finally accepted the lorry before he had
purported to rescind. The second journey amounted to affirmation of the
contract.
Leaf v International Galleries [1950] 2 KB 86
The
plaintiff bought a painting after an innocent misrepresentation was made to him
that it was by 'J. Constable'. He did not discover this until five years later
and claimed rescission immediately. The Court of Appeal held that the plaintiff
had lost his right to rescind after such a period of time. His only remedy
after that length of time was for damages only, a claim which he had not
brought before the court.
Vigers v Pike (1842) 8 CI&F 562
A
lease of a mine which had been entered into as a result of a misrepresentation
could not be rescinded as there had been considerable extraction of minerals
since the date of the contract.
Armstrong v Jackson [1917] 2 KB 822
A
broker purported to buy shares for a client, but in fact sold his own shares to
the client. Five years later, when the shares had fallen in value from nearly
£3 to 5s, it was held that the client could rescind on account of the broker's
breach of duty. He still had the identical shares and was able to return them,
together with the dividends he had received. McCardie J. said:
"It
is only … where the plaintiff has sustained loss by the inferiority of the
subject-matter or a substantial fall in its value that he will desire to exert
his power of rescission … If mere deterioration of the subject-matter negatived
the right to rescind, the doctrine of rescission would become a vain
thing."
(B)
INDEMNITY
Whittington v Seale-Hayne (1900) 82 LT 49
The
plaintiffs bred poultry and were induced to enter into a lease of property
belonging to the defendants by an oral representation that the premises were in
a sanitary condition. In fact the water supply was poisoned and the manager
fell ill and the stock died. The terms of the lease required the plaintiffs to
pay rent to the defendants and rates to the local authority and they were also
obliged to make certain repairs ordered by the local council.
Farwell
J rescinded the lease, and, following the judgment of Bowen LJ in Newbigging v
Adam (1886) 34 Ch D 582, held that the plaintiffs could recover the rents,
rates and repairs under the covenants in the lease but nothing more. They could
not recover removal expenses and consequential loss (ie, loss of profits, value
of lost stock and medical expenses) as these did not arise from obligations
imposed by the lease (the contract did not require the farm to be used as a
poultry farm). Had they been awarded, they would have amounted to an award of
damages (ie, expenses resulting from the running of the poultry farm).
(C)
DAMAGES
Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158
After
buying an ironmonger's business, things turned out to be very different from
what the vendors had led the plaintiff to believe. He was awarded damages for
fraudulent misrepresentations and the appeal concerned, among other things, the
measure of damages. Lord Denning MR said that: "The defendant is bound to
make reparation for all the actual damage directly flowing from the fraudulent
inducement … It does not lie in the mouth of the fraudulent person to say that
they could not have been reasonably foreseen."
East v Maurer [1991] 2 All ER 733
The
defendant who owned two hair salons agreed to sell one to the plaintiffs. They
were induced to buy, in part by a representation from the defendant that he
hoped in future to work abroad and that he did not intend to work in the second
salon. In fact, the defendant continued to work at the second salon and many of
his clients followed him. The result of this was that the plaintiffs saw a
steady fall-off in business and never made a profit. They were finally forced
to sell for considerably less than they paid. The court at first instance found
that the defendant's representations were false. The defendant appealed on the
assessment of the award of damages.
The
Court of Appeal held that the proper approach was to assess the profit the
plaintiff might have made had the defendant not made the representation(s).
'Reparation for all actual damage' as indicated by Lord Denning in Doyle v Olby
would include loss of profits. The assessment of profits was however, to be on
a tortious basis, that is, placing the plaintiff in the same position he would
have been in, had the wrong not been committed.
The
plaintiff could recover damages in respect of another such business in which he
would have invested his money if the representation had been made, but not the
profits which he would have made out of the defendant's business, if the
representation relating to it had been true. (Note: the damages were reduced by
one-third, from £15,000 to £10,000).
Royscott Trust Ltd v Rogerson [1991] 3 WLR 57
A
car dealer induced a finance company to enter into a hire-purchase agreement by
mistakenly misrepresenting the amount of the deposit paid by the customer, who
later defaulted and sold the car to a third party. The finance company sued the
car dealer for innocent misrepresentation and claimed damages under s2(1).
The
Court of Appeal held that the dealer was liable to the finance company under
s2(1) for the balance due under the agreement plus interest on the ground that
the plain words of the subsection required the court to apply the deceit rule.
Under this rule the dealer was liable for all the losses suffered by the
finance company even if those losses were unforeseeable, provided that they
were not otherwise too remote. It was in any event a foreseeable event that a
customer buying a car on HP might dishonestly sell the car.