Types of Misrepresantation in Law

Question TMA 2

The case study preferred to Shahida, a fashion designer, who is in dispute with a local art gallery, Benjamin’s Looking Glass. The dispute is about Shahida taking legal action against the art gallery for selling her a wrong piece of painting, due to misrepresentation from the sales assistant. The case study has shed light on the nature of misrepresentation on a contract in order to determine the possible legal actions and what remedy that may be available for Shahida.

Misrepresentation is relating to many aspects in English law, both in contract and tort with a view to give an adequate judgement.Misrepresentation is a not a term of contract but a false statement of fact that induces the representee to enter into the contract and it must have been relied on. The types of actionable misrepresentation is determine by the state of mind of the representor if it was made innocently, negligently or fraudulently. However the fallout of misrepresentation on a contract is less serious compare with a mistake, one is voidable and the other is not void.

In most circumstances, the court will able to point out the existence of misrepresentation on basis of conduct made by representor hence the contract could be rescinded. In Curtis v Chemical Cleaning [1951] 1 KB 805, Lord Denning stated ’any behaviour, by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other...if it conveys a false impression, that is enough’.

There are three elements in the expression of representation. To begin with, there must be a statement, the statement of specific existing and verifiable fact or past event and the statement must induce the contract. Silence or non-disclosure has no effect if it does not relevant to the conditions of the contract or being unknown to the third party .For instance, in Fletcher v Krell [1873] 42 LJ QB 55. The person who applied for the job of governess did not need to disclose the fact that she had previously been married thus remained silent. An actionable misrepresentation must be a false statement of fact, not an opinion, future intention or law.

False statement of opinion is not a misrepresentation of fact. In Bisset v Wilkson [1927] AC 177 Privy Council, the claimant asked defendant for a statement of opinion even though defendant has no sufficient knowledge to give an accurate answer. So therefore the council held it was not an actionable misrepresentation.

A false statement by a person as what will happen in the future is not classify as a misrepresentation and will not be legally valid unless the statement is included into the contract. Then the statement will be considered as a promise if it has induced another to enter into a contract. Edgington v Fitzmaurice [1885] 29 Ch D 459, held it was an actionable misrepresentation as the defendant was in the position to carry out his statement of promise for the future.

A false statement as to the law will be not considered as actionable misrepresentation. Base on the fact that everyone is presumed to know the law. Solle v Butcher [1950] 1 KB 671.

Once misrepresentation has been entrenched it is necessary to consider what types of actionable misrepresentation has been made. The importance of the distinction depend on the remedies available.

Fraudulent misrepresentation was defined by Lord Herschell in Derry v Peek [1889] 5 T.L.R. 625 ’as a statement which is made either knowing it to be false, without belief in it truth or recklessly, careless as to whether it be true or false’. Therefore, if the defendant made a statement which they honestly believe is true then it cannot be a fraudulent. In Derry v Peek, the statement was made in the honest belief that approval to use steam powered trams was forthcoming. So therefore the burden of proof is on the claimant.

Negligent misrepresentation is a false statement made by a person who had no reasonable ground to believing their statement to be true. 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 [1994] AC 465

Success depends upon proof of special relationship existing between the parties. Such a duty can arise in a purely a 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.

Williams v Natural Life Health Foods [1998] The Times, May 1

The remedies are rescission and damages in the tort of negligence.

Section 2(1) of the Misrepresentation Act 1967 provides:

“When 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 misrepresentation was not made unless he proves that he had reasonable ground to believe and did believe up to the time the contract made that the fact 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 fact 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.

Totally Innocent misrepresentation

This is a false statement which the person makes honestly believing it to be true.

The remedy is either

• Rescission with an indemnity
• Damages in lieu of rescission under the courts discretion in s2(2) Misrepresentation Act 1967

Remedies for misrepresentation

Once an actionable misrepresentation has been established, it is then necessary to consider the remedies available to the misrepresentee.

Rescission

Rescission, I.e. 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, e.g. notifying the authorities, may suffice.

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:

Affirmation of the contract

The injured party will affirm the contract if, with full knowledge of the mirepresentation and of their 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, he could not be said to hav elected to affirm the contract.

Lapse of time

If the injured party does not take action rescing within a reasonable, 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 misrepresention, time runs from the date of the contract, not the date of discovery of the misrepresentation.

Leaf v International Galleries [1950] 2 KB 86.

Resitution 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.

Viger 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

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.

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.

Note

The right to rescing the contract will also be lost if the court exercises its discretion award damages in lieu of rescission under s2(2) of the Misrepresenation Act 1967.

For innocent misrepresentation two previous bar to rescission were removed by s1 of the Misrepresentation Act 1967: the misrepresentatee can rescind despite the misrepresentation becoming a term of the contract (s1(a)), and the misreprentee 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.

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 complaying with the terms of the contract and is different from damages.

Whittington v Seale-Hayne [1900] 82 LT 49

Damages

Fraudulent misrepresentation

The injured party may claim damages for fraudulent misrepresentation in the tot 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 indeceit is that the injured party may recover for all the direct loss incurred as a result of thr fraudulent misrepresentation, regardless of foreseeability:

Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158

Moreover, damages may include lost opportunity cost, eg loss of profits.

Excluding liability of misrepresentation

Any term of a contract which excludes liability for misrepresention 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; 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 the reasonable ness 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.”