Misrepresentation

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What do you need for there to be a misrepresentati

A representation is a usually a statement which effects a parties chance of entering into contracting obligations. It is not a term of the contract- but nonetheless, effects the parties likelyhood of contracting. A misrepresentation may also however, be a term of the contract.

Requirements to establish a misrepresentation:

1. There must be a false representation- a simple wink, nod of the head or movement could suffice. Silence will not amount to misrepresentation. (Spice Girls v Aprilla World Service- making a commerical for the future made a rep that the girls would still be together. In looking at pre contractual documents- looking at the matter broadly is better than analysing everything word for word.

2. Partial non disclosure and active concelament- Hiding some information may make a MR and willingly knowing something and hinding information can also make MR.

3. Change of facts- For MR, if you see a change of facts and don't tell the other party- you could be liable. 

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What is insufficient for MR?

Insufficency for MR:

  • Opinions- These are normally insufficinet
  • --- Bisset v Wilkinson- The claimant had bought two pieces of land from the defendant in order to sheep farm. In negotations- D said he thought it would be okay for about 2k sheep. Both parties had known the D did not deal with sheep farming in the land. In fact, it couldn't hold 2k sheep. Held: The statement was just an opinion which  D had honestly held so the claim for reccession failed.  --- Simliarily in Economides v Commercial Union Assurance Co- a statement that the cost of replacing the contents of a flat was £16,000 made by a 21 year old student with no special knowledge was held just to be an opinion.
  • However, there can be a claim for actionable misrepresentation where the claim is based on no knowledge whateseover. In Smith v Land and House Property Corporations- L had bought a hotel as an investment at an auction for S, who had stated in the auction that it was particularly to let to the most desriable tenant. However, the tenant was in significant financial difficulty and had paid the last quarters rent by in small amounts under pressure. S claimed for specific performance of the contract and L counter claimed for rescission. H: Statement about the tenant was a MR and L's claim to rescind succesful. 
  • - Puffs do not amount to MR and neither do and--- expression of intention or prediction is also normally insufficient. 
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Requirements for the misrepresentation

  • 1. The misrepresentation must be adressed to the mislead party- the representation must be adressed by the representor or someone else on his behalf to the mislead party.
  • --- Peek v Gurney- the promoters of a company were sued by P who had purchased shares on the faith of false statements contained in a prospectus issued by them. P was not a person to whom shares had been allotted on the first formation of the company- he had  just purchased shares from the alottee. H: The HofL said the prospectus was only adressed to the first applicant for shares, and it was not supposed to extend to others. 
  • 2. The representation must induce the contract- The representatio must 'induce' the person into the contract.  The burden of proof for this rests on the mislead party.
  • -- Inducement is NOT where a reasonable person would not have been induced by the contract. However, a person who was not actually influenced by the contract can't be said to enter the contract because of it. --- Horsfall v Thomas- T bought a canon which had been made for him by H, and the canon had a defect which had made it worthless, which H had tried to conceal by inserting a metal plug into the weak spot in a gun. T had never inspected the gun adn upon using it the gun had burst. H: attempted concealment had no effect on T's mind or conduct so he could not sucesfully plea to fraud. He didn't examine the gun etc. 
  • Oppurtunities for inspection-The right to avoid the contract will not neccesarily deprive the mislead party who have failed to investigate or not. 
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Remedies for MR- recission

1. Right to rescind- This is availaible for all types of misrepresentation. The mislead party can also rescind without seeking the remedies of the court. The representee may also be able to get an 'indemnity' against obligations which have been incurred in favour of 3rd parties under the terms. (Governed by section 2 (2) of Misrepresentation Act 1967 to give damages alongwith recission where the MR was made otherwise than fraudently.  See Newbigg v Adam- N had entered into a patnership with A and gave 10k of the new capital. He was induced to enter the partnership - business failed and N tried to sue for indemnity. H: N entitled for relief- courts less restrictive here. 

Requirements: 1. rescission must be communicated to the other party. It is also accepted that the courts can take all possible steps to regain the goods that they have lost. --- Car and Universal Finance Co- C fraudently induced into selling a car in return for a bad cheque. When he realisedm he informed the police and the company but the purchaser couldn't be found deliberately. The purchaser sold the car to the claimant in good faith. H: CofA- C had rescinded the contract even though he hadn't communicated his rescission to the purchaser. 

- The courts can not award partial recission- TSB Bank v Camfield- said that the right to rescind is that of the representee and not of the court therefore, there is no power to award partial recission 

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Recission 2- Limits on the right to rescind

When there is ....

1. Affirmation- if after becoming aware of the MR the representee affirms the contract by express words or by an act which shows an intention to continue, they won't be able rescind.-- Long v Llyod- Long induced to purchase a lorry by Llyod's representation that it was exceptional and in first class conditions, the lorry broke down twice- once, then Long knew of the defect and carried on. H: Claim to recission failed because the second journey constituted affirmation. 

2. Lapse of time- In certain circumstances, these may bar the right to rescind unless sometimes fraudelent. -- Leaf v Intl. Galleries- L bought from IG a picture of Salibsury Cathedral which IG had innocently showed to him to be purchased by Cathedral. 5 years later on trying to sell it, he discovers that it was not by Constable but his attempt to return the picture had failed because the CofA had held the right to rescind had been lost. 

3. Third party rights- rights are valid against the third party if the contract hasn't been rescinded yet. Rights of creditors become fixed because of being 'bona fide'. 4. The inability to make restitution- you have to be in such a position to rescind to restore both parties to original circum.= This is to stop unjust enrichment. You shouldn't rescind just because the contract was going downhill and then there's a MR. 

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Section 2 (2) MR Act

This section is awarded where sometimes recission could be seen as too drastic in remedy. E.g. a misrep about the milage of a car. 

1. S 2 (2) is unavailiable where recission is barred. E.g in the case of there being a lapse of time, affirmation etc. 

2. The measure of damages- the measure of damages is supposed to be awarded under this section is the loss caused by the MR as a result of the refusal to allow recission of the contract, not the loss caused by entereing into the contract. S 2 (2) was enacted because it was thought it might be a hardship to the representor to be deprived of the whole benefit of the bargain on account of a minor misrepresentation.

- Where misrep is made without reasonable ground for belief in its truth, damages can be claimed under s 2 (1) of the MR act. - the damages under this subsection are more extensive. 

When the MR is innocent but the courts refuse rescission the representee is not entitled to indemnity and damages under s 2 (2). An indemnity is awarded in order to restore the representee to their original position before the contract. An indemnity is apart of the remedy of recission. 

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Limitations removed by the 1967 Act

Before 1967, it was held that there were 2 more limitations on recission which were removed by the MR act. 

1. Executed contracts- for innocent MR, it ws held there could be no recission of a cotnract after it had been executed by the transfer of the property under it. This was an uncertain rule in terms of extent but section 1 (b) of the MR act says a contract is able to be rescinded if it has not been performed. This doesn't effect the other bars to recission and the circumstances in which a court will excericse its discretion under s 2 (2) of the act. 

2. Incorporation of a term- If a misrep is also a term of the contract- it was previously held that the right to rescind was actually lost. It was held tha the contractual term becomes merged with a higher contractual right. S 1 (a) of the 1967 act now says recission is still open even if the MR has become a term of the contract. Rule is that 'once a misrepresentation, always a misrepresentation'. 

The representee must chose between remedies- however, he cannot both rescind the contract for MR and claim damages for breach of a contractual term, since by rescinding it, the contract is effectively set aside. 

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Damages for fraudulent MR

To be awarded in a claim of deceit- the representee must show that the representor made a misrepresentation which was fraudnelenty made and that the representor intended that he or someone is his position should act on this and that he suffered some loss by doing so. 

What does Fraud mean?

- The meaning of fraud was established in Derry v Peek. F: A company had obtained the rights to run trams by animal power, or by steam/mechanical power. The directors hd believed the board would give the consent a matter of course, as they had already submitted plans to the board without any objection, they therefore issued a prospectus saying that the company had the right to run trams by steam or mechanical poweder. Peek took up shares in the company on the faith of the representation and the Board of Trade ultimately refused its consnet and the company was wound up. Peek had tried to sue for tort of deceit, and it was held to suceed in such an action- fraud had to have been proved. 

Lord Herschell had held that: in order to get an action for fraud- there must be proof of fraud, the fruad is proven when there is a false representation that has been made knowingly or without belief in its truth, or recklessely, carless to whether it is true or false. In Derry b Peek- there was an honest belief of a false statement, so his claim failed. --- Elements of fraud must be est at moment when the representee acts on the represenation. 

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How are the measure of damages assessed?

Damafes must be given in order to compensate the victim. 

The measure of damages is loosely based on the decision in Smith New Court Securities Ltd v Citribank- 'suppose a person has been fraudelently induced to buy shares of 24 million when they are in fact, worth 12 mill at the date of the contract. If the representation had been true they would have been worth up to 26th million. The injured party will be able to recover the amount by which it is out of pocket (12 mill) but not for the loss of the bargain (14 mill). 

- The mislead party can recover for consequential damage as well as oppurtunities lost as a result of entering into the contract. 

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Damages for Negligent MR- section 2 (1) MRA 1967

HofL in the decision made in Heilbut Symons Co had said damages in tort could also be given for negligent MR where a duty of care had existed. 

- A claim can also be made if the person is led to believe the other party has specialist knowledge  to the matter. Also, if there is a futy of care to tell the representees about certain things. 

S 2 (1) of the MR ACT:

- This establishes a statutory right to damages. 

- It does not require a proof of fraud. 

- In Howrd Marine adn Dredging Co- the weight of the barges was seen as a MR because HM said it could cary 1,600 tons but the statement was an error. O refused to pay the agreed hire charges and the HM withdrew the barges and sued for the balance due. H: Cod A were challenged to if there was a duty of care in negligence at common law. The majority of the court said the HM wasn't liable under s 2 (1) because it doesn't rely on the representator being under a duty of care to the extent of which may vary depending on the circumstances.

- The satue enforces an absolute obligation to state the facts if the representator can not prove it had reasonable grounds to believe it was true.                                                               

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MORE S 2 (1) Misrepresentation Act 1967

This subsection is narrower than the common law because it only applies in two circumstances...

1. Where a person had entered into a contract after a misrepresentation has been made to that person 

2. the misrepresentation is made by another party to the contract and not by a third party. This means if A enteres int oa contract with B because of a misrep made to B by C, no action will lie under the subection unless C is B's agent, nor will C be liable to A under this provision- though C might be liable of a collateral warranty. 

- S 2 (1) is a general remedy for pre contractual misrepresentations. The effects of this section is to let the representee get a right for to damages for misrepresentation in circumstances in which there would have been such a right had the misrepresentation been fraudelent. 

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Exclusions and Limitations of Liability

Common law- a party is able to limit or to exclude his liability for MR except in cases of personal fraud. There are 2 types of clause which should ne noted. 1. a party may seek to avoid incurring liability by providing that the other party has not relied on any representations made during the negotiations. If there is no reliance, there can be no remedy for MR.

2. When a written contract constitutes the entire agreement between the parties. A CLAUSE DOES NOT EXCLUDE REMEDIES FOR PRE CONTRACTUAL MISREPRESENTATION, IT IS INTERPRESTED AS PROVIDING ONLY THAT THE TOTALITY OF THE PARTIES OBLIGATIONS ARE TO BE FOUND IN THE WRITTEN DOCUMENT.

Statue:

- MR act, Unfair Contract Act, Unfair Terms in Consumer Contracts Regulations Act, Unfair Terms in Consumer Contract Regulations restricts the freedom to exclude the liability for mirespresentation. 

S3  (exclude/restrict)- of the MR act says that (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 availiable to another party to the contract by reason of such a misreprsentation. 

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More on S3

In MRA Act:

- The clause which seeks exclude/limit liability or any remedy for misrepresentation- the clause which wants to exclude or limit liability of any remedy is prima facie, invalid- unless the representator can show that it ws a fair and reasonable term 

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