Contract law Lectures: Misrepresentation

Misrepresentation
Mistake These can be used as claims that the contract is
Duress unenforceable
Undue Influence

If you found your bargain was contaminated it may collapse when tested in a court of law. Contracts came into being because people have made negotiations. These negotiations will consist of statements;
-If one of the parties is given information, that later turns out to be a false statement = misrepresentation.

Voidable à at the point that you make the declaration, your contract does not count.
It is alive and running, but you can avoid it.

Terms of the Contract or ‘mere representations’

Representation à something that was said generally during the preambles/ sale banter
Term à something which Court believes the parties intended to be binding to the contract.
If product does not meet standards promised, it would not be a breach of contract, but misrepresentation. Misrepresentation is not a contractual plane, but a pre-contractual one.

Oscar Chess v Williams
Two parties negotiating sale of car with part exchange.
Williams under the impression that he was trading in a 1948 Morris Car
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However, his car registration model document had been tampered with. He actually had a car worth considerably less (1939 model) He did not realise this.

Car dealer gave far too generous an allowance for the car.
When dealer discovered the truth he sued for breach of contract.
-However, no expressed term in the contract that it was a 1948 model/ so no breach of contract.
à At the time, no remedy for innocent misrepresentation.

The false statement must be a statement of fact one that can be ascertained to be true or false.
1) à Statements of law
2) à Statements of opinion – where a non-expert is speculating. However, statement of someone with experience can be converted from opinion to fact.

Bisset v Wilkinson (1927)
Man owned a farm in N. Zealand.
Wilkinson wanted to buy it and set up a sheep farm. He asked how many ‘sheep could import on this farm’.
Bisset said it could support 2000 sheep (v. optimistic estimate)
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Has an effect upon how the buyer views the price.
Wilkinson tried to sue for breach of contract.
But nothing in the contract about 2000 sheep
à So Wilkinson sued for misrepresentation. Victim of false statement of fact.
Only an opinion from a non- sheep farmer. Had Bisset been a sheep farmer, his statement would have considered highly erroneous.

Esso Petroleum Co Ltd v Mardon (1976)
Mardon wanted to take a lease from Esso.
Put a lot of money into a business plan involving a shop and petrol sales.
-Esso sent an expert to assess the site. The expert specified that some 200,000 gallons of petrol would be sold. In reality this was no way near reality.
-Mardon had a pre-conditional complaint. Contract itself stood, but there had been misrepresentation before hand.
à Court of Appeal took the side of Mardon. An expert’s opinion could be taken as fact.

3) à Statements of Intention
Edgington v Fitzmaurice (1885)
Directors of a company, knowing full well it was in trouble sent a prospectus to the public offering share subscription with a view to company expansion.
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However, the directors would obviously have known that they would have to use any money received to pay off existing debts. If you say that you are planning to do something, when you’re actually planning to do something else, you are misrepresenting.
-State of mind becomes crucial.

Silence
As a misrepresentation of fact.
-Not under an obligation to make a statement. But if you do say something and then fail to say what would follow, you could be in difficulty.

Change of circumstances
With v O’Flanagan (1936)
Doctor selling his practice to another doctor. Information exchanged concerning no. of patients and turnover of the practice. Two parties did not speak to each other between the six months of when the handover was due to take place. During this time the seller became ill and his practice declined considerably. Seller did not tell the buyer.
His silence was a misrepresentation.
-If seller had not given information in January, it would not have been possible to argue silence.

-Confidential/ fiduciary relationships.

Must be Material
False statement of fact must have some kind of significance or bearing on the contract you’re undertaking.
-Objective test adopted by the Court à Would a reasonable person have taken the issue into account?
Would the facts be material to this person about to enter into the contract?
Did they rely on that fact? à their own experience + intelligence is another issue.

JEB Fasteners Ltd v Marks Bloom (1983)
Company being bought out. Purpose to get the directors rather than the company.
-Looking at the accounts/ They were faulty and inaccurate.
Tried to get out of it by arguing that the balance sheet was a misrepresentation.
-Court refused to allow this because they were after the directors and the balance sheet had nothing to do with their true motivations for the purchase of the company.

Reliance
Edgington v Fitzmaurice, above,
Redgrave v Hurd (1881)
Two solicitors discussing possible sale of a practice.
Information- Turnover, client
Seller told he buyer that he check the facts himself.
-When he got the practice, it did not have the client and jobs he had been promised.
Can you claim to have relied on something when you had the chance to check something and you did nothing? But in this case, Court ruled that you do not need to investigate every fact and there had been misrepresentation.

Smith and Bush (1990)
Two first time buyers went to a building society to buy a home. Building society carries out survey for them. Not a full evaluation/ but basic.
à Buyers bought property through Building society and had relied upon the society’s report à survey contained significant errors, buyers would never have taken the house if the report had been accurate.
-Building Soc. + Surveyors argued that the survey was the Societies’ benefit, not the client (even thou, the client paid for the survey and received a copy of the survey).
-Lords said that the consumer had relied upon the BS survey and therefore they won the case. However, the Lords also said that if this had concerned a commercial property, the consumer would have been expected to carry out their own survey.
à Two Tier policy?


Three categories of misrepresentation
-Fraudulent -Innocent -Negligent

Common Law Misrepresentation
Originally at common law, only two types of misrepresentation were recognised:
1) Fraudulent misrepresentation
Derry v Peek (1889)
You could get significant damages and contract might even be rescinded.
2) Innocent Misrepresentation
Oscar Chess v Williams
No evidence that Mr. Williams knew about the misrepresentation à no common law remedy.

Negligent Misrepresentation
a) At Common law
Esso Petroleum Co Ltd v Mardon (1976)
b) Under Statute
Misrepresentation Act 1967, s.2(1) see booklet

In Common law, the burden of proof is upon the claimant. They would need to show that the other party was careless.
In Statute, the other party would need to show that they were careful. The burden of proof would be upon them.

Howard Marine v Ogden (1978)
Parties negotiating for the use of barges- Preamble
Manager of the barge hire said that these barges could take 1600 tonnes.
However, the barges could only carry 1055 tonnes.
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Gap in time
à They bought two barges à when they discovered the truth, they tried to repudiate the contract.
-Manager said that he believed that the each barge could hold 1600 tonnes because he had read it in the Lloyds register à reasonable grounds of belief for a defence?

The actual registration documents of the barge showed the actual tonnage capacity. Had he bothered to check this important document, he would have known the correct answer.