A contract will be voidable where a party was induced by a false statement of fact to enter into the contract.
The Nature of Representation
Statements of opinion
- May give rise to a misrepresentation if it did not represent the true state of mind of mind of the person making the statement, or if the person making the statement ought to to have know better due to her skills and expertise.
- If what is really an opinion is stated as if it was a fact, it will be held to constitute a representation of fact.
Bisset v Wlikinson (1927) AC 127
- Defendant decided to go into sheep-farming and bought approx. 2,300 acres of land from the plaintiff.
- The plaintiff told the defendant that the land would would carry 2,000 sheep.
- Even thought the plaintiff was a farmer he never worked this particular land with sheep.
- The defendants did not manage to work near that number of sheep on the land.
- The defendant alleged misrepresentation and counter claimed rescission when Bisset sued them to recover money payable to him under contract.
- It was held that the plaintiff’s statement was an honest statement of his opinion and that there was no actionable misrepresentation.
Smith v Land & House Property Corporation (1884) 28 Ch D 7
- It was held that there was misrepresentation as the statement about the tenant being desirable was not a statement of opinion as the plaintiff knew that the tenant had fallen behind his rent.
Reese River Silver Mining Co. Ltd v Smith (1869) LR 4 HL 64
- The promoters of a mining company wanted to magnify the future earning capacity of a mine and published forecasts of experts as though they were positive facts.
- This was held to ground an action of misrepresentation.
Statements of intention
Edington v Fitzmurice (1884) 29 Ch D 459
- A company used a circular which invited the public to take out subscriptions for debentures and the circular stated that the money raised would be used to improve the company’s premises and to buy some horses and vans.
- This was untrue as the real intention was to use the money to discharge some debts.
- It was held that the misstatement of the company’s intention was a material misstatement of fact.
- Bowen, LJ, stated: ‘ A misrepresentation as to the state of man’s mind is .. a misstatement of fact.’
Statement of law
A representation as to law will not be generally found an action for misrepresentation.
Silence as Misrepresentation
The general rule is that silence does not constitute misrepresentation.
Turner v Green (1895) 2 Ch 205
- In this case it was held that mere silence as to a material fact which the plaintiff was not bound to disclose could not constitute misrepresentation.
3 circumstance under which silence can be held to constitute a misrepresentation:
- Where silence distorts a positive representation
- In contracts uberrimae fidei
- Where a fiduciary relationship exists between the parties.
1. Where silence distorts a positive representation
Tapp v Lee (1803) 3 Bos. & P. 367
- The plaintiff asked for a reference in respect of a man called Brunell who wished to buy some goods from the plaintiff.
- Lee said that Brunell was honest and that he trusted him.
- He did not disclose the fact that Brunell was bankrupt.
- It was held that what left unsaid had positively falsified what was said and the plaintiff succeeded in his action for misrepresentation.
If the facts change the representor is under a duty to disclose any change of circumstances .
With v O’Flanagan (1936) Ch 575
- Defendant was a doctor who told the plaintiff that his medical practice was worth £2,000 a year.
- The statement was made in Jan. 1934.
- In May 1934, the plaintiff entered a contract to buy the practice.
- Between January and May the defendant had fallen ill.
- By April the practice was earning £5 per week.
- The plaintiff claimed rescission and repayment of the purchase money.
- It was held that the defendants silence with regard to the change in circumstances amounted to a positive misrepresentation.
2. In contracts uberrimaei fidei
Most commonly encountered in respect of insurance contracts, this doctrine requires ” utmost good faith” of the parties making the contract.The party seeking insurance bears a duty of total honesty and must reveal all material of facts.
Keenan v Shield Insurance (1987) I.R. 113
- Failure to disclose a previous claim rendered an insurance contract voidable.
3. Where a fiduciary relationship exists
A fiduciary relationship is one of confidence and trust between 2 parties. E.g. a solicitor and his client.
The nature of the Inducement.
The misrepresentation must have caused the party complaining of the defect to enter into the contract.
A misstatement has no legal effect if the other party:
- was unaware of its existence, or
- knew that it was false,or
- did not allow it to affect his/her judgement.
1) Was unaware of its existence
Horsfall v Thomas (1862) 1 H & C 90
- Thomas employed the plaintiff to make him a gun.
- The plaintiff did make him the gum, but it had a defect. The plaintiff concealed the defect by covering it with a metal plug.
- The defendant never examined the gun. The gun burst after 6 shots had been fired.
- It was held that because the defendant never examined the gun, that the attempt to conceal the defect had not produced any defect on his mind.
2) Knew that it was false
Gahan v Boland (1984) Unreported, Supreme Court
Phelps v White (1881) 5 LR 318
3) Did not allow the representation to affect his/her judgement
Smith v Chadwick (1884) 9 App Cas 187
- A company prospectus contained a statement that a certain important person was on the board of directors.
- The statement was false.
- The plaintiff admitted in questioning that his judgement had not been influenced by this statement.
- It was held that the plaintiff could not avoid the contract on the ground of misrepresentation as he had not been influenced by the misstatement.
Types of misrepresentation
1) Fraudulent misrepresentation
A fraudulent statement is, according to the House of Lords in Derry v Peek (1889) 14 A.C. 337, a false statement ” made (a) knowingly,[with knowledge of its falsity] or (b) without belief in truth, or (c) recklessly as to whether it be true or false”.
Remedies- Rescission and or damages ( for tort of deceit)
2) Negligent misrepresentation
Hedley Byrne & Co. Ltd v Heller Partners Ltd (1964) AC 465
- The plaintiffs entered into advertising contracts on behalf of a third party called Easipower.
- Under the rems of the contract the plaintiff would be liable if Easipower defaulted on the contract.
- They told their bank to check Easipower’s credit with the defendants, Easipower bankers.
- The plaintiff lost a lot of money when Easipower went into liquidation.
- The plaintiff sued the defendants for the negligent report they had been give.
- It was held that the defendants were not liable because of the presence of an exemption clause. However, the court went on to state that if there had been no such clause, an action for negligence could lie in such circumstances.
Remedies
- In contract the innocent party may be entitled to rescission.
- In tort- entitlement to damages if the representation falls within the scope of Hedley Byrne.
- There is a statutory remedy under the Sale of Goods & Supply of Services Act 1980. Part v of the Act deals with misrepresentation and s.45 gives the court discretion to award damages in lieu of rescission for non fraudulent misrepresentation.
3) Innocent misrepresentation
An innocent representation is a false statement of fact made without negligence and with honest belief in its truth.
Bannerman v White (1861) 10 CBNS 844
- The parties were negotiating for the sale of hops.
- The defendant said that he would not take the hops if sulphur had been used in the field where it was grown.
- The plaintiff innocently misrepresented that no sulphur was used.
- The defendant took the hops and discovered that sulphur had in fact been used.
- It was held that the defendant was entitled to rescission in equity.
There is also a statutory remedy for innocent misrepresentation under s.45 of the Sale of Goods & Supply of Services Act 1980, whereby the court has discretion to award damages instead of rescission.
Rescission
When a contract is rescinded, each party is put back to his former position as though the contract never existed. The contract is nullified ab initio. Therefore, rescission will not be granted unless it is possible to restore both parties to their original position.
Whittington v Seale-Hayne (1900) 82 LTR 49
- The plaintiff were induced to take a lease on defendants premises.
- The defendant made an innocent representation that the premises were sanitary.
- In fact it had contaminated water supply.
- Most of the poultry died and the manager and his family became ill.
- The plaintiff claimed rescission of the lease and indemnity to cover rent paid, rates, value of stock lost, loss of profit and sales, loss of breeding season , repair of drains and medical fees.
- It was held that the plaintiffs which were entitled to recover rent, rates and repairs. These were obligations which were created by existing contract. They could not recover the other items since there was no obligation to carry on a poultry farm or to appoint a manager.
The right to rescind a contract may be lost in certain circumstances:
- if the contract is affirmed
- if restitution in integrum is impossible
- if a 3rd party has acquired rights under the contract in good faith and for value
- if there has been lapse of time.
1) If the contract is affirmed
- This is where the innocent party became aware of the misrepresentation but nonetheless continued to act under the contract.
Long v Lloyd (1958) 1 WLR 753
- Lloyd sold a lorry to the plaintiff, stating that it was in exceptional condition.
- Long bought it and after one journey he noticed some defects and informed the defendant.
- Lloyd offered to pay half of the repair cost.
- On the lorry’s second journey it broke down.
- Long sought rescission of the contract.
- It was held that he was not entitled to rescind the contract because the second journey amounted to an affirmation of the contract.
2) Restitutio in Integrum is impossible
If goods have been consumed or property has deteriorated the representee will not be entitled to rescission at common law because the parties cannot be restored to their exact original position. However, where the subject-matter of the contract has merely deteriorated somewhat, rescission is possible on the terms that the representee pay compensation for the deterioration.
3) A 3rd party has acquired rights
- Where goods have been sold to a 3rd party.
- Anderson v Ryan (1967) IR 34
4) Lapse of time
Leaf v International Galleries (1950) 2 K.B. 86
- Rescission was refused because the person discovered five years after purchasing a painting that it was not painted by Constable, as originally claimed.
- The delay in claiming rescission was a factor in the refusal.