Contract Law 7 PowerPoint

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This lecture continues the discussion of some
of the leading cases on misrepresentation.
It then goes on to look at:
firstly, the 3 main types of misrepresentation
and
secondly, remedies for misrepresentation.
Smith v Land & House Property
Corporation 1885
Esso Petroleum Co Ltd v Mardon 1976
Edgington v Fitzmaurice 1885
Lord Denning MR stated that:
‘… it was a forecast made by a party
…Esso…who had special knowledge and skill…
They were in a much better position than Mr
Mardon to make a forecast…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…It is very different from the
New Zealand case (Bisset v Wilkinson) where the
land had never been used as a sheep farm and
both parties were equally able to form an opinion
as to its carrying capacity.’
Solle v Butcher 1950
If someone makes a statement of law
that is not abstract but directed towards
a particular set of facts, then it may be
actionable as a misrepresentation due
to the part of the statement that relates
to facts.
Horsfall v Thomas 1862
The person wishing to sell a gun hid a
serious defect in it by inserting a metal plug in
it to hide it. This was representation by
conduct. But could it be actionable for
misrepresentation? The court said it was not
because the purchaser of the gun had not
inspected the gun and so could not be said to
have been induced to enter the contract BY
the misrepresentation.
Museprime Properties Ltd v
Adhill Properties Ltd 1990
‘A representation is material if it is
something that induces the person to
whom it is made, whether solely or in
conjunction with other inducements, to
contract on the terms on which he does
contract.’
Attwood v Small 1838
The House of Lords held that there was no
misrepresentation since the purchaser had
relied on his own experts and not on that of
the seller, thus they were NOT INDUCED to
enter the contract by the valuation given by
the seller.
Redgrave v Hurd 1881
The trial judge had said that either Hurd did
not rely on the statement about the extra
£100 or that if he did rely on it then his own
negligence in looking at the papers only
fleetingly lost him his cause of action.
Jessel MR said that this point about
negligence was a totally wrong opinion not
correct in law.
The types of misrepresentation
Before 1964 there were 2 types of
misrepresentation, both common law types, that
is:
- Fraudulent misrepresentation, and
- Innocent misrepresentation.
]
After 1964 two more types were added, that is:
- At common law – negligent misstatement, and
- In statutory form – negligent misrepresentation
under s 2(1) Misrepresentation Act 1967
Fraudulent misrepresentation
In Derry v Peek 1889 in the House of Lords,
Lord Herschell stated that fraudulent
misrepresentation required proof that:
a false representation had been made
- knowingly
- without belief in its truth
- or recklessly or carelessly as to whether it
was true or not
Innocent misrepresentation
Where the misrepresentor had made an
innocent statement of false fact, then
although the misrepresentee may take him to
court, the usual remedy for innocent
misrepresentation is rescission of the
contract, that is, setting it aside. The
misrepresentee has no right to damages as
such, but, the court may award damages in
its discretion under the Misrepresentation Act
1967.
Negligent
Misrepresentation
This is really an action in negligence, so does
NOT need a contract to exist to be used.
It was established in the case of Hedley Byrne
v Heller 1964.
If there is a contract between the parties, then
it is usual to use s 2(1) Misrepresentation
under the Misrepresentation Act 1967.
Negligent misrepresentation under
section 2 (1) of the Misrepresentation
Act 1967
‘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’.
Remedies for
misrepresentation
The remedies available for a
misrepresentation are:
 rescission
 damages, and
 indemnity
and we will look at each in turn.
Rescission
When the misrepresentee discovers the
misrepresentation, they have a choice – they can
either:
• AFFIRM the contract despite the misrepresentation or
• they can RESCIND the contract.
Once this decision has been made it cannot be
changed.
Rescission may not be
possible where:
• the misrepresentee has ‘affirmed’ the contract
• the parties cannot be restored to their precontractual positions
• when the subject matter of the contract has
been sold on to an innocent third party before
rescission was communicated to the
misrepresentor
• due to lapse of time
• if refused by the court under section 2 (2) of
the Misrepresentation Act 1967
Redgrave v Hurd 1881
Although Redgrave had won at first
instance and the court had ordered
specific performance by Hurd,
in the Court of Appeal,
Hurd was allowed to RESCIND the
contract and get the return of his
deposit.
Damages
Damages are only available AS OF RIGHT for
fraudulent and negligent misrepresentation.
Damages are not available as of right for
‘innocent’ misrepresentation, BUT they may
be awarded at the discretion of the court
under the Misrepresentation Act 1967 section
2(2) when the court refuses rescission.
Damages for Fraudulent
Misrepresentation
Damages here are based on the Tort action of Deceit such
that the defendant must pay for:
all the ‘losses that flow directly from the contract’ even if
the loss was not foreseeable.
This was established in the case of Doyle v Olby
(Ironmongers) Ltd 1969.
This rule has been confirmed in later cases and the leading
case now is
Smith New Court Securities Ltd v Citibank NA 1997.
Damages for Negligent
Misrepresentation
First, at common law
At common law damages are based on the Tort of
Negligence and so only those damages that are
‘foreseeable’ can be recovered.
Secondly, under s 2(1) Misrepresentation Act 1967
In Royscott Trust Ltd v Rogerson 1991 it was held that
damages under s 2(1) for negligent misrepresentation were
to be calculated on the SAME basis as FRAUDULENT
misrepresentation.
Damages for Innocent
Misrepresentation
Damages are not generally available for
innocent misrepresentation since
rescission is the main remedy, but they
may be awarded at the discretion of the
court under s 2(2) when rescission is
not ordered.
Indemnity
• This remedy is available whenever rescission
is available. Its worth is most apparent in
relation to innocent misrepresentation. Since
damages are not available as of right for
innocent misrepresentation, a claimant may
seek an indemnity in addition to rescission to
cover expenses incurred by them which are
the result of entering into the contract.
• This can be seen in the case of Whittington v
Seale-Hayne 1900.
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