A vitiating factor is something which makes a contract invalid.
A misrepresentation is a false statement of fact, which induces a party to enter a contract. However for this to be the case the statement must not be:
· A statement of opinion
Bissett v Wilkinson
A seller of a farm in New Zealand said that it could support about 2000 sheep. This was found to be untrue, but it was held not to be a misrepresentation because the buyer knew that the seller had never farmed sheep in New Zealand, and as such was only voicing an opinion.
Smith v Land House Property Corporation
A seller described an occupier of the property as a 'most desirable tenant'. It was subsequently found that he had only paid rent erratically and under pressure. This was held to be a misrepresentation because the seller was the only person who could have known this information, so he had an extra duty to take care over his statements, as his opinion would be regarded as authoritative.
Esso Petroleum v Mardon
An experienced representative of the appellant company had made a statement to M, prior to the sale, to M, of a certain filling station, that the throughput of petrol at that site would reach a particular level in the third year of its operation. M was thus persuaded to enter into a three year tenancy agreement with Esso. A little over a year later, M gave notice to quit, but was given a new tenancy at a reduced rent. After a little more than three years, the concern was still losing money and M was unable to pay for the petrol supplied to him. M claimed damages in respect of the statement made to him prior to the sale on the basis that it amounted either to a warranty or a negligent misrepresentation. Both the court of first instance and the Court of Appeal rejected the claim that the statement was a warranty, but the Court of Appeal affirmed the trial judge's finding that Esso were liable for negligent miss-statement. Point of Law: Damages for negligent misrepresentation (according to the principle expounded in the Hedley Byrne & Co Ltd v Heller & Partners) will be payable when the misrepresentation is one that occurs in the negotiating stages of a contract.
· A statement of what might happen in the future
Edington v Fitzmaurice
Shares in a business venture were sold, the publicity saying that the aim was to expand and improve the business. However in letters to other people there was written evidence that the company planned to use the money raised to pay off existing debts. Theses statements of future intentions were held to be misrepresentations. Because in such circumstances where there is proof of what a person intends to do, Bowen LJ said that 'the state of a mans mind is as much of a fact as the state of his digestion'.
· A statement of puff (e.g. Heineken reaches parts other bears cant, Percil washes whiter than white etc)
Weeks v Tybald
The defendant "affirmed and published that he would give £100 to him that should marry his daughter with his consent." The court held that "It is not reasonable that the defendant should be bound by such general words spoken to excite suitors."
· Misrepresentations may be made by actions as well as words.
Spice Girls v Aprilia World Service
Aprilia contracted with the Spice Girls to promote their products. Aprilia entered into the contract on 6 May 1998 based on the representation that all 5 members of the band, each with their distinctive image, would continue working together. Geri Halliwell ("Ginger Spice") left the band on 29 May 1998. Mrs Justice Arden held: that there was a misrepresentation by conduct; all 5 "Girls" having participated in a commercial photocall, had induced Aprilia into the contract. Further, that under s.2(1) of the Misrepresentation Act 1967, the representors, the Spice Girls, failed to prove that they had reasonable grounds to believe and did believe, up until the contract was made, that the representation was true.
Meaning of Inducement
Claimant must prove the misrepresentation was operative in inducing him into the contract. The representation must be made:
· Be made with the intention that it should be acted on
Peek v Gurney
P purchased shares in a company on the basis of statements made in the prospectus issued by G. certain statements were false and p sued the directors. P was not the original allottee but had purchased the shares on the open market even though he had read the prospectus his claim failed because the statements in the prospectus were only intended to mislead the original allottees.
· Be relied upon by the other party
Atwood v Small
The buyers of a mine claimed misrepresentation when the mineral wealth of a mine was less than stated by the seller. However it was held that they had not relied on their statements but that of their own private surveyor (who was wrong).
· Be known to the claimant
Northumberland and Durham District Banking Co case
A person brought shares in a company and asked to have the purchase rescinded because the company had published false reports as to is solvency. The claim failed because he was unable to show he read any of the reports or that anyone had told him what they contained.
· Must have affected the claimants mind
Smith v Chadwick
S brought shares in a company, there were misrepresentations in the prospectus one was that a famous person was a director of a company (but had withdrawn his consent before the prospectus was published). Held the statement was untrue but as evidence showed he had never heard of the famous person so couldn't have affected the claimants mind therefore not a misrepresentation.
· Must not have known the statement was untrue
Redgrave v Hurd
A solicitor wanted to sell his practise and said it was worth £300 and offered to show the buyer his books to prove this. The buyer decided to take his word for it. In fact it was only worth £200. Held buyer had relied on the sellers word because he didn't check the papers so it was a misrepresentation. Obiter statements said that if had of looked at the books then he couldn't sue, as he would have known the true value of the practise.
Silence and misrepresentation
The general rule of caveat emptor (let the buyer be ware). If one party is under a misapprehension then there is no duty for the other party to correct the misapprehension.
There are three exceptions to this rule:
· Where a statement is a half-truth and a false impression is created.
Dimmock v Hallet
A seller of land told a prospective buyer that the farms on the land were let but did not tell him that the tenant were set to leave very soon. Leaving this fact out presented such a distorted to picture of the true situation that the court held there had been a misrepresentation.
· Where a party makes a statement, which is true, or believes is true and subsequently becomes false. (e.g. change in circumstances). There is a duty on the party making the statement to disclose the change in circumstances.
With v O'Flannagan
A doctor wanted to sell his practice and told the prospective buyer the current income but then became ill. By the time the sale eventually took place, many of his clients had transferred to another practice and the income was much less than originally stated. As the doctor did not revise his original statement it was held to be a misrepresentation.
· Duty of Disclosure in fiduciary relationships (e.g. Solicitor - Client, Parent - Child, trustee - beneficiary)
A failure in such circumstances to disclose all relevant facts may lead to a misrepresentation, an example of this is Esso v Mardon where the court held that Esso owed a duty of care to Mardon
· Contracts of the utmost good faith impose a duty of disclosure. (Contracts of insurance, family settlements, fiduciary relationships)
Gordon v Gordon
2 brothers made an agreement for the division of the estate the elder of the two thought he was born out of wed lock and was therefore not entitled to any land. The younger brother knew he wasn't illegitimate, and that his brother was the true heir but didn't let on. 19 years latter his bother discovered that he was legitimate and the agreement was set-aside for misrepresentation. However if both brothers had believed he was illegitimate the agreement couldn't be set aside.
Seaman v Foneseau
A ship was sited in difficulties when out at sea but recovered from them, when it was latter captured by the Spaniards the insurers refused to pay out. Since the previous difficulties had not been reported. Held there was an imposed duty to reports all facts.
· Where a statute requires disclosure
Financial Statements Act 1986 - a company prospectus which invites the public to subscribe for shares must give all the relevant information to enable investors to make an informed decision.
Types of misrepresentation
1. Innocent
Misrepresentation Act 1967 S.2 (1) - When the statement is made honestly and with reasonable grounds to believe it is true.
Oscar Chess v Williams
The plaintiff sold his Morris Minor car to the defendant car dealer. The registration document said it was a 1948 model but in fact was a 1939 so the dealer paid too much. Held not a term of the contract because the buyer had the skill and experience to put him in a position to know the real age of the vehicle.
2. Negligent
Did not exist under common law, the plaintiff had to sue negligent misstatement.
Hedley Byrne v Heller
Heller bankers gave assurances of creditworthiness to Hedley concerning a mutual client Easipower. The Bank were the only people who held this information, so they were deemed to be in a position of trust. When Easipower defaulted on payments a claim of misstatement was made against Heller. This would have succeeded because of the relationship, had it not have been for an exemption clause saying 'Without responsibility'.
Misrepresentation Act 1967 S.2 (1) - A false statement made by a person who didn't have reasonable grounds to believe their statement was true.
Howard Marine v Ogden
The defendants wished to hire two barges from the plaintiffs. The plaintiffs quoted a price for the hire in a letter. At a meeting, the defendants asked about the carrying capacity of the barges. The plaintiffs' representative replied it was about 1,600 tonnes. The answer was given honestly but was wrong. It was based on the representative's recollection of the dead-weight figure given in Lloyd's Register of 1,800 tonnes. The correct figure, 1,195 tonnes, appeared in shipping documents, which the representative had seen, but had forgotten. Because of their limited carrying capacity, the defendant's work was held up. They refused to pay the hire charges. The plaintiffs sued for the hire charges and the defendants counter-claimed damages. By a majority, the Court of Appeal found the plaintiffs liable under s2(1) as the evidence adduced by the plaintiffs was not sufficient to show that their representative had an objectively reasonable ground for disregarding the carrying capacity figure given in the shipping document and preferring the figure in Lloyd's Register.
Humming Bird Motor v Hobbs
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3. Fraudulent
A false representation of material fact made knowing or believing it to be false or recklessly not caring if it is true or false.
Derry v Peek
A fraudulent Misrepresentation was a false statement made 'knowing, without belief in its truth or recklessly as to whether it is true or false'
A company had statutory powers to operate trains by animal power and, with the permission of the Board of Trade, by steam or mechanical power. They issued a prospectus, inviting the public to apply for shares in the company, stating that they would be able to operate steam trains with considerable economy. They assumed that permission would be granted as a matter of course. In fact, the permission they required was denied, except for certain portions of the railway. As a result, the company was wound up; the directors were sued for fraud. The court held that the directors were not fraudulent, but had honestly believed in their statement. Point of Law: An honest belief, which leads to the making of an unintentionally false statement, will not be actionable per se. (Note: This case gave rise to the Directors' Liability Act 1890)
Doyle v Olby Ironmongers
After buying an ironmonger's business, things turned out to be very different from what the vendors had led the plaintiff to believe. He was awarded damages for fraudulent misrepresentations and the appeal concerned, among other things, the measure of damages. Lord Denning MR said that: "The defendant is bound to make reparation for all the actual damage directly flowing from the fraudulent inducement It does not lie in the mouth of the fraudulent person to say that they could not have been reasonably foreseen."
Royscot Trust v Rogerson
A car dealer induced a finance company to enter into a hire-purchase agreement by mistakenly misrepresenting the amount of the deposit paid by the customer, who later defaulted and sold the car to a third party. The finance company sued the car dealer for innocent misrepresentation and claimed damages under s2(1). The Court of Appeal held that the dealer was liable to the finance company under s2(1) for the balance due under the agreement plus interest on the ground that the plain words of the subsection required the court to apply the deceit rule. Under this rule the dealer was liable for all the losses suffered by the finance company even if those losses were unforeseeable, provided that they were not otherwise too remote. It was in any event a foreseeable event that a customer buying a car on HP might dishonestly sell the car.
Misrepresentation Remedies
The remedies for a misrepresentation depend on the state of mind of the person making the statement. There are remedies available under common law and equity and also under the Misrepresentation Act 1967. Rescission is an equitable remedy (which is discretionary), it restores the parties to their pre-contractual position. This remedy is available to types of misrepresentation.
Bars to rescission (circumstances where it wont be given), it is a more drastic measure to damages so its uses are restricted.
· Affirmation of the contract (continuing with the contract whilst knowing of the misrepresentation)
Long v Lloyd
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Car and Universal Finance v Caldwell
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· Lapse of time
Leaf v International Galleries
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Zanzibar v British Aerospace (2000)
The Zanzibar government purchased a jet from BA in 1992, they failed to pay the full amount and it was repossessed. Several years latter they sued BA claiming misrepresentation about its airworthiness, they sought to rescind the contract. Held Z had delayed bringing proceedings for several years after receiving the plane so their right to rescission was lost.
· Restitutio in integrum (cant restore to how it was)
Vigers v Pike
The contract concerned a mine, and by the time rescission became an issue the mine had been 'worked out' - there was nothing left in the mine therefore rescission was impossible.
However if it can be restored in partially the original condition rescission can be ordered and damages awarded for the part that cant be restored as was the case in: Erlanger v New Sombero Phosphate co.
· Injury to third parties
Car and Universal Finance v Caldwell
Rescission is not available where a third party has acquired rights under the contract e.g. A sells a car to B who pays for it with a cheques that bounces and C buys the car off B in good faith means that A is barred to rescind.
Damages (under common law)
· Fraudulent misrepresentation
Damages calculated as for the tort of deceit - a punitive measure because of the blameworthiness of D. Damages will put the claimant into the position they would have been in had the tort not occurred.
Doyle v Olby (1969) - it was held that D would be so liable for the losses which are the consequence of the false statement even those which are unforeseeable.
This was confirmed in
Smith and New Court Securities v Scrimgeour Vickers (1996)
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· Tort of negligent misstatement
Damages available as for tort but in this case only the loses which are reasonably foreseeable can be claimed.
Damages (under s2(1) MA 1967)
Gives a statutory remedy for negligent misrepresentation. The damages to be calculated in the tort of deceit therefore all loses can be claimed even if unforeseeable.
Royscott v Rogerson (1996)
A car dealer induced a finance company to enter into a hire-purchase agreement by mistakenly misrepresenting the amount of the deposit paid by the customer, who later defaulted and sold the car to a third party. The finance company sued the car dealer for innocent misrepresentation and claimed damages under s2(1). The Court of Appeal held that the dealer was liable to the finance company under s2(1) for the balance due under the agreement plus interest on the ground that the plain words of the subsection required the court to apply the deceit rule. Under this rule the dealer was liable for all the losses suffered by the finance company even if those losses were unforeseeable, provided that they were not otherwise too remote. It was in any event a foreseeable event that a customer buying a car on HP might dishonestly sell the car.
However it appears that this decision appears to have been overruled and only those losses which are foreseeable can be claimed.
South Australia Asset Management v York Montague
Lent money during a property boom but properties were negligently valued and the market crashed. They claimed damages for both these loses against the valuer. But were only awarded damages by the HofL for negligent valuation, as this was reasonably foreseeable.
Damages (under s2(2) MA 1967)
Allows damages to be claimed in lieu of rescission for innocent and negligent misrepresentation if the court considers this equitable. It appear s that even if the right to rescission is lost (i.e. bars to rescission) the right to damages in lieu of rescission remains.
Thomas Witter v TBP Industries
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