Contract Law Misrepresentation.

Definition of Vitiating Factors: 

Factors which invalidate the contract as their presence at the time the contract was made means that there were no genuine consent. The law recognises five types of vitiating factors: Misrepresentation, Mistake, Duress, Undue Influence and Illegality.

The reason why courts allows the enforcement of vitiating factors: The reason why contracts are enforce by the law is because of the principle of the freedom of contract which basically means that both parties decided with their own free will to enter into contract. Vitiating factors undermine contract but THE REASON WHY the court allows this is because the presence of one of these vitiating factors means one party’s consent is invalid hence it goes against that freedom of contract principle.

What does VOID and VOIDABLE** means:  VOID means that there was no contract in the first place and neither party can enforce the agreement. VOIDABLE means that a contract comes into existence and the innocent party can choose whether or not to end the contract. The way the contract will go depends on which vitiating factor was present.

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Misrepresentation is the making of a false statement of fact made during the pre-contractual negotiations by one party which induces the other party to enter into the contract and as a result of which suffers loss.

Elements of a misrepresentation:

1. It is not a term
2. It must be actionable, so for it to be actionable (valid):

• It has to be false
• It is a statement of fact (not opinion)
• It has to induce the other party to enter into the contract
• It has to cause loss to the party

1. Then you need to consider the type of misrepresentation

• Fraudulent
• Negligent
• Innocent

1. If it is not a term…

The test established when we did representation so:

• What was the intention of the parties?
• When was statement made?
• How important was statement to hearer?
• Did either party possess specialist knowledge?
• Did either party accept responsibility?
• Was statement later put into writing?
• Reliance?

1. Actionable

Who made the untrue statement: the other contracting party or their agency acting under their authority OR the other contracting party did not make the untrue statement but knew about it.

How was the stamen made: by the other contracting party’s conduct, written or spoken?

• FALSE

Silence

Silence doesn’t lead to an untrue statement. It is normal for a sale person to talk about the good things and not the bad. Same goes for this as it may put the buyer off.  

• Fletcher v Krell
• Woman who applied for governess position did not reveal former marriage despite single women being preferred. Silence does not amount to misrepresentation.

→No Misrepresentation

Contract with utmost good faith

Both parties must disclose very important/relevant information. This is mostly for insurance. Like if you didn’t tell the insurance that you had heart problem and took a life insurance policy and then died in a car accident. Because this fact was not revealed it doesn’t matter whether or not the accident was caused because of the heart condition, his dependent will not be able to claim against the policy.

• International Management Group UK ltd  v Simmonds
• An action by organisers of the proposed Sahara Cup cricket contest between India and Pakistan against their insurers was dismissed for breach of warranty and non-disclosure regarding Indian government permission for the Indian team's participation. → Misrepresentation

Substantially Correct

A statement was true when it was made but because there was a change of circumstances it became incorrect when it was acted upon. Keeping silence about the change leads to misrepresentation.

• With v O’Flanagan
• Doctor was selling his medical practice. He told the buyer that it was worth a certain amount of money which was true at that time. But then he fell ill and lost customers and the medical practice was not worth a lot like he used to. Doctor didn’t tell the buyer. Keeping silence amount to misrepresentation. → Misrepresentation

Partial Revelation

A party made a statement that was true but because they left some details in their statement, it created a misrepresentation of the whole situation. This will amount to misrepresentation.

• Dimmock v Hallett
• Seller told buyer that land was to let but didn’t mention that the tenants haven’t left the land yet. It created a situation. It was held this amounted to misrepresentation because of the omission of a detail which is important to the whole picture of the true situation.

→ Misrepresentation

Fiduciary Relationship-- involving trust, especially with regard to the relationship between a trustee and a beneficiary.

This is the special relationship between the parties. When there is a fiduciary relationship, there is a duty to disclose important fact about the contract.  The court impose this duty to parents and child. To solicitor and client. To trustee and beneficiary. But then again if a party is able to prove that there was a special relationship between the contracting party and themselves by proving that they placed their trust in them and that they had an influence on them.

• CASES:

1. Was aware that it was untrue

• Cooper v Tamms

1. But no duty to check

• Redgrave v Hurd

1. Made after contract agreed

• Roscorla v Thomas

• Statement of Fact

Definition: the statement made must be a fact and not an opinion.

• Bisset v Wilkinson  
• W said to B that he believed the land he was selling could hold 2,000 sheep, but it couldn’t. Courts said that a fairly given opinion could not amount to misrepresentation, because W didn’t intend the statement to be a serious representation.
• Opinion = NOT an actionable misrepresentation especially when both parties knew that statement couldn’t be true

→An opinion can be an actionable misrepresentation IF when giving the opinion the state of mind of the person knew that it was a lie.

Like you bought the clock yesterday and know it is new but said to the buyer that you think that it is 200 years old → ACTIONABLE MISREPRESENTATION.

• Edgington v Fitzmaurice
• F said that the purpose of issuing debenture bonds was to expand the business, but it was actually to pay off liabilities because the business was in trouble. E bought bonds (and would have bought them anyway, but still acted on the prospectus). Courts said it didn’t matter that the misstatement wasn’t the only reason for purchasing the bonds, as long as it was influential. The prospectus intended to influence the reader so they were held liable.

→For a statement to be seen as an actionable misrepresentation, the statement needs to refer to an existing fact not future one.

Vague praises or sale talk or mere puff= not actionable misrepresentation.

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