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INTRODUCTION
Whenever a contract goes badly for one party, the possibility of a
vitiating misrepresentation claim arises as a possible ground for legal
action by that party to void the contract or claim damages. There is a
large body of law on the topic of misrepresentation, but it is complex
and often difficult to reconcile. This paper considers some of the
unsettled issues and offers suggestions for resolution. In order to keep
the topic manageable (whole books have been written upon it), we will
focus on issues relating to remedies for misrepresentation in a
contractual context.
In particular, we will consider the challenges inherent in selecting the
appropriate remedy as highlighted by the oft cited authorities and
recent case law, and suggest a framework for analysis. The various
theories of remedies for contractual misrepresentation - rescission,
damages and restitution - will then be considered in light of the
framework, along with the concept of an ancillary constructive trust.
Finally, a number of theses are presented to assist in developing a
consistent and reasoned approach to remedies for misrepresentation. It
is useful, however, to begin with a brief discussion of the criteria for
discerning the kind of operative misrepresentation for which a remedy
can be obtained.
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Misrepresentation:
A misrepresentation is a false statement which persuades
someone to enter into a contract.
The contract is then void able.
Misrepresentation has 3 parts
A statement.
The statement is about a fact which can be checked.
The statement causes the party to enter into the contract.
Statement:
A statement may be verbal or written.
A statement which is half true can be misleading.
For example, if you say that your farm is rented to tenant for 290
per year, but you dont mention that the tenant has actually not
paid the rent for several months and has left the farm, and you
cannot find a new tenant.
If the statement is true when you made it, but things change and
it is no longer true before the contract is made, then you must tell
the other party.
A fact:
The representation must be a statement about a specific, existing
fact or event which can be checked
Therefore, the following things are not statements of fact
Advertising hype
Statements of law
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Statements of opinion
Statements of intention
Advertising Hype:
Statements such as this is the best toothpaste in the world orthis is the finest sofa on the market are not representations
They are simply statements made to try to interest the buyer
However, if the salesperson said something like this car uses the
same engine as a BMW then this may be a misrepresentation if it
is not true
This is closer to a statement of fact
Statements of Law: Ignorance of the law is no excuse
Everyone is assumed to know the law
One party to the contract cannot claim that he was mislead about
some part of the law affecting the contract by the other party
If he was unsure, he should have checked with a lawyer
Statements of Opinion:
Statements of opinion are not statements of fact
However, there would be a misrepresentation if what you said was
not really your opinion at all
But proving this could be difficult
Statements of Intention:
Statements of intention are not misrepresentations even if the
intention later changes
However, in a similar way to statements of opinion, if the
statement you made was never your intention then there could be
a misrepresentation
But proving this could be difficult
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At common law, a negligent misrepresentation is where you make
a statement which is false but which you believed to be true
For example, a company stated in an advert that they were
authorised by the local government
They had applied for authorisation and believed it would be
granted
However, they did not get the authority
The statement was not fraudulent because the company had a
genuine belief that they would get the authority
Innocent Misrepresentation
An innocent misrepresentation is one which the person making itnot only believes to be true, but has good reasons for believing
that
This could be because the seller had been persuaded to make a
contract by the same misrepresentation
For example, Bill makes a contract with John to buy Johns car
John tells Bill that new tyres were put on the car after it had
travelled 26,000 km
In fact, that is not true
However, John thinks it is because when he bought the car from
Bob that is what Bob told him.
Analysis:
Factors that vitiate the contract because of misrepresentation:
Misrepresentation occurs where a party is induced into entering into a
contract by anothers false statement of fact or law.
A statement of opinion will not constitute a misrepresentation unless the
representor does not honestly believe the opinion tht he states, or the representor
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represents an opinion for which he does not have reasonable grounds and impliedly
represents that he has such grounds.
A statement of intention will not constitute a misrepresentation unless the
representor, at the time that the statement was made, does not believe that the
intended state of affairs will occur.
Subject to several exceptions, silence cannot constitute misrepresentation.
A fraudulent misrepresentation occurs where a party makes a false statement
knowingly, without belief in its truth, or recklessly careless of whether it is true or
false.
Negligent misrepresentation exists at both common law and in statute.
An innocent misrepresentation is one that is completely devoid of fraud or
negligence. Damages are not available as of right where the misrepresentation is
innocent.
Misrepresentation renders a contract void able, but in certain circumstances,
the representee will be barred from rescinding the contract.
In cases of negligent and innocent misrepresentation, the court can award
damages in lieu (instead) of rescission.
Remedies for Misrepresentation
As we mentioned earlier, the remedies available for
misrepresentation depend on the type of misrepresentation.
Fraudulent Misrepresentation
The remedies here are recission and/or damages
Recission means that the court tries to put the parties back in
the position which they were in before the contract was made
However, this is not always possible
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Eg: the goods sold have been eaten
Damages is payment of money which covers all the losses which
the person makes as a direct result of entering into the contract
The remedies here are also recission and/or damages
Innocent Misrepresentation
At common law, the remedy is recission
Under the Misrepresentation Act 1967, the court can award
damages instead of recission if it thinks that is fair
Actionable Misrepresentation- False Statement
of Fact
1. Statements
Misrepresentation can be constituted by a written or verbal statement. It
can also consist in the non-disclosure of salient information.
A duty to disclose arises only in certain contexts:
a. Half-truths
Where the statement is, without further disclosure, misleading
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b. Falsification
Where the statement has become false since being made
c. Fiduciary relationship:
Where the parties are in an fiduciary relationship
(Insurer/insured, lawyer/client etc)
2. Facts
The law draws a distinction between facts, opinion and predictions:
Fact:[profitability of resort](Gould) or very large sum of money
(Nicholus)
Opinion: [this is a very good car]
Prediction: I think that this land will be sewered in four months
time (Ritter)
A statement containing evaluative or qualitative terms will not
necessarily be an expression of opinion (Nicholus).
Nicholas Vs Thompson (1924) VR:
Facts:
The contract was for the sale of rights to a film process and a
syndicate.
The buyer Nrelied upon statements made by the seller T
that he had been offered a very large sum of money for the
rights
Issue:
Was the representation one as to fact or merely an opinion?
Reasoning:
The presence of evaluative or qualitative terms (very large) do
not render any statement one of opinion
Decision:
Here, the statement was not merely an expression of an
opinion, but was, in fact, a statement of fact.
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As such, it is capable of constituting a misrepresentation
Even where a misrepresentation does contain an element of opinion,
it may still constitute a statement of fact where it is sufficiently
factual (Gould).
Ritter Vs North side Enterprises (1975) HCA:
Facts:
North Side, the seller of property, made a statement of Ritter,
the buyer, that I think that this land will be sewered within 4
months time
R relied on this statement in entering into the contract; upon
discovering that the property had not yet been sewered, he
sought recession of the contract of sale
Issue:
Was the representation one of fact or opinion?
Reasoning:
A statement of belief in the future connection of seweragepipes to a property within 4 months is only a prediction, despite
the buyers assertion that the seller didnt believe that
statement.
o This would be a representation as to a future state of
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affairs
However, the fact misrepresented was the state of mind of the
representor.
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