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Pre-contractual statements and misrepresentation

Pre-contractual statements and misrepresentation. It is possible to view pre-contractual statements in more than one light: if the statement is PROMISSORY in nature it may be held to be part of the final contract – and be incorporated as a term of the contract

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Pre-contractual statements and misrepresentation

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  1. Pre-contractual statements and misrepresentation It is possible to view pre-contractual statements in more than one light: • if the statement is PROMISSORY in nature it may be held to be part of the final contract – and be incorporated as a term of the contract • if the statement is not promissory in nature then it is unlikely to be regarded as a term of the contract, rather just a REPRESENTATION OF FACT

  2. Some basic preliminary terms Void Voidable Unenforceable

  3. Pre-contractual statements can be classified into one of 3 groups: i. Mere ‘puffs’ of sales talk – for instance, a phrase such as, ‘you won’t regret buying this stereo from me’. Such phrases have NO LEGAL EFFECT – but are seen as sales talk. ii. Representations – statements of fact made prior to the contract that do not become terms of the contract iii.Terms – statements made prior to the contract that are held to be actual terms of the contract

  4. Why it is important to decide if a pre-contractual statement is a term or representation Whether a pre-contractual statement is regarded as a mere representation or a term is significant in relation to any damages that might be payable to the wronged party and the wronged party’s ability to set the contract aside.

  5. Term or misrepresentation? The courts make use of various guidelines in an attempt to work out what was the INTENTION of the person making the statement – and they do this OBJECTIVELY. If they consider the person making the statement intended to bind himself in the future by his statement, then this element of ‘futurity’ is likely to encourage the courts to see the statement as being a term of the final contract.

  6. Verifying the truth of a statement Schawel v Reade 1913 Ecay v Godfrey 1947

  7. Importance of the statement Couchman v Hill 1947

  8. Specialist knowledge Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd 1965 Oscar Chess Ltd v Williams 1957

  9. Parole evidence rule Routledge v McKay 1954

  10. Definition of representation • A representation is nicely defined in Cheshire, Fifoot and Furmston’s Law of Contract 14th edition at page 293 as:12 • ‘a statement of fact made by one party (the representor) to the other (the representee) which, while not forming a term of the contract, is yet one of the reasons that induces the representee to enter into the contract’. • A MISrepresentation is simply a representation that is UNTRUE.

  11. Key Cases • McInery v Lloyd’s Bank ltd 1974 • Gordon v Sellico 1986 • Spice Girls Ltd v Aprilia World Service BV 2000 • Keates v The Earl of Cadogan 1851 • Dimmock v Hallett 1866 • Bisset v Wilkinson 1927 • Smith v Land & House Property Corp 1885 • Esso Petroleum Co Ltd v Mardon 1976. • Edgington v Fitzmaurice 1885 • Solle v Butcher 1950 • Horsfall v Thomas 1862 • Museprime Properties Ltd v Adhill Properties Ltd 1990 • Attwood v Small 1838 • Redgrave v Hurd 1881

  12. McInery v Lloyd’s Bank Ltd 1974 - a representation will not be actionable just because the representee interprets it as being false – it will only be actionable if on a ‘reasonable’ interpretation the statement, which can be by words or conduct, could be interpreted as being false, an objective test. Gordon v Sellico 1986 This case therefore shows that ‘conduct’ can amount to a misrepresentation

  13. Spice Girls Ltd v Aprilia World Service BV 2000 The Court of Appeal held that liability under section 2 (1) of the Misrepresentation Act 1967 depended on four elements: a) a misrepresentation made by one person to another; b) a subsequent contract between them; c) consequential loss and d) an absence, at the time the contract was made, of a belief or reasonable grounds for belief in the truth of the facts represented.

  14. Points from Spice Girls case • The false statement of fact can be by conduct as well as words • the false statement of fact must be material • the Misrepresentation Act 1967 only applies when the parties have made a contract • the onus of proof is reversed

  15. Keates v The Earl of Cadogan 1851 This case is generally cited as authority for the fact that there is NO GENERAL RULE OF DISCLOSURE – which means that you do not have to tell the other party things that would affect his decision to contract.

  16. Dimmock v Hallett 1866 Demonstrates 2 points: • ‘fertile and improvable’ as a statement was mere sales talk • ‘was lately in the occupation of ….’ was a half truth and amounted to a false representation that induced the purchaser to buy the farm

  17. Beliefs and opinions Are not normally actionable but may be if the person stating them does not genuinely hold that opinion or belief - Bisset v Wilkinson 1927 - one has to take account of: • the material facts • the knowledge of each party • their relative positions • the actual words used • and the actual condition of the subject matter

  18. The topic of misrepresentation will be continued in the next lecture.

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