MISREPRESENTATION

1. MISREPRESENTATION Law of Contract LW1154 BCL 2005-2006

2. Reading • Textbook: Clark chapter 11 • Reference: McDermott chapter 13

3. Introduction • Where one party made a statement which misled the other before agreeing to the contract … • … this may give additional rights to the party who was misled • These rights may include: • (1) damages • (2) a right to escape from the contract

4. We need to consider the blameworthiness of the person who made the statement • So we need to distinguish between:- • Statements made fraudulently • Statements made negligently • Statements made innocently

5. MISREPRESENTATION ,,Can the statement be taken seriously?

6. Was the statement a serious one? • This is really two questions: • 1. Did the person who heard it in fact place any reliance on it? • 2. Would “the reasonable person” have placed any reliance on it? • We must answer “yes” to both if the statement is to give rise to any rights

7. 1. Reliance in fact • In principle, a statement is relevant only if it was relied on • In practice, reliance is presumed if the statement was obviously relevant and important • You can rely on several different statements or things at once

8. Example of reliance in factCody v. Connolly [1940] 6 Ir Jur 49 • Sale of a mare • Seller said the mare could do work “of all kinds” • Before sale, buyer had a vet inspect the mare • Was buyer still relying on seller? • O’Byrne J held that he was

9. Example of reliance in factGahan v. Bolland (Supreme Court, 20/1/84) • Sale of a house • Seller said that the new motorway project would not affect it • The buyer was a solicitor, and could very easily have checked this • But the buyer was still held to have relied on the seller’s statement

10. Statement not believed • But if the statement is not believed by those who hear it … • … it is impossible to say that they relied on it • e.g.Colthurst v. Colthurst [2000] IEHC 14

11. 2. Reliance in law • It is not enough to show that a statement was relied on … • … if the statement was one that no reasonable person would rely on • There is a considerable case law on what reasonable people are supposed to rely on

12. 2. Reliance in law • The cases where “reliance in law” has been doubted fall into 4 rough groups: • Mere sales talk • Statements of opinion • Statements of intention • Statements of law

13. “Mere sales talk” • If reasonable people would think they were hearing mere sales talk … • … then they are not entitled to rely on it • So mere sales talk cannot amount to a misrepresentation

14. Example 1Dimmock v. Hallett (1866) LR 2 Ch 21 • Sale of farming land • The seller described it as “fertile and improvable” • The court said this was “a mere flourishing statement” … • … and refused to treat it as a misrepresentation

15. Example 2Smith v. Lynn (1954) 85 ILTR 57 • A house was advertised as being “in excellent structural repair” • Both P and D inspect it and bid for it • D bids higher, but 6 weeks after buying tries to resell it • D re-uses the old advert • P buys from D

16. Example 2Smith v. Lynn (1954) 85 ILTR 57 • Could P reasonably rely on the advert? • Curran J held that he could not • P had inspected the house, so should not have relied on the advert • “It is common knowledge that … one usually finds in such advertisements rather flourishing statements”

17. Statements of opinion • If one side makes a mere statement of opinion … • … the other side should not treat it as a factual statement … • … and usually cannot reasonably pay it attention at all

18. Example Bisset v. Wilkinson [1927] AC 177 • Sale of farm land • Seller estimated that the land could support 2,000 sheep • However, this was obviously a mere statement of opinion … • … and so the buyer could not sue when the estimate was proved over-optimistic

19. An exception • In Bisset the parties were farmers • So they were expected to rely on their own opinions, not those of other farmers • It may be different if the opinion comes from someone very knowledgeable … • … so that it is reasonable for the other to rely heavily on the opinion

20. An exception • So an apparent expert giving their opinion may be making an implied statement of fact … • … to the effect “I have reasonable grounds for the opinion I am giving” • If the expert has no such reasonable grounds, then there is a misrepresentation

21. Example 1 Irish Times 12/12/97Doheny v. Bank of Ireland • A bank described a client as “respectable and trustworthy” • But she had a record of dishonesty • So although “respectable and trust-worthy” is a matter of opinion … • … nonetheless a misrepresentation was established

22. Example 2Esso v. Mardon [1976] QB 801 • Mardon was negotiating for an Esso franchise at a petrol filling station • Esso’s economist made an estimate of the amount of petrol it would sell • Mardon bought the franchise • But the estimate turned out to be over-optimistic

23. Example 2Esso v. Mardon [1976] QB 801 The court of appeal held that: • The estimate was mere opinion • But it involved an implied assertion that it had been made carefully • In fact, the economist had made a basic error • Therefore the estimate amounted to a misrepresentation

24. Statements of intention • If I say “I intend to do X” … • … then that is a misrepresentation if I do not intend to do X • However, a statement of intention is not the same thing as a promise … • … so it is not enough simply to show that I failed to do X

25. “… the state of a man’s mind is as much a fact as the state of his digestion” Edgington v. Fitzmaurice (1885) 29 ChD 459 (Bowen LJ)

26. Statements of intention • So a false statement of intention can form the basis of an action in misrepresentation … • … so long as the speaker never really had that intention • But a simple failure to carry through a stated intention is not actionable

27. Statements of law • It is often said that mis-statements of law are not actionable … • … perhaps because “everyone is presumed to know the law” • The rationale of the rule is unclear, and it is often criticised • But the rule is very well established e.g.Doolan v. Murray (Keane J, 21/12/93)

28. Statements of law - exception • Despite the traditional rule, some statements of law are actionable: • Fraudulent statements of law • Statements of foreign law • Statements about private rights

29. MISREPRESENTATION Silence and misrepresentation

30. Silence – general rule • Most cases assume that there is some statement or representation … • … rather than a simple failure to speak • The general rule is that some statement is needed … • … and that silence is not enough … • … even if it is misleading

31. ExampleKennedy v. Hennessy(1906) 40 ILTR 84 • Sale of heifers at a fair • One of the heifers was in fact in calf, and so of low value • But nothing had been said on that subject, either on or before the sale • Gibson J held that there was no misrepresentation

32. Silence – exceptions In 3 cases, silence will be treated as a misrepresentation • Where an accurate but confusing statement has been made • Where a statement was true when made, but becomes false • Where there is a legal duty to speak

33. Confusing statements • Where a true statement is made … • … but that statement is confusing or misleading unless more is said … • … there is a duty to clear up the confusion • A failure to speak amounts to a misrepresentation

34. Example Notts Brick v. Butler(1886) 16 QBD 778 • Sale of land • The solicitor said that he wasn’t aware of any covenants on the land • But he hadn’t looked at the documents • This amounted to a misrepresentation

35. Statement true when made • If a statement is true at the time it is made … • … but becomes untrue before the contract is finally agreed … • … a failure to admit this amounts to a misrepresentation

36. ExampleSpice Girls v. Aprilia [2000] EMLR 478 • Negotiations for product endorsement by the Spice Girls • The 5 members of the group appeared for a photo shoot … • … but kept back the information that one member (Gerry Halliwell) would soon be leaving

37. ExampleSpice Girls v. Aprilia [2000] EMLR 478 Arden J held that: • Gerry Halliwell’s departure removed all commercial value from the picture shoot • Failure to reveal the truth was misleading • Allowing her to take part amounted to a misrepresentation

38. Duty to speak • If the law imposes a duty to reveal certain facts or matters … • … then a failure to speak amounts to a misrepresentation • There are no such general duties applicable to all contracts … • … but there are many applicable to particular types of contract

39. Example 1Sales of land • The duties of the seller of property are prescribed in cases and statute • They certainly include obligations to reveal defects in title, and covenants binding the land • So silence on these points amounts to a misrepresentation

40. Example 2 Insurance contracts • Those seeking insurance have a general duty to disclose all material facts • A material fact is one which would influence a prudent insurer in deciding: • whether to accept the insurance, or • in setting the premium to be paid

41. Summary and recap • There must also be:- • a positive statement, or • silence which is equivalent to a statement • There must be:- • reliance in fact, and • reliance in law

42. Misrepresentation Remedies for misrepresentation - Introduction

43. 3 ways in which a plaintiff can use misrepresentation • P can argue that D guaranteed the truth of the statement • P can argue that the making of the statement was a tort or wrong, deserving compensation • P can seek to escape from (= “rescind”) the contract

44. Guaranteeing the statement • P argues that when the statement was made … • … the maker promised that it was true … • … and so is in breach of contract if it is not • If successful, this may lead to an award of damages

45. A mis-statement as a wrong • P argues that the making of the statement was a wrong … • … which harmed P’s financial interests … • … and so should be compensated • This argument can only be made if the person who made the statement was at fault in some way

46. Rescission of the contract • P argues that the contract was only made because D misled P … • … and so P should be allowed to escape from the contract when the truth becomes known • This is the weakest of the three arguments, as it is hard to unravel a partially-performed contract

47. 3 different approaches? • Can P combine two or more approaches in one action? • In theory yes, but:- • The courts will not allow double compensation for the same wrong • Either the contract remains in place or it doesn’t

48. MISREPRESENTATION 1. Statements which have been guaranteed to be true

49. Guarantee – Basic principle • If a statement is made during contractual negotiations … • … and the maker of the statement seems to be encouraging reliance on the statement … • … then they may be held to have promised or guaranteed its truth … • … and so can be sued if it is false

50. Example 1 Phelps v. White (1881) 7 LR (I) 160 • Sale of land, on which there were some trees • The seller said that the right to the trees was included in the sale • In fact, it was not • The buyer was held able to sue for the value of the timber