Such a duty can arise in a purely commercial relationship where the representor has or purports to have some special skill or knowledge and knows or it is reasonable for him to assume that the representee will rely on the representation.
This provision does not require the representee to establish a duty of care and reverses the burden of proof. Once a party has proved that there has been a misrepresentation which induced him to enter into the contract, the person making the misrepresentation will be liable in damages unless he proves he had reasonable grounds to believe and did believe that the facts represented were true.
Remedies: recent case-law has shown that the remedies available are as those available in fraud unless the representor discharges the burden of proof.
In particular, damages will be based in the tort of deceit rather than the tort of negligence. Once an actionable misrepresentation has been established, it is then necessary to consider the remedies available to the misrepresentee. Rescission, ie setting aside the contract, is possible in all cases of misrepresentation.
The aim of rescission is to put the parties back in their original position, as though the contract had not been made. The injured party may rescind the contract by giving notice to the representor. However, this is not always necessary as any act indicating repudiation, eg notifying the authorities, may suffice.
Rescission is an equitable remedy and is awarded at the discretion of the court. The injured party may lose the right to rescind in the following four circumstances:. The injured party will affirm the contract if, with full knowledge of the misrepresentation and of their right to rescind, they expressly state that they intend to continue with the contract, or if they do an act from which the intention may be implied. Note that in Peyman v Lanjani [] Ch , the Court of Appeal held that the plaintiff had not lost his right to rescind because, knowing of the facts which afforded this right, he proceeded with the contract, unless he also knew of the right to rescind.
The plaintiff here did not know he had such right. As he did not know he had such right, he could not be said to have elected to affirm the contract. If the injured party does not take action to rescind within a reasonable time, the right will be lost. Where the misrepresentation is fraudulent, time runs from the time when the fraud was, or with reasonable diligence could have been discovered. In the case of non-fraudulent misrepresentation, time runs from the date of the contract, not the date of discovery of the misrepresentation.
The injured party will lose the right to rescind if substantial restoration is impossible, ie if the parties cannot be restored to their original position. Precise restoration is not required and the remedy is still available if substantial restoration is possible. Thus, deterioration in the value or condition of property is not a bar to rescission. If a third party acquires rights in property, in good faith and for value, the misrepresentee will lose their right to rescind.
Thus, if A obtains goods from B by misrepresentation and sells them to C, who takes in good faith, B cannot later rescind when he discovers the misrepresentation in order to recover the goods from C.
The right to rescind the contract will also be lost if the court exercises its discretion to award damages in lieu of rescission under s2 2 of the Misrepresentation Act For innocent misrepresentation two previous bars to rescission were removed by s1 of the Misrepresentation Act the misrepresentee can rescind despite the misrepresentation becoming a term of the contract s1 a , and the misrepresentee can rescind even if the contract has been executed s1 b.
Generally, this will be relevant to contracts for the sale of land and to tenancies. An order of rescission may be accompanied by the court ordering an indemnity. This is a money payment by the misrepresentor in respect of expenses necessarily created in complying with the terms of the contract and is different from damages.
The injured party may claim damages for fraudulent misrepresentation in the tort of deceit. The purpose of damages is to restore the victim to the position he occupied before the representation had been made. Negligent misrepresentation: a representation made carelessly and in breach of duty owed by Party A to Party B to take reasonable care that the representation is accurate.
If no "special relationship" exists, there may be a misrepresentation under section 2 1 of the Misrepresentation Act where a statement is made carelessly or without reasonable grounds for believing its truth. Innocent misrepresentation: a representation that is neither fraudulent nor negligent.
For fraudulent and negligent misrepresentation, the claimant may claim rescission and damages. For innocent misrepresentation, the court has a discretion to award damages in lieu of rescission; the court cannot award both see section 2 2 of the Misrepresentation Act A higher scale of recovery of damages is available for fraudulent misrepresentation, because of the deceit involved by the person inducing the other contracting party to enter the contract in the first place.
A series of bars apply to obtain misrepresentation, where a party would be prevented from rescinding the contract. These are usually referred to as bars to rescission.
Damages for negligent and fraudulent misrepresentation are calculated in accordance with the usual law of damages. When coupled with rescission, an award of damages is designed to put the party in the position they would have been, had the misrepresentation not been made. Damages for not calculated on the basis that the misrepresentation was true. In an assessment of damages, the claimant bears the burden of proof on the balance of probabilities to show:. In negotiations which lead to an oral contract, there can be some doubt whether something said or communicated was intended to be a representation or a term of the contract.
If it is a term of the contract, the false statement will lead to a breach of contract , rather than a claim for misrepresentation. There are a series of factors at work to decide whether it's a misrepresentation or a term of contract:. In contrast, where the expertise levels are about equal or the receiver of the statement has a greater knowledge, the statement is more likely to be a representation.
Misrepresentation in contract law is a cause of action geared to address misleading statements, whether innocent, negligent or made by fraudulent intention. What is Misrepresentation in Contract Law? They give rise to legal claims for rescission of the contract and damages.
Elements of Misrepresentation The law of misrepresentation operates when: a pre-contractual statement of fact is made to a party intending to enter a contract, and the statement is relied on to enter the contract, and the statement is false. The misrepresentation doesn't even need to be made by the person benefiting from it. There are 3 types of misrepresentation: innocent misrepresentation negligent misrepresentation, and fraudulent misrepresentation The meaning and effect of a statement or conduct is interpreted by the circumstances in which the misrepresentation was made.
If the statement isn't correct, it may be an actionable misrepresentation. Forms of Misrepresentation The misrepresentation will usually be in words, written or spoken. In precontractual discussions, statements might be: made verbally communicated with gestures in the terms of draft contracts, which end up being signed, or statements that have no legal effect or consequence.
In agreements made verbally : precontractual statements will be classified as: a condition of the contract, a warranty or an innominate terms and form part of the contract, or a representation, and not form part of the contract whether it is a term of the contract or a representation is decided by reference to the relative importance of the term to the parties in the context of the contract.
Nature of the Representation Not all precontractual representations have legal consequence if they are false. Words which are used might include sales talk aka 'puffery' or laudatory words in respect of the goods or services such as: "Best pies in the UK" or "Finest after-sales service this side of Newcastle". Type of Statement Statements of Fact The representation must be a statement of fact, which relates to an existing or past event.
Statements of Future Intentions Statements of future conduct or intention can amount to statements of fact, because they frequently contain implied representations with regard to the present state of affairs , or the knowledge of the person making the representation. Here's an example: Statements were made by company directors that money to be raised to buy assets for a business to improve its profitability. It was said in the course of judgment: A misrepresentation as to the state of a man's mind is, therefore, a misstatement of fact.
The directors had lied about their intentions, and were liable for fraudulent misrepresentation. Statements of Opinion Statements of opinion don't qualify unless the maker of the statement knows that their expressed opinion: is false or if they have special knowledge, and in a better position to know the true facts regarding the subject matter. Can silence be a misrepresentation?
This general rule has exceptions, such as: Half truths: Where a statement is true, but does not reveal the whole truth which therefore makes the statement misleading, it will probably be a misrepresentation Change of circumstances: Where a statement is true when made, but due to a change of circumstances or lapse of time it becomes false, there is a duty on the maker of the statement to correct it. Failure to do so will amount to a misrepresentation. Contracts u berrimae fidei of the utmost good faith, such as contracts of insurance : Where a party is in a strong position to know the truth, there is a duty to disclose all material facts.
The most common type of contract in this class are contracts of insurance. Fiduciary relationship: Where a fiduciary relationship exists between the parties, there is a particular duty to disclose all material facts upon the fiduciary to discharge their fiduciary duties to their principal. Active concealment: This involves going beyond remaining silent and involves concealment of a defect, such as painting over a cracked wall to hide the defect.
Essential Element: Inducement Just because a false statement has been made is not enough to succeed in a claim for misrepresentation. There are four conditions which need to be satisfied in order for there to have been an inducement: Material statement: There will only be an inducement if the statement made is material. It must represent a fact upon which a party decides to enter into the contract. It does not have to be the sole inducement: it is enough if it is one of the inducements.
Known to the Claimant: There can't be an inducement unless the misrepresentation made was known to the claimant. In Horsfall v Thomas , the active concealment of a defect in a gun was held to be a misrepresentation, but the buyer did not inspect the gun - so he was not to know about the misrepresentation, therefore it did not induce the buyer to enter the contract.
Intended to be acted upon by the defendant: The statement made must be intended by the making it to be acted upon by the other party. Actually acted upon: If the claimant relies upon the misrepresentation when entering into the contract, this will amount to an inducement, even where the claimant did not take advantage of an offer to check the statement made. There can be no inducement when a person: relies upon their own judgement, or made their own investigations to ascertain the true state of affairs.
Different Types of Misrepresentation Precontractual misrepresentations come in 3 types. Rescission can be claimed as a remedy for innocent misrepresentation where: the statement has become a term of the contract the contract has been performed, according to s 1 of the Misrepresentation Act , and common law tests are satisfied.
Negligent misrepresentation Traditionally, damages could only be claimed for fraudulent misrepresentation.
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