P bought land from D on the condition that D discloses any encumbrances on the land of which it had knowledge or ought to have had knowledge. P did not know of an encumbrance and CA held that P had not breached the term. CA held that even if P had misrepresented the situation to D, it [ the encumbrance] did not in practice seriously interfere with the use of the land” so that it would be inequitable to rescind the contract and instead s.2(2) of the Misrepresentations Act would apply to award damages.
Hoffmann LJ: section 2(1) is concerned with the damage flowing from having entered into the contract, while section 2(2) is concerned with damage caused by the property not being what it was represented to be. Therefore, unlike s.2(1) which allows damages based on the “fraudulent misrepresentation” basis, s.2(2) damages “should never exceed the sum which would have been awarded if the representation had been a warranty” i.e. the difference between what was paid and actual value”.
Evans LJ: It would be unfair to allow rescission rather than damages where the misrepresentation is of “little importance” and therefore s.2(2) would be invoked.