Misrepresentation 1 Notes

Contract Law: Misrepresentation 1

Representations v other types of statements (must be a misrep to be actionable)

• A pre-contractual statement may be a ‘representation’ = a statement of fact (or law).

• Therefore a ‘misrep’ = a false statement of fact or law.

• Mere puff

  • Term from Carlill v Carbolic Smoke Ball; Leonard v Pepsico. Both were advertising mere puff

  • Dimmock v Hallett (1866): a description of land as ‘fertile and improvable’ = mere puff.

  • A man wants to buy a parcel of land which has several farms on it. The estate agent has told the buyer that in fact all the farms are actually let, they all have tenants in them (i.e. are all producing rent).

  • When he bought it, he found that although estate agent hadn’t actually lied (all the farms were let), but every single tenant had given notice. So the estate agent knew they were going to be let out in a few months.

  • So what the estate agent was speaking a truth on the face of it, but giving a false impression. A half-truth.

  • But the estate agent had also said the land was ‘fertile and improvable’. Court said: any land can be fertile and improvable, so that statement is mere puff, can’t found a claim.

  • [[as we will see later, his claim about the half-truth was successful.]] But for now, point is: the mere puff, too vague to found a claim.

• Terms (statements of fact/promises which become a binding term in the contract) = a binding contractual promise, imported into the contract. CF a re

  • A representation can become a term if court decides it is incorporated into the contract. If court finds a term, and it is false can give rise to an action for both breach of contract and misrep.

  • J Evans & Son v Andrea Merzario (1976)

• Representations:

  • Statements of fact somewhere in between.

  • These could be a misrepresentation if not true.

  • Representation can also be a term—if a representation is made which is a statement of fact (eg ‘this motorbike is a 1936 model’), which turns out to be untrue. This would then turn out to be both a term which has been breached; AND a misrepresentation—you could sue for breach and misrep.

Definition of an ‘actionable’ misrep

• An actionable misrep = ‘an unambiguous false statement of fact made to the claimant and which induces the C to enter into a contract with the statement maker’ (Jill Poole, Textbook on Contract Law).

• Effect of an actionable misrep: to make the contract voidable but not void. To avoid the contract, the wronged party must take action to rescind the contract.

1. Unambiguous

2. False

3. Statement of fact or law

4. Addressed to the party misled

5. Material and induces the contract

6. Causes loss

(1) Unambiguous

• McInerny v Lloyds Bank (1974): McInerny was selling to somebody, a Mr T. Mr T’s bank was Lloyd’s Bank. McInerny asked for a guarantee from Lloyds to say he was good for the money. Lloyds wrote to McInerny, saying that the client’s financial arrangements ‘should be to McInerny’s satisfaction’. McInerny went ahead; Mr T defaulted. McInerny sued Lloyds for misrep. Lloyds said: we never actually guaranteed him, we only said ‘should be to your satisfaction’. Court held: not a misrep, Lloyd’s statement did not go far enough to provide a guarantee. Wasn’t clear enough statement, wasn’t unambiguous

• So the representor will not be liable if the representee has placed an unreasonable construction on the representation.

(2) False

• Avon Insurance v Swire Fraser (2000):

• Rix J, ‘substantially correct’ statement is sufficient. A statement doesn’t have to be wholly correct, only substantially. ‘A representation may be true without being entirely correct, provided it is substantially correct’.

• So the statement will not be false if it is ‘substantially’ correct.

(3) Statement of fact or law

• Must be a statement of fact by words or conduct, i.e. distinguished from (1) an opinion, or (2) statement of future intention, and (3) silence.

• Statement of fact:

• This is not a promise—a promise would become a term.

• Kleinwort Benson v Malaysia Mining Corp (1989): a subsidiary of Malaysia Mining wants a loan from Kleinwort Benson bank. Kleinwort wants a guarantee; Malaysia Mining wrote a ‘comfort letter’ to Kleinwort, saying that ‘it is our policy to ensure that our subsidiaries are in a position to meet their liabilities’.

• Kleinwort took that to be a guarantee, and lent money to the subsidiary. Defaulted, Kleinwort sued Malaysia Mining.

• Malaysia Mining said: it was true, at that time that was our policy; but now we’ve changed our policy, we no longer ensure our subsidiaries can meet our liabilities.

• HELD: the statement ‘is it our policy’ is not the same as saying it will continue to be our policy at all times; so it was a true representation, a mere representation, no case for misrep.

• Statement of law:

• Traditionally, a statement of law could not give rise to an actionable misrep; however, now clear a statement of law can give rise to an actionable misrep.

• Pankhania v Hackney LBC (2002)

• Pankhania wanted to buy a car park in Hackney and turn it into flats. Was negotiating with Hackney LBC. Hackney told him that the car park was rented out to a tenant on a licence. He bought it, then discovered it was actually rented out under a protected tenancy, rather than a licence.

• HELD: you misrepresented the legal status of the tenancy; this is a misrepresentation of law.

• NB, a false statement as to the existence of an Act of Parliament is a misrep of fact (West London Commercial Bank v Kitson (1884)).

• Conduct--Attempts at concealment---can amount to misrep: can amount to misrep, even though you haven’t actually said anything.

• Gordon v Selico (1985): the concealment of dry rot was deemed to be a misrep—he actually covered up the dry rot, concealing it = misrepresentation by conduct (different from just silence, which isn’t a misrep, see below).

  • Selico owns a flat; gets a builder to refurbish it before he sells it; builders reports back to Selico he’s found dry rot; seller tells him to cover it up and carry on; Gordon walks in and buys the...

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