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UO Contract law Misrepresentation Notes
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This is a comprehensive and detailed note on Misrepresentation in the syllabus. Also includes all the relevant case law. Essential!! To your success in academics!!
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INTRODUCTIONWHAT IS A ‘MISREPRESENTATION’?
Not all statements made by one party in the negotiations for a contract, which is relied on by the
other party in entering into the contract and which turns out to be false are actionable. Only a
misrepresentation of fact will give rise to liability
Discount ‘mere puffs’: exaggerated sales hype or vague boasts about the subject matter of a
contract are not intended to be relied upon. Such statements do not give rise to liability. But if,
judging the matter objectively, the court thinks that the statement was intended to be taken
seriously, it will not be dismissed as a mere puff even if it is extravagant. For example, in Carlill v
Carbolic Smoke Ball, the advertisement that a £100 reward will be paid by the manufacturers to
anyone who contracts influenza after using the ball three times daily for two weeks according to
the printed directions was held not to be a ‘mere puff’, because the deposit of £1000 in the bank
evidenced seriousness.
- Eg Esso v Marden [1976] where inaccurate estimate of the station’s throughput, opinion, but
held to not to be a puff due to RELATIVE EXPERTISE of the person making the statement
- Cf Dimmock v Hallett (1866) where “fertile and improvable land” held to be a mere puff
Misrepresentation sits alongside other ‘vitiating factors’ – which make the contract voidable (i.e.
subject to the remedy of rescission). In addition, there may be the possibility of recovering
damages
CATEGORISING A STATEMENT MADE IN NEGOTIATIONS – IS IT A TERM
OR A MERE REPRESENTATION?
We are considering statements made by one of the contracting parties about the contractual subject
matter, such as assurances that it possesses a certain quality or attribute. These are not statements
in which one of the contracting parties promises what they will or will not do.
Some of these statements are terms (I promise it is a Constable). Others are representations (it is a
Constable).
(B) WHY DOES IT MATTER?
(i) The remedy will be different if the statement turns out to be false
To obtain damages on the expectation measure, the representee might contend that a pre-
contractual misrepresentation has become a term within the main contract or a collateral
warranty.
- Only a collateral warrenty if Lightman J. in Inntrepreneur Pub v East Crown [2000] endorsed
at [23] in Business Environment Bow Lane v Deanwater Estates [2007] (No collateral
warrenty arose, :
1. Parties must have intended it to be a collateral warranty. Intention is a question of fact to
be decided by looking at the totality of the evidence
, 2. the test is the ordinary objective test for the formation of a contract: what is relevant is
not the subjective thought of one party but what a reasonable outside observer would
infer from all the circumstances;
3. in deciding the question of intention, one important consideration will be whether the
statement is followed by further negotiations and a written contract not containing any
term corresponding to the statement. In such a case, it will be harder to infer that the
statement was intended to have a contractual effect because the prima facie assumption
will be that the written contract includes all the terms the parties wanted to be binding
between them;
4. a further important factor will be the lapse of time between the statement and the
making of the formal contract. The longer the interval, the greater the presumption must
be that the parties did not intend the statement to have contractual effect in relation to
a subsequent deal;
5. a representation of fact is much more likely intended to have contractual effect than a
statement of future fact or future forecast.”
If it’s a mere misrepresentation, damages are available under the 1967 Act, but calculated on
the less favourable tort measure: to put C into the position he’d have been in if the
representation had not been made and not if the representation was true. The claimant can
only recover damages where the defendant was at fault.
(ii) Strict liability applies to contractual terms, but if it is a mere misrepresentation D does not have
to pay damages if he had reasonable grounds to believe that the statement was true.
(C) HOW TO TELL THE DIFFERENCE: DEPENDS ON THE PARTIES’
INTENTION, JUDGED OBJECTIVELY
Statement can only be a term provided it appears on the evidence to be so intended. Intention is
judged objectively and ‘can only be deduced from the totality of the evidence” (Lord Moulton in
Heilbut v Buckleton [1913] –ultimate test is INTENTION, OBJECTIVELY ASCERTAINED, also illustrated
by Leggatt J in Yam Seng Pte Ltd v International Trade Corp (2013))
(D) FACTORS COMMONLY TAKEN INTO ACCOUNT
Timing of the statement
The lapse of time between the statement and the making of the formal contract will be significant.
“The longer the interval, the greater the presumption must be that the parties did not intend the
statement to have contractual effect in relation to a subsequent deal” (Lightman J stated in
Inntrepreneur v East Crown [2000])
A further important consideration will be whether the statement is followed by further negotiations
and a written contract not containing any term corresponding to the statement. In such a case, it will
be harder to infer that the statement was intended to have contractual effect, because the prima
facie assumption will be that the written contract includes all the terms the parties wanted to be
binding between them.
Importance of statement
The more important the statement is to contracting parties, the more likely it is to be considered a
term (Bannerman v White [1861] where buyer asked if hops was treated with sulphur and said would
, not buy them if hops treated with sulphur as cannot make beer. Seller assured buyer hops not
treated with sulphur. Held statement that hops not treated with sulphur was a TERM and not a
MISREPRESENTATION as C had communicated the importance of the term and relied on the seller’s
statement)
A really trivial representation might not influence the claimant’s decision to enter the contract at all
and thus will not trigger the remedies for misrepresentation, even if false.
Relative expertise of parties
Where an expert makes a statement to an amateur, the statement is more likely to be a term of the
contract, whereas if an amateur makes a statement to an expert, the statement is more likely to be a
mere representation.
In Esso v Mardon [1976], Esso owned a petrol station and was negotiating with Mardon to grant him
a tenancy. Esso gave Mardon an inaccurate estimate of the station’s throughput. Mardon took the
tenancy but lost money and gave up the business. Esso brought proceedings to repossess the petrol
station and Mardon counterclaimed for damages, arguing that Esso was liable for breach of warranty
and/or negligent misrepresentation. Esso’s statement appeared to be a mere statement of opinion.
But the CA held that, because of Esso’s relative expertise compared with Mardon, they must be
deemed to have warranted that the forecast was made with reasonable care and skill.
Esso v Marden is an illustration of the objective version of intention at work. Such a warranty was not
what Esso intended to give, judged subjectively, but is what it is taken to have intended.
Esso v Marden also illustrates a representation of fact is much more likely to have contractual effect
than a statement of future fact or future forecast.
External verification
If the defendant encouraged the claimant to rely on his assurance without seeking external
verification of its accuracy, this will readily persuade the court that the statement was a term of the
contract. Where, on the other hand, the defendant encourages external verification, this will suggest
that, judged objectively, the parties intended the opposite.
In Ecay v Godfrey [1947], E bought a boat from G for £750. The boat was in an appalling condition,
and E resold her for only £45. E claimed damages, alleging that G had warranted that she was in good
condition. G was a boat expert, while E was an amateur. The judge held that G’s statements were
mere representations, first since on the facts he doubted that G had actually given the unequivocal
assurances alleged and second, even if he had, he had also asked E whether he was planning to
have a survey. The judge reasoned it would have been inconsistent for G to recommend a survey if
he was intending to warrant that the boat was in good condition.
ELEMENTS OF AN ACTIONABLE MISREPRESENTATION
A material false representation of fact (or law), addressed to the party misled, which he relies on
(which induces him) to enter into the contract.
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