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Misrepresentation: With V O'Flanagan
Misrepresentation: With V O'Flanagan
There a duty imposed not to make any false statements of fact or law to the other contracting party and to induce them
to enter into the contract.
Inducement
If the misrepresentation would have induced a reasonable person to enter into the contract, then the court will presume
that it did induce the representee to enter into the contract. (Question of fact)
It must induce the actual claimant into the contract.
The claimant must establish that the representation played a ‘real and substantial’ part in inducing him to enter into the
contract. He must prove that ‘but for such representation’ he ‘would not have entered into the contract on the terms on
which he did’.
There are 3 situations in which a claimant will be unable to show that the representation induced the contract:
1. Where the claimant was unaware of the existence of the representation.
2. Where the claimant knew that the representation was untrue
3. The claimant did not allow the representation to influence his judgment. (if he thinks it’s unimportant or if he
relies on his own judgment).
Types of misrepresentation
There are 4 types of misrepresentation and they give rise to different remedies (they all entitle to rescind the contract
but not all can claim for damages).
1. Fraudulent misrepresentation
It constitutes the tort of deceit. Deceit is difficult to prove, and it should not be alleged unless there are good
grounds to believe that fraud has indeed been practiced. Fraud is not lightly invoked in the courts.
Derry v Peek
It was established that:
There must be proof of fraud
Fraud is proved when it is shown that a false representation has been made (i) knowingly or (ii) without
belief in its truth or (iii)recklessly, careless whether it be true or false.
If fraud bis proved, the motive of the person guilty of it is immaterial
2. Negligent misrepresentation
There are actions available for non-fraudulent misrepresentations at both common law and statute.
Common law
It’s for the representee to prove that his representor was negligent.
Liability for misrepresentation was expanded in:
Hedley Byrne v Heller
The claimant was an advertising agency who booked substantial advertising space on behalf of his client, on
terms that he was personally liable if this client defaulted. They had asked the defendants bank for a reference
on one of its clients, which was a customer of the bank. They replied that this client was ‘considered good for its
ordinary business transactions’. In reliance upon this statement, the claimants placed orders which resulted in a
loss of £17,000 for them because their client was unable to reach their obligations. The claimants held that the
defendants were liable in damages for being negligent. Their claim failed because the defendants had provided
the reference ‘without responsibility’. However, the important thing is that the House of Lords would have
allowed the claim to succeed had it not been for the disclaimer.
Statute
S 2 (1) of the Misrepresentation Act 1967 says that were a misrepresentation has been made by one contracting
party to another, the party making the misrepresentation is liable to the other in damages unless he can prove
that he had reasonable grounds to believe that his statement was true.
Differences between common law and statute:
Statute:
Burden of proof on defendants
Contract required
No special relationship required
Common law:
Burden of proof on claimant
No contract required
Special relationship required
3. Innocent misrepresentation
It’s a representation is neither negligent nor fraudulent. It’s one that is made in the belief that it is true and that
there are reasonable grounds for that belief.
Remedies