Misrepresentation: With V O'Flanagan

MISREPRESENTATION
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.
A distinction must be made between a promise and a representation:

 A promise is a statement by which the maker of the statement accepts or appears to accept an obligation to do
or not to do something.
 A representation is a statement which simply asserts the truth of a given state of facts.
It is statement of fact which induces the other party to enter into the contract or otherwise act to his detriment.
The representor does not promise anything he simply asserts the truth of his statement and invites reliance
upon that statement. If his statement of fact is false, then it is a misrepresentation.
Definition
Misrepresentation is an unambiguous, false statement of fact or law, which is addressed to the party misled, and which
induced that party to enter into the contract.
False statement of fact or law

Traditionally the statement had to be of fact but now misrepresentation of law can constitute an actionable
misrepresentation.
A statement can be made by word or conduct.
A person is guilty of misrepresentation if he fails to correct a representation which, when made was true, but, to his ow
knowledge, has become false.
With v O’Flanagan
Negotiations for the sale of a medical practice began at a time when the practice was valued at £2000. But the contract
of sale was concluded the practice had become worthless because of the ill-health of the vendor. It was held that the
vendor was under an obligation to disclose the change of circumstances to the buyer. The representation once is made,
it deemed to be a continuing representation, so that once it becomes false and the vendor failes to correct it, it becomes
a misrepresentation.
A statement must be of existing fact. Three categories do NOT constitute statements of existing facts:
1. Mere puff (= a statement which is too vague to be promise or a statement of fact)
Dimmock v Hallett (1866)
A representation that the land was ‘fertile and improvable’ would not, except in extreme cases, be considered as
to entitle the innocent party to rescind the contract.
2. A statement of opinion or belief which proves to be unfounded
3. A statement of intention
But a person who misrepresents his present intention is a matter of fact.
Edgington v Fitzmaurice
Directors of a company invited the public to subscribe for debentures on the basis that the money so raised
would be used to expand the business. In fact, the real purpose in raising the money was to put off company
debts. It was held that the directors were guilty of misrepresentation because they had misrepresented their
actual intention.
Addressed to the party misled

There are two ways in which a representation may be addressed to the party mislead:
- By direct communication of the misrepresentation to the claimant by the representor,
- By the representor to a third party with the intention that it be passed on to the claimant
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
1. Rescission (setting aside the contract)

It’s available for all types of misrepresentation. ‘Rescission for misrepresentation’ entitles to set the contract
aside for all purposes. It does not occur automatically when a misrepresentation is made. The representee can
either rescind or affirm the contract. if he decides to rescind he must bring his decision to the notice of the
representor. This decision whether or not to rescind the contract is one that resides initially with the contracting
parties, not the court.
However, the right to rescind may be lost (where it’s possible to restore the parties to their pre-contractual
position):
 By affirmation of the contract by the claimant after he discovered the truth
 By the intervention of innocent third-party rights, who acted in good faith and gave consideration.
 By lapse of time. When there has been too great a lapse of time before rescission (this may be evidence
of affirmation).
2. Damages
- For fraudulent misrepresentation: damages may be recovered in the tort of deceit. The aim is to put the claimant
in the position he was before the misrepresentation. The defendant is liable for all the losses.
- For negligent misrepresentation at common law: damages can be claimed because it has been committed tort.
The defendant is liable only for the reasonably foreseeable losses.
N.B. Alternatively, the claimant may claim under s2(1) of the Misrepresentation Act 1967. Under this section,
damages are assessed as fraudulent misrepresentation.
- For innocent misrepresentation: there is no common law action. If rescission is available, then damages in lieu
may be available under section 2(2) of the Misrepresentation Act 1967.
Excluding liability for misrepresentation

Section 3 of the Misrepresentation Act 1967 excludes liability for negligent or innocent misrepresentation (NOT
FRAUDULENT!).

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Misrepresentation: With V O'Flanagan

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MISREPRESENTATION

A distinction must be made between a promise and a representation:

False statement of fact or law

Addressed to the party misled

1. Rescission (setting aside the contract)

Excluding liability for misrepresentation

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