MISREPRESENTATION, MISTAKE AND ILLEGALITY
Elements of misrepresentation Common, mutual and unilateral mistake
Fraudulent, negligent and innocent misrep Remedies for mistake
Remedies for misrepresentation Illegality in contract
Misrepresentation= statement that induces a party to enter a contract (but does not form part of it)
Actionable misrepresentation= statement of material fact made prior to the contract by one party
to the contract to the other which is false or misleading and which induced the other party to enter
into contract
Rescind= unmaking of a contractunwinding of transactiondone to bring the parties, as far as
possible, back to the position in which they were before they entered into a contract
Statement of material fact – several statements NOT treated as material fact
Opinion
Mere sales talk
Statement of future intention or conduct
Statements of law
Opinion – false statement of opinion is not a misrepresentation to fact
Bissett v Wilkinson (1927)*: claimant purchased land from for purpose of sheep farming; during
negotiations D said he believed it would be suitable for 2,000 sheep; claimant bought land in that
belief; both parties knew D had not carried on sheep farming on land; land would not hold, in
fact, 2k sheep held it was nothing more than an expression of opinion no actionable
misrepresentation –without fraud, claimant cannot rescind contract
But if party making statement has specialist knowledge or skill, than treated as implied
representation of fact
Smith v Land and House Property Corp (1884)*: Claimant purchased hotel, seller described one
of the tenants as being 'most desirable'. In fact, as seller knew, tenant was on the verge of
bankruptcyHeld to be a statement of fact rather than opinion as the seller was in a position to
know the facts
Sales talk – ‘puff’ not statement of fact court treat such utterances as idle boastsno contractual
significance
Dimmock v Hallett (1866)*: during negotiation of land, land was described as ‘fertile and
improvable’ Held: statement had insufficient substance to be classed as a representation
Carlill v Carbolic Smoke Ball
Statement of future intention or conduct
Statement of future intention is a speculation rather than fact; if statement of future intention
represents actual intention then it can be treated as a misrepresentation of fact
Edgington v Fitzmaurice (1885)*: claimant was shareholder received request for loans of £25k
with interest to grow their business by the directors but money was used, in fact, to pay off
company debts, not to grow firm claimant claimed repayment of money as it had been
obtained by misrepresentation Held: untrue statement as to future intention was a
misrepresentation of fact
Statements of law
Normally false statement of law cannot amount to misrep as there is presumption everyone knows
the law – BUT as distinction between fact and law is not always care can be hard to distinguish
statement of law and fact
1
, Solle v Butcher(1950)*: before Second World War, a house was converted into flats; after war D
leased building with intention to repair bomb damage; claimant and D discussed rents to be
charged after work completed; D stated flat had become a new separate dwelling by reason of
change of identity so was not subject to Rent Restrictions Acts Held: it was a statement of
fact therefore actionable
But following Pankhania v London Borough of Hackney (2002), misrepresentation of law can
amount to an actionable misrepresentation – facts: commercial property for sale by auction sold
subject to a ‘licence’ which was terminable on three months’ notice court held ‘licence’ was
actually a tenancy which is protected under Part 2 of Landlord and Tenant Act 1954 court held
misrepresentation as to the legal character of the ‘licence’
Non-disclosure of information and silence
Silence cannot amount to misrepresentation NO duty for a party, who is about to enter contract,
to disclose material facts known
Keates v Cadogen (1851)*: landlord who was letting house did not tell tenant it was in ruinous
condition Held: failure to disclose material information was held not to be a misrepresentation
But courts can decide there is a duty to disclose – Sybron Corporation v Rochem (1984) which
involved the ‘covering up and deliberate concealing’ of a defect
Rule of silence does not amount to misrep has some exceptions
Contract of utmost good faith (uberrumae fidei)
Where there has been a change in circumstances
Half-truths
Where there is a fiduciary (trust) relationship
Contract of utmost good faith (uberrumae fidei)
Duty to disclose all material facts – typically arises where one part is in strong position to know truth
and other in weak position – likely to happen in:
Contracts of insurance: duty on insured party to disclose all material of facts to the insurer and
that the insurance premium is to be paid on that risk insurance contracts are voidable if no full
disclosure of facts
Contracts involving family arrangements: e.g. dividing family property on death or divorce
Contracts for sale of land + Contracts for sale of shares
Change in circumstances
Statement was true when it was made, but became false by time contract was formed
With v O’Flanagan (1936)*: during negotiations for sale of a medical practice, the vendor made
representations that it was worth £2k a year, when contract was signed (4months later) it was
worth £250 as vendor fell illHeld person who knows of change of circumstance is under
obligation to discloseamounted to misrepresentation
Half-truths
Where statement does not represent whole truth – some facts are notamounts to
misrepresentation
Notts Patent Brick and Tiles Co v Butler (1886): purchaser of proper asked vendor’s solicitor
whether land was subject to any restricting covenants, solicitor replied he was not aware of any –
although this was true, lack of awareness was due to failure to read relevant documents
amounted to misrepresentation
Fiduciary (trust) relationship
E.g. agent and principle; solicitor and client; partners in partnership; doctor and patient
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Elements of misrepresentation Common, mutual and unilateral mistake
Fraudulent, negligent and innocent misrep Remedies for mistake
Remedies for misrepresentation Illegality in contract
Misrepresentation= statement that induces a party to enter a contract (but does not form part of it)
Actionable misrepresentation= statement of material fact made prior to the contract by one party
to the contract to the other which is false or misleading and which induced the other party to enter
into contract
Rescind= unmaking of a contractunwinding of transactiondone to bring the parties, as far as
possible, back to the position in which they were before they entered into a contract
Statement of material fact – several statements NOT treated as material fact
Opinion
Mere sales talk
Statement of future intention or conduct
Statements of law
Opinion – false statement of opinion is not a misrepresentation to fact
Bissett v Wilkinson (1927)*: claimant purchased land from for purpose of sheep farming; during
negotiations D said he believed it would be suitable for 2,000 sheep; claimant bought land in that
belief; both parties knew D had not carried on sheep farming on land; land would not hold, in
fact, 2k sheep held it was nothing more than an expression of opinion no actionable
misrepresentation –without fraud, claimant cannot rescind contract
But if party making statement has specialist knowledge or skill, than treated as implied
representation of fact
Smith v Land and House Property Corp (1884)*: Claimant purchased hotel, seller described one
of the tenants as being 'most desirable'. In fact, as seller knew, tenant was on the verge of
bankruptcyHeld to be a statement of fact rather than opinion as the seller was in a position to
know the facts
Sales talk – ‘puff’ not statement of fact court treat such utterances as idle boastsno contractual
significance
Dimmock v Hallett (1866)*: during negotiation of land, land was described as ‘fertile and
improvable’ Held: statement had insufficient substance to be classed as a representation
Carlill v Carbolic Smoke Ball
Statement of future intention or conduct
Statement of future intention is a speculation rather than fact; if statement of future intention
represents actual intention then it can be treated as a misrepresentation of fact
Edgington v Fitzmaurice (1885)*: claimant was shareholder received request for loans of £25k
with interest to grow their business by the directors but money was used, in fact, to pay off
company debts, not to grow firm claimant claimed repayment of money as it had been
obtained by misrepresentation Held: untrue statement as to future intention was a
misrepresentation of fact
Statements of law
Normally false statement of law cannot amount to misrep as there is presumption everyone knows
the law – BUT as distinction between fact and law is not always care can be hard to distinguish
statement of law and fact
1
, Solle v Butcher(1950)*: before Second World War, a house was converted into flats; after war D
leased building with intention to repair bomb damage; claimant and D discussed rents to be
charged after work completed; D stated flat had become a new separate dwelling by reason of
change of identity so was not subject to Rent Restrictions Acts Held: it was a statement of
fact therefore actionable
But following Pankhania v London Borough of Hackney (2002), misrepresentation of law can
amount to an actionable misrepresentation – facts: commercial property for sale by auction sold
subject to a ‘licence’ which was terminable on three months’ notice court held ‘licence’ was
actually a tenancy which is protected under Part 2 of Landlord and Tenant Act 1954 court held
misrepresentation as to the legal character of the ‘licence’
Non-disclosure of information and silence
Silence cannot amount to misrepresentation NO duty for a party, who is about to enter contract,
to disclose material facts known
Keates v Cadogen (1851)*: landlord who was letting house did not tell tenant it was in ruinous
condition Held: failure to disclose material information was held not to be a misrepresentation
But courts can decide there is a duty to disclose – Sybron Corporation v Rochem (1984) which
involved the ‘covering up and deliberate concealing’ of a defect
Rule of silence does not amount to misrep has some exceptions
Contract of utmost good faith (uberrumae fidei)
Where there has been a change in circumstances
Half-truths
Where there is a fiduciary (trust) relationship
Contract of utmost good faith (uberrumae fidei)
Duty to disclose all material facts – typically arises where one part is in strong position to know truth
and other in weak position – likely to happen in:
Contracts of insurance: duty on insured party to disclose all material of facts to the insurer and
that the insurance premium is to be paid on that risk insurance contracts are voidable if no full
disclosure of facts
Contracts involving family arrangements: e.g. dividing family property on death or divorce
Contracts for sale of land + Contracts for sale of shares
Change in circumstances
Statement was true when it was made, but became false by time contract was formed
With v O’Flanagan (1936)*: during negotiations for sale of a medical practice, the vendor made
representations that it was worth £2k a year, when contract was signed (4months later) it was
worth £250 as vendor fell illHeld person who knows of change of circumstance is under
obligation to discloseamounted to misrepresentation
Half-truths
Where statement does not represent whole truth – some facts are notamounts to
misrepresentation
Notts Patent Brick and Tiles Co v Butler (1886): purchaser of proper asked vendor’s solicitor
whether land was subject to any restricting covenants, solicitor replied he was not aware of any –
although this was true, lack of awareness was due to failure to read relevant documents
amounted to misrepresentation
Fiduciary (trust) relationship
E.g. agent and principle; solicitor and client; partners in partnership; doctor and patient
2
