LAW OF CONTRACT EXAM REVIEW
Misrepresentation look at seminar notes if in PQ
An actionable misrepresentation: a pre-contractual false statement of material fact, made
either orally, in writing or by conduct, that induces a party to enter into a contract with the
party making the representation
o A misrepresentation is a vitiating factor: where an Actionable Misrepresentation is
established the contract is voidable
Innocent party can choose to end the contract if they wish.
If they wish to end the contract they would do so through the equitable remedy
of Rescission.
Damages may also be awarded whether or not the contract is rescinded.
o Rescission: putting the parties back into the position they were in before the contract
was formed
Available for both fraudulent and innocent misreps, but damages are only
available for fraudulent and not innocent
When will it not be available?
1) A contract cannot be rescinded if the misrepresentee does something
unequivocal, intending to affirm the contract after discovering the truth
2) If the misrepresentee delays too long before rescinding, this will bar
the claim (SEE NOTES FOR CASE LAW ON THIS)
3) Intervening third party rights bar rescission. Once a third party has
gained an interest in property that was the subject of the contract, it is
too late for the representee to rescind
4) The impossibility of restoring the status quo ante bars rescission
Thomas Witter v TBP Industries 1996: TW purchases a carpet business
from TBP, relying on negligent misrepresentation about financial
matters of the business. Tried to rescind but by this time numerous
changes to the organization and personnel of the business had
happened. The judge declined to order rescission, but awarded
damages.
Fraudulent misrep – establishing what was in the mind of the representor is dif
o Lord Herschell in Derry v Peek (1889): ‘Fraud is proved when it is shown that a false
representation has been made (1) knowingly, or (2) without belief in its truth, or (3)
recklessly, careless whether it be true or false.’
o Remoteness and foreseeability are not a factor, as damages for fraud misrep is assessed
under Tort of Deceit
o Ludsin Overseas v Eco3 Capital 2013 set out requirements for deceit:
1) The D marks a false representation to the Claimant
2) The D knows that the representation is false, alternatively he is reckless as to
whether it is true or false
3) The D intends that the Claimant should act in reliance on it
, 4) The C does act in reliance on the representation and in consequence suffers
loss
Misrepresentation Act 1967
o S. 2(1): fiction of fraud: where a person has entered into a contract after a
misrepresentation has been made to him and as a result suffered loss, then, if the
person making the representation would be liable to damages had the
misrepresentation been made fraudulently, that person shall be so liable
notwithstanding that the misrepresentation was not made fraudulently, unless he
proves that he had reasonable ground to believe that the facts represented were true.
IE. damages where the representor did not have reasonable grounds to believe
the representation was true
S. 2(1) can sustain a claim for damages either instead of, or in addition
to rescission of the contract
Burden of proof is reversed in S. 2(1): the misrepresentor is liable unless
he can prove that he had reasonable grounds to believe that the
representation was true he is liable unless he disproves negligence
If the representor would have been liable if he had made the
representation fraudulently, he shall be so liable even though he was
not fraudulent
The defence of contributory negligence: Sir Donald Nicholls VC in Gran Gelato v
Richcliff Ltd (1992), stated, ‘liability under the Misrepresentation Act 1967 is
essentially founded on negligence, in the sense that the representor did not
have reasonable grounds to believe that the facts represented were true.’
S. 2(1) is also known as negligent misstatements: Hedley Byrne v Heller &
Partners (1963) was the landmark case in the tort of negligence.
The case extended scope of tort of negligence to include economic loss
caused by negligent misstatements.
Duty of care would be established where defendant making the
statement had special knowledge, and the statement could be relied
upon, and they knew it would be relied upon. Rule would also apply
where statement was made by party to subsequent contract (Esso v
Mardon (1976)).
o S. 2(2): ‘Where a person has entered into a contract after a misrepresentation has been
made to him otherwise then fraudulently, and he would be entitled by reason of the
misrepresentation to rescind the contract, then, if it is claimed, in any proceedings
arising out of the contract, that the contract ought to be or has been rescinded, the
court may declare the contract subsisting and award damages in lieu of rescission’
Damages cannot be awarded where rescission is not possible (Salt v Stratstone
2016)
Factors that may be relevant as to whether discretion exercised include nature
of misrepresentation; whether misrepresentation was of limited significance
o S. 2(4) consumer contracts: ‘this section does not entitle a person to be paid damages in
respect of a misrepresentation if the person has a right to redress under Part 4A of the
Misrepresentation look at seminar notes if in PQ
An actionable misrepresentation: a pre-contractual false statement of material fact, made
either orally, in writing or by conduct, that induces a party to enter into a contract with the
party making the representation
o A misrepresentation is a vitiating factor: where an Actionable Misrepresentation is
established the contract is voidable
Innocent party can choose to end the contract if they wish.
If they wish to end the contract they would do so through the equitable remedy
of Rescission.
Damages may also be awarded whether or not the contract is rescinded.
o Rescission: putting the parties back into the position they were in before the contract
was formed
Available for both fraudulent and innocent misreps, but damages are only
available for fraudulent and not innocent
When will it not be available?
1) A contract cannot be rescinded if the misrepresentee does something
unequivocal, intending to affirm the contract after discovering the truth
2) If the misrepresentee delays too long before rescinding, this will bar
the claim (SEE NOTES FOR CASE LAW ON THIS)
3) Intervening third party rights bar rescission. Once a third party has
gained an interest in property that was the subject of the contract, it is
too late for the representee to rescind
4) The impossibility of restoring the status quo ante bars rescission
Thomas Witter v TBP Industries 1996: TW purchases a carpet business
from TBP, relying on negligent misrepresentation about financial
matters of the business. Tried to rescind but by this time numerous
changes to the organization and personnel of the business had
happened. The judge declined to order rescission, but awarded
damages.
Fraudulent misrep – establishing what was in the mind of the representor is dif
o Lord Herschell in Derry v Peek (1889): ‘Fraud is proved when it is shown that a false
representation has been made (1) knowingly, or (2) without belief in its truth, or (3)
recklessly, careless whether it be true or false.’
o Remoteness and foreseeability are not a factor, as damages for fraud misrep is assessed
under Tort of Deceit
o Ludsin Overseas v Eco3 Capital 2013 set out requirements for deceit:
1) The D marks a false representation to the Claimant
2) The D knows that the representation is false, alternatively he is reckless as to
whether it is true or false
3) The D intends that the Claimant should act in reliance on it
, 4) The C does act in reliance on the representation and in consequence suffers
loss
Misrepresentation Act 1967
o S. 2(1): fiction of fraud: where a person has entered into a contract after a
misrepresentation has been made to him and as a result suffered loss, then, if the
person making the representation would be liable to damages had the
misrepresentation been made fraudulently, that person shall be so liable
notwithstanding that the misrepresentation was not made fraudulently, unless he
proves that he had reasonable ground to believe that the facts represented were true.
IE. damages where the representor did not have reasonable grounds to believe
the representation was true
S. 2(1) can sustain a claim for damages either instead of, or in addition
to rescission of the contract
Burden of proof is reversed in S. 2(1): the misrepresentor is liable unless
he can prove that he had reasonable grounds to believe that the
representation was true he is liable unless he disproves negligence
If the representor would have been liable if he had made the
representation fraudulently, he shall be so liable even though he was
not fraudulent
The defence of contributory negligence: Sir Donald Nicholls VC in Gran Gelato v
Richcliff Ltd (1992), stated, ‘liability under the Misrepresentation Act 1967 is
essentially founded on negligence, in the sense that the representor did not
have reasonable grounds to believe that the facts represented were true.’
S. 2(1) is also known as negligent misstatements: Hedley Byrne v Heller &
Partners (1963) was the landmark case in the tort of negligence.
The case extended scope of tort of negligence to include economic loss
caused by negligent misstatements.
Duty of care would be established where defendant making the
statement had special knowledge, and the statement could be relied
upon, and they knew it would be relied upon. Rule would also apply
where statement was made by party to subsequent contract (Esso v
Mardon (1976)).
o S. 2(2): ‘Where a person has entered into a contract after a misrepresentation has been
made to him otherwise then fraudulently, and he would be entitled by reason of the
misrepresentation to rescind the contract, then, if it is claimed, in any proceedings
arising out of the contract, that the contract ought to be or has been rescinded, the
court may declare the contract subsisting and award damages in lieu of rescission’
Damages cannot be awarded where rescission is not possible (Salt v Stratstone
2016)
Factors that may be relevant as to whether discretion exercised include nature
of misrepresentation; whether misrepresentation was of limited significance
o S. 2(4) consumer contracts: ‘this section does not entitle a person to be paid damages in
respect of a misrepresentation if the person has a right to redress under Part 4A of the
