Explain what amounts to a misrepresentation under the law of contract.

Misrepresentation can be summarised as a false statement of fact made by one party to another party and which has the effect of inducing that party into a contract.

Grade: A-C | £0.00.

 

A number of elements must be established in order for a statement to amount to a misrepresentation. Not every statement made at the time of entering into a contract forms part of the contract. If a statement does not form part of a contract then it follows that it can not be relied upon. It does not follow that a claim can be brought just because something that was said turns out to be untrue. The courts have laid down rules regarding what amounts to a misrepresentation and, as a result, misrepresentations may be defined.

 

The elements may be summarised as a statement of material facts made by one party to the contract to the other party before or at the time of formation and which was intended to operate as an inducement to encourage the other to enter into the contract and that the statement did operate in such a way; the statement not being intended as a binding obligation and was falsely stated.

 

The representation must be of a material fact if it is to be actionable and this was illustrated by the case of Bisset v Wilkinson (1927) which involved the purchase of some land for use as a sheep farm. The claimant relied upon a statement by the seller that he estimated that the farm land would be sufficient for 2,000 sheep. However the seller had not used the farm land as a sheep farm himself. The land was duly purchased but it transpired that the estimate was wrong and the claimant brought an action for misrepresentation. The Privy Council held that the statement only amounted to a matter of opinion and not a statement of fact and as a result was not actionable. The claimant's action failed.

 

Expressions of future intention are not the same as statements of fact and are not actionable but the case of Edgington v Fitzmaurice (1885) showed that, on occasions, expressions of opinion could amount to statements of fact. In the case in question the directors of a company issued a prospectus inviting subscriptions for debenture bonds as they wished to raise capital. According to the prospectus the capital was intended for altering their buildings, buying horses and vans and expanding into supplying fish. In reality however the company was in financial trouble and the money was needed to pay off debts. The claimant (Mr Edgington) bought some bonds hoping that he would obtain a charge on the company property. He did not obtain such a charge but it was accepted that he would have bought the bonds anyway.

 

The matter reached the Court of Appeal. The court held that the content of the prospectus amounted to a statement of intention but nevertheless was also a statement of fact in that what had been said was the object of the debentures which amounted to a statement of fact which was not true and therefore actionable. The belief that the claimant thought that he would obtain a charge on the company property was not the only reason for his investment and he had relied upon what was stated in the document regarding the purported use of the capital. The case supports the view that the misrepresentation need not be the sole reason for entering into the contract.

The famous case of Carlill v Carbolic Smoke Ball Co (1893) reminds us that we accept that not all statements, boasts or 'mere puffs' are intended to form part of the contract and a statement will not be binding if, in the court's consideration, it was not meant to be taken seriously. In this case the fact that Carlill had deposited funds necessary to meet any claim showed that the company were preparing themselves for the eventuality of claims being made. This was sufficient to show that what was advertised was more than a 'mere puff' or boast and was actionable. The case also serves to show us that offers to the whole world are capable of being accepted.

 

The case of Carlill also showed that conduct was sufficient evidence of acceptance of an offer so it was perhaps not surprising that misrepresentation can result from conduct as well as express verbal or written statements.

 

In Spice Girls Ltd v Aprilia World Service (2002) the Spice Girls had made a misrepresentation by conduct when they participated in a photo shoot to promote a contract with Aprilia. At the time of entering the contract Aprilia believed that all the Spice Girls would remain members of the group until the end of the tour. However, at the time of entering the contract, the Spice Girls were aware that Geri Halliwell, one of the members of the group, was going to leave the group on 27 May 1998. Aprilia claimed that the Agreement had been induced by misrepresentation. Misrepresentation had also taken place, according to the Court of Appeal, by the group members participating in such things as logos, images and other material which suggested that there were five members of the Spice Girls.

 

The misrepresentation needs to be made by a party or their agent and not a stranger or third party (Peyman v Lanjani (1985)). This involved an agent arranging a £10,000 deal rather than Lanjani himself. When the claimant realised he successfully appealed and the contract was rescinded.

 

The inducement also needs to be sufficiently important to the making of the contract. In JEB Fasteners v Mark Bloom (1983) the misrepresentation complained of took the form of some audited accounts, and the court took the view that, as long as the misrepresentation played a real and substantial part in the inducement, that was all that needed to be established. It was not necessary to then go on and show that the misrepresentation was the sole cause of the party entering into the contract.

 

The claimant must show that they were actually induced, as this, in effect, is evidence of cause and this is important in the sense that a remedy in the form of rescission or damages may be at stake. It is difficult to see how a court can find responsibility if the misrepresentation was not effective (Museprime Properties Ltd v Adhill Properties Ltd (1990)). In this case three properties were for sale by auction and the auctioneer had stated in the details that the rental value of the properties was open to negotiation. This was not the case, new rents had been agreed on two of the properties previously. It was held that misrepresentation had occurred and there were grounds for rescission and the claimants were awarded the return of their deposit and damages in respect of money they had lost on conveyancing expenses incurred and interest.



A claim is likely to fail if it can be shown that the representation did not come to the attention of the intended 'victim', as it can hardly be a substantial factor in any decision to enter into the contract if the inducement did not come to the knowledge of the other party.

 

It is also possible that the intended 'victim' has knowledge which shows the inducement to be untrue or that it was not taken seriously by the party in question in which case any claim is also likely to fail.

 

It can be seen there are some representations which do not necessarily give rise to a claim for misrepresentation. This is because the courts have established a series of rules which define what amounts to a misrepresentation for the purposes of a claim in contract for rescission or damages. The courts in so doing are attempting to strike the right balance – if the law was perceived as too wide and therefore onerous, some might argue that this would stifle business activity if any discrepancy was capable of giving rise to a claim. Whereas if the law were too narrow and restricted, this might make it so difficult to succeed as to be unhelpful and unfair.

 

 

(Word count 1323)

 

Spice Girls Ltd v. Aprilia World Service BV [2002]

Derry v Peek [1889] UKHL - British and Irish Legal Information

Doyle v Olby (Ironmongers) Ltd [1969] - British and Irish Legal

Smith New Court Securities v Scrimgeour Vickers - British

Carlill -v- The Carbolic Smoke Ball Company YouTube



 

In this essay we look at some of the elements that must be established in order for a statement to amount to a misrepresentation. We look at the following cases:

 

Bisset v Wilkinson (1927)

 

Edgington v Fitzmaurice (1885)

 

Carlill v Carbolic Smoke Ball Co (1893)

 

Spice Girls Ltd v Aprilia World Service (2000)

 

Peyman v Lanjani (1985)

 

JEB Fasteners v Mark Bloom (1983)

 

Museprime Properties Ltd v Adhill Properties Ltd


As always the essay lends itself to further research.


(Word Count 1323)

 

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