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Simple notes on the Misrepresentation Act
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Simple, clear, and concise notes on the Misrepresentation Act
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Lecture notes Contract Law (LAW1030) Contract Law, ISBN: 9780198855293
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Simple notes on Misrepresentation
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Contract LawLecture 14 – Misrepresentation Act
THE MISREPRESENTATION ACT 1967
Reading: McKendrick Chapter 17 parts 4-5
The ACT: INTRODUCTION
- Section 1: treating a contract term as a misrepresentation.
- Section 2(1): fraudulent, negligent and innocent misrepresentation
Fraudulent misrepresentation (act refers to fiction of fraud)
Derry v Peek (1889) 14 App Cas 337
Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158
East v Maurer [1991] 2 All ER 733
- Section 2(1) continued
Negligent misrepresentation/statutory
Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavation) Ltd [1978] QB 574
Royscot Trust v Rogerson [1991] 2 QB 297
Gran Gelato Ltd v Richcliff (Group) Ltd [1992] 1 All ER 865
Innocent misrepresentation (pre Act)
Whittington v Seale-Hayne (1900) 82 LT 49
Rescission
Car & Universal Finance Co Ltd v Caldwell [1965] 1 QB 525
- Section 2(2): the discretion to award damages in lieu of rescission
William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016
Common law bars to rescission
- Section 3: exemption of liability subject to a test of reasonableness
Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1355
Cremdean v Nash (1977) 244 EG 547
First Tower Trustees Ltd v CDS (Superstores International) Ltd (2018)
Beyond section 3
Misrepresentation Act 1967
Section 1 Removal of certain bars to rescission for innocent misrepresentation.
Where a person has entered into a contract after a misrepresentation has been made to him,
and—
(a) the misrepresentation has become a term of the contract; or
(b ) the contract has been performed; or both, then, if otherwise he would be entitled to
rescind the contract without alleging fraud, he shall be so entitled, subject to the provisions of
this Act, notwithstanding the matters mentioned in paragraphs (a) and (b) of this section.
Note the history
▪ Remember your cases on incorporation where parties sought to argue statements had
become terms..
▪ This reflected the fact that prior to the passing of the Misrepresentation Act 1967 there were
no damages for misrepresentation unless it was fraudulent. The standard remedy for
,Contract Law
misrepresentation was rescission, which means the retroactive dismantling of the contract,
and involves the return of its subject matter and the repayment of the price.
▪ Problem: there are lots of bars to rescission-see below and nicer to sue for damages than
recission because with recission you can lose
▪ Note a party cannot claim to terminate for breach of warranty which is also a pre contractual
rep- section 2(2) gives a court the discretion to refuse rescission for any non-fraudulent
misrepresentation where that remedy would be inappropriate.
- You can't terminate the contract for a term that is just a warranty
See below
Section 2(1) Damages for misrepresentation: the fiction of fraud
2(1) Where a person has entered into a contract after a misrepresentation has been made to
him by another party thereto and as a result thereof he has suffered loss, then, if the person
making the misrepresentation would be liable to damages in respect thereof 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 and did believe up to the time the contract was made the facts represented
were true.
NB take it apart as I have done…
Fraudulent, negligent and innocent misrepresentation
- Section 2(1) creates a new misrepresentation – negligent misrep (statutory misrep)
▪ Section 2(1) of the 1967 Act creates a new type of misrepresentation. It can be described, as
“negligent misrepresentation” but not always correct and note negligent misrepresentation is
always to be distinguished rigorously from negligent misstatement at common law. (I call it
statutory misrep)
▪ Section 2(1) liability sets out a fiction of fraud: reference to fraudulent misrepresentation,
and contains a defence which downgrades negligent to innocent misrepresentation if it is
made out by the defendant therefore- before looking more closely at s 2(1) one should
explore all three types of misrepresentation.
Fraudulent misrepresentation
- A sub-category of the broader tort of deceit.
- Deceit covers any use of fraud which causes loss to the person deceived.
- Fraudulent misrepresentation is present where the innocent party has entered into a
contract with the fraudster. The remedies for fraudulent misrepresentation are
rescission and/or damages.
- Fraud must be strictly proved
- Difficult to establish
- Depends on state of mind
- Best to chose a different cause of action if possible ie s 2(1) rather than going
through the hoops of proving fraud
Derry v Peek (1889)
▪ The defendants (directors of a tram company) issued a prospectus for shares in connection
with the opening of new tramways. Stated they had the right to power the trams mechanically
instead of using horses. This was incorrect; in fact the consent of the Board of Trade was
required for the use of steam or mechanical power. Consent was refused, and the company
was wound up. The plaintiff, who had bought shares in the company on the strength of the
prospectus, brought an action for damages for deceit.
, Contract Law
▪ The House of Lords held that the action must fail, since fraud had not been made out.
The directors had assumed, honestly but mistakenly, that the giving of consent by the Board
of Trade was a formality. This was reprehensible on their part, since they had no grounds for
their assumption, but it was not dishonest.
▪ Note Lord Herschell
- If fraudulent representation is made as a deliberate or reckless
Measure of damages in fraudulent misrep
The only limit on recovery is that loss must be shown to have been caused by the fraudulently
induced transaction.
Doyle v Olby (Ironmongers) Ltd (1969)
The plaintiff bought a business from the defendant, who told him fraudulently that all the
activity of the business was “over the counter”. This was false, since half the turnover was
achieved by a travelling salesman. The plaintiff made heavy losses from the business, and
brought an action in the tort of deceit.
Held in CA: The measure of damages is all of the loss directly flowing from the fraudulent
inducement, including consequential losses.
No need for the damages to have been reasonably foreseeable.
Thus, C entitled to (i) money paid for the business, and (ii) all expenses and loss incurred in
trying to run the business, giving credit only for the proceeds of sale of the business.
East v Maurer [1991] 1 WLR 461
- D owned two hair-dressing salons in the same area. Represented to C that if she
bought one,
- D had no intention of working at the other, but intended to move abroad. After the
sale, D worked full-time at the other salon, and took much of his clientele there with
him.C ran business at a loss until she could sell it, years later, at a further loss.
▪ Action in deceit for damages. Held:
In addition to damages for the fall in value of the business, the expenses of buying and selling
it, the trading losses incurred, the costs incurred in trying to improve the business, and
general damages for disappointment and inconvenience; C could also recover damages for
the lost opportunity cost, viz for any profits that she might have earned has she bought
another, similar business in the same area and run it in the normal way, instead of buying D’s
business.
▪ The correct measure of damage is therefore reliance loss, not expectation loss.
Negligent/statutory misrep –
Misrepresentation Act 1967, s 2(1) (again)
2 Damages for misrepresentation.
(1) Where a person has entered into a contract after a misrepresentation has been made to him
by another party thereto and as a result thereof he has suffered loss, then, if the person
making the misrepresentation would be liable to damages in respect thereof 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 and did believe up to the time the contract was made the facts represented
were true.
▪ This oddly drafted provision, based on what has become known as “the fiction of fraud”,
creates a new misrepresentation action not previously known to the law. Clearly it is not
fraudulent misrepresentation. Nor is it innocent misrepresentation since to show that the
misrepresentation was innocent amounts to a defence to this new form of liability, even
though liability for innocent misrepresentation will of course remain. What is left is
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