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Summary Contract Law Case Law Summaries ( vitiating elements)
- Module
- Contract Law (4FFLK902)
- Institution
- Kings College London (KCL)
Contract Law Case Law Summaries ( vitiating elements)
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CONTRACT LAW – VITIATING ELEMENTS CASE LIST1. MISREPRESENTATION
(i) The difference between misrepresentations and warranties
Heilbut, Symons & Co v Buckleton [1913]
Facts
The defendants, Heilbut et al, were merchants during the rubber
trade boom of the 1910’s who claimed to underwrite shares in a
rubber trading corporation (‘Filisola Rubber and Produce Estates
Ltd’). The claimant, Buckleton, contacted this corporation to enquire
about shares purchasing, to which a manager at Heilbut et
al responded positively, insinuating the creation of a new rubber
company, which persuaded Buckleton to make a sizable purchase
for shares in the organization. The subsequently formed rubber
production company proved to have far fewer available resources
than anticipated and thus suffered greatly in its initial performance,
causing Buckleton to sue for breach of warranty as the company’s
original representation had implicated far greater resources.
Issue
Whether the defendant’s agent’s remarks as to the new rubber
company’s resource pool could be considered a simple
representation or a binding contractual promise.
Held
At first instance, the Court contended that Heilbut et al had made an
innocent misrepresentation, however, upon appeal it was
determined that no fraudulent misrepresentation had occurred as
the defending party had not been ‘reckless’ as to the truth of the
statement regarding their resources pool and further there was no
clear intent that their remarks regarding their resources should
amount to a binding contractual promise to act in parallel to their
written agreement.
- Objective test is used to determine whether a word or phrase is a
term or a representation.
Oscar Chess Ltd v Williams [1957]
Facts
The defendants sold a Morris car to the claimants, who were motor
traders, for £290. The defendants provided a copy of the vehicles
first registration indicating that the car was first registered in 1948.
Some eight months later the claimants became aware that the car
had actually been registered in 1939 and was therefore only worth
£175. The defendant honestly believed that the car was a 1948
model. The claimants claimed damages for breach of contract.
, Issue
The issue in this context was whether the statements given by the
defendants constituted a warranty as to the age of the car.
Held
The Court of Appeal found that the defendants’ comments did not
constitute a warranty. More importantly, the court set out a number
of considerations that should be made when assessing whether a
statement is a warranty. (1) Where an assumption is fundamental to
a contract, it does not mean that it is a term of the contract. (2) The
term warranty means a binding promise as well as a subsidiary,
non-essential, term of a contract. (3) A warranty must be
distinguished from an innocent misrepresentation. (4) Whether a
warranty is intended must, judged objectively, be based on the
parties’ words and behaviour. (5) Where one party makes a
statement, which should be within his own knowledge, but not the
knowledge of the other, it is easy to infer a warranty. If the party
states that it is not within his knowledge and is information passed
from another, a warranty is less easily inferred. (6) An oral
representation repeated in writing suggests a warranty, but the
issue is not conclusive. Neither is the fact that it is not stated in
writing.
(ii) The requirements of an actionable misrepresentation
Lambert v Co-Operative Insurance Society Ltd [1975]
Dimmock v Hallet [1860]
Facts
In selling some farm land, the defendant told the claimant that
all of the farms were under tenancy, which was factually true
The defendant failed to mention that all of the tenants had given
notice to vacate their land
Issue
Could the contract of sale be rescinded?
Held
The Court of Appeal held that although the statement about the
land being "fertile and improvable" was merely a "flourishing
description" and did not entitle the buyer to rescind, telling only a
half truth about the tenants constituted good grounds for unwinding
the contracts.
Gordon v Sellico (1986)
, Facts
The claimant purchased a long lease of a flat from the first
defendant and of which the second defendant was the managing
agent. The flats were already in poor repair at the time of the
purchase and subsequently the second defendant made no
attempts to fulfil its maintenance obligations. The building was
ultimately found to be badly affected by dry rot and the local
authority served a dangerous structure notice. The claimant sought
damages for deceit on the basis that a contractor had fraudulently
hidden details of the dry rot at the time of the purchase when
carrying out work ordered by the second defendant on the first
defendant’s behalf. This claim was successful at first instance and
the judge also found that the defendants were both in breach of
their maintenance obligations under the Housing Act 1974. The
defendants did not appeal on the basis that there had been no
deceit, but rather that this should not be imputed on them.
Issue
The issue in this context was whether the deceit of the contractor
instructed and employed by the defendants could be imputed on
them.
Held
The Court of Appeal dismissed the defendants’ appeal, but on
different grounds from those found at first instance. The second
defendant had become a party to the contractor’s fraudulent
misrepresentation as a result of its controlling shareholding in the
property, and the authority for this was conferred on the second
defendant by the first. The defendants were therefore liable for this
fraudulent misrepresentation. The defendants were also found to be
in breach of their maintenance obligations under the lease. The
court ordered damages in respect of both areas of the claim
together with the making of orders for specific performance to be
worked out by the Chief Chancery Master.
(iii) The representation must be false
Dimmock v Hallet [1860] – see above
With v O'Flanagan [1936]
Facts
The claimant entered into negotiations with the defendant for the
purchase of the defendant’s medical practice. During the
negotiations, the defendant represented to the claimant that the
practice took in around £2,000 per year. The defendant signed the
contract for the purchase some five months later, but by this date,
the practice had declined significantly as a result of the ill health of
the defendant. When the claimant took possession of the practice, it
was discovered that it was now almost non-existent. The claimant
, sought to rescind the contract on the basis that the representation
as to the income had been a misrepresentation. At first instance, it
was held that the representation was, at the time it was made,
accurate and therefore, because this meant that the claimant could
not demonstrate that the representation was untrue, the claim must
fail. The defendant appealed.
Issue
The issue in this circumstance was whether there remained an
obligation to inform a party to a contract when the circumstances
material to a representation, which induced them to enter into the
contract, had changed.
Held
The Court of Appeal reversed the decision at first instance. It was
held that the representation made by the defendant was intended
to induce the claimant to enter into the contract and therefore
would be considered ongoing until the contract was signed. This
meant that at the time that the contract was signed, the
representation was untrue. The defendant ought to have told
the claimant of the change of circumstances.
Misrepresentation Act 1967, s. 2(1)
(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.
Conlon v Simms [2006] EWHC 401 – non-disclosure
(iv) The representation must be one of fact, not of opinion
Bisset v Wilkinson [1927]
Facts
The defendant in this matter was the purchaser of land in New
Zealand which was purchased by the claimant for the purpose of
sheep farming. The appeal, to which this judgment relates, is on the
defendant’s counterclaim. During the purchase process, the
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