Summary
Summary Vitiating Factors
- Module
- Law Of Contract (LAWW1013)
- Institution
- The University Of Nottingham (UON)
Covers Top 2 of Contract Law, the vitiating factors. Used by a 1:1 (1st) student.
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Vitiating FactorsMisrepresentation and Non-Closure:
A vitiating factor renders a contract voidable, meaning the contract comes into existence but is liable to be set
aside with retrospective effect through the remedy of rescission/avoidance. Until and unless the contract is
rescinded, it operates as normal. There is the retrospective option to keep or deny the contract, so the
contract is voidable if the innocent party chooses so. Rescind/avoid a voidable contract by exercising the
remedy of rescission/avoidance. Vitiating factors do not render a contract void (only voidable). A void contract
is a contradiction in terms (although we use the phrase), since void means the contract never comes into
existence in the first place. Rescission is irrelevant as there is nothing to rescind. Rescission is the primary and
sometimes the only remedy for a vitiating factor. Damages are relevant only if rescission is unavailable (there
are four bars to rescission) or if the innocent party has sustained loss that rescission does not address (a
vitiating factor committee doesn’t count as there was no contract at the time). Damages are available only if
the facts that generate a vitiating factor constitute an actionable tort/statutory intervention givesTyp a
damages remedy. Since vitiating factors affect contractual negotiations, they precede the contract. They do
not operate through implied contractual terms and do not, of themselves, give rise to a claim for remedies for
breach of contract.
One party induces the other into a contract by false statement. The law’s concern is that a party has been
misled, not how the misrepresentation came about. B’s false statement induced A to conclude the contract on
the specified terms. A made an induced mistake. B may have honestly believed in the truth of what was said
and have had reasonable grounds for that belief, but the fact is that the statement was false, and it misled A. B
is responsible for misleading A, even if not morally culpable. The contract is voidable, and the remedy of
rescission is available.
What counts as an actionable misrepresentation?
If a statement is not incorporated as a term, it may have still been influential in persuading the other party to
enter the contract. This statement (representation) could end up being untrue, a misrepresentation. Whilst the
misrepresenting party is not in breach of contract, the misrepresented party is entitled to a remedy. Recession
is available for misrepresentation, with damages available in addition to/instead of recession.
The precise requirements for an actionable misrepresentation and the remedies available may be affected by
the culpability of the misrepresentor, in particular whether the representation was made fraudulently. Derry v
Peek (1889) 14 App Cas 337: a representation is fraudulent if made intentionally (knowing the statement is
untrue) and/or recklessly (subjectively aware that the statement may be untrue or careless as to whether it is
true or not). In either case, therefore, the representor makes the statement as if the representor positively
believes it is true when it holds no such positive belief. The key point is that the test for fraud, in all forms, is
subjective. There is a fundamental fault-line in degrees of culpability between fraud, judged subjectively by
reference to the mind of the individual, and negligence, judged objectively by reference to a reasonable
person. It is not fraud, even if it is believed to be true, which instead would be negligence. Instead, fraud is
subjective, vastly harder to prove than the objective negligence. For C to be able to invoke an actionable
misrepresentation against D, C must prove: (1) a statement (2) of fact (3) made by or on behalf of D (4) to C (5)
that is false, (6) that is material, and (7) that induces C to enter into the contract.
A statement:
Telling only half the truth:
In Notts Patent Brick and Tile Co v Butler (1886), a purchaser of land was told by the vendor’s solicitor that he
was not aware of any restrictive covenants. This statement was literally true, but only as the solicitor had
omitted to read any of the relevant title documents that would have disclosed the covenants. This amounted
to misrepresentation that he had checked properly for restrictive covenants, made on behalf of the vendor.
Dimmock v Hallett (1866) LR 2 Ch App 21: A sells land divided into farms to B. Prior to the contract being
concluded, A states that all the farms are fully let. This is accurate, but all the tenants have given notice to quit.
,Continuing misrepresentation: by the time the contract is concluded, a statement made becomes incorrect,
and the representor does not correct what was initially said. Temporal reach of a statement: Cramaso LLP v
Ogilvie-Grant [2014] UKSC 9, [2014] AC 1093 at [16]-[23]. Question of interpretation whether representation
confined to circumstances as at time of representation or intended to be relied upon as true through to time
of conclusion of the contract. Generally, correct interpretation is of continuing reliability. In which case,
statement false when made is not denied actionability simply because of lapse of time between making of
statement and conclusion of contract. Note also ‘the rule in Smith v Hughes’ (1871) LR 6 QB 597: a mistake as
to the terms of the contract known to the other party prevents a contract from coming into existence (the
‘contract’ is void). The mistake is regarding what is promised, not the subject of the contract, although the
promise may in turn relate to the subject of the contract.
Silence: misrepresentation or non-disclosure?
Misrepresentation gives rise to liability, whereas non-disclosure does not. In Smith v Hughes (1871), Cockburn
LJ said, ‘in which a man of tender conscience or high honour would be unwilling to take advantage of the
ignorance of the purchaser, but nonetheless ‘there can be no doubt that the contract… would be binding’.
In selling a property, the seller has no obligation to tell the buyer it is subsiding, even if they know it is.
However, if the seller tells the buyer it is in good condition, they will be liable for misrepresentation and the
contract can be rescinded, even if the statement was innocently made. A ‘real property’ equivalent to the Sale
of Goods Act incorporating an implied term that the house is in satisfactory condition does not exist, and it is
unlikely the seller would give an express promise of this nature anyway. Conveyancing solicitors ask vendors
detailed ‘preliminary enquiry’ questions to minimise the risk vital information about the property is left out. In
Skyes v Rose (2004) the vendor answered ‘no’ to ‘is there any other information that you think the buyer may
have a right to know?’ without disclosing a murder had occurred in the house several years prior. The court
held this didn’t amount to misrepresentation, as the vendor honestly believed the buyer had no ‘right’ to be
told.
There is a right to exploit information advantage over the other party; silence is not, of itself, a
misrepresentation. Only a few transactions attract a law of non-disclosure, of which the most significant is
contracts of insurance. S sells goods knowing they are defective. The defect is latent, so not reasonable to
expect B to discover it. S stays silent about the defect. At common law B has no remedy for what S does not
say. The law may imply into the resulting contract a term covering the point, but this is not always the case.
Contracts uberrimae fidei:
These contracts are a limited group of contracts that can be avoided by one party if the other party has not
disclosed material matters known to them. An example is insurance contracts, whereby the insured is obliged
to disclose material circumstances, with failure to do so meaning the insurer is entitled to avoid the contract
(both parties have a duty of disclosure, but in practice non-disclosure by the insured is the significant part).
Pan Atlantic Insurance Co v Pine Top Insurance (1994) saw the House of Lords rule ‘materiality’ has a broad
meaning. A circumstance is material if it would influence the decision of a prudent insurer to enter the
police/the terms on which it would contract even if it would not have been decisive. This materiality test is
favourable to insurers, as it covers factual information connected with the risk insured. This breadth reminds
why English law doesn’t hold contracting parties liable for non-disclosure. Where parties’ relationship is not
commercial (fiduciaries)/where one party has exclusive access to salient information (insurance) that the law
requires active disclosure. Where ordinary contracts not uberrimae fidei are concerned, a party who remains
silent may be treated as making an implied representation.
Representation later falsified:
A statement true when made but later falsified by a subsequent event will see the original statement maker
liable if they do not disclose the new position by keeping silent. With v O’Flanagan (1936) saw a medical
practice vendor tell a potential purchaser in January the practice was worth £2,000/year. Afterwards, the
vendor became ill, and the practice income fell so far by the time of contract in May. Court held there was an
,actionable continuing misrepresentation.1 Continuing representation true when made but ceases to be true
before contract concluded: representor is responsible for the continuing accuracy of the representation;
cessation of truth creates actionable misrepresentation. The Court of Appeal held the vendor should have
disclosed the circumstantial change and the contract was set aside. With was later distinguished by the Court
of Appeal in IFE Fund SA v Goldman Sachs International (2007), but on the basis the terms of contracts made it
clear that the defendant did not make any initial representation of fact and so couldn’t be under any obligation
to disclose new information. ‘Continuing representation’ principle can apply where the representor accurately
states his intention at the outset, then subsequently changes his mind without informing the other party
before contracting. At the time of contract, there is a continuing, and false, representation of fact as to the
representor’s mind. This principle is useful for where representation is false from the outset, but where the
eventual contractual party is a company not yet in existence at the time representation was made to the
promoter (where the representor knew the company was to be set up as a vehicle for making the contract –
Cramaso LLP v Ogilvie-Grant (2014).
Conduct as misrepresentation:
Conduct/gestures can ‘make a statement’ that amounts to actionable misrepresentation. Walters v Morgan
(1861) had Lord Campbell state simple gestures include ‘a nod or wink, or a shake of the head or a smile’. Spice
Girls Ltd v Aprilia World Service BV (2002) saw pre-contractual negotiations whereby the 5 Spice Girls
undertook photoshoots with their images in promotional material on scooters. Throughout this time, all
members knew that ‘Ginger Spice’ wished to leave the group, and 2 weeks after the contract was signed, she
left, which rendered the scooter marketing material useless. Court of Appeal held the Girls’ conduct before the
contract combined with the express assurances amounted to an implied representation that the service
company ‘had no reasonable grounds to believe… any of the Spice Girls had an existing declared intention to
leave the group’. The plaintiff had relied on representation by conduct and was entitled to damages.
Misrepresentation must be of fact:
To be actionable, the statement must be one of fact. A distinction must be drawn between fact and (a) opinion
or belief, (b) intention. ‘Mere puffs’ (exaggerated/flippant comments), statements of opinion, and statements
of future intention will not be actionable. Misrepresentation of fact will give rise to liability.
Mere puffs:
Exaggerated sales hype/vague boasts are not intended to be relied upon. If the court thinks the statement was
intended to be taken seriously, it will not be dismissed as mere puff (similar to the unsuccessful plea by the
Carbolic Smoke Ball Company). Fordy v Harwood (1999) saw the Court of Appeal disagree with the first
instance judge that the description of a sports car as ‘absolutely mint’ was mere puff or an actionable
misrepresentation.
Statement of fact or statement of opinion?
A statement of opinion that turns out to be unjustified will not give rise to liability for misrepresentation.
Bisset v Wilkinson (1927) saw W purchase land in New Zealand from B, with B stating the land would ‘carry two
thousand sheep’. Factually, the true capacity was much less, with W knowing the land had never been used for
1
It is arguable that an actionable misrepresentation in such circumstances in fact requires knowledge by the
representor that the representation has ceased to be true. The judgments in With v O’Flanagan all refer to
such knowledge, although it was present on the facts so the Court was not asked to consider the law in its
absence. A number of subsequent cases have reiterated the requirement of knowledge, relying on With.
Against any knowledge requirement: (1) the concept of an actionable misrepresentation is based on strict
liability and there is no obvious reason for greater leniency in these circumstances; (2) the Misrepresentation
Act 1967, s 2(1) (discussed below) separates the question of whether a misrepresentation has been made that
induces a contract from the state of the mind of the representor (the relevance of which appears confined to
the availability of damages); (3) Cramaso LLP v Ogilvie-Grant [2014] UKSC 9, [2014] AC 1093 at [16]-[23],
although concerned with the continuing effect of a representation false from inception, may be read as
supporting strict liability responsibility for the continuing accuracy of a statement that is true when made.
, sheep farming. Privy Council agreed with trial judge that W was ‘not justified in regarding anything said by the
plaintiff as to the carrying capacity as being anything more than an expression of his opinion’. There was no
right to rescind the contract. Distinction between fact and opinion is ‘a distinction without a difference… I
cannot see why one should not be making a misrepresentation when giving information or when stating one’s
opinion or belief’ (Bridge LJ, Cremdean Properties Ltd v Nash (1997)). ‘This car has been constructed to an
extremely high standard’ (Fordy v Hardwood (1999)) could be legitimately categorised as a fact or opinion. In
Bisset, the forecast was treated as a fact of opinion as B was in no better position than W to predict the sheep
carrying capacity. If the maker of a statement was special knowledge/expertise the courts will treat what
appears to be an opinion as nonetheless actionable misrepresentation. ‘If the facts are not equally known to
both sides, then a statement of opinion by one who knows the facts best involves very often a statement of
material fact, for he impliedly states that he knows facts which justify his opinion’ (Bowen LJ, Smith v Land and
House Property Corpn (1884). Statements of fact which are expressly qualified by reference to the maker’s
belief/opinion will see the court treat it as having made a representation that they had reasonable grounds for
holding. Where someone is in a better position that the other party to check facts to back up an opinion, but
did not do so makes them liable for misrepresentation. Brown v Raphael (1958) saw the court conclude a
purchaser of an interest in a trust fund ‘was entitled to expect that the vendor’ opinion or belief was expressed
on reasonable grounds’. Amateurs are more likely tog et away with qualifying facts as opinions (as in Bisset).
Hummingbird Motors Ltd v Hobbs (1986) saw an innocent but inaccurate statement regarding the mileage of a
second-hand car, which the seller qualified as correct ‘to the best of my knowledge and belief’ was not held to
be a misrepresentation. First, any expression of opinion must be founded on something. A blind guess is not an
opinion. To state an opinion (as opposed to making it clear that what is being expressed is a mere guess)
involves impliedly stating the existence of a sufficient basis to merit opinion status: Economides v Commercial
Assurance Co plc [1998] QB 587 at 598. Secondly, a statement of opinion always imports a statement that the
representor does indeed possess that opinion. That is a fact, and actionable (and necessarily fraudulent) if the
representor in truth does not have that opinion: Bissett v Wilkinson [1927] AC 177 at 182. Thirdly, in
appropriate circumstances, a statement of opinion imports a representation that the opinion is based upon
reasonable grounds. The existence of reasonable grounds justifying the opinion is a fact. There will be liability
if the reasonable grounds do not exist. In effect, liability arises not because the opinion turns out to be wrong,
but because it was negligently formulated.
Liability can arise in various circumstances. Appropriate circumstances: the representor either is factually in a
good position to know the relevant circumstances against the background of which the representation is made
or holds itself out as possessed of expertise in relation to the matter about which the opinion is expressed.
Esso Petroleum Co Ltd v Mardon [1976] QB 801: It was a statement of opinion made, impliedly, that Esso had
the knowledge to give reasonable grounds for this opinion. Consequently, Esso were liable, making a
misstatement of fact, but this was due to, impliedly, Esso having reasonable grounds to justify the opinion.
Whether these grounds exist are a matter of fact, and there weren’t any, so they were liable for misstatement
of fact. Note also the possibility for an implied representation of the fact of holding an opinion or the fact that
an opinion based on reasonable grounds to be true at the time of being initially made but then cease to be
true before the contract is concluded. Note further again that determining whether the statement is properly
to be considered as one of opinion or fact can be difficult. Smith v Land & House Property Corp (1884) 28 ChD
7: V sells his house to P. Prior to the contract, V states that it is let to ‘a most desirable tenant’ on certain terms
‘thus offering a first-class investment’. In fact, the tenant has fallen into arrears of rent and in the past the rent
has been obtained only with difficulty. CA: sale voidable for misrepresentation. But why? Two possible
analyses: (1) statements of opinion, but V in a much better position to know the relevant circumstances than P,
so construe as containing an implied representation of fact, ie that reasonable grounds exist to justify the
opinion, and those reasonable grounds did not exist; (2) statements of fact, ie V knew nothing to render
inappropriate the description of the tenant as desirable. The judgments provide support for both! Bowen LJ: if
a landlord ‘says that he considers that the relations between himself and his tenant are satisfactory, he really
avers that the facts peculiarly within his knowledge are such as to render that opinion reasonable.’ (15) But
also V’s statement was ‘an assertion that nothing has occurred in the relations between the landlords and the
tenant which can be considered to make the tenant an unsatisfactory one. That is an assertion of a specific
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