Misrepresentation Remedies.
1.Introduction to Misrepresentation
Misrepresentation occurs when one party makes a false statement of fact that induces another party to enter into a contract. Unlike fraud, misrepresentation can be innocent, negligent, or fraudulent, and the remedies vary accordingly.
Key elements of misrepresentation:
A false statement of fact or law (opinion usually doesn’t count unless the person has special knowledge).
Made before or at the time of contract formation.
Induces the other party to enter into the contract.
Reliance by the innocent party is reasonable.
2. Types of Misrepresentation
Fraudulent Misrepresentation – Knowingly making a false statement to deceive.
Negligent Misrepresentation – Careless statement without reasonable grounds for believing it is true.
Innocent Misrepresentation – Statement made honestly without knowledge of falsehood.
3. Remedies for Misrepresentation
A. Rescission
Definition: Rescission is the equitable remedy that cancels the contract, putting both parties back in their pre-contract position.
When available: All types of misrepresentation (fraudulent, negligent, innocent), but limitations apply (e.g., affirmation, lapse of time, impossibility).
Case Laws:
Roscorla v Thomas (1842) – Seller promised the horse was "sound" after the sale. Held: statement made after contract not actionable.
Erlanger v New Sombrero Phosphate Co (1878) – Rescission was allowed where contract was induced by misrepresentation of land value.
B. Damages
1. Fraudulent Misrepresentation
Remedies include rescission + damages for losses caused.
Damages are governed by tort law principles (deceit).
Case Laws:
3. Derry v Peek (1889) – Defined fraudulent misrepresentation: must be a statement made knowingly, without belief in truth, or recklessly.
4. Hedley Byrne v Heller (1964) – Established damages for negligent misrepresentation when there is a special relationship causing reliance.
2. Negligent Misrepresentation
Can claim damages under tort (misstatement) if reliance is reasonable.
Key principle: Duty of care owed by the representor.
Case Laws:
5. Esso Petroleum Co Ltd v Mardon (1976) – Forecasts of business turnover were negligent; damages awarded.
3. Innocent Misrepresentation
Remedies are usually rescission.
Damages may be awarded only under statutes (e.g., Misrepresentation Act 1967 in UK).
Case Law:
6. Smith v Land & House Property Corp (1884) – Misrepresentation of tenant’s reliability was considered innocent, rescission allowed.
C. Restrictions/Barriers to Remedies
Affirmation: If the innocent party affirms the contract after knowing the misrepresentation, rescission is barred.
Lapse of time: Delay in seeking rescission may deny the remedy.
Third-party rights: If property transferred to a bona fide purchaser, rescission may not be possible.
Case Law:
Long v Lloyd (1958) – Contract was affirmed by continued performance, rescission denied.
4. Summary Table of Remedies
| Type of Misrepresentation | Remedies Available | Key Case Law |
|---|---|---|
| Fraudulent | Rescission + Damages | Derry v Peek (1889) |
| Negligent | Rescission + Damages | Hedley Byrne v Heller (1964) |
| Innocent | Rescission (sometimes damages under statute) | Smith v Land & House Property Corp (1884) |
| Restrictions | Bars rescission if affirmed, delayed, or affects 3rd party | Long v Lloyd (1958) |
5. Practical Points
Rescission aims to restore pre-contractual positions, not to punish.
Damages aim to compensate losses caused by reliance.
Choice of remedy depends on type of misrepresentation and statutory framework.
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