Misrepresentation

1
Misrepresentation

• Contracts

2
Misrepresentation

• Three types of pre-contractual statements
• Sales talk The conversations that sales people
  use to sell, that no one reasonably expects to be
  binding on the parties to the contract Jewellery
  so lovely it is sure to attract the love of your
  life We saw this in Carlill v. Carbolic Smoke
  Ball Co.

3
Misrepresentation (contd)

• Three types of pre-contractual statements
  (contd)
• Misrepresentation A statement that is binding
  on the party that made it, not because it is part
  of the contract, but because equity finds it
  unjust that a person can benefit from the
  statement
• Breach of contract The statement is a term of
  the contract, such that it is appropriate to
  provide the remedies that we have seen (damages,
  specific performance).

4
Misrepresentation (contd)

• What Is It?
• Misrepresentation The making of a material
  statement of fact which is relied upon and
  induces the other party to enter into a contract,
  where the material statement of fact later proves
  to be untrue
• Statement of fact A statement of fact, not
  opinion

5
Misrepresentation (contd)

• What Is It? (contd)
• Material If a reasonable person would not
  believe this to be material, then it is not
• Reliance and Inducement
• Assumed unless
• The representee knew the true state of affairs
• The representor can show some conduct by the
  representee that indicates that the representee
  was not relying on the representation

6
Misrepresentation (contd)

• So, there are two streams to go through when you
  want to get a remedy for a pre-contractual
  statement
• Misrepresentation
• Innocent Misrepresentation
• Equitable Cause of Action
• Rescission Put the parties in the position they
  would have been in had the contract never been
  entered into in the first place

7
Misrepresentation (contd)

• Barriers
• Affirmation Approving the contract after you
  know the truth
• Laches Undue delay in bringing the action
• Execution of the Contract Enforced relatively
  strictly in sales of land and securities
  otherwise, a derivate of laches

8
Misrepresentation (contd)

• Barriers (contd)
• Third party rights Essentially, you cannot do
  harm to the interests of innocent third parties
• Restitutio in integrum is impossible We cannot
  put the parties back into the position they would
  have been in had the contract never been entered
  into in the first place

9
Misrepresentation (contd)

• Negligent Misrepresentation You will cover this
  in Torts and Compensation Systems
• Fraudulent Misrepresentation
• Common law remedy for the tort of deceit
• Damages and perhaps rescission
• Derry v. Peek

10
Misrepresentation (contd)

• Term of the Contract
• Damages
• Specific Performance

11
Misrepresentation (contd)

• Derry v. Peek
• 1889 English House of Lords
• Facts
• Guy bought shares on the strength of a
  representation that the companys tramways would
  be moved by steam or other mechanical means in
  the prospectus a document designed to sell
  shares of the company. It turns out that the
  company has to use horse power, unless the Board
  of Trade agreed, which they would not.

12
Derry v. Peek (contd)

• Case for fraudulent misrepresentation
• More is required that proof of a
  misrepresentation of a material fact (paragraph
  11)
• Paragraph 11
• Where rescission is claimed it is only necessary
  to prove that there was, misrepresentation then,
  however honestly it may have been made, however
  free from blame the person who made it, the
  contract., having been obtained by
  misrepresentation, cannot stand. (But this only
  applies to innocent misrepresentation)

13
Derry v. Peek (contd)

• Paragraph 12
• I mean those cases where a person within whose
  special province it lay to know a particular
  fact, has given an erroneous answer to an inquiry
  made with regard to it by a person desirous of
  ascertaining the fact for the purpose of
  determining his course accordingly, and has been
  held bound to make good the assurance he has
  given.

14
Derry v. Peek (contd)

• The difference between without any real belief
  in its truth and carelessly
• Recklessness v. Negligence (para. 15)
• The difference what constitutes fraud and how you
  prove it
• Just because someone says that they believed
  something does not necessarily mean that they did
  (para. 18).

15
Derry v. Peek (contd)

• Fraud means (paragraph 19)
• knowingly false, or
• without belief in its truth, or
• recklessly, without giving a darn whether it be
  true or false.
• Motive is immaterial (paragraph 19)

16
Misrepresentation (contd)

• Smith v. Land House Property Corp.
• 1884 English Court of Appeal
• Facts
• The sellers of a hotel told the buyers that the
  tenant who was renting it was a most desirable
  tenant. It turns out that there were several
  problems with this particular tenant.

17
Smith v. Land House Property Corp. (contd)

• Facts (contd)
• The plaintiff is seeking specific performance
  the defendant is seeking rescission. The
  plaintiff says that the pre-contractual statement
  was nothing more than a statement of opinion.
• Judgment
• Where the parties have equal knowledge, much of
  what is said between the parties is opinion

18
Smith v. Land House Property Corp. (contd)

• Paragraph 2
• But if the facts are not equally known to both
  sides, then a statement of opinion by the one who
  knows the facts best involves very often a
  statement of a material fact, for he impliedly
  states that he knows facts which justify his
  opinion. Now a landlord knows the relations
  between himself and his tenant, other persons
  either do not know them at all or do not know
  them equally well, and

19
Smith v. Land House Property Corp. (contd)

• Paragraph 2 (contd)
• if the landlord says that he considers that
  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. Now are the
  statements here statements which involved such a
  representation of material facts? They are
  statements on a subject as to which prima facie
  the vendors know everything and the purchasers
  nothing.

20
Smith v. Land House Property Corp. (contd)

• Paragraph 2 (contd)
• amounts at least to 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 fact. Was it a true
  assertion? Having regard to what took place
  between Lady Day and Midsummer, I think that it
  was not.

21
Misrepresentation (contd)

• Ennis v. Klassen
• 1990 Manitoba Court of Appeal
• Facts
• Klassen owed a 1979 or 1980 BMW 728, a car which
  cannot ordinarily be imported into Canada, but
  came in illegally, but not by Klassen. Ennis
  thought he was buying a 733. There is no such
  thing as the 733 there is a 733i. There is more
  horsepower in the 733i than the 728, and the 733i
  has more safety features, and is more luxurious
  than 728.

22
Ennis v. Klassen (contd)

• Facts (contd)
• The car needed servicing twice shortly after
  purchase. The second time it was taken into the
  service, there is some evidence that the
  defendant purchaser may have been told that this
  was a 728, and not a 733i.
• The defendant had been told that the vehicle was
  referred to as a 728 in Europe (but might
  actually be a 733 in this country). The defendant
  thus wanted the dealer to sell the car on his
  behalf. The dealer refused because it was
  brought in illegally, and insurance concerns as a
  728

23
Ennis v. Klassen (contd)

• Facts (contd)
• Klassen tries to sell it privately as a 733i
• Ennis sees the ad
• Paragraph 14
• The plaintiff Ennis looked over the car and took
  it for a test drive nearby. He could see for
  himself the kind of bumper, wheels and
  upholstery. He could see for himself that the
  sun visor operated manually.

24
Ennis v. Klassen (contd)

• Facts (contd)
• The plaintiff was not told
• No compliance with Canadian standards
• Engine size and horsepower
• Resale value
• In August, the plaintiff learned the truth, his
  wife called Klassen to get him to take the car
  back. Klassen refused.
• In January 1988, the action was commenced. The
  car was not driven at all since the plaintiff
  learned the truth

25
Ennis v. Klassen (contd)

• The trial judge held that the plaintiff got what
  he bargained for.
• The majority of the Court of Appeal says that
  there is a clearly a misrepresentation of
  material facts here (paragraph 23)
• Rescission and indemnity v. damages (paragraph 25)

26
Misrepresentation (contd)

• The misrepresentation stands until fixed by the
  defendant Substantial (goes to the root of the
  contract)
• Rescission is possible unless there is a bar
• Execution is still a bar
• Two lines of cases
• Relative of delay (paragraph 29)
• Error in substantialibus
• Difference between land and chattels

27
Misrepresentation (contd)

• Leaf v. International Galleries Ltd. (paragraphs
  34-39)
• Long v. Lloyd (paragraphs 40-42)
• Differences between this case and Long v. Lloyd
• Error in substantialibus This is the older line
  of cases, this is still good law, but the
  relative of delay cases are generally better to
  use
• Total failure of consideration
• Substantially different from what was bargained
  for
• Whenever the courts want to grant rescission of
  an executed contract