Sometimes a preliminary statement made during the negotiations between parties leading up to a contract may affect the inclination of the one party to enter into the contract. Such a preliminary statement is known as a ‘representation’.43 If the representation proves false, the party misled will (in principle) be entitled to revoke the contract. (There will be instances where, under power of Statute Law, the court may declare the contract subsisting and award damages in lieu of rescission. This will be discussed later in this Chapter.)

Coupled with the right to revoke the contract there may be a right to sue for damages for any loss suffered as a result of the misrepresentation. The liability to damages results from a breach of duty established by Common Law; such liability can exist irrespective of the existence of a contract and therefore irrespective of any liability to damages under contract.

But, a false or misleading preliminary statement may become a term of the contract, or constitute a collateral warranty to the contract (see Esso Petroleum Co., Ltd. v Mardon in Section 2.2.1), if the party making the statement undertakes or guarantees that it is true. In such cases there will be a choice of remedy available to the misled party since he will be entitled to claim damages for breach of contract or relief for misrepresentation.43A

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A wrong done or injury caused by a breach of duty (other than a duty under contract) established by Common Law as creating a liability to damages constitutes a ‘tort’.44


Here we will concern ourselves with two torts: (1) Fraud, and (2) Negligence.


Because the subject matter of this website-book generally relates to instances where a party will in fact have entered into a contract as a result of statements made or information represented to him prior to that contract, we will primarily focus on these torts (i.e. fraud and negligence) as they impact on Contract Law under Misrepresentation.

 

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An operative misrepresentation consists in a false statement of existing or past fact or law made by one party (the ‘representor’) before or at the time of making the contract, which is addressed to the other party (the ‘representee’) and which induces the other party to enter into the contract.45

There are therefore four conditions that must be fulfilled before misrepresentation is effected.

 

(a)	There must be a false representation. Mere silence does not constitute a misrepresentation. There must be some positive statement, or some conduct from which a statement can be implied, in order to amount to an operative misrepresentation. With regard to the conduct, 'a nod or a wink, or a shake of the head, or a smile' may suffice, as may a photograph.46 But, ‘under certain circumstances a duty may arise to disclose a material fact, and its non-disclosure may have the same effect as a representation of non-existence’.47 In such circumstances, the positive statement to be implied from the conduct (the silent behaviour) of the party under a duty to disclose is that there nothing to be disclosed that is relevant to the matter at hand.  Also, suppression of material facts can render that which is stated false.47A In such cases silence can constitute a misrepresentation. Note! In the context of the subject matter of this book, a material fact is anything that is of sufficient significance to influence the decision of the person to whom the duty (to disclose) is owed to enter into, or to refrain from entering into, a contract.
(b)	The representation must be one of fact. A statement of opinion, in one sense, always constitutes a representation of fact, for it asserts that the opinion is actually held. A statement of opinion which is not in fact held is therefore a fraudulent misrepresentation. Also an opinion will usually be based upon facts; so the person making the representation impliedly states that facts are known which justify that opinion. This is especially the case where the situation is such that the representor must know the facts much better than the other party. If it is shown that the representor had no reasonable grounds for that opinion, or failed to investigate the facts which gave rise to it, there may well be an actionable misrepresentation.48
(c)	The representation must be addressed to the party misled. The representation must have been addressed by the representor (or by someone on his behalf) to the misled party.49 A statement made directly to the misled party is clearly addressed to that party; but it will also be held to have been so addressed where the person is one to whom the representor intended the statement to be passed on.49A
(d)	The representation must induce the contract. The representation must form a material inducement to the party to whom it is addressed. The representation need only be an inducement for the party to enter into the contract, not the sole or predominant or decisive inducement.49B The burden of proving that the representation induced the contract rests with the misled party. But such inducement may be inferred. Thus it was said by Lord Blackburn in Smith v Chadwick (1884, England):  I think that if it is proved that the defendants with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract, and if it is proved that the plaintiff did enter into the contract, it is a fair inference of fact that he was induced to do so by the statement.49C

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There is no duty on the representee to verify a representation before acting on it, and the representor cannot impose such a duty on the representee by contract.50

Lord Dunedin, in Nocton v Ashburton (1914, England), stated:

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Once it has been established that there is an operative misrepresentation, the next step is to identify the remedies available to the representee.51 The remedies available will depend on how the misrepresentation is to be categorised: whether the misrepresentation is fraudulent, negligent, or innocent.


Note!  While the subject matter of this book does not deal with anything that could reasonably be classified as an 'innocent' misrepresentation, it is worth noting that remedy is available, under statute law, for a person who has entered into a contract after an innocent misrepresentation has been made to him by another party to the contract and as a result of which he has suffered loss. (See Section 2.3.5: Statutory Misrepresentation.)  

 

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