Lect. 5.1 Misrepresentation

Vitiating Factors:
MISREPRESENTATION
• Misrepresentation occurs when one party makes
a false statement to another, at or before the
time that the contract is made, to induce the
other party to enter into the contract.
• Representations that are not incorporated into
the contract (ie they do not become a term of
the contract) will have no legal significance; may
be viewed as puffing.
MISREPRESENTATION
• A misrepresentation can have contractual
significance even though it does not form part of
the contract.
• For a misrepresentation to be actionable, the
statement must:
• 1) be false
• Note: must be a false statement about a present fact or past
event; statements regarding future conduct or statements of
opinion are not actionable
• 2) have induced the other party to enter the contract
• Misrepresentation may refer to the false
statement itself or it may be the action of making
the false statement
What is NOT misrepresentation
(generally):
• Silence (no duty to disclose information that may induce
or dissuade a person from entering into a K)
– Note: a smile, a nod, a wink, a single word, or other small
gesture could amount to misrepresentation. It is possible
to have misrepresentation by conduct.
• Statements of opinion or belief
• Bisset v Wilkinson – during negotiations for sale of land in New Zealand, seller said
he believed land would support 2000 sheep. Both parties knew land had never
before been used as a sheep farm. Court (Ct) said this was an expression of
opinion, and therefore no misrep. Seller was in no better position to make this
estimate than buyer.
What is NOT Misrepresentation
(generally)
• (False) statements of law
– General rule is that everyone knows (or can find
out) what the law is
- If statement of law dishonest, could be actionable
- Note: more recent cases show that a
misrepresentation of the law might be actionable
• Statements related to future conduct
Types of Misrepresentation
• Fraudulent Misrepresentation
• Negligent Misrepresentation
• Innocent Misrepresentation
FRAUDULENT MISREPRESENTATION
See Derry v. Peek - false representation is a

statement made:
“a) knowingly (deliberately) or
b) without belief in its truth or
c) recklessly/carelessly whether it be true or false.
Fraudulent Misrepresentation ctd
• Defence for fraudulent misrepresentation is

more often than not to show an honest belief
in the truth of the statement.
• See Akerhielm v. De Mare: Directors of a company made a false statement
that 2/3 of the capital of the company had been subscribed. The
statement was made was to improve the apparent standing of the co.
Privy Council held that the directors had an honest belief in the
statement, and they were thus able to avoid liability
Negligent Misrepresentation and Non-
Fraudulent Misrepresentation
• Negligent misstatement (common law)
– Special relationship between the parties
» A fiduciary relationship is where one party places his trust
in another, who is required to exercise powers in good
faith for the other person’s benefit (ie atty-client).
Imbalance of knowledge.
– Skill and knowledge of type of advice
– Reasonable reliance (Headley Byrne v. Heller & Partners)
– Defendant knew of reliance
– Defendant assumed responsibility (Henderson v. Merrett Syndicate)
• Negligent Misrepresentation (statutory –
Misrepresentation Act 1967)
– Can be considered as a viable action in certain special
relationships where the person making the negligent
statement owed a duty of care to the other party to ensure
that the statement was accurately made.
The difference between the two is that with the Act, there is an
assumption that the statement is made without reasonable
grounds for believing the truth (opposite is true for common
law)
Negligent Misrepresentation
• Negligent Misrepresentation
1. Sue for damages under the tort measure for
foreseeable damage (Royscot Trust Ltd. v.
Rogerson)
2. Could traditionally seek rescission in equity.
• Non-Fraudulent Misrepresentation
1. Sue for damages under tort
2. Traditionally rescission was available in equity
INNOCENT MISREPRESENTATION
– Innocent Misrepresentation
• Originally, anything non Fraudulent
• Now, generally refers to a statement made by an
individual who has reasonable grounds for believing
that the statement is true.
• Damages can be awarded where rescission would be
available
• Rescission traditionally available in equity
Consequences of
Misrepresentation
• If a contract is formed on the basis of
misrepresentation then it is VOIDABLE. It is
not void because this would prevent a party
from continuing with the contract if that is
their wish.

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Vitiating Factors:

See Derry v. Peek - false representation is a

• Defence for fraudulent misrepresentation is

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