Statement Which Induces a Person Into Contract

Representation is a statement which induces a person into a contract but which does not become a term of contract.

Misrepresentation

‘Misrepresentation is a statement of a fact made by one party to the contract to the other party before the contract is made which induces the other party to enter into the contract’, stated in Khoo (2011 pp.667) [i]

For an actionable misrepresentation to be successful there must be some criteria. This includes:

A false statement or assertion of fact. Gordon v Sellico (1986)

The statement must have been directed at the party who is suing. Horsfall v Thomas (1862)

The statement must have induced the suing party to enter. Redgrave v Hurd (1881)

DEFINITION

The three types of misrepresentation are:

Fraudulent misrepresentation occurs when the one making the misrepresentation knows that the statement is untrue and with the intent to deceive. Derry v Peek (1889) [ii]

Negligent misrepresentation is when the person who induce the claimant to enter into the contract on the strength of a statement which the person did not reasonably believe.

Common Law – This concept emerged from Hedley Byrne & Co. Ltd v Heller & Partner Ltd (1964). A duty of care must exist between the parties through special relationship.

Under the Misrepresentation Act 1967 if the representor fails to discharge this burden the representee can recover damages under Section 2 (1). Howard Marine and Dredging Co. Ltd v A. Ogden & Son (Excavation) Ltd (1978). This gives rise to negligent misrepresentation once there is no ground for the statement.

Innocent misrepresentation is made in good faith, with no intention to deceive and without carelessness. Solle v Butcher (1950).

A person making an intention and plan to do otherwise is guilty of misrepresentation.

In Walter the court states that a simple word, nod, wink, shake of head and smile which is intended to influence a price to sell is a misrepresentation.

The misrepresentation statement can be in any form, in writing such as a company prospectus containing details of the company trading activities, or it can be spoken, or implied form conduct.

JOHN v GINA AND THE COMPUTER SHOP

When John bought the computer for £400.00, it was established at this point that a contract existed between him and the computer shop.

However, he incurred the following problems:

It was slow in saving material

It ran out of memory

He collapsed in distress

He is hoping to be compensated after he did not get the satisfaction which he hoped for.

For a misrepresentation to take place, it must be one of fact Scott v Hanson (1829) and no one of opinion or belief Bisset v Wilkinson (1925). John must therefore show that he acted upon Gina’s statement which induces him to purchase the computer. Therefore a false statement of fact which will constitute a misrepresentation must first be made to the representee, John, who acted upon it to induce him to purchase the computer.

In advising John there are some rules to decide if a statement is a misrepresentation.

The statement must be untrue

It must induce the contract. Horsfall v Thomas (1862)

The person mislead must be aware of the statement.

It must address the party mislead. Peek v Gurney (1873)

Person mislead must rely on it.

Must be one of fact.

Gina may be guilty of negligently making a false statement; in selling a computer that she probably did not check out herself. As an employee, she has the ability to give reliable advice therefore John can debate that the statement “it has a large memory and is reliable” was of such important as to make the statement a contractual one.

A principle to determine whether a statement is contractual is the importance of the statement. Couchman v Hill (1947)

But John’s final decision came from his friend, Hector, who has a Degree in Computing. His knowledge and judgement of the subject matter may not be enough to consider him an expert to determine the worthiness of the computer. Also on the advice of a third party therefore, there will be no inducement, Atwood v Small (1838). Although, John can argue that Hector was busy and did not take his time to actually examine the computer and he therefore reliance on Gina’s statement.

When he noticed that the computer was slow in saving material and he phoned Gina, he delayed in bringing it in, Leaf v International Galleries (1950). Under the Limited Act 1980 Section 11 (A), a claimant must take action within a reasonable time when they first became aware of the damage and defect. In this regard John may have erred in his judgement and would have to be partially blamed for the continuing to use the item at a disadvantage which he was aware of. White v Jones (1995)

The computer shop, being Gina’s employer, becomes vicariously liable for the statements or misrepresentation made by her. In the Common Law employers are generally liable for the tortuous act of their employees committed in the course of employment.

Under negligence a duty of care applies to everyone in the chain of distribution when supplying goods or services. A manufacturer who carelessly make the defective product, the company that use the product to assemble the other products with investigating it and the seller who should exercise care in offering the product for sale.

Where goods are sold in the course of business, there is an implied condition that goods must be of satisfactory quality, Quality S 14(2) and Fitness S 14(3) Priest v Last (1903). There is a breach of these terms by S 2(1) UCTA [iii] 1997 for sale and supply of goods. [iv]

Therefore John can bring action against the computer shop because they fail to exercise duty of care when they sold the product.

The fact that he relied on the memory and this turned out to be false was enough grounds to seek damages. But John has to realise that he physical destroy the item and as a result brought frustration to the subject matter. Taylor v Caldwell (1863). Therefore John has lost the ability to rescission to restore the ‘status quo ante.’ As a result he may not be able to bring action against Gina and the computer shop.

CONCLUSION

Since John lapse in bring in the computer, rely on a third party and bought frustration to the subject matter he may not have any action against Gina and the computer shop. But if all these factors did not occur he may have been able to claim remedies for the negligent misrepresentation.

Remedies are:

He could of purse a claim under S 2(1) of the Misrepresentation Act 1967 as damages will be access in the tort of negligence. The Headley Bryne & Co. Ltd v Heller & Partner Ltd (1964)

Rescission may also be a remedy. Misrepresentation Act Section 2(2) gives the court discretion to award damages instead. The effect of rescission is generally to put the parties as far as possible which they would have been in had the contract been concluded.