.png){kind=icon}
Chapter 9 Interactive key cases
In January 1934, negotiations were entered into for the sale of a medical practice which the vendor represented as having an income of £2,000 per annum. However, by the time the contract was signed in May, the practice had declined due to the vendor’s illness but this was not disclosed. The purchasers sought rescission. Held: the representation was made to induce purchasers to enter into the contract and had to be treated as continuing until the contract was signed. Once it became false, to the knowledge of the representor, there was a misrepresentation if he failed to correct it before the contract was concluded.
A change of circumstances may give rise to a duty to speak before the contract is concluded so that, in a sense, silence constitutes a misrepresentation.
Ps advertised property for sale, stating in the particulars that it was let to ‘a most desirable tenant’ when the tenant was in arrears with his rent at the time. Ps sued for specific performance. CA held that this description was not a mere expression of opinion but contained an implied assertion that the vendors knew of no facts leading to the conclusion that the tenant was not ‘a most desirable tenant’.
Statement of opinion may be treated as a statement of fact (and so an actionable misrepresentation) where it is made by a person in a better position to know the truth—since there may be an implied representation that the statement is based on facts.
P advertised for a partner in his solicitor’s practice. D was told that the practice brought in about £300 a year and that the evidence could be seen in certain papers which P showed to D. However, D did not examine them. If he had he would have discovered that the income figure was incorrect. D entered into the contract and then discovered the truth. He sought rescission and damages for misrepresentation. CA held that D had relied on the misrepresentation since he did not know of any facts establishing that the statements were not true.
If a party fails to take the opportunity to check the accuracy of a representation, he may still be induced by it to enter the contract and have remedies in misrepresentation.
However, there may now (post-Redgrave) be a reduction in any damages to account for his contributory negligence. This depends on the state of mind of the statement-maker and possibly also on the type of damages claim.
The directors of a company issued a request for loans, stating that the money raised would be used to complete alterations in the buildings of the company and to develop the company’s trade. The real object of the loans was to pay off company debts. P claimed to have relied on these statements but also admitted to have mistakenly thought that there was security for the loan and that he would not have lent money if he had known that there was none. CA held that the misstatement of the company’s intentions amounted to a misstatement of fact which had induced the contract.
A statement of future intention which is made knowing it is a false intention is a false statement of fact (misrepresenting the state of a man’s mind).
The false statement of fact does not need to be the only reason inducing the contract as long as it was one of the reasons.
Purchase of shares in a company as a result of a fraudulent misrepresentation. HL held that the measure of damages would normally be based on the difference between the price paid for the shares and their market value at the date of the contract to purchase. However, it was later discovered that the company had been the victim of a serious fraud by a third party so that the real value of the shares at the time of purchase was in fact much less. Since the purchasers were ‘locked into’ the transaction as a result of the fraudulent misrepresentation, HL allowed recovery of this full loss.
Measure of damages in tort of deceit: all direct loss so that if the fraud locks the innocent party into the transaction, he may recover for his losses down to the point of sale or judgment.
Ps bought one of D’s hair salons as a result of a fraudulent representation by D that he had no intention of working in his other nearby salon, except in emergencies. D continued to work full time at his other salon and this had an adverse effect on Ps’ business. They sought their loss of profit. CA held that they could recover lost profits on a tortious basis as a direct loss flowing from the fraudulent inducement. This was calculated as the profit they might have made had the representation not been made at all and they had bought another hairdressing business for a similar sum.
Loss of profits can be recovered in a claim based on the tort of deceit but on a tortious, not a contractual, basis.