Contract Law: Misrepresentation In Law

ISSUE

The issue here is if there has been a misrepresentation made in the contract between Mr Smith and Mr Jones.

LAW

A contract is a legally binding or valid agreement between two parties. The law will consider a contract to be valid if the agreement contains all of the following elements: offer and acceptance; an intention between the parties to create binding relations; consideration to be paid for the promise made; legal capacity of the parties to act; genuine consent of the parties; and legality of the agreement.

Statements made over the course of negotiation could amount to either a contractual term, or a misrepresentation. If the statement amounts to a term in the contract, and it is not fulfilled, the innocent party can then sue for

The requirements for an actionable misrepresentation are that; the misrepresentation must be a statement of existing fact or past events, and not a statement of opinion; it must induce a person to enter into the contract; it must be material in that it relates to a matter which would influence a reasonable person’s decision whether to enter into the contract. (Misrepresentation Act, Cap 390)

There are three types of misrepresentation: The first is innocent misrepresentation - when the representor had reasonable grounds for believing that his or her false statement was true. The second is negligent misrepresentation - a representation made carelessly or without reasonable grounds for believing its truth. The third is fraudulent misrepresentation - where a false representation has been made knowingly, or without belief in its truth, or recklessly as to its truth.

The affect of a finding of misrepresentation, regardless of whether it is innocent, negligent or fraudulent, is that the contract is voidable, and the innocent party may rescind the contract, which generally means terminating the contract and returning the parties to the position they were before the

However, a statement of opinion which is made by a person in a better position to know the truth will constitute a false statement of fact because of the implication that the maker knows of facts to justify his opinion. (Smith v Land & House Property Corporation [1884]) In this case, Mr Smith, as the owner, is implied to know the annual revenue of the café he owns.

As such, Mr Jones is able to escape from the contract, by rescinding it. The effects of rescission is that the café will revert back to Mr Smith’s ownership, and the payment made for the café be returned to Mr Jones. In addition, should he wish to, should fraudulent or negligent misrepresentation be proved under the Misrepresentation Act (s2.1), Mr Jones can sue Mr Smith for damages. (Royscot Trust Ltd v Rogerson [1991] )The damages Mr Jones can sue for under fraudulent misrepresentation is greater than the damages under negligent misrepresentation.

Should innocent misrepresentation be proved, Mr Jones cannot sue for damages, but he will still be able to escape the contract by rescinding it. In addition, he can file an action for indemnities. (RBC Properties v Defu Furniture