Elements in a Contract 18

A mere statement of fact though it may sound like a misrepresentation does not in actual fact constituent or amount to a misrepresentation.

In Bisset v Wilkinson (1927) the plaintiff purchased some land from the defendant for the purpose of sheep rearing. The land had never before been used for the intended purpose but during the negotiations the defendant had told the plaintiff that he thought that the land may be able to support up to 2,000 heads of sheep. As it turned out the land was unsuitable for sheep farming and the plaintiff sued.

The court held that a misrepresentation must be distinguished from a mere statement of fact. With the sale of certain items, unless the defendant professes to have special knowledge in the area, as in the case of Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965) – where the defendant professed to have specialized knowledge of Bentley cars, it is difficult for either party to know the outcome. It was decided that there was no misrepresentation.

In Smith v Land and House Property Corp (1884) the defendant sold the plaintiff a hotel which was occupied by a tenant. During the negotiations the defendant clearly stated that the tenant was a desirable tenant and that he paid his rent on time every time and that he faithfully observed all the duties that is required of a tenant.

The plaintiff upon the purchase of the hotel discovered that the tenant was in arrears and was in the habit of being so and the only way that the plaintiff could secure any rent was by twisting his arm. The plaintiff sued on the grounds of misrepresentation and was successful. The court held that the defendant was in a position to know the truth and the fact that he said otherwise or willfully mislead the buyer was a misrepresentation.

In Edgington v Fitzmaurice (1885) the defendants, in their company prospectus stated that shares in their company were being offered to suitable purchasers in order to expand the company and the plaintiff purchased shares in the company in reliance of the promise.

The monies that were received from the sale of the shares however did not go towards expanding the company but instead went towards bailing the company out because it was in financial difficulties.

The plaintiff when he realized that the monies did not go towards the intended purpose, sued on the grounds of misrepresentation. The plaintiff was successful. The court concluded that the defendants had been fraudulent in the statements that they’d made because the money was never intended to be used for the purpose that was advertised.

Mere puffs or sales talk however would not constitute misrepresentation. In Dimmock v Hallett (1866) during a sale by auction, Dimmock advertised his land as being fertile and improvable. The land in fact was abandoned and was more or less not fit for anything. The purchaser sued but the court held that a misrepresentation must be distinguished from a flourishing description which was what Dimmock’s statement was interpreted to be.

A statement will only be regarded as a misrepresentation if it prompted, induced or enticed another party to enter into a contract. In Redgrave v Hurd (1881) a solicitor purchased a partnership in a firm. During the negotiations he was told that the firm had an annual income of £300 per year when in fact the firm drew in no more than £200 per year. The solicitor was given an opportunity to look at the books prior to the purchase but he declined.

Upon purchase once he’d discovered that the firm’s income was not what he expected it to be, he sued on the grounds of misrepresentation. The court held that the solicitor was entitled to rescind the contract even if he had been given the opportunity to inspect the books prior to the purchase. The buyer had entered into the contract in reliance of the seller’s promise and if that promise turned out to be untrue then the buyer was entitled to withdraw from the contract.

In Attwood v Small (1838) the defendants had made statements inflating the earning capacity of their mines to the plaintiffs. The plaintiffs who had the intention of purchasing the mines employed independent surveyors to present their findings and they wrongly agreed with the defendants. The plaintiffs when they discovered the mistake brought an action against the defendants.

The plaintiffs were unsuccessful. They had purchased the mines in reliance of the surveyors’ statements and not the defendants. If the plaintiffs had relied on the defendants’ statements, they wouldn’t have appointed independent surveyors in the first place.