CONTRACT LECTURES
TRANSCRIPT CONTRACT LECTURE 6
CLAIRE STRICKLAND Pre-contractual statements and misrepresentation Pt 1 time : 45 mins 05 secs
Track/slide 1
Introduction 04.16
In previous lectures we have looked at how a contract is FORMED – what is required – offer,
acceptance, consideration and intention to create legal relations.
What we can look at now is a topic that sits somewhere in between contract formation and
detailed consideration of the actual terms of a contract.
We are going to look at PRE-CONTRACTUAL STATEMENTS – statements made by the
parties before the contract actually comes into being to see if these statements remain outside
the contract or have become incorporated into it.
This will lead us nicely onto the topic of MISREPRESENTATION.
In many text-books on contract law, misrepresentation is referred to as one of the ways in
which pre-contractual statements are ‘policed’. What this means is that over the years it has
been felt necessary to somehow make people more responsible and/or accountable for
statements they make leading up to the formation of a contract.
The problem is that it is possible to view pre-contractual statements in more than one light:
-
if the statement is PROMISSORY in nature it may be held to be
part of the final contract – and be incorporated as a term of the contract
-
if the statement is not promissory in nature then it is unlikely to be regarded as a term
of the contract, rather just a REPRESENTATION OF FACT
For instance,
in the case Kleinwort Benson v Malaysian Mining Corporation BHd 1989, a ‘letter of
comfort’ was given by the Corporation to the financing bankers in the light of the bankers
giving a loan to Metals, a subsidiary of the corporation. The corporation would not give a
proper guarantee. In the letter of comfort, the Corporation stated that, ‘It is our policy to
ensure that the business of Metals is at all times in a position to meet it’s liabilities to you
under the above arrangements’.
Was this statement to be construed as a promissory statement that became a part of the final
contract, or was it merely a statement of fact?
That it is not easy to decide such issues is evidenced by the fact that at
1st instance, Hirst J thought that the statement was promissory in nature (by implying words
into the statement – it is our policy now and will be in the future) whereas in the Court of
Appeal it was held that the statement was not promissory and was just a statement of present
fact.
On this basis, as Ralph Gibson LJ pointed out,
IF the policy had changed in the future and IF the Corporation had not told the bankers of the
change and IF the bankers had relied on the statement to keep forwarding money to Metals,
then as the statement was NOT part of the contract, all the bankers could have sued the
Corporation for was NEGLIGENT MISREPRESENTATION.
Track/slide 2 02.29
The significance of whether you can sue for BREACH OF CONTRACT or just a type of
MISREPRESENTATION relates to the REMEDIES available.
At this stage it is perhaps a good idea to point out the difference between the terms VOID,
VOIDABLE AND UNENFORCEABLE.
What does Void mean?
If the courts decide that a contract never came into existence then the contract is said to be
void – which is not strictly an accurate description – it is more accurate to say that the
agreement purporting to be a contract is void. Contracts may be said to be void if a mistake is
found. Contracts may also be void due to illegality. Also some terms of contracts may be
rendered void by statute, for instance, under the Unfair Contracts Terms Act 1977.
What does voidable mean?
A voidable contract is one which DOES come into being initially and stands up until the point
that one side brings it to an end by the process of RECISSION. The contract can be acted
upon and rights transferred under it until the election to rescind it by one party.
Contracts may be voidable for misrepresentation, duress and undue influence and for mistake
in equity.
Thus, if we decide that a pre-contractual statement is an untrue statement of fact and that it
influenced the other party to enter the contract, the contract is voidable.
What does unenforceable mean?
A contract may exist but be held to be unenforceable, for instance if it has not been made in
the correct form – for example, in writing for property deals.
What we are going to see also is that misrepresentation overlaps somewhat with the law of
TORT.
Track/slide 3 02.08
How do we decide whether a pre-contractual statement is to be regarded as a ‘term’ of the
final contract or less than this?
Pre-contractual statements can be classified into one of 3 groups:
i.
ii.
Mere ‘puffs’ of sales talk – for instance, a phrase such as, ‘you won’t regret
buying this stereo from me’. Such phrases have NO LEGAL EFFECT – but are
seen as sales talk.
Representations – statements of fact made prior to the contract that do not
become terms of the contract
iii.
Terms – statements made prior to the contract that are held to be actual terms of
the contract
We can make a few comments on these options.
First, Puffs or sales talk
In the Carlill v Carbolic Smoke Ball Co case in 1893, the company placing the
advertvertisement tried to say is was a mere advertising puff and not intended to become
an offer – but the language was held to be specific enough for the advertisement to consist
of statements that became terms of the contract.
Second, Representations and Terms
There are no definitive ways of determining whether a statement will be regarded as a
term or a representation – as was seen in the Kleinwort Benson case above. However,
there are some guidelines which we shall consider in a moment.
What we need to note now is WHY it is necessary to worry about whether a statement
becomes a term or is just seen as a representation.
Track/slide 4 03.38
Whether a pre-contractual statement is regarded as a mere representation or a term is
significant in relation to any damages that might be payable to the wronged party and the
wronged party’s ability to set the contract aside. We can look at these in turn.
Firstly, the Effect on Damages
This distinction used to be more important than it is now because until the mid-1960s
DAMAGES were generally only available for breach of a TERM of a contract or for
FRAUDULENT MISREPRESENTATION. So, the courts might have been more
inclined to see a pre-contractual statement as a term to afford the claimant the possibility
of recovering damages. This would be encouraged because it was difficult for a wronged
party to establish that a misrepresentation had been made ‘fraudulently’.
However, in the mid-1960s two things changed the significance of the distinction:
i.
ii.
1964 – Hedley Byrne v Heller case, and
1967 Misrepresentation Act
by which DAMAGES were made available for NEGLIGENT misrepresentation as well
as fraudulent.
The distinction between a term and a representation is therefore now most important with
regard to the AMOUNT of damages.
If the statement is held to be a TERM of the contract, then damages for breach of the term
(breach of contract) will be assessed according to the EXPECTATION interest of the
wronged party, putting them in the position they would have been in had the contract
actually been PERFORMED. This can lead to substantial damages.
However, if the statement is held to be a mere REPRESENTATION of fact, then
damages will be assessed according to the RELIANCE interest of the wronged party, by
considering what the wronged party has lost by reliance on the representation. Generally
such damages will be much less than expectation type damages.
Secondly, the difference affects the ability to ‘set aside’ the contract
For a misrepresentation, the representee (the person to whom the statement of fact has
been made) is always in principle entitled to set the contract aside.
For breach of a term however, the innocent party can only set the contract aside when the
term broken is categorised as a CONDITION of the contract as opposed to a Warranty. A
term will only be regarded as a condition when it goes to ‘the root of the contract’
whereas a warranty is a term that is regarded as less important to the substance of the
contract.
Track/slide 5
01.56
How do the courts decide whether a pre-contractual statement is to be regarded as a
statement of fact only or as a statement that has become incorporated as a term of the
final contract?
The courts make use of the following guidelines in an attempt to work out what was the
INTENTION of the person making the statement – and they do this OBJECTIVELY.
If they consider the person making the statement intended to bind himself in the future
by his statement, then this element of ‘futurity’ is likely to encourage the courts to see
the statement as being a term of the final contract.
It is possible, by looking at case law, to see some guiding principles on how the courts
approach the task of identifying representations and terms. No one in particular is
dominant and the courts have to decide which one they want to give prominence to. Each
case will have to be decided on its facts.
We can consider the guiding princples under the following headings:
First, where the statement maker either verifies the truth of the statement or
invites the other party to verify it’s truth.
Second, by considering how important the statement made is to the recipient of the
statement.
And third, where the person making the statement is regarded as having specialist
knowledge over and above that of the recipient of the statement.
Track/slide 6
01.36
First then, we can consider the position where the statement maker either verifies the truth
of the statement or invites the other party to verify it’s truth
If the statement maker verifies the truth of a statement it is likely to be regarded as a term
as can be seen in the case of Schawel v Reade 1913. In this case the defendant who was
selling a horse told the claimant, ‘You need not look for anything – the horse is perfectly
sound. If there was anything the matter with this horse I should tell you’. The claimant
relied on this statement and bought the horse only to find later that it was not fit for stud
purposes. It was held that the statement was a term of the contract.
On the other hand, if the statement maker asks or advises the other party to verify the
truth of the statement, it is more likely to be regarded as a representation as was the case
in Ecay v Godfrey 1947. In this case the seller of a boat said that it was sound but
advised the buyer to have it surveyed. This was held to be a representation.
Track/slide 7 01.06
Another factor is how important the statement is to the recipient of the statement.
Where a statement is regarded as very important to the recipient, such that he would not
have entered the contract had it not been made, and the maker of the statement knows that
it is so important (either because of the circumstances or because told so), then it is likely
to be regarded as a term. In Couchman v Hill 1947 at an auction the claimant asked the
defendant if the heifer he was wanting to buy was in calf because, if it was, he was not
interested in buying it. He was told that it was not in calf and bought it only to find that it
was in calf. The statement that it was not in calf was held to be a term.
Track/slide 8
01.54
Another factor is whether the statement maker has specialist knowledge over the recipient
of the statement.
When the statement maker has specialist knowledge or skill compared to the other party
the statement may be held to be a term. This was the case in Dick Bentley Productions
Ltd v Harold Smith (Motors) Ltd 1965. In this case the plaintiff asked the defendant
car dealers to find him a ‘well vetted’ Bentley. They sold him a Bentley stating that it
had only done 20,000 miles. It turned out that it had done 100,000 miles and the
statement was held to be a term.
However, when the statement maker has less knowledge than the recipient or they have
equal knowledge, then the statement is more likely to be seen as mere representation. In
Oscar Chess Ltd v Williams 1957 a private person sold his car to car dealers stating that
it was a 1948 Morris having got this date from the log book, which, unbeknown to him,
was a forgery. In fact the car was a 1939 Morris worth less than the dealers paid him for
it. It was held that the statement as to the age of the car was a representation as the car
dealers had more specialist information than the private seller.
Track/slide 9
03.22
Before starting to look at misrepresentation, it is perhaps timely to mention how the parol
evidence rule impacts on this topic.
The parol evidence rule is basically that if the parties have put their contract into a
WRITTEN document, then they cannot later bring in EXTERNAL evidence to ADD TO,
VARY or CONTRADICT the written contract.
The idea behind this is the desire for CERTAINTY in contracts. However, there are a
number of exceptions to it, so many in fact, that one could argue that the rule does no
longer exist. In 1976 the Law Commission felt that it should be abolished but later they
changed their minds as they felt abolition might be more confusing than leaving it as it is.
We can now look at a few of the exceptions to the parol evidence rule.
One rule which makes the rule seem silly, is that although the courts will start from the
presumption that a written document is the whole contract, nevertheless this presumption
is rebuttable, so that one party can lead evidence to show that other terms were intended
to be part of the contract.
In addition, parol evidence is also allowed to prove:
-
terms that must be implied into the contract
customs that must be implied into the contract
that a contract is invalid due to a misrepresentation, mistake, fraud or non est
factum
and so forth.
A useful case to bring all these issues together is Routledge v McKay 1954.
In this case, a week before a written contract was drawn up between the parties for the sale of
a motorbike, the defendant had stated verbally that the bike was dated 1942. In fact the
plaintiff discovered after the contract that the bike was dated 1930 and so was worth less.
Was it possible for the verbal statement to be regarded as part of the written contract as a
term? The Court of Appeal said it was NOT a term of the contract. Points to bear in mind
that may have influenced the decision are:
i.
ii.
iii.
iv.
the statement was not part of the written document
neither party had specialist knowledge
they were both just individuals not businesses men
the defendant had stated the age relying on the log book which
recorded the age of the bike incorrectly
Track/slide 10
01.21
We are now ready to look at misrepresentation and should start with a definition.
What exactly is a misrepresentation?
It is best to first say what a REPresentation is. A representation is nicely defined in Cheshire,
Fifoot and Furmston’s Law of Contract 14th edition at page 293 as:
‘a statement of fact made by one party (the representor) to the other (the representee) which,
while not forming a term of the contract, is yet one of the reasons that induces the representee
to enter into the contract’.
A MISrepresentation is simply a representation that is UNTRUE.
A representation that IS TRUE will not cause any problems – what was in the statement will
have manifested.
A representation that is UNTRUE may well cause problems when the representee discovers
that it is untrue and wants to do something about it.
Track/slide 11 01.53
What we are going to look at is:
i.
ii.
iii.
the general rules for when a representation is actionable
the three main types of misrepresentation
remedies for misrepresentation
In considering the general rules for when a representation is actionable, we shall do so by
consideration of some of the key cases including:
McInery v Lloyd’s Bank ltd 1974
Gordon v Sellico 1986
Spice Girls Ltd v Aprilia World Service BV 2000
Keates v The Earl of Cadogan 1851
Dimmock v Hallett 1866
Bisset v Wilkinson 1927
Smith v Land & House Property Corp 1885
Esso Petroleum Co Ltd v Mardon 1976.
Edgington v Fitzmaurice 1885
Solle v Butcher 1950
Horsfall v Thomas 1862
Museprime Properties Ltd v Adhill Properties Ltd 1990
Attwood v Small 1838
Redgrave v Hurd 1881
Remember, that what we have to show for a representation to become an actionable misrepresentation, is that the representor made:
-
a false and unambiguous
statement
of present fact
which induced the representee to enter into the contract.
Track/slide 12 02.51
Firstly then, we shall look at the case of
McInery v Lloyd’s Bank ltd 1974
McInery sold some companies to Mackay who only paid the first 2 instalments of the
purchase price. McInery brought an action against Lloyds Bank claiming damages for
negligent misrepresentation. He based his case on a telex sent to him from the bank. The
telex basically was a copy of an opinion sent by the bank to Mackay stating how suitable or
not McInery would find Mackay’s plan to finance the deal.
It was held that McInery did not succeed because on a ‘reasonable interpretation’ of the telex,
the bank had not given any assurances as to Mackay’s ability to pay.
This case demonstrates the point that a representation will not be actionable just because the
representee interprets it as being false – it will only be actionable if on a ‘reasonable’
interpretation the statement, which can be by words or conduct, could be interpreted as being
false, an objective test.
Gordon v Sellico 1986
Estate agents, acting on behalf of the owner, contracted with a builder to ‘bring the flat up to a
very good condition’. When the builder saw dry rot in the flat he couldn’t be bothered to deal
with it so he simply patched it over.
The plaintiffs viewed the flat, flat C, and then bought it with a clause in the contract basically
saying, ‘bought as seen’.
When the dry rot was discovered they sued the builder for misrepresentation. Could the
concealment be a statement? Yes.
The builder’s concealment of the dry rot was:
a false representation that flat C did not suffer from dry rot,
it was intended to deceive the purchasers and
it did deceive the purchasers.
This case therefore shows that ‘conduct’ can amount to a misrepresentation, as was also
shown in the next case.
Track/slide 13 08.26
The case of
Spice Girls Ltd v Aprilia World Service BV 2000
is a slightly more interesting case. First, we shall look at the facts of the case and what was
decided in the Court of Appeal.
In this case, the company ‘Spice Girls Ltd’ (SGL) owned by the 5 spice girls, Ginger Spice,
Baby Spice, Posh Spice, Scary Spice and Sporty Spice drew up a contract with Aprilia World
Service BV (Aprilia) such that Aprilia would sponsor their 1998 tour of Europe. Aprilia was
an Italian scooter manufacturer. The final contract was signed on 6th May 1998 – in which
the Spice Girls group was described as ‘currently consisting’ of the 5 named members of the
group.
Under the deal Aprilia was to pay or provide £450,000 sponsorship fee, a £150,000
guaranteed royalty fee, 10% royalty on each Spice Sonic scooter sold, 20 Sonic scooters and
10 motor bikes. In return, Aprilia was to receive publicity as the ‘Official Sponsor of
SpiceWorld’, extensive commercial rights for 12 months for the European tour and more
limited rights for the proposed tours of the USA and Japan.
Two events happened prior to this that formed the basis of a possible misrepresentation by
conduct:
i.
On 30th March 1998 SGL faxed Aprilia confirming the ongoing commitment of
the 5 spice girls to the deal with Aprilia. This was sent because two photo shoots,
one in Madrid and one in Munich, had been total failures.
Aprilia was concerned as it was about to launch scooters bearing the logo ‘Sonic
Spice’. In the word Spice each letter depicted a different likeness of a different
spice girl.
ii.
On 4th May 1998 there was a commercial shoot for TV in London which was
designed to implant in the minds of the public an association between Aprilia
scooters and the Spice Girls.
On 31st May it was announced that Geri Halliwell, Ginger Spice, had left the group on 27th
May.
When Aprilia learned of this they refused to pay the remaining balance owed to SGL under
the contract. Aprilia agreed that Geri leaving was not a breach of contract but, when SGL
sued them for the balance, Aprilia made a counter-claim that SGL had made a false
representation in the fax and commercial shoot that the Spice Girls would consist of the exact
5 girls during the lifetime of the deal.
This was based on the fact that prior to the sending of the fax and prior to the commercial
shoot for TV, on three separate occasions, on 3rd March, 9th March and on 25th April at
Wembley Arena, Geri had made it clear to the other spice girls, and hence the company SGL,
that she was going to leave. As such, the representations in the fax and commercial shoot
were false.
At first instance, Arden J decided that SGL was liable to Aprilia under section 2 (1) of the
Misrepresentation Act 1967 (the Act) only in respect of the misrepresentation by conduct
arising from the participation of all five spice girls in the London commercial shoot. She
stated that,
‘… participation in the shoot carried with it a representation by conduct that SGL did not
know and had no reasonable ground to believe that any of the spice girls had an intention to
leave the group… nothing was done to correct that representation which was a continuing
representation. It was on the facts found MATERIAL to Aprilia’s decision to enter the
agreement… SGL had a duty to correct its misrepresentation… I am satisfied that the
representations by conduct were such as to be likely to induce a person to enter into the
contract. Such inducement to enter a contract need not of course be the sole inducement.’
On appeal, SGL contended that there was no misrepresentation by conduct and that even if
there was, Aprilia was not induced by it to enter the contract. The court of appeal disagreed.
To decide if SGL was liable to Aprilia under section 2 (1) of the Act they said that liability
depended on four elements:
a) a misrepresentation made by one person to another;
b) a subsequent contract between them;
c) consequential loss and
d) an absence, at the time the contract was made, of a belief or reasonable grounds for belief
in the truth of the facts represented.
Thus, they said that the liability of SGL depended largely on whether at any time before the
contract was signed, SGL made a misrepresentation to Aprilia. This is what we shall focus
on.
The Court of Appeal said that it was irrelevant if Geri did not know of the wording in the
contract, ‘currently consisting of’, because in determining if a representation is to be implied,
the court would do so objectively in the light of what was said and done.
Further, they said that each episode of conduct, the fax and commercial shoot, whilst
considered separately, had to be considered as a whole.
They said that this was a case of a series of continuing representations made throughout 2
months of negotiations leading to the final signing of the contract. They were such as would
induce a normal person to act as Aprilia did and in these circumstances any requisite intention
on the part of the representor would be presumed. They said it was sufficient that the
misrepresentation was a MATERIAL inducement and that it did not have to be the only one.
They thus concluded that the representations, express or implied, in both the fax and
commercial shoot, were material inducements to Aprilia to sign the contract on 6th May.
Track/slide 14 02.19
Now we can make a few comments on the Spice Girls case.
From this case you can see that the false statement of fact need not be spoken but can also be
made by conduct.
To have induced the other party to enter the contract, the false statement of fact must be
material, in the sense that it did induce the other party to enter the contract and it need not be
the only inducement to enter the contract.
Aprilia’s counter-claim was made under section 2(1) of the Act. Although there are two other
types of actionable misrepresentation, (as we shall learn later) the statutory type is now the
main one used by claimants. The other two types are fraudulent misrepresentation and
negligent misrepresentation (misstatement). Under section 2 (1) of the Act a representor will
be liable if the four elements set out by their lordships in the appeal (see previous slide) are
fulfilled.
It can be seen that the Act only applies were the parties have actually made a contract. If they
have not then recourse may have to be had to one of the other two types of misrepresentation.
It can also be seen that the representor is liable unless he can prove (reverse onus of proof)
that up until the time the contract was made, he had reasonable grounds to believe and did
believe that the facts represented were true. This is not easy to do as we have seen in this
case. SGL did not prove that up to the time the contract was made, on 6th May, they had
reasonable grounds to believe and did believe that Geri Halliwell was going to stay as part of
the group.
Track/slide 15 02.10
We can now consider the case of
Keates v The Earl of Cadogan 1851
This case is generally cited as authority for the fact that there is NO GENERAL RULE OF
DISCLOSURE – which means that you do not have to tell the other party things that would
affect his decision to contract. This is an application of the concept of LAISSEZ FAIRE that
grew up in the late 19th century. It works with the other concept of CAVEAT EMPTOR – let
the buyer beware.
This rule exists because of the difficulty, if there WAS a DUTY of disclosure – to determine
just WHAT would have to be disclosed.
In the Keates case, the plaintiff rented a house from the defendant. The defendant knew that
he wanted it to live in immediately but did not tell him that the house was actually
uninhabitable. It was held that there was no duty of disclosure and so long as there was no
fraud, and there was not in this case, then the defendant did not have to tell the plaintiff
anything.
So, if you go to buy a second hand car off of someone privately, you are taking a big chance.
They do not have to tell you adverse things about the car – caveat emptor. Whereas if you
buy a second hand car from a garage, statute law will give you some protection by implying
terms into the contract about the worthiness of the car.
However, there are some exceptions to this rule to prevent people acting too irresponsibly in
the pre-contractual negotiation stage. Thus, although generally ‘silence does not amount to a
statement’ and thus cannot form the basis of a misrepresentation, there are some exceptions to
this rule.
Track/slide 16
03.03
The case of Dimmock v Hallett 1866
demonstrates the position as regards half truths and advertising puffs.
In this case some farmland was for sale at auction. One of the farms on the land, Bull
Hassocks Farm, comprised about one third of the land.
In the particulars of sale various statements were made that were later alleged to be
misrepresentations. One of the statements was to the effect that the land was ‘fertile and
improveable’. In fact, part of the land had been abandoned and was useless. The court held
that the statement was not a representation but a mere ‘flourishing description’ or ‘sales puff’
by the auctioneer.
The main statement in contention was the one that stated that Bull Hassocks Farm ‘was lately
in the occupation of Mr Hickson at an annual rent of £290 15 shillings’. This was a half truth
because although Mr Hickson had rented the farm for this amount, he had not been renting the
farm for the past year and a half. In addition, in that time, Mr Dimmock had tried to let it out
at a lower rent but the deal had not been finalised.
The question was therefore, whether the statement in the particulars was a false
representation?
The court held that it was because although partially true it gave the impression that the farm
could still be let for £290 15s which it could not. Since the statements were held to be
‘material’ in that they induced the purchaser to buy the farm, then it was an actionable
misrepresentation.
The Spice Girls case 2000, as shown above,
confirms the attitude of the courts set out in With v O’Flanagan 1936 that the representor has
a duty to inform the representee of a change in circumstances. This was also what was stated
in the Kleinwort Benson case, 1989, by Ralph Gibson LJ with regard to the letter of comfort.
Special relationships such as solicitor and client require FULL DISCLOSURE of all material
facts as do contracts of the utmost good faith, such as insurance contracts.
Track/slide 17
06.34
Whilst the case of Dimmock v Hallett 1866 demonstrates that sales talk is not normally
actionable, the case of Carlhill v Carbolic Smoke Ball Company 1893 shows that if the
sales talk is specific enough and shows an intention to create legal relations, it may be
construed as an offer.
And, whilst beliefs or opinions are not normally actionable as they do not amount to a
statement of present fact, the following case shows that they may be if the person stating the
belief or opinion does not genuinely hold that opinion or belief.
The case we need to consider is Bisset v Wilkinson 1927
This case was heard by the Judicial Committee of the Privy Council before 5 law lords on
appeal from the Court of Appeal in New Zealand. Note that the 2 parties are known as the
plaintiff/defendant and then alternately as the appellant/respondent depending on who is
appealing and who is responding to the appeal. First we shall track the progress of the case
through the courts and then look at the facts.
Thus, at trial in the Supreme Court of New Zealand
Bisset is the plaintiff who sues Wilkinson and another for money owed to him under a
contract for the sale of land. In the action Wilkinson counterclaimed and by way of defence
argued for RECISSION of the contract for MISREPRESENTATION.
Bisset won – in other words, the court held that there was no misrepresentation.
On appeal in the Court of Appeal in New Zealand Wilkinson appealed. The court set aside
the decision of the lower court and ordered recission of the contract on the grounds of a
misrepresentation. Thus, Wilkinson won.
Bisset then appealed.
The Privy Council in London upheld the original decision of the Supreme Court of New
Zealand – that there was no misrepresentation – and thus Bisset won. He was entitled to the
payments owed him under the contract.
This course of events shows how difficult it is sometimes to decide if a pre-contractual term is
or is not a representation and if so, if it is a misrepresentation.
The facts.
In May 1919 Bisset made a contract with Wilkinson and his business partner whereby
Wilkinson bought 2 blocks of land in southern New Zealand called ‘Homestead’ and
‘Hogans’ for £13, 260 10 shillings. Wilkinson paid £2000 when the contract was signed, the
balance being due in 1924. Interest on the balance was to be paid in the meantime every 6
months.
Wilkinson and his business partner set up in business as farmers and bought the land for
sheep farming. One of them had no knowledge about sheep farming but one did because his
father was a sheep farmer and he had inspected the land for them before the contract was
signed and given them advice.
During the negotiations Wilkinson and his partner alleged that Bisset had represented that the
land would sustain 2000 sheep. Bisset agreed that he had said something to this effect and he
said: ‘I told them that if the place was worked as I was working it, with a good 6 horse team,
my idea was that it would carry 2000 sheep’.
At trial the judge said that these comments were only an expression of OPINION not a
statement of fact and that it was an HONEST opinion. Thus there was no misrepresentation
as there was no statement of present fact.
In the Court of Appeal it was held to be a statement of fact and also a misrepresentation.
In the Privy Council their lordships said that one had to take account of:
-
the material facts
the knowledge of each party
their relative positions
the actual words used
and the actual condition of the subject matter, in this case the land.
By reference to such considerations it was held to be of crucial importance that the land in
question had NEVER been used for sheep farming. Thus a statement as to its carrying
capacity for sheep could only be an OPINION. We must remember the knowledge of each
side – on both sides there was knowledge of sheep farming.
The next question that had to be decided was whether this opinion was HONESTLY held.
The Privy Council said that if a REASONABLE MAN (an objective test) with Bisset’s
knowledge could have come to the same conclusion about the carrying capacity of the land,
then it could be an honest opinion – otherwise it could be a misrepresentation. They held it
was an honest opinion and so was not a misrepresentation.
Track/slide 18 00.13
We will continue our consideration of these cases on misrepresentation in the next lecture.