Objective Notes: W300 – Agreements, rights & responsibilities
UNIT 19 - MANUAL THREE
MISREPRESENTATION & MISTAKE
1
Identifying misreps



2
Statements may be representations if encourage party to enter contract but
not forming part, made by A to B to induce B to enter into contract although
not have to be sole reason provided did induce in some way – false statement
post-contract not misrep as did not induce B to enter - & party claiming
misrep occurred has burden of proving conditions/ definition satisfied but
where B does not rely on A’s statement, not misrep even if incorrect;
Must be of fact rather than mere opinions (Bisset v Wilkinson [1927])
although opinions may be misrep where could only be held based on factual
knowledge (Smith v Land & House Property Corporation (1884)) & can be
by conduct (Spice Girls v Aprilia World Service [2000]);
Whilst silence itself not = misrep unless obligation to disclose facts (e.g.
insurance), partial truths (Dimmock v Hallett (1866)) or, where original
statement true, failure to disclose change in circumstances (With v
O’Flanagan [1936]) may, but if A makes false rep discoverable by B, say,
checking papers & B fails to check, remains misrep & B does not lose claim
misrep (Redgrave v Hurd [1881]).
Misrep remedies




Contract becomes voidable (= valid until innocent party avoids it) but not
bound to do so may affirm (= treat as continuing) & just seek damages but
where he decides to avoid he rescinds it & rescis available, irrespective of
misrep type but B must first notify A of decision within reasonable time so
that A aware, although where A deliberately disappears he deprives himself
of such notification right & if B shows his intention by overt & obvious acts
falling short of communication, sufficient (Car & Universal Finance Co Ltd
v Caldwell [1965]);
Rescis restores parties to pre-contract positions so where B notifies A he
intends rescis due to A’s misrep, goods restored to A & monies paid
refunded to B to prevent unjust enrichment & neither required to perform
any further contract obligation;
Rescis equitable remedy barred where (i) innocent party not rescind within
reasonable time & if excessive delay right lost (Leaf v International
Galleries [1950]); (ii) contract affirmed in knowledge of facts entitling rescis
(Caldwell); (iii) goods destroyed/ consumed since parties cannot be returned
to pre-contract positions if goods can’t be restored but restitution not have
to be exact & party can rescind if can make substantial restitution (Erlanger
v New Sombrero Phosphate Co (1878)); & (iv) goods passed to 3rd parties
since B has good title until A rescinds & if passed before rescis, 3rd party
obtains good title;
Courts may award damages in lieu of rescis where misrep was innocent or
neg but not where fraudulent & is equitable remedy at court’s discretion so
(i) claimant not have right to damages (S.2(2) Misrep Act 1967); (ii) in
determining whether to exercise discretion courts consider importance of
misrep in relation to main subject matter, resulting loss if contract upheld &
Page 1
Objective Notes: W300 – Agreements, rights & responsibilities


loss resulting from rescis (William Sindall Plc v Cambridgeshire County
Council [1994]); & (ii) where right to rescind lost/ debarred so is claim
under s.2(2) (Zanzibar v British Aerospace Ltd [2000]);
As well as affirming/ rescinding innocent party may also claim damages –
o If fraudulent misrep, under tort of deceit so (i) claimant must show
def made statement of fact knowingly or was recklessly careless as to
truth, he intended claimant to act on misrep & claimant did so act &
suffered damage as a result; & (ii) damages aim to place claimant in
pre-tort position if misrep not been made & may be more than usual
in tort as Wagon Mound reasonable remoteness foreseeability rule not
apply so claimant can recover all losses directly resulting from misrep
(East v Maurer [1991]);
o If Neg misrep, special relationship between A & B, including
reasonable reliance, creates right in Neg (Hedley Byrne & Caparo)
where proof required less onerous since deceit requires proof of def’s
intent/ knowledge of falseness which difficult to establish whereas
Neg doesn’t require motive or intent but liab restricted by Wagon
Mound reasonable foreseeability remoteness rule;
But more favourable to claimants to act under S.2(1) Misrep Act –
o Where misrep made by other contracting party, he is liab unless can
show that, up to time contract made, had reasonable grounds to
believe statement of fact was true & did so believe (but if misrep made
by 3rd party, action can only be taken in deceit or under Hedley Byrne)
& liab assumed unless truth test proved but difficult to establish
maker’s grounds for belief reasonable & insufficient that belief
honestly held – must also be reasonable (Howard Marine & Dredging
v Ogden [1978]);
o Damages awarded as if were fraudulent misrep (measure is of deceit
rather than Neg) based on s.2(1)’s wording which compelled court to
apply fraudulent misrep rules so argument that ref to fraud was fiction
rejected since contrary to the plain stat words used (Royscot Trust v
Maidenhead Honda Centre [1991]);
o Smith New Court Securities Ltd v Scimgeour Vickers Ltd [1996],
queried whether ‘loose’ wording compelled courts to treat morally
innocent as if guilty of fraud & harsh to apply fraudulent misrep
rules where def has reasonable founds for belief, not acting
fraudulently & may have even tried to check accuracy so fairer to
apply Hedley Byrne rules – with consequently lower damage award & hard to defend Royscot’s determination that def who cannot prove
beliefs reasonable is treated more severely than neg. def but despite
Smith New Court obiter, Royscot remains good law & reduces
deceit’s importance as no point in establishing fraud since damages
calculated same way under s.2(1) which does not even require Neg to
be proved;
o Where def establishes reasonable grounds for belief, misrep innocent
& claimant has no damages rights but may be able to rescind (if no
bars to this) or claim damages in lieu of rescis under s.2(2) & whilst
unclear how s.2(2) damages calculated, Wm Sindall indicates should
reflect loss arising from property not being what it was represented to
Page 2
Objective Notes: W300 – Agreements, rights & responsibilities

3
be & never > damages awardable if rep contract term & claimant
suing for breach.
In addition to rescis, innocent party can claim indemnity re expenses
necessarily incurred from entering into contract but this very restricted in
application (Whittington v Seale-Hayne [1900]) & only likely to be pursued
where claimants have no rights under Hedley Byrne or s.2(1).
Identifying mistakes



4
Common mistake (= where both parties are mistaken about same point) –
o Where unbeknown to both parties contract subject matter ceased to
exist pre-contract (Galloway v Galloway [1914], Couturier v Hastie
(1856) & S.6 SOGA);
o Quality (Bell v Lever Brothers Ltd [1932);
Mutual mistake where both parties mistaken but not in same way –
misunderstanding &/ or cross-purposes;
Unilateral mistake where only one party is mistaken, other party must be
aware of mistake &, whilst can concern any contract aspect usually involve
mistakes as to other party’s ID as where rogues misrep ID to obtain goods
without paying.
Affect of mistake




At common law, courts reluctant to recognise that mistakes affect contract
based on undesirability of letting parties withdraw because too easy to claim
buyer had second thoughts after seeing same goods etc cheaper elsewhere &
unduly harsh on B if A was permitted so to do so where A & B freely entered
into contract, courts hold both to obligations as uncertainty would result if A
could withdraw because of his mistake but where common law recognises
mistake, courts void contract ab initio (= treated as if never existed & no
rights/ obligations created);
Drastic effect (adding to reluctance) since courts seek to return parties to precontract position so goods/ money acquired must be returned, obligations
remaining not have to be performed & original seller can recover goods sold
on to 3rd parties, including purchases in good faith by innocent 3rd party, even
if original seller late in making rescis, because contract void & good title
never acquired;
Where there is common mistake re subject matter existence contract void
(Couturier & S.6 SOGA) but where, as a matter of construction, it was
implied that A had actually promised B that specific goods existed, A
assumed risks of non-existence so contract not void for mistake but rather A
in breach (McRae v The Commonwealth Disposals Commsn [1951]
(Australia));
McRae indicates only goods which at some time existed governed by s.6 &
where goods never existed, courts must have regard to construction but
arguable that such distinction not supportable & should be consistency of
treatment irrespective of it but clarification from Associated Japanese Bank v
Credit du Nord [1988] - mistake must be substantially shared by both parties
& must render subject matter essentially & radically different from that
parties believed to exist;
Page 3
Objective Notes: W300 – Agreements, rights & responsibilities








Mistakes re quality will only void contracts where both parties believe
quality’s existence makes item without such essentially different (Bell);
In mutual mistakes where, say, A intends to sell X to B but B thinks he is
buying Y, Courts decide on what reasonable person would assume to be
parties’ intentions & if appears there is contract on A’s terms because B’s
mistake unreasonable, B in breach if refuses to proceed or if appears A’s
mistake was unreasonable, then there is contract on B’s terms & A in breach
if refuses to sell Y but if situation too unclear to reach conclusion contract is
void;
In uni mistakes re ID, where contracts concluded distantly only confusion
between distinct entities where A shows he only intended to contract with B
specifically voids by mistake (Cundy v Lindsay (1878)) but where rogue
merely adopts an alias & there is no other entity it is not (Kings Norton
Metal Co Ltd v Eldridge, Merrett & Co Ltd [1897]);
In face to face situations where A sells to B physically present at time,
presumption = A intends to contract with B & contract not void for mistake
unless B’s ID crucial to contract formation (Ingram v Little [1961]) but
Lewis v Averay [1972] held Ingram is confined to its special facts albeit that
Denning felt distinguishing between ID (which voids contract) &
individual’s attributes (which does not) was fine distinction which is really
no distinction at all;
Where A knows B mistaken re contract term, A obliged to tell B & if knew
B apprehended contract in different sense to that which A intended, A not
permitted to insist B is bound – where there is mistake about contract terms,
contract is void (Smith v Hughes (1871));
Equity may recognise mistakes common law does not & set aside contracts
on terms since its role = mitigate rigidity of common law (Solle v Butcher
[1950]) but difficult to say when & if equity will intervene & such relief not
given in above mistake cases so remains very much last resort & although it
provides flexibility re remedies (substitution with what court considers just &
fair arrangements) it is uncertain – difficult to predict what, if any, terms
will be imposed;
Overall, courts must firstly decide whether contract specifies who bears risk
of mistakes & only if silent must then consider whether at common law
contract void for mistake – if so equity not arise but where contract common
law valid, courts may consider pleas re mistakes at equity (Associated
Japanese Bank Ltd v Credit du Nord SA [1989]);
However, in Great Britain Peace Shipping Ltd v Tsavliris Salvage Ltd [2002]
C of A overruled its decision in Solle on grounds of per incuriam – doctrine
of equitable rescis in Solle irreconcilable with Lords’ decision in Bell & held
no equitable jurisdiction to give rescis for common mistake in circumstances
where common law found contract valid as not possible to distinguish
mistakes fundamental in equity from those which at common law made
contracted thing essentially different from what it was believed to be.
Page 4