A contract may be negated by the misrepresentation of one party. A misrepresentation is a statement which is untrue, which induces a party to enter a contract.
A representation may become part of the contract. The breach may be either a breach of condition entitling the other party to terminate or a breach of warranty entitling the other party to damages only.
Many representations do not become part of the contract. They may be an inducement, reason or motive why the contract is entered. If the representation is false, legal consequences will follow. The rights of the innocent party depend on whether the representation is dishonest, careless or innocent.
Certain misrepresentations constitute criminal offences under consumer protection legislation and in some cases, under the ordinary criminal law. False and deliberately misleading statements made with the intent to gain or cause loss constitute a serious breach of criminal law. They will usually amount to criminal fraud.
The person who makes the statement may also be guilty of an offence under consumer protection laws where the statement is made, in circumstances where it is false, regardless of intent.
A trader who engages in an unfair commercial practice is guilty of an offence. A commercial practice is unfair if it is contrary to one or both of the following
- the general principle of good faith in the trader’s field of activity;
- the standard of skill and care that the trader may reasonably be expected to exercise in respect of consumers,
and would be likely to cause appreciable impairment of the average consumer’s ability to make an informed choice in relation to the product concerned, and cause the average consumer to make a transactional decision that he would not otherwise make.
A commercial practice is misleading if it would be likely to cause the average consumer to be deceived or misled in relation to any matter in relation to the trader or the goods. See the section on un unlawful commercial practices.
Statements of Fact
In the context of a contract, a misrepresentation must relate to a present or past fact. An opinion of itself may not be a fact. However, an opinion may impliedly assert the truth of other underlying facts
Traditionally, statements in relation to the law did not have the same legal consequences as a statement of fact. This rule has been recently changed by the courts.
A statement of intention will not usually be a misrepresentation. However, if it is not honestly held at the time it may be a misrepresentation.
Statements of opinion generally do not qualify a statement of fact. A statement of opinion may imply that the person has exercised skill and care in relation to the facts and gives an opinion based on those facts. The key issue is whether it was reasonable for the other party to rely on it
Generally, it is difficult to claim misrepresentation of the basis on an advertisement claim that a particular product is as good as or better than another product. Statements in advertisements may amount to representations. However, they must be certain and must not be a mere embellishment.
However, if there is a precise statement of particular qualities which are factually incorrect, there may be a misrepresentation. Errors and omissions may amount to a misrepresentation. The representation may arise by conduct.
Misrepresentation of Intention
The courts will not readily allow liability on the basis of a misrepresentation of intention. Some such representations will become a term of the contract itself so that the party will be liable for it as a contractual obligation. However, in many other cases, it will be insufficiently certain to constitute a contractual term.
A statement of intention can, in principle, be a statement of fact for the purposes of operative misrepresentation. Even if the statement is one of present intention, it may assert an actual present intent to carry it into effect. If this intention is not honestly held, then it may be a misstatement of fact.
In practice, it may be difficult to draw the line between facts and opinions. It is a matter of judgment in each case as to whether there is an implicit assertion or representation of fact underlying the opinion.
Misrepresentation of Opinion
An opinion implies something short of an outright assurance or a guarantee. However, it may be based on fact. If the person making the statement knows or should have known that it was false, there may be an implicit representation of fact. It may have effect if the person to whom it is been made does not have equal knowledge or is not in a position to verify it.
Statements made in the course of a sale regarding future production and output may be wholly unreasonable if they are wholly out of step with the past performance. In such cases, exaggerated statements of opinions may be demonstrably shown to be lacking a reasonable basis and accordingly, are operative misrepresentations.
Reference may be made to the relative expertise and knowledge of the parties. Where a person holds himself out as an expert, his opinions are more readily held to be representations of facts. Statements of opinion by persons in possession of the actual facts are more likely to be operative.This is particularly so when the other party does not deal with him at arm’s length.
A statement of opinion, “hyping” or “puffing” the goods, will not be generally sufficiently certain for the purpose of misrepresentation. In some cases, a statement may be so outrageous that it is incapable of being believed and relied upon.
There must be an express or implied statement or assertion of fact. So-called puffing or eulogistic praise will not generally constitute a representation because it does not usually make or assert a statement of fact.
A statement of opinion may go beyond being colourful to making an implied assertion of fact. Where the opinion is not justified by the facts there may be a misrepresentation. There may be a thin line between these cases.
Misrepresentation of Law
At common law, an innocent or negligent misrepresentation of law did not have the same legal consequences as a misrepresentation of fact. It was not usually the basis for rescinding a contract or claiming damages for loss thereby caused. It was not operative. The principle made each party responsible for knowing and applying the law to the relevant circumstances.
A distinction was made between representations as to private rights and public law. The principle that a misrepresentation of law was not operative, more readily applied in respect of public law, general common law and statute.
The distinction was criticised for many years and was hard to apply in many circumstances. In some cases, the representation may be simply what the person making the statement believed the law to be. In most such cases, the recipient could not reasonably rely on the statement of the other party’s belief.
The House of Lords has sought to remove the distinction between mistakes of law and mistakes of fact as a basis for negating contracts. It appears in principle that the same approach will be taken to negligent or innocent misrepresentations of law, as apply to mistakes of law. The House of Lords had found the distinction had become illogical and anomalous.
The courts give a certain latitude in the context of initial negotiations where statements of future intention and opinion may be made in promotional and aspirational terms. Where statements are in vague and hyperbolic terms that are incapable of verification, they are less likely to be operative representations of fact.
Many advertisements will be found to be puffery or promotional in nature. However, where there are specific claims on which it is known a person may reasonably rely, there may be a potentially operative representation. There may be a fine line between puff praise and grandiose statements and statements of fact on which an operative misrepresentation may be based.
Nonetheless, the courts may find statements of fact amongst promotional discussions and conversations.
Authority of Person Making Statement
Questions of agency may arise in relation to the authority of the person concerned to make the representation. Where a particular transaction is within the course of an employee’s duties, he will generally have authority to make the representation.
Even if the employee does not, in fact, have authority, he is likely to have ostensible authority on the basis that he is held out by the employer as having such authority. A third party dealing with persons who appear to have the authority and are held out by the entity or company concerned are likely to bind it to representations within the course of that apparent authority.
Where a representation is made to a group, for example, in the case of a prospective unilateral contract in an advertisement, it is likely to be deemed to be made to any recipient who accepts the unilateral contract.
Truth of Representation
Whether or not a representation is true is ultimately a matter of fact at the relevant time. It is a matter for the court to determine the position. The substantial truth of the position is considered. Minor inconsequential discrepancies will not be sufficient to make a statement that is substantially true, untrue. However, if it causes the claimed loss, it is likely to be substantial.
A representation may be operative if it is ambiguous and the person making the statement knows that the addressee interprets it in a particular incorrect light. If this occurs, there is an onus on him to correct the false impression.
An ostensibly true statement may, in fact, be untrue in its overall context and impression. The courts look at the position from the perspective of its effect on the party to whom it is made.
Representation must cause Loss
It is not enough that the person to whom the representation is made simply believed it. It must be shown that he altered his position in a way which adversely affects his interests. It must be operative in entering the contract or otherwise acting to his detriment. Partial reliance on the statement is usually enough, even if it is not determinative.
Questions may arise in some case as to whether it is reasonable to rely on a representation of opinion. In many cases, it may not be reasonable to rely on a statement which is subjective in nature and incapable of verification.
The courts in some contexts require that the maker must intend the representation to be relied on. Where required, the maker’s intention will be readily presumed. Where a person makes a statement of opinion knowing and intending that another will rely on it, it is more likely to have legal consequences. He may be held to have assumed a duty of care in negligence. It will more readily be held to be part of the contract or to constitute a representation of an underlying factual basis for the opinion.
Claimant must Rely on Misrepresentation
Where the person to whom the representation is made becomes aware that it is false before entering the contract, he will not have relied on it. In this case, his knowledge must be actual rather than constructive or imputed from circumstances. The fact that the person to whom the representation is made could have discovered the truth is not sufficient, if he, in fact, relied on the statement.
Even there is documentation from which the truth may be deduced, actual knowledge is required on the part of the person to whom the representation is made. This is the case even where there is a formal investigation such as in the purchase of land by which the error could be discovered.
If a buyer has positively misrepresented the position, then “buyer beware” does not apply. In effect, the other person must correct the false impression.
Clauses Excluding Liability
It appears that it may be possible for the terms and conditions to exclude liability for innocent misrepresentation. In the case of a sale of goods or the supply of a service, an exclusion or limitation of liability for misrepresentation must be fair and reasonable.
Where a contract provides that the person to whom the representation is made must verify all statements made, this will not excuse fraudulent misrepresentation.
Terms are commonly inserted in contracts to the effect that the contract comprises the entire agreement and that the party has not entered in reliance on and that no representations have been made are purported to be made on behalf of the other party.
Such clauses are usually effective, at least in relation to a representation made in good faith and honestly. The clauses may be subject to the fair and reasonable requirement for exemption clauses in the case of contracts for the sale of goods and the supply services
In a tort (civil wrong) action, there need not be a contractual relationship. If there is a contract, it may be rescinded. A person who has suffered loss by reason of an untrue statement may be able to recover on the basis of the tort of fraudulent misrepresentation or negligent misrepresentation
Fraudulent misrepresentation does not require that there be an intention to gain or cause the other person loss. It is enough that a false statement is made intending or knowing that will be relied on with actual reliance. A reckless statement will suffice. Recklessness implies gross negligence to the point that the party making it should have known that there was no reasonable basis for it.
Actual economic loss (or other tangible loss) is required in order to make a civil claim. The measure of damages is that for civil liability so that the extent of recovery is greater than that for breach of contract. Recovery is available for the consequences which flow directly from the fraud. This will extend to the recovery of money paid and foreseeable consequential loss. As is the case generally, the claimant must make reasonable steps to mitigate loss once he has discovered the fraud.
Negligent Misstatement I
The general principles of negligence apply. A person must make a statement in the context of a relationship of reliance. The relationship must be sufficiently proximate so that there is a duty of care. The recipient must be being in an immediate position of proximity, must rely on the statement and be thereby occasioned loss.
Negligent misstatement will commonly arise in the case of negligent professional advice. Although described as negligent misrepresentation, many of the cases involve negligent advice. It may not be a question of a particular misrepresentation as a finding of professional negligence.
Liability for negligent misstatement is not limited to an existing relationship of advice. There may be liability for negligent misstatement even though there is no contractual relationship between the parties. The statement or representation may be entirely gratuitous. There need not necessarily be advice if there has been a statement or conduct on which the other reasonably relied and the requisite degree of care and proximity exist.
Negligent Misstatement II
Unlike other contexts of negligence, the loss will usually be pure economic loss. In other cases of negligence, the primary loss must be personal injury or damage to property.Where the claim is based on a negligent statement, this is not required. Financial loss suffices.
In a tort (civil wrong) action, there not need be a contractual relationship. If there is a contract, it may be rescinded.
There have been many reported cases which a duty of care has been found. The requisite proximity required is close. The statement must -will often be made in the context where a professional relationship or one of advice. The courts have sought to restrict the extent of which reliance may be made by the third party.
References and Sources
Irish Textbooks and Casebooks
Clark, R. Contract Law in Ireland 8th Ed. (2016) Ch. 11, 13
Friel, R. The Law of Contract 2nd Ed, (2000)
McDermott, P. Contract Law (2001) 2nd Ed (2017) Ch. `13
Enright, M. Principles of Irish Contract Law (2007)
Clark and Clarke Contract Cases and Materials 4th Ed (2008)
English Textbooks and Casebooks
Poole, J. Casebook on contract law. (2014) 12th edition
Stone and Devenney, The Modern Law of Contract 10th Ed (2015)
McKendrick, Contract Law 10th Ed (2013)
Chen-Wishart, Contract Law 5th Ed (2015)
Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)
Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.
Chen-Wishart, M. (2015) Contract law. 5th Ed.
Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.
Duxbury, Robert (2011) Contract law. 2nd Ed.
Halson, Roger (2012) Contract law. 2nd Ed.
Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)
O’Sullivan, Hilliard, The law of contract. 6th Ed. (2014)
Peel, and Treitel, The law of contract. 13th Ed. (2011).
Poole, J.Casebook on contract law. 12th Ed. (2014).
Poole, J. Textbook on contract law. 12th Ed. (2014)
Richards, P Law of contract. 10th Ed. (2011)
Stone, R. The Modern law of Contract. 10th Ed. (2013)
Treitel, G. H. An outline of the law of contract. 6th Ed (2014).
Turner, C Unlocking contract law. 4th Ed. (2014).
Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).
Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)
McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)
Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)
Burrows, A. S. A Casebook on Contract. 4th Ed.
Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)
Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)
UK Practitioners Texts
Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)
The above are not necessarily the latest edition.