Misrepresentations
Cases
Bisset v Wilkinson & Anor
[1926] UKPC 1
[1926] UKPC 73, [1927] AC 177, [1926] UKPC 1
LORD MERRIVALE
The appellant in this litigation brought his action in the Supreme Court of New Zealand to recover a sum of money payable to him under an agreement for sale and purchase of land. The defendants by way of defence and counterclaim alleged misrepresentation by the appellant in a material particular as to the character and quality of the land in question and claimed rescission of the agreement with consequential relief or alternatively damages for fraudulent misrepresentation or breach of warranty. Upon the trial of the action judgment was given for the plaintiff on the claim and the counterclaim. The Court of Appeal of New Zealand, by a majority, set aside the judgment of the trial judge and decreed rescission of the contract between the parties with consequential relief as prayed. The appellant claims to have the judgment of the Supreme Court reinstated.
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“The meaning of the representation as alleged was that the carrying capacity of the farm during the winter, with such special food and new pasture as could be grown by the proper use in ploughing of one team of horses regularly employed throughout the year was two thousand sheep.” “It is also common ground,” said the same learned judge, “that to bring a farm to its full carrying capacity ski1led management is required. It is admitted that the appellants were not experienced farmers.”
The appellant made these admissions at the hearing: ” I told them that if the place was worked as I was working it, with a good six-horse team, my idea was that it would carry two thousand sheep. That was my idea and still is my idea.” Further, he said: “I do not dispute that they bought it believing it would carry the two thousand sheep.”
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In the Court of Appeal, as is said in the judgment of Stout C.J., “the real question in dispute turned out to be whether the appellants were entitled to rescission of the contract. They did not rely upon the breach of warranty, but they asked for rescission of the contract, though their claim for damages for misrepresentation had not been formally withdrawn.” The learned judges of the Court of Appeal differed in opinion. Reed J. – who thought the appeal failed – dealt with the case upon the contention of the defendants – the now respondents – that the representation made to them by the plaintiff was a representation of fact. He found it to be conclusively established by the defendants’ own evidence that, given proper management, the farm was fully capable of carrying at least two thousand sheep. Stout C.J. held that the statement relied upon was made and accepted as a statement of fact. “It would surely be improbable,” the learned Chief Justice said, “that when a seller is asked to say what the carrying capacity of his farm is he should not answer the question, but volunteer his opinion or estimate.” As to the truth of the representation, the learned Chief Justice said: ” The evidence in my opinion is clear that this place never carried all the year round two thousand sheep.” He added this, “The respondent allowed the appellants to purchase the farm from him believing that it would carry two thousand sheep, and, therefore, they were misled.” Adams J. and Ostler J. alike held that the statement was a representation of fact and was proved to be untrue.
In an action for rescission, as in an action for specific performance of an executory contract, when misrepresentation is the alleged ground of relief of the party who repudiates the contract, it is, of course, essential to ascertain whether that which is relied upon is a representation of a specific fact, or a statement of opinion, since an erroneous opinion stated by the party affirming the contract, though it may have been relied upon and have induced the contract on the part of the party who seeks rescission, gives no title to relief unless fraud is established. The application of this rule, however, is not always easy, as is illustrated in a good many reported cases, as well as in this. A representation of fact may be inherent in a statement of opinion and, at any rate, the existence of the opinion in the person stating it is a question of fact. In Karberg’s case[1] Lindley L.J., in course of testing a representation which might” have been as it was said to be by interested parties one of opinion or belief, used this inquiry”\Vas the statement of expectation a statement of things not really expected 1″ The Court of Appeal applied this test and rescinded the contract which was in question. In Smith v. Land and House Property Corporation[2] there came in question a vendor’s description of the tenant of the property sold as ” a most desirable tenant “~a statement of his opinion, as was argued on his behalf in an action to enforce the contract of sale. This description was held by the Court of Appeal to be a misrepresentation of fact, which, without proof of fraud, disentitled the vendor to specific performance of the contract of purchase. “It is often fallaciously assumed,” said Bowen L.J.:
“that a statement of opinion cannot involve the statement of fact.
In a case where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion. The statement of such opinion is, in a sense, a statement or fact about the condition of the man’s own mind, but only of an irrelevant fact, for it is of no consequence what the opinion is. But if the facts are not equally well known to both sides, then a statement of opinion by one who knows the facts best involves very often a. statement of a material fact, for he impliedly states that he knows facts which justify his opinion.”
The kind of distinction which is in question is illustrated again in a well-known case of Smith v. Chadwick.[3] There the words under consideration involved the inquiry in relation to the sale of an industrial concern whether a statement of “the present value of the turnover or output” was of necessity a statement of fact that the produce of the works was of the amount mentioned, or might be and was a statement that the productive power of the works was estimated at so much. The words were held to be capable of the second of these meanings. The decisive inquiries came to be: what meaning was actually conveyed to the party complaining; was he deceived, and, as the action was based on a charge of fraud, was the statement in question made fraudulently?
In the present case, as in those cited, the material facts of the transaction, the knowledge of the parties respectively, and their relative positions, the words of representation used, and the actual condition of the subject-matter spoken of, are relevant to the two inquiries necessary to be made: what was the meaning of the representation? Was it true?
In ascertaining what meaning was conveyed to the minds of the now respondents by the appellant’s statement as to the two thousand sheep, the most material fact to be remembered is that, as both parties were aware, the appellant had not and, so far as appears, no other person had at any time carried on sheep-farming upon the unit of land in question. That land as a distinct holding had never constituted a sheep-farm. The two blocks comprised in it differed substantially in character. Hogan’s block was described by one of the respondents’ witnesses as ” better land.” “It might carry,” he said, “one sheep or perhaps two or even three sheep to the acre.” He estimated the carrying capacity of the land generally as little more than half a sheep to the acre. And Hogan’s land had been allowed to deteriorate during several years before the respondents purchased. As was said by 8im J. :
” In ordinary circumstances, any statement made by an owner who has been occupying his own farm as to its carrying capacity would be regarded as a statement of fact …. This, however, is not such a case. The defendants knew all about Hogan’s block and knew also what sheep the farm was carrying when they inspected it. In these circumstances … the defendants were not justified in regarding anything said by the plaintiff as to the carrying capacity as being anything more than an expression of his opinion on the subject.”
In this view of the matter their Lordships concur.
Whether the appellant honestly and in fact held the opinion which he stated remained to be considered. This involved examination of the history and condition of the property. If a reasonable man with the appellant’s knowledge could not have come to the conclusion he stated, the description of that conclusion as an opinion would not necessarily protect him against rescission for misrepresentation. But what was actually the capacity in competent hands of the land the respondents purchased had. never been, and never was, practically ascertained. The respondents, after two years’ trial of sheep-farming, under difficulties caused in part by their inexperience, found themselves confronted by a fall in the values of sheep and wool which would have left them losers if they could have carried three thousand sheep. As is said in the judgment of Ostler J.: “Owing to sheep becoming practically valueless, they reduced their flock and went in for cropping and dairy-farming in order to make a living.”
The opinions of experts and of their neighbours, on which the respondents relied, were met by the appellant with evidence of experts admitted to be equally competent and upright with those of his opponents, and his own practical experience upon part of the land, as to which his testimony was unhesitatingly accepted by the judge of first instance. It is of dominant importance that Sim J. negatived the respondents’ charge of fraud.
After attending to the close and very careful examination of the evidence which was made by learned counsel for each of the parties, their Lordships entirely concur in the view which was expressed by the learned judge, who heard the case. The defendants failed to prove that the farm if properly managed was not capable of carrying two thousand sheep.
Questions of laches and of affirmance of the contract on the part of the respondents which were argued at the hearing, are not material for further consideration, and in view of the course of the proceedings and the finding of Sim J. as to the honesty of the appellant in the statements he in fact made, it would be improper to accede to the application which was made at the Board on behalf of the respondents for leave to proceed anew upon the charge of fraudulent misrepresentation.
Their Lordships will humbly advise His Majesty that the appeal should be allowed, and the judgment of Sim J. restored. The respondents must bear the appellant’s costs here and below.
Cremedean Properties Ltd v Nash
(1977) 244 EG 547
Bridge LJ,
‘Mr. Newsom’s able argument on behalf of the defendant can really be summarised very shortly. In effect what he says is this. The terms of the footnote are not simply, if contractual at all, a contractual exclusion either of any liability to which the defendant would otherwise be subject for any misrepresentation in the document, or of any remedy otherwise available on that ground to the plaintiff. The footnote is effective, so the argument runs, to nullify any representation in the document altogether; it is effective, so it is said, to bring about a situation in law as if no representation at all had ever been made. For my part, I am quite unable to accept that argument. I reject it primarily on the simple basis that on no reading of the language of the footnote could it have the remarkable effect contended for . . I am quite content to found my judgment in this case on the proposition that the language of the footnote relied upon by Mr. Newsom simply does not, on its true interpretation, have the effect contended for. But I would go further and say that if the ingenuity of a draftsman could devise language which would have that effect, I am extremely doubtful whether the court would allow it to operate so as to defeat section 3. Supposing the vendor included a clause which the purchaser was required to, and did, agree to in some such terms as ‘notwithstanding any statement of fact included in these particulars the vendor shall be conclusively deemed to have made no representation within the meaning of the Misrepresentation Act 1967,’ I should have thought that that was only a form of words the intended and actual effect of which was to exclude or restrict liability, and I should not have thought that the courts would have been ready to allow such ingenuity in forms of language to defeat the plain purpose at which section 3 is aimed.’
Scarman LJ
‘Nevertheless, the case for the appellant does have an audacity and a simple logic which I confess I find attractive. It runs thus: a statement is not a representation unless it is also a statement that what is stated is true. If in context a statement contains no assertion, express or implied, that its content is accurate, there is no representation. Ergo, there can be no misrepresentation; ergo, the Misrepresentation Act 1967 cannot apply to it. Humpty Dumpty would have fallen for this argument. If we were to fall for it, the Misrepresentation Act would be dashed to pieces which not all the King’s lawyers could put together again.’
Dimmock v Hallett
(1866-67) LR 2 Ch App 21
The 13th condition of sale stated the following exclusion clause,
“If any mistake be made in the description of any of the lots, or any other error shall appear in the particulars of the estate (except as to the quantity of land, which shall be taken as stated, whether more or less), such mistake or error shall not annul the sale, but the vendor or purchaser shall give or take a compensation or equivalent as the case may require, and which compensation or equivalent shall be settled by the said Judge at Chambers.”
Turner LJ
“This is a Petition to discharge a purchaser under a decree. The first ground on which the application is rested is, that although the auctioneer stated at the sale that it was to be without reserve, Mr. Dimmock , who was a mortgagee in possession of the estate, and had the conduct of the sale, bid against the purchaser, and enhanced the price, so that Mr. Baxter , the only other bidder, having ceased bidding at £14,000, all the other biddings were between Mr. Dimmock and the purchaser, up to £19,000.
If these admitted facts formed the whole of the case, there would not, I think, be any room for doubt; for, if an auctioneer says that a sale is without reserve, every one must understand from that statement that no bidding is to be made on behalf of persons interested in the estate, and the purchaser would be just as much entitled to be discharged as if the conditions had stated the sale to be without reserve.
It is alleged, however, on behalf of the parties to the suit, that though the auctioneer did state that the sale was without reserve, he at the same time stated that the parties interested in the estate had liberty to bid. This is met on the part of the purchaser, not by a denial of the auctioneer having made the latter statement, but by a denial of the purchaser having heard it. The evidence before us establishes that the auctioneer did make the statement, several witnesses who were present at the sale having heard him make it, and without intending to impute to the purchaser any wilful misstatement, I am of opinion that we cannot judicially do otherwise than treat him as having heard and known that the parties interested in the estate had liberty to bid. The question then remains, what meaning is to be attributed to the statement that a sale is without reserve, but that the parties interested are at liberty to bid. The two branches of the statement are not very consistent, but I think that they may be read together by taking the second as a qualification of the first; and if a purchaser knows that parties interested have liberty to bid, he cannot be entitled to be discharged on the ground that they have bid against him.
The purchaser further grounds his case on misrepresentations in the particulars. Some of the instances alleged appear to me to be unimportant. Thus I think that a mere general statement that land is fertile and improvable, whereas part of it has been abandoned as useless, cannot, except in extreme cases—as, for instance, where a considerable part is covered with water, or otherwise irreclaimable—be considered such a misrepresentation as to entitle a purchaser to be discharged. In the present case, I think the statement is to be looked at as a mere flourishing description by an auctioneer.
The next misrepresentation alleged is as to the warping. If the conditions had stated that the land could be covered with deposit within a limited time, and it appeared clearly that it could not be covered within that time, or if it had been stated that the process could be performed at a certain expense, and it was shewn that it could not be performed except at a much greater cost, the purchaser might probably have been entitled to the relief he seeks. But such a vague statement as that the land “in course of time may be covered with warp, and considerably improved at a moderate cost,” puts a purchaser on inquiry, and if he chooses to buy on the faith of such a statement without inquiry, he has no ground of complaint.
The next alleged misrepresentation is much more important. A farm called Bull Hassocks, containing 300 acres, or nearly a third of the property put up for sale, is described as “lately in the occupation of Mr. R. Hickson, at an annual rent of £290 15s. Now in hand.” The facts are, that this farm had been let at a higher rent than £290 15s. before Hickson became tenant Hickson took the farm at Midsummer, 1863, at the rent of £290 15s. At Michaelmas, 1864, he left it, and there appears never to have been any actual tenancy between his leaving and the time of the sale. Mr. Dimmock , however, being in possession, agreed with a Mr. Nelson to let him Bull Hassocks Farm, and another farm called Creyke’s Hundreds, containing 115 acres, at 15s. per acre, which would bring the rent of Bull Hassocks Farm to £225 at most. That agreement was not carried into effect, for Nelson desired to be relieved of the farm, and paid £20 to be off his bargain. Was it then fair and honest to describe the farm in the particulars as late in the occupation of Hickson at a rent of £290 15s., when Hickson had been out of possession nearly a year and a half, within which period there had been an agreement to let the farm at a rent less by £65 than that paid by him. Such a description amounts to a representation to the purchaser that he will come into possession of a farm which will let for £290 15s., whereas Mr. Dimmock , who had agreed to let it for so much less, knew that nothing near that rent could be obtained for it. But the matter does not rest there, for even the representation that the farm had been let to Hickson at £290 15s. was not correct. He had occupied it for a year and a quarter, paying only £1 for the first quarter; and this took place at a time of year when the occupation must have been beneficial; for the farm contained about 150 acres of pasture, which Hickson thus held at a nominal rent from Midsummer to Michaelmas. I am of opinion, therefore, that the particulars contain representations which were untrue, and calculated materially to increase the apparent value of the property. The Court requires good faith in conditions of sale, and looks strictly at the statements contained in them.
Again, Creyke’s Hundreds , containing 115 acres, is described as let to R. Hickson, a yearly Lady Day tenant, at £130 per annum; and another farm, Misson Springs, containing 131 acres, is mentioned as let to Wigglesworth, a yearly Lady Day tenant, at £160 per annum. Now the sale took place on the 25th of January, 1866, and there is no reference made in the particulars to the fact that each of these tenants had given a notice to quit, which would expire at Lady Day. The purchaser, therefore, would be led to suppose, as to these farms, that he was purchasing with continuing tenancies at fixed rents, whereas he would, in fact, have to find tenants immediately after the completion of his purchase. I refer particularly to this, because as to some of the other farms it is stated in the particulars that the tenants had given notice to quit; so that the purchaser must have been led to believe that the tenants of Creyke’s Hundreds and Misson Springs were continuing tenants. This again, as it seems to me, is a material misrepresentation.
The vendor contends that these are only errors, entitling the purchaser to compensation under the thirteenth condition of sale. I think that such a condition applies to accidental slips, but not to a case like the present, where, though I do not mean to impute actual fraud, there is what, in the view of a Court of Equity, amounts to fraud — a misrepresentation calculated materially to mislead a purchaser.
I am of opinion, therefore, that the Petitioner is entitled to be discharged; but there has been so much negligence on his part that he ought not, I think, to have any costs.”
Cairns LJ
“I am of the same opinion. The case raises questions of considerable importance, and, in my view, the Court ought not to be less strict as to sales under its own order than as to sales out of Court. It is first contended by the Petitioner that the sale is vitiated by Dimmock having bid at it. That argument depends upon the conclusion at which we arrive as to what took place at the sale, for the purchaser does not rest his case on the conditions, but on a statement made by the auctioneer; it is, therefore, incumbent on the Court to ascertain what did take place, and the whole of what took place, for it is not alleged that the purchaser was absent during part of the sale. I cannot but come judicially to the conclusion upon the evidence that the auctioneer repeatedly stated, not only that the sale was without reserve, but that all the parties were at liberty to bid. It remains to consider what that statement means. It appears to me to amount to this — that all parties were at liberty to bid, but that every bidding, if accepted, would make a contract. I think, therefore, that the purchaser is not entitled to be discharged on the ground of Mr. Dimmock having bid against him.
As regards the case of misrepresentation, I attach no importance to the statement as to the results of the estate being within the South Level. It was calculated to put a purchaser on his guard, and is a statement which certainly would not have made me very sanguine that the estate could be dealt with under the powers relating to the Level either very speedily or very cheaply. What is a “moderate” cost is a question which different people would answer very differently; and a statement that the cost will be moderate is too indefinite to amount to a misrepresentation. Then as to the omission to state that Hickson and Wigglesworth had given notice to quit, it is to be observed that the particulars, as regards the other holdings, stated that the tenants of them had given notice; it was, therefore, a fair inference that, when there was no such statement, the tenant had not given notice. The farms held by Hickson and Wigglesworth are important as regards size, and the purchaser would consider himself safe of his rent from these till Lady Day, 1867. The point is of importance to him, for if the tenants leave he must either find new tenants, or make allowances to the outgoing tenants. I think, therefore, that the omission is very material. I do not arrive at the conclusion that it was wilful. I believe the affidavit which states that it was accidental; and if it stood alone, it probably would only be a matter for compensation.
But as to Bull Hassocks Farm, why was it stated that this farm was late in the occupation of R. Hickson, at a rent of £290 15s.? Evidently this was put forward as a test of the value of the farm, and the particulars must be taken to say that it was a fair test. Is it a fair test? and can the vendor really have thought that it was so? As far as we can ascertain the facts, this farm was once occupied by a person named Robinson ; there was an interval between Robinson and the next tenant Simpson ; then another interval between Simpson and Hickson. Simpson paid more rent than Hickson; it was a falling property, and the vendor, if he gave any standard, was bound to give a fair one. Moreover, could it be said that Hickson did occupy at that rent? He held the farm from Midsummer, 1863, to the next Michaelmas, for £1; a farm containing 150 acres of pasture land, the occupation of which, for that quarter, was clearly valuable. He had the power of determining his tenancy at Michaelmas, 1864, which he exercised; so, in fact, he held the land fifteen months for £291 15s. But the matter does not rest there. When Hickson gave up the farm, the Plaintiff sought to obtain a tenant, and made a verbal arrangement with Nelson to come in at a rent of £225. The Plaintiff, being a mortgagee in possession, was bound to obtain the best rent; it must, therefore, be taken that £225 was the best rent that could be obtained. He found that Nelson was not a man of capital, and he agreed, for a consideration, to rescind the arrangement; but this does not affect the question as to the rent. One of the Plaintiff’s own witnesses can go no further than to say that he would give 16s. an acre for it. The statement as to the rent was calculated to mislead, and was not prepared with the good faith which is requisite in conditions of sale. I think that a misrepresentation of this nature affects the validity of the contract, and is not a matter for compensation, but entitles the Petitioner to be discharged. I agree as to the costs”
Edgington v Fitzmaurice
(1885) 29 Ch D 459
Cotton LJ
“It is true that if he had not supposed he would have a charge he would not have taken the debentures; but if he also relied on the misstatement in the prospectus, his loss nonetheless resulted from that misstatement. It is not necessary to show that the misstatement was the sole cause of his acting as he did. If he acted on that misstatement, though he was also influenced by an erroneous supposition, the defendants will still be liable…
It was a statement of intention, but it is nevertheless a statement of fact, and if it could not be fairly said that the objects of the issue of the debentures were those which were stated in the prospectus the Defendants were stating a fact which was not true…
Bowen LJ
‘the state of a man’s mind is as much a fact as the state of his digestion… A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact… such misstatement was material if it was actively present to his mind when he decided to advance his money.’
Fry LJ
‘inquiry is whether this statement materially affected the conduct of the Plaintiff in advancing his money.’ He pointed out the ‘prospectus was intended to influence the mind of the reader.’
Erlanger v New Sombrero Phosphate Co
(1878) 3 App Cas 1218
Lord Blackburn
“Throughout the Companies Act, 1862 (25 & 26 Vict. c. 89) , the word “promoters” is not anywhere used. It is, however, a short and convenient way of designating those who set in motion the machinery by which the Act enables them to create an incorporated company.
Neither does this Act in terms impose any duty on those promoters to have regard to the interests of the company which they are thus empowered to create. But it gives them an almost unlimited power to make the corporation subject to such regulations as they please, and for such purposes as they please, and to create it with a managing body whom they select, having powers such as they choose to give to those managers, so that the promoters can create such a corporation that the corporation, as soon as it comes into being, may be bound by anything, not in itself illegal, which those promoters have chosen. And I think those who accept and use such extensive powers, which so greatly affect the interests of the corporation when it comes into being, are not entitled to disregard the interests of that corporation altogether. They must make a reasonable use of the powers which they accept from the Legislature with regard to the formation of the corporation, and that requires them to pay some regard to its interests. And consequently they do stand with regard to that corporation when formed, in what is commonly called a fiduciary relation to some extent. Some reference was made in the argument to the Companies Act 1867 (30 & 31 Vict. c. 131, s. 38) , on the construction of which there has been a great diversity of judicial opinion. That section does contain the word “promoters,” which, as I have already observed, is not to be found in the Companies Act 1862, but it imposes no fresh duty on them with regard to the company. It imposes a fresh duty towards, and gives a new cause of action to, persons who take shares in the company as individuals; it does not affect the obligation of the promoters towards the corporation. I think that the extent of that fiduciary relation, which, as already said, in my opinion, the promoters bear to the company, is a very important consideration in construing that section; and I am desirous to avoid prejudging that question by saying in this case more than is necessary for its decision. I think, as already said, that the promoters are in a situation of confidence to some extent towards the company they form.
Where, as in the present case, the company is formed for the purpose of becoming purchasers from the promoters as vendors, the interests of the promoters and of the company clash. It is the vendor’s interest to get as high a price as possible, and they have a strong bias to overvalue the property which they are selling; it is the purchasers’ interest to give as low a price as possible, and to secure that the price actually given is not more than the property is really worth to them.
Lord Eldon, in Gibson v Jeyes,[2] says that “it is a great rule of the Court that he who bargains in matters of advantage with a person placing confidence in him, is bound to shew that a reasonable use has been made of that confidence—a rule applying to trustees, attorneys, or any one else.” I think persons having property to sell may form a company for the purpose of buying it in such a manner as to shew this, and when they do so, the sale will be unimpeachable. I will not attempt to define how this may be done. Probably there are many ways. What I shall do is to inquire what, on the evidence, appears to have been done in this case, and then to confine myself to saying whether, on the facts of this particular case, it appears that an unreasonable use has been made of that confidence which the company did not indeed place in the promoters, for the company did not then exist, but which the Legislature did place in them for the company when it gave the promoters power to create it…
… the burden of proof lies on the fiduciary agents, agents selling to those to whom they owed a duty to prove, if not that sufficient protection had been afforded, at least that they had sufficient reasons for bonâ fide believing that sufficient protection had been afforded to their purchasers. If they could have proved that Sir Thomas Dakin was told that the price at which the property had been recently bought was £55,000, and also that the knew that Westall , by whom the prospectus was prepared, from evidence which he had collected, was not a disinterested attorney, but one having a strong bias in favour of the vendors, they should have done so. If such proof had been given, and it had been shewn that Sir Thomas Dakin , well aware that for these reasons he should receive the statements and evidence of value with caution, had satisfied himself that the bargain was a good one at £110,000, the case would have been very different. I doubt whether the opinion of one disinterested person so obtained would have been enough protection, but that it is not necessary to consider if, as I think, it is not proved that even this slight degree of protection was given.
My Lords, I have felt much doubt and difficulty as to the second question, though, on the whole, I think the Plaintiffs have not lost their remedy.
Several points were made and argued, as to which I think it unnecessary to say more than that I think they were satisfactorily disposed of in the judgments below. That on which I have difficulty, and to which I shall confine my remarks, is whether laches and acquiescence is made out to such an extent as to deprive the company of the remedy by rescission which they had if they had come promptly. Some things are to my mind clear. The contract was not void, but only voidable at the election of the company.
In Clough v The London and North Western Railway Company,[3] in the judgment of the Exchequer Chamber, it is said, “We agree that the contract continues valid till the party defrauded has determined his election by avoiding it. In such cases, (i.e., of fraud) the question is, Has the person on whom the fraud was practised, having notice of the fraud, elected not to avoid the contract? Or, Has he elected to avoid it? Or, Has he made no election? We think that so long as he has made no election he retains the right to determine it either way; subject to this, that if, in the interval whilst he is deliberating, an innocent third party has acquired an interest in the property, or if, in consequence of his delay the position even of the wrongdoer is affected, it will preclude him from exercising his right to rescind.” It is, I think, clear on principles of general justice, that as a condition to a rescission there must be a restitutio in integrum . The parties must be put in statu quo . See per Lord Cranworth in Addie v The Western Bank.[4] It is a doctrine which has often been acted upon both at law and in equity. But there is a considerable difference in the mode in which it is applied in Courts of Law and Equity, owing, as I think, to the difference of the machinery which the Courts have at command. I speak of these Courts as they were at the time when this suit commenced, without inquiring whether the Judicature Acts make any, or if any, what difference.
It would be obviously unjust that a person who has been in possession of property under the contract which he seeks to repudiate should be allowed to throw that back on the other party’s hands without accounting for any benefit he may have derived from the use of the property, or if the property, though not destroyed, has been in the interval deteriorated, without making compensation for that deterioration. But as a Court of Law has no machinery at its command for taking an account of such matters, the defrauded party, if he sought his remedy at law, must in such cases keep the property and sue in an action for deceit, in which the jury, if properly directed, can do complete justice by giving as damages a full indemnity for all that the party has lost: see Clarke v Dixon,[5] and the cases there cited.
But a Court of Equity could not give damages, and, unless it can rescind the contract, can give no relief. And, on the other hand, it can take accounts of profits, and make allowance for deterioration. And I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract. And a Court of Equity requires that those who come to it to ask its active interposition to give them relief, should use due diligence, after there has been such notice or knowledge as to make it inequitable to lie by. And any change which occurs in the position of the parties or the state of the property after such notice or knowledge should tell much more against the party in morâ , than a similar change before he was in morâ should do.
In Lindsay Petroleum Company v Hurd,[6] it is said: “The doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct done that which might fairly be regarded as equivalent to a waiver of it, or where, by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases lapse of time and delay are most material. But in every case if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances always important in such cases are the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.” I have looked in vain for any authority which gives a more distinct and definite rule than this; and I think, from the nature of the inquiry, it must always be a question of more or less, depending on the degree of diligence which might reasonably be required, and the degree of change, which has occurred, whether the balance of justice or injustice is in favour of granting the remedy or withholding it. The determination of such a question must largely depend on the turn of mind of those who have to decide, and must therefore be subject to uncertainty; but that, I think, is inherent in the nature of the inquiry.
The Plaintiffs in this case are an incorporated company; but I think that in considering the question of laches the Court cannot divest itself of the knowledge that the corporation is an aggregate of individuals. The knowledge of one shareholder is not the knowledge of the others; but I think great injustice might sometimes be done if it were held that where it is shewn that all the shareholders who paid reasonable attention to the affairs of the company had notice sufficient to make it laches in them not to act promptly, there could not be laches in the company unless the notice was brought home to the company in its corporate capacity. But at the same time it should be recollected that shareholders who seek to set aside a contract made by the governing body, have practically first to change that governing body, and must have time to do so. Now in the present case every allottee had from the beginning by the prospectus full notice that the vendor, John Marsh Evans , was also one of their directors, which alone might have given them an equity to set aside the contract, though in every other respect it was unimpeachable. If that had been the only ground on which the shareholders were entitled to relief, its seems clear that it would have been impossible to give it even the day after the directors took possession and paid the price. They had, however, much more substantial equities, but they had also notice of more, for the prospectus referring to the contract, which was open to inspection at the office, I think each allottee was fixed with the knowledge, which he would have had if he had read it, that Evans had purchased from Chatteris so recently as the 30th of August, not quite three weeks before he sold to the company. He would have not known at what price it had been purchased, but as that was known to all who had an interest in the company under liquidation, either as creditors or contributors, it could very easily have been ascertained. And, in fact, it was known and stated at the meeting in February. Now though this was not actual knowledge that the other four directors had not made independent inquiry before making the purchase, it was enough, in my opinion, to have put any reasonable shareholder upon inquiry. And the circumstances attending the nature of the property, which are mentioned by the Lord Chancellor in his opinion, were such as to make it proper for those who intended to get rid of the bargain to act with considerable promptitude. What weighs most with me is that it appears that if the price of phosphate had not fallen below £5 a ton, there would have been a profit of £1 a ton, and the bargain would not have been a bad one; if it had risen the bargain would have been a good one, and would no doubt have been approved. But I see nothing to lead to the conclusion that the shareholders were waiting to see how the market turned out. Prices no doubt began to fall about February, 1872, and continued to fall, but not with a sudden fall. If I thought the shareholders had been waiting to see how the market ruled it might have made a difference in my opinion. If no steps to repudiate a purchase of a lottery ticket were taken till after the ticket came up a blank, so that the purchaser, if it came up a prize, might have kept it, it would surely be inequitable to set aside the contract then. And though not nearly so strong a case, such delay seems to be somewhat of that nature…
On the other hand, I feel that there is much force in the observation that those who deal inequitably with a company know that it must necessarily be slow in its proceedings, and are not entitled to complain that time elapses; and that it is not desirable that such a rule should be laid down as would practically deprive a company when defrauded of relief. And this is a reason against considering a company as precluded from that relief to which it would otherwise be entitled, on account of delay, unless the delay is excessive. I can find no case in which even a private individual has been precluded by mere delay, except where the delay has been very much greater than in this case. In Prendergrast v Turton[7] nine years elapsed. In Clegg v Edmondson,[8] nearly as long; and in both cases the Plaintiff had lain by whilst the Defendants were investing money in the mine, until that investment proved to be remunerative. It was clearly not equitable to leave the Defendants to all the risk of loss, and claim to themselves a profit; and this seems to be what Lord Eldon principally relied on in Norway v Rowe.[9] In the present case that is no ground for imputing to the Plaintiffs what Lord Lyndhurst in Prendergrast v Turton calls a “conditional acquiescence.” As is pointed out in Clarke v Hart,[10] there was in Prendergrast v Turton very nearly, if not quite a legal defence. Here, taking the time at which the active shareholders were put upon exerting diligence to be February, there was not quite nine months before the filing of the bill; that is not very long for getting the majority of shareholders to make an inquiry, turn out the board, and get proper advice, before instituting a Chancery suit. And having come to the conclusion before, that the company had once had the right to this relief, I think the burthen is on the Defendants to shew that the company have precluded themselves from the relief to which they had a right. I do not think this is made out.”
Lord Penzance, Lord Hatherley, Lord O’Hagan, Lord Selborne and Lord Gordon concurred.
Esso Petroleum Company Ltd. v Mardon
[1976] EWCA Civ 4 [1976] 2 All ER 5, [1976] QB 801
Denning MR
Such being the facts, I turn to consider the law. It is founded on the representation that the estimated throughput of the service station was 200,000 gallons. No claim can be brought under the Misrepresentation Act, 1967, because that Act did not come into force until 22nd April, 1967: whereas this representation was made in April 1963. So the claim is put in two ways: First, that the representation was a collateral warranty. Second, that it was a negligent misrepresentation. I will take them in order.
Collateral warranty: Ever since Hailbut Symons & Co. v. Buckleton, (1913) Appeal Cases 30, we have had to contend with the law as laid down by the House of Lords that an innocent misrepresentation gives no right to damages. In order to escape from that rule, the pleader used to allege -I often did it myself – that the misrepresentation was fraudulent, or alternatively a collateral warranty. At the trial we nearly always succeeded on collateral warranty. We had to reckon, of course, with the dictum of Lord Moulton that “such collateral contracts must from their very nature be rare”. But more often than not the Court elevated the innocent, misrepresentation into a collateral warranty: and thereby did justice – in advance of the Misrepresentation Act, 1967. I remember scores of cases of that kind, especially on the sale of a business. A representation as to the profits that had been made in the past was invariably held to be a warranty. Besides that experience, there have been many cases since I have sat in this Court where we have readily held a representation – which induces a person to enter into a contract – to be a warranty sounding in damages. I summarised them in Dick Bently Productions v. Harold Smith Motors (1965) 1 Weekly Law Reports at page 627, when I said:”..,
“Looking at the cases once more, as we have so often done, it seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and actually inducing him to act upon it, by entering into the contract, that is prima facie ground for inferring that it was intended as a warranty. It is not necessary to speak of it as being collateral. Sufficient that it was intended to be acted upon and was in fact acted on”.
Mr. Ross-Munro, Q.C., retaliated, however, by citing Bisset v. Wilkinson (1927) Appeal Cases 177, when the Privy Council said that a statement by a New Zealand farmer that an area of land “would carry 2,000 sheep” was only an expression of opinion. He submitted that the forecast here of 200,000 gallons was an expression of opinion and not a statement of fact: and that it could not be interpreted as a warranty or promise.
Now, I would quite agree with Mr. Ross-Munro that it was not a warranty – in this sense – that it did not guarantee that the throughput would be 200,000 gallons. But, nevertheless, it was a forecast made by a party – Esso – who had special knowledge and skill. It was the yardstick (the e.a.c.) by which they measured the worth of a filling station. They knew the facts. They knew the traffic in the town. They knew the throughput of comparable stations. They had much experience and expertise at their disposal. They were in a much better position than Mr. Mardon to make a forecast. It seems to me that if such a person makes a forecast – intending that the other should act upon it and he does act upon it – it can well be interpreted as a warranty that the forecast is sound and reliable in this sense that they made it with reasonable care and skill. It is just as if Esso said to Mr. Mardon:
“Our forecast of throughput is 200,000 gallons. You can rely upon it as being a sound forecast of what the service station should do. The rent is calculated on that footing”.
If the forecast turned out to be an unsound forecast, such as no person of skill or experience should have made, there is a breach of warranty. Just as there is a breach of warranty when a forecast is made “expected to load” by a certain date if the maker has no reasonable grounds for it, see Sunday v. Keighley (1922) 27 Commonwealth Cases 296 or bunkers “expected 600/700 tons”, The Pantanassa (1958) 2 Lloyd 449 at pages 455-7 by Mr. Justice Diplock. It is very different from the Hew Zealand case where the land had never been used as a sheep-farm and both parties were equally able to form an opinion as to its carrying capacity – see particularly 1927 Appeal Cases at pages 183-4.
In the present case it seems to me that there was a warranty that the forecast was sound, that is, Esso made it with reasonable care and skill. That warranty was broken. Most negligently Esso made a “fatal error” in the forecast they stated to Mr. Mardon, and on which he took the tenancy. For this they are liable in damages. The Judge, however declined to find a warranty. So I must go further.
Negligent misrepresentation: Assuming that there was no warranty, the question arises whether Esso are liable for negligent mis-statement under the doctrine of Hedley Byrne v. Heller & Partners Ltd.(1964) Appeal Gases 465. It has been suggested that Hedley Byrne cannot be used so as to impose liability for negligent pre-contractual statements: and that, in a pre-contract situation, the remedy (at any rate before the 1967 Act) was only in warranty or nothing. Thus in Hedley Byrne itself Lord Reid said (at page 483):
“… Where there is a contract there is no difficulty as regards the contracting parties: the question is whether there is a warranty”.
And in Oleificio Zuccu v. Northern Sales (1965) 2 Lloyds Reports 196 Mr. Justice McNair said that:
“… as at present advised, I consider the submission advanced by the buyers – that the ruling in Hedley Byrne applies as between contracting parties – is without foundation”.
As against these, I took a different view in McInerney v. Lloyds Bank (1974) 1 Lloyds 241, when I said at page 253:
“… If one person, by a negligent mis-statement, induces another to enter into a contract – with himself or a third person -he may be liable in damages”.
In arguing this point, Mr. Ross-Munro, Q.C. took his stand in tis way. He submitted that, when the negotiations between two parties resulted in a contract between them, their rights and duties were governed by the law of contract and not by the law of tort. There was, therefore, no place in their relationship for Hedley Byrne, which was solely a liability in tort. He relied particularly on Clark v. Kirby Smith (1964) Chancery 507 where Mr. Justice Plowman held that the liability of a solicitor for negligence was a liability in contract and not in tort, following the observations of Sir Wilfred Greene, the Master of the Rolls, in Groom v. Crocker (1939) 1 King’s Bench 206. Mr. Ross-Munro might also have cited Bagot v. Stevens Scanlan & Co.(1966) 1 Queen’s Bench 197, about an archtect, and other cases too. But I venture to suggest that those cases are in conflict with other decisions of high authority which were not cited in them.. These decisions show that, in the case of a professional man, the duty to use reasonable care arises not only in contract, but is also imposed by the law apart from contract, and is therefore actionable in tort. It is comparable to the duty of reasonable care which is owed by a master to his servant, or vice versa. It can be put either in contract or in tort: see Lister v. Romford Ice and Gold Storage Co. (1957) Appeal Cases at page 587 by Lord Radcliffe: Matthews v. Kuwait Rechtel Corporation (1959) 2 Queen’s Bench 57. The position was stated by Tiadal C.J., delivering the judgment of the Court of Exchequer Chamber in Boorman v. Brown (1842) 3 Queen’s Bench at page 526:
“… There is a large class of cases where the foundation of the action springs out of privity of contract between the parties, but in which the breach or non-performance, is indifferently either assumpsit or case upon tort. Such are the actions against attorneys, surgeons and other professional men for want of competent skill or proper care in the service they undertake to render … The principle in all these cases would seem to be that the contract creates a duty and the neglect to perform that duty, or the non-feasence, is a ground of action upon a tort”.
That decision was affirmed in the House of Lords in 11 Clark and Finelly 1, when Lord Campbell, giving the one speech, said (at page 44):
“… Wherever there is a contract, and something to be done in the course of the employment which is the subject of that contract, if there is a breach of duty in the course of that employment, the plaintiff may recover either in tort or in contract”.
To this there is to be added the high authority of Viscount Haldane, L.C. in Nocton v. Lord Ashburton (1914) Appeal cases 932 at page 950:
“… The solicitor contracts with his client to be skilful and careful. For failure to perform his obligations, he may be made liable at law in contract or even in tort, for negligence in the breach of a duty imposed on him”.
That seems to me right. A professional man may give advice under a contract for reward; or without a contract, in pursuance of a voluntary assumption of responsibility, gratuitously without reward. In either case he is under one and the same duty to use reasonable care: see Cassidy v. Ministry of Health (1951) 2 King’s Bench at pages 359-360. In the one case it is by reason of a term implied by law. In the other, it is by reason of a duty imposed by law. For a breach of that duty, he is liable in damages: and those damages should be, and are, the same, whether he is sued in contract or in tort.
It follows that I cannot accept Mr. Ross-Munro’s propositions It seems to me that Hedley Byrne, properly understood, covers this particular proposition: If a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another – be it advice, information or opinion – with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable. If he negligently gives unsound advice or misleading information or expresses an erroneous opinion, and thereby induces the other aide into a contract with him, he is liable in damages. This proposition is in line with what I said in Candler v. Crane Christmas & Co. (1951) 2 King’s Bench at pages 179-180, which was approved by the majority of the Privy Council in Mutual Life & Citizens Assurance Limited v. Evatt (1971) Appeal Cases 793. And the Judges of the Commonwealth have shown themselves quite ready to apply Hedley Byrne between contracting parties; see in Canada Sealand v. Ocean Cement (1973) 33 Dominion Law Reports (3rd) 625; and New Zealand Capital Motors v. Beecham (1975) 1 New Zealand Law Reports 576.
Applying this principle, it is plain that Esso professed to have – and did in fact have – special knowledge or skill in estimating the throughput of a filling station. They made the representation – they forecast a throughput of 200,000 gallons – intending to induce Mr. Mardon to enter into a tenancy on the faith of it. They made it negligently. It was a “fatal error”. And thereby induced Mr. Mardon to enter into a contract of tenancy that was disastrous to him. For this misrepresentation they are liable in damages.
Now for the measure of damages. Mr. Mardon is not to be compensated here for “loss of a bargain”. He was given no bargain that the throughput would amount to 200,000 gallons a year. He is only to be compensated for having been induced to enter into a contract which turned out to be disastrous for him. Whether it be called breach of warranty or negligent misrepresentation, its effect was not to warrant the throughput, but only to induce him to enter into the contract. So the damages in either case are to be measured by the loss he suffered. Just as in the case of Doyle v. Olby (Ironmongers) (1969) 2 Queen’s Bench 158, he can say:
“…I would not have entered into this contract at all but for your representation. Owing to it, I have lost all the capital I put into it. I also incurred a large overdraft. I have spent four years of my life in wasted endeavour without reward: and it will take me some time to re-establish myself”.
For all such loss he is entitled to recover damages. It is to be measured in a similar way as the loss due to a personal injury. You should look into the future so as to forecast what would have been likely to happen if he had never entered into this contract: and contrast it with his position as it is now as a result of entering into it. The future is necessarily problematical and can only be a rough-and-ready estimate. But it must be done in assessing the loss.
Now for the new agreement of 1st September, 1964. The judge limited the loss to the period from April 1963 to September 1964, when the new agreement was made. He said that from 1st September, 1964, Mr. Mardon was carrying on the business
“on an entirely fresh basis, of which the negligent mis-statement formed no part”.
I am afraid I take a different view. It seems to me that from 1st September 1964, Mr. Mardon acted most reasonably. He was doing what he could to retrieve the position, not only in Ms own interest, but also in the interest of Esso. It was Esso who were anxious for him to stay on. They had no other suitable tenant to replace him. They needed him to keep the station as a going concern and sell their petrol. It is true that by this time the truth was known – that the throughput was very far short of 200,000 gallons – but nevertheless, the effect of the original mis-statement was still there. It laid a heavy hand on all that followed. The new agreement was an attempt to mitigate the effect. It was not a fresh cause which eliminated the past. It seems to me that the losses after 1st September 1964, can be attributed to the original mis-statement, just as those before.
Now for the company position. The initial capital of £6,270 was not provided by Mr. Mardon personally out of his own bank account. It was provided by a private company in which he and his wife held all the shares. It was suggested that this, in some way, prevented Mr. Mardon from claiming for the loss of it. The Judge rejected this suggestion: and so would I. The business of this filling station was undoubtedly the personal business of Mr. Mardon. The money put into it might be obtained by overdraft at the bank or by loan from his own private company – but wherever it came from, it was a loss to him: and he can recover that loss. It is no concern of Esso where it came from, c.f. Dennis v. London Passenger Transport Board (1948) 1 All England Reports 319.
If Mr. Mardon had not been induced to enter into the contract, it is fair to assume that he would have found an alternative business in which to invest his capital. (The Judge said so). It is also fair to assume (as he is a very good man of business) that he would have invested it sufficiently well so that he would not have lost the capital. Nor would he have incurred any overdraft or liabilities that were not covered by his assets. And it may be assumed that he would have made a reasonable return by way of earnings for his own work (in addition to return from his capital). But equally it must be remembered that, after March, 1967 (when he gave up the site at Southport) he should have been able (if fit) to take other employment or start another business and thus mitigate his loss: and gradually get restored to a position equal to that which he would have had if he had never gone into the Esso business. It would take him some time to do this. So the loss of earnings could only be for a limited number of years.
On this footing, the loss which he has suffered would seem to be as follows (subject to further argument by the parties): Capital loss: cash put into the business and lost £6,270; overdraft incurred in running the business, £7,774. Loss of earnings to be discussed. There will be interest to be added for a period to be discussed.
Mr. Mardon also claimed damages for having to sell his house to pay off the overdraft. That seems to me too remote and should be compensated for by interest on the overdraft. He also suffered in health by reason of all the worry over this disaster, and was off work. That should be compensated for by including it in the figure of loss of future earnings.
Conclusion: I would like to express my appreciation of the full and careful way in which the learned Judge found the facts and analysed the law. It has been most helpful to the determining of the case. The result is that Mr. Mardon is entitled to substantial damages on his counterclaim. There remain the issues of interest and costs to be discussed. We are also willing to hear further argument on the assessment of damages.
Gordon v Selico
(1986) 18 H.L.R. 219
CA
“Furthermore, he observed, the plaintiffs and their surveyor had ample opportunity to inspect the flat, an opportunity of which they availed themselves. In these circumstances, decisions such as Horsfall v Thomas and Smith v Hughes, precluded the plaintiffs from complaining of any misrepresentation.
Both these two cases, however, are distinguishable from the present on their facts. In the former, not only was the defect in the gun patent and discoverable on inspection, but the purchaser took no steps to inspect it, so that he did in fact not rely on any misrepresentation as to its condition which might have been made. In the latter case, the vendor did nothing to disguise the character of the oats sold. In the present case, on the learned judge’s relevant findings of fact, with which we see no reason to disagree, not only was a fraudulent misrepresentation made, which was intended to mislead prospective purchasers of a lease of the property; the misrepresentation did mislead the purchasers and they acted on it to their detriment. In these circumstances, it is in our judgment no answer in law to the claim in deceit for the defendants to say that the plaintiffs or their surveyor could have discovered the dry rot on a closer inspection of Flat C or were content to purchase without any warranty as to the condition of the property; they and their surveyor were in fact misled by the cover-up operation, as they were intended to be. The general principle caveat emptor has no application where a purchaser has been induced to enter the contract of purchase by fraud. Nor can clause 4(2)(a) of the Law Society’s Conditions of Sale avail a vendor in these circumstances. These subsidiary submissions made by way of defence to the claim based on deceit are not in our judgment well founded.[1]
Heilbut Symons & Co v Buckleton
[1912] UKHL 2 [1913] AC 30,
Viscount Haldane
My Lords, as neither the circumstances of the conversation nor its words were in dispute, I think that the question of warranty or representation was one purely of law, and that it ought not to have been submitted to the jury.
As soon as fraudulent representation was negatived, it seems to me that as to this there was no question of fact. The words of Mr. Johnston in the conversation proved by the respondent were words which appear to me to have been words not of contract but of representation of fact. No doubt this representation formed part of the inducement to enter into the contract to take the shares which was made immediately afterwards, and was embodied in two letters dated the next day, April 15. But neither in these letters nor in the conversation itself are there words either expressing or, in my opinion, implying a special contract of warranty collateral to the main contract, which was one to procure allotment.
It is contrary to the general policy of the law of England to presume the making of such a collateral contract in the absence of language expressing or implying it, and I think the learned judge who tried the case ought to have informed the jury that on the issue of warranty there was no case to go to it, and that on this issue he and the Court of Appeal ought to have given judgment for the appellants. The strongest presentation of the case for the respondent seems to me that of Farwell L.J. to the effect that there was a contract that the shares should be shares in a rubber company, and that the jury has found that the company was not a rubber company. But even on the basis of this finding I do not think that the account given by the learned Lord Justice of the transaction properly describes it. The respondent did not ask the technical question whether the company of which he had heard vaguely was correctly described as a rubber company. That he was not thinking of this point seems to me clear from the fact that when he received the letters informing him that he was to have shares in the Filisola Rubber and Produce Estates (a description which was in accordance with that in the prospectus) he made no further inquiry. What he from the first wanted to know was whether Johnston thought the company was “all right,” a question to which Johnston simply replied that the appellants were bringing it out, an answer which, to my mind, simply conveyed that a firm of their standing would not be bringing it out if they did not believe it to be all right. From the evidence of the respondent, which immediately follows in the passage I have quoted, it seems to me plain that this was accepted by the respondent as the answer he wanted.
My Lords, words which on the face of them appear to be simply representations of fact may, if the context so requires, import a contract of warranty. The judgment of Lord Blackburn in Brownlie v. Campbell(1) is instructive on this point. But I
(1) (1880) 5 App. Cas. 925, at p. 953.
cannot find in the words under construction, or in the circumstances, any context which required the Court to put upon them any interpretation beyond the natural one which I have stated. This interpretation I think they naturally bore, and the parties themselves appear to have put it upon them.
I wish to add that I entirely agree with the observations made by Lord Moulton in the judgment which he is about to deliver, and which I have had the advantage of reading, on the authorities as to the test of whether words can be interpreted as giving rise to a warranty. Considerable confusion has arisen from failure to keep in view the simple principle to which he refers as enunciated by Holt C.J. that an affirmation can only be a warranty provided it appear on evidence to have been so intended. The words of Holt C.J. are cited with approval by Buller J. in Pasley v. Freeman.(1) Not the least interesting of the older authorities which laid down the general principle, even in days when the action of assumpsit was by no means clearly marked off from that of case, is Chandelor v. Lopus.(2) It was there decided that the plaintiff, who was suing the defendant for misrepresentation as to the character of a precious stone sold to him, must declare on a contract, or if he declared in tort for a misrepresentation must aver a scienter. Had the moral of this decision, with its firm distinction between two wholly different causes of action, been steadily kept in view, there would have been less disposition than the Law Reports disclose to slip, by the easy process of leaving a supposed question of fact to a jury, from one legal conception into another which is totally distinct.
Neither the respondent nor Johnston appears to have had any question in his mind other than whether some company dealing with rubber, as to the identity of which there was no question raised, was being brought out by the appellants. For the respondent says that the position of the appellants in the rubber trade was such that “any company that they should see fit to bring out was a sufficient warranty” to him “that it was all right in every respect.” His interest was in the shares for which he was minded to apply, and all he was really asking for was the assurance
(1) (1789) 3 T. R. 51.
(2) (1603) Cro. Jac. 4.
I have mentioned. Had Johnston thought that he was being asked to do anything else than answer the question whether the appellants were bringing out the company, he might well have refused to pledge himself, and I do not believe that either he or the respondent, regard being had to the character of the conversation, was thinking of any other question. But if not, there was in point of law no evidence to go to the jury on the issue as to warranty, and this issue ought not to have been submitted to it. In reality the only contract entered into seems to have been the contract reduced into writing by the two letters of April 15 for procuring an allotment of shares in what was described as the Filisola “Rubber and Produce Estates” Company.
It is with great reluctance that, in a case where the Court of Appeal has agreed with the verdict of a jury and the judgment of the judge who tried the case, I feel myself bound to come to a different conclusion. But I cannot, on the facts of this case, take any other view than that the appeal ought to be allowed. Judgment should, in my opinion, be entered in the action for the appellants, and the respondent ought to pay the costs here and in the Courts below. I move accordingly.
LORD ATKINSON. My Lords, I concur.
Lord Moulton
In the history of English law we find many attempts to make persons responsible in damages by reason of innocent misrepresentations, and at times it has seemed as though the attempts would succeed. On the Chancery side of the Court the decisions favouring this view usually took the form of extending the scope of the action for deceit. There was a tendency to recognize the existence of what was sometimes called “legal fraud,” i.e., that the making of an incorrect statement of fact without reasonable grounds, or of one which was inconsistent with information which the person had received or had the means of obtaining, entailed the same legal consequences as making it fraudulently. Such a doctrine would make a man liable for forgetfulness or mistake or even for honestly interpreting the facts known to him or drawing conclusions from them in a way which the Court did not think to be legally warranted. The high-water mark of these decisions is to be found in the judgment pronounced by the Court of Appeal in the case of Peek v. Derry(1), when they laid down that where a defendant has made a misstatement of fact and the Court is of opinion that he had no reasonable grounds for believing that it was true he may be made liable in an action of deceit if it has materially tended to induce the plaintiff to do an act by which he has incurred damage. But on appeal to your Lordships’ House this decision was unanimously reversed, and it was definitely laid down that, in order to establish a cause of action sounding in damages for misrepresentation, the statement must be fraudulent or, what is equivalent thereto, must be made recklessly, not caring whether it be true or not. The opinions pronounced in your Lordships’ House in that case shew that both in substance and in form the decision was, and was intended to be, a reaffirmation of the old common law doctrine that actual fraud was essential to an action for deceit, and it finally settled the law that an innocent misrepresentation gives no right of action sounding in damages.
On the Common Law side of the Court the attempts to make a person liable for an innocent misrepresentation have usually taken the form of attempts to extend the doctrine of warranty beyond its just limits and to find that a warranty existed in cases where there was nothing more than an innocent misrepresentation. The present case is, in my opinion, an instance of this. But in respect of the question of the existence of a warranty the Courts have had the advantage of an admirable enunciation of the true principle of law which was made in very early days by Holt C.J. with respect to the contract of sale. He says: “An affirmation at the time of the sale is a warranty, provided it appear on evidence to be so intended.” So far as decisions are concerned, this has, on the whole, been consistently followed in the Courts of Common Law. But from time to time there have been dicta inconsistent with it which have, unfortunately,
(1) (1887) 37 Ch. D. 541; (1889) 14 App. Cas. 337.
found their way into text-books and have given rise to confusion and uncertainty in this branch of the law. For example, one often sees quoted the dictum of Bayley J. in Cave v. Coleman(1),where, in respect of a representation made verbally during the sale of a horse, he says that “being made in the course of dealing, and before the bargain was complete, it amounted to a warranty” – a proposition that is far too sweeping and cannot be supported. A still more serious deviation from the correct principle is to be found in a passage in the judgment of the Court of Appeal in De Lassalle v. Guildford(2) which was cited to us in the argument in the present case. In discussing the question whether a representation amounts to a warranty or not the judgment says: “In determining whether it was so intended, a decisive test is whether the vendor assumes to assert a fact of which the buyer is ignorant, or merely states an opinion or judgment upon a matter of which the vendor has no special knowledge, and on which the buyer may be expected also to have an opinion and to exercise his judgment.”
With all deference to the authority of the Court that decided that case, the proposition which it thus formulates cannot be supported. It is clear that the Court did not intend to depart from the law laid down by Holt C.J. and cited above, for in the same judgment that dictum is referred to and accepted as a correct statement of the law. It is, therefore, evident that the use of the phrase “decisive test” cannot be defended. Otherwise it would be the duty of a judge to direct a jury that if a vendor states a fact of which the buyer is ignorant, they must, as a matter of law, find the existence of a warranty, whether or not the totality of the evidence shews that the parties intended the affirmation to form part of the contract; and this would be inconsistent with the law as laid down by Holt C.J. It may well be that the features thus referred to in the judgment of the Court of Appeal in that case may be criteria of value in guiding a jury in coming to a decision whether or not a warranty was intended; but they cannot be said to furnish decisive tests, because it cannot be said as a matter of law that the presence or absence of those features is conclusive of the intention of the
(1) 3 Man. & Ry. 2.
(2) [1901] 2 K. B. 215, at p. 221.
parties. The intention of the parties can only be deduced from the totality of the evidence, and no secondary principles of such a kind can be universally true.
It is, my Lords, of the greatest importance, in my opinion, that this House should maintain in its full integrity the principle that a person is not liable in damages for an innocent misrepresentation, no matter in what way or under what form the attack is made. In the present case the statement was made in answer to an inquiry for information. There is nothing which can by any possibility be taken as evidence of an intention on the part of either or both of the parties that there should be a contractual liability in respect of the accuracy of the statement. It is a representation as to a specific thing and nothing more. The judge, therefore, ought not to have left the question of warranty to the jury, and if, as a matter of prudence, he did so in order to obtain their opinion in case of appeal, he ought then to have entered judgment for the defendants notwithstanding the verdict.
It will, of course, be evident that I have been dealing only with warranty or representation relating to a specific thing. This is wholly distinct from the question which arises when goods are sold by description and their answering to that description becomes a condition of the contract. It is, in my opinion, a failure to recognize that in the present case the parties were referring (as is evident by the written contracts) to one specific thing only that led Farwell L.J. to come to a different conclusion from that to which your Lordships ought, in my opinion, to come in this appeal.”
HIH Casualty and General Insurance Ltd & Ors v Chase Manhattan Bank & Ors
[2003] UKHL 6 [2003] 2 Lloyd’s Rep 61, [2003] UKHL 6, [2004] ICR 1708, [2003] Lloyd’s Rep IR 230, [2003] 1 CLC 358, [2003] 1 All ER (Comm) 349, [2003] Lloyds Rep IR 230
Lord Bingham
In submitting that phrase [6] does not deny the insurers their usual legal remedies for negligent misrepresentation by Heaths, the insurers drew sustenance from the well-known principles propounded by Lord Morton of Henryton giving the judgment of the Board in Canada Steamship Lines Ltd v The King [1952] AC 192 at 208. There can be no doubting the general authority of these principles, which have been applied in many cases, and the approach indicated is sound. The courts should not ordinarily infer that a contracting party has given up rights which the law confers upon him to an extent greater than the contract terms indicate he has chosen to do; and if the contract terms can take legal and practical effect without denying him the rights he would ordinarily enjoy if the other party is negligent, they will be read as not denying him those rights unless they are so expressed as to make clear that they do. But, as the insurers in argument fully recognised, Lord Morton was giving helpful guidance on the proper approach to interpretation and not laying down a code. The passage does not provide a litmus test which, applied to the terms of the contract, yields a certain and predictable result. The courts’ task of ascertaining what the particular parties intended, in their particular commercial context, remains.
12. In relation to negligent misrepresentation, the key to the understanding of phrase [7] in my view lies in the provision that Chase shall have “no liability of any nature . . .”. This is comprehensive language, clearly chosen to give Chase an extended immunity. It cannot refer simply to the liability of Chase to suffer the avoidance of the contract, since that is the subject of express provision in clause [8]. So the language must be intended to preclude the liability of Chase for damages under section 2(1) of the 1967 Act for any negligent misrepresentation by Heaths and also any right of the insurers to avoid the policy on that ground.
13. I find nothing commercially surprising in this interpretation, from the viewpoint of Chase or the insurers. In a complex transaction of this kind, the possibility that Heaths as agent might make and fail to correct a representation which was later held to be both untrue and negligent would be very real. Chase, distanced from the transaction, would have little knowledge of what was represented and little opportunity to correct it. It could reasonably seek protection against loss or diminution of its security on such a ground. The insurers for their part might reasonably accept this chink in their armour, recognising that their rights against Heaths in such an eventuality would remain unimpaired.
14. Does phrase [7] then operate to protect Chase against any liability for damages or any risk of avoidance if the insurers should be induced to enter into the contract by any fraudulent misrepresentation of Heaths acting as the agents of Chase? In submitting that such is the effect of the phrase, Lord Grabiner QC for Chase emphasised the comprehensive language already noted, “no liability of any nature”. Read literally, those words would cover liability for fraudulent misrepresentation, or deceit. If Chase’s security for its loan is to be cast-iron, the policy must stand even if induced by the deceit of Heaths.
15. This is not a negligible argument. But neither the judge nor the Court of Appeal accepted it and I am satisfied that they were right not to do so. For, as Rix LJ observed more than once in his judgment (paragraphs 160, 169), fraud is a thing apart. This is not a mere slogan. It reflects an old legal rule that fraud unravels all: fraus omnia corrumpit. It also reflects the practical basis of commercial intercourse. Once fraud is proved, “it vitiates judgments, contracts and all transactions whatsoever”: Lazarus Estates Ltd v Beasley [1956] 1 QB 702 at 712, per Denning LJ. Parties entering into a commercial contract will no doubt recognise and accept the risk of errors and omissions in the preceding negotiations, even negligent errors and omissions. But each party will assume the honesty and good faith of the other; absent such an assumption they would not deal. What is true of the principal is true of the agent, not least in a situation where, as here, the agent, if not the sire of the transaction, plays the role of a very active midwife. As Bramwell LJ observed in Weir v Bell (1878) 3 Exch D 238 at 245,
“I think that every person who authorizes another to act for him in the making of any contract, undertakes for the absence of fraud in that person in the execution of the authority given, as much as he undertakes for its absence in himself when he makes the contract”.
16. It is clear that the law, on public policy grounds, does not permit a contracting party to exclude liability for his own fraud in inducing the making of the contract. The insurers have throughout contended for a similar rule in relation to the fraud of agents acting as such. After a very detailed examination of such authority as there is, both the judge ([2001] 1 Lloyd’s Rep 30 at 45, paragraph 35) and the Court of Appeal ([2001] 2 Lloyd’s Rep 483 at 504, paragraph 109) decided against the existence of such a rule. It is true that the ratio of the leading authority on the point, S Pearson & Son Ltd v Dublin Corporation [1907] AC 351, despite the distinction and numerical strength of the House which decided it, is not easy to discern. I do not however think that the question need be finally resolved in this case. For it is in my opinion plain beyond argument that if a party to a written contract seeks to exclude the ordinary consequences of fraudulent or dishonest misrepresentation or deceit by his agent, acting as such, inducing the making of the contract, such intention must be expressed in clear and unmistakable terms on the face of the contract. The decision of the House in Pearson v Dublin Corporation does at least make plain that general language will not be construed to relieve a principal of liability for the fraud of an agent: see in particular the speeches of Lord Loreburn LC at page 354, Lord Ashbourne at page 360 and Lord Atkinson at page 365. General words, however comprehensive the legal analyst might find them to be, will not serve: the language used must be such as will alert a commercial party to the extraordinary bargain he is invited to make. It is no doubt unattractive for a contracting party to propose a term clearly having such effect, because of its predictable effect on the mind of the other contracting party, and this may explain why the point of principle left open in Pearson v Dublin Corporation has remained unresolved for so long. But I think it clear that, judged by this exacting standard, the language of phrase [7] falls well short of what is required to meet Chase’s objective, as both the judge (paragraph 81(3)) and the Court of Appeal (paragraphs 159, 160) held.
17. It appears, from authority to which we were referred by Chase, that a different approach would be taken in New York. In The Chase Manhattan Bank v AXA Reinsurance UK plc (unreported, index number 603080/00, 26 July 2001) Gammerman J considered the effect of a truth of statement clause in a film-finance insurance contract and observed (at page 7):
“Under well-established New York law, such express, detailed disclaimers preclude a claim of fraud based on misrepresentations within the scope of the disclaimers . . .”
The judge’s decision was upheld by the Appellate Division of the Supreme Court on 23 May 2002. In a judgment also of that date in The Chase Manhattan Bank v New Hampshire Insurance Company and AXA Reassurance SA (unreported, index number 602759/01) the same judge, construing (it would appear) similar clauses, in a similar context, said (at page 38):
“The clauses are drafted with great precision. Each sentence and word within each clause serves a separate function. Some portions of the clauses are limited to representations/omissions about the risk, while others are not. Given the sophistication of the parties, I decline to read into the contractual language limitations that are not stated in the plain text of the parties’ agreements.”
As these citations make plain, the law in our respective jurisdictions has a different point of departure. English law knows no rule comparable with that described as well-established in New York. Instead, it requires a party seeking to exonerate himself from the consequences of his agent’s fraud (assuming that is legally possible) to do so expressly and openly. I can see no persuasive argument for varying or relaxing our domestic rule which, as it seems to me, serves to encourage an open and cards-on-the-table (face upwards) approach to the making of contracts.
Phrase [8]
18. In relation to misrepresentation, phase [8] adds nothing to phrase [7]: there may be no avoidance for innocent or negligent misrepresentation, but the phrase does not, for reasons already given, apply to fraudulent misrepresentation. In relation to non-disclosure, there was some difference of opinion between the judge and the Court of Appeal.
19. I think it plain, giving fair effect to the language of this phrase, that innocent or negligent non-disclosure by Heaths is to give the insurers no right to avoid the policy. The phrase refers to “any . . . nondisclosure by other parties . . .”; the English law on non-disclosure is widely recognised to be very strict; and any other reading would weaken Chase’s security to a point which would, it may be inferred, have been unacceptable to it. But fraudulent non-disclosure raises a more difficult problem.
20. The judge held that phrase [8] did not exclude the insurers’ right to avoid the contract of insurance in circumstances where the breach of the independent duty of disclosure by Heaths was the result of deliberate concealment of material facts: [2001] 1 Lloyd’s Rep 30, paragraphs 76-77. In the Court of Appeal, doubt was cast on the meaning of “fraudulent non-disclosure” ([2001] 2 Lloyd’s Rep 483, paragraph 165) and it was questioned whether the law had distinguished between innocent, negligent and fraudulent non-disclosure (paragraphs 163, 168). In paragraph 168, Rix LJ said:
“In sum, I do not think that, in the absence of express language, any line is to be drawn between the various possible causes of or motives for non-disclosure. It is not in this way that the distinction is to be drawn. The question to my mind is whether a non-disclosure can support a claim in fraud, with its remedies in damages and/or rescission: either because [on] analysis it amounts or gives rise to a fraudulent misrepresentation or perchance for any other reason.”
21. In the passage quoted, Rix LJ makes an important but uncontentious point: that silence, where there is a duty to speak, may amount to misrepresentation: see Brownlie v Campbell (1880) 5 App Cas 925 at 950, per Lord Blackburn; Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665 at 773-774, 782-783, per Slade LJ; Spencer Bower, Turner & Sutton, Actionable Non-Disclosure (2nd ed 1990) at 249-250. Since an agent to insure is subject to an independent duty of disclosure, the deliberate withholding from the insurer of information which the agent knows or believes to be material to the risk, if done dishonestly or recklessly, may well amount to a fraudulent misrepresentation. If, in the present case, the insurers establish non-disclosure by Heaths of this kind, nothing in the truth of statement clause deprives them of their ordinary right to avoid the policy and recover damages against Chase and Heaths.
22. Whether, on the facts of this case, the insurers can establish any deliberate and dishonest or reckless non-disclosure by Heaths which does not amount to a misrepresentation, must be doubtful. In Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501 at 549, Lord Mustill pointed out that “in practice the line between misrepresentation and non-disclosure is often imperceptible.” But section 84 of the 1906 Act appears to accept the possibility of fraudulent non-disclosure and I do not think such possibility need be rejected on conceptual grounds. If it were to be established, I would agree with the judge that phrase [8] does not exclude the insurers’ ordinary right to avoid.
23. I would for my part answer the preliminary issues in this way:
“On the true construction of the contracts of or for insurance pleaded in the [Amended] Particulars of Claim No. 1999 Folio 1413 [the Insurers’ action] and on the assumption that the facts and matters pleaded in those Particulars of Claim are true, the Insurers are entitled in law
(a) to avoid and/or rescind the contracts of or for insurance against Chase on the grounds, but only on the grounds, of fraudulent misrepresentation or as regards the contracts of insurance fraudulent non-disclosure by Heaths as agent of Chase;
(b) to damages from Chase for, but only for, fraudulent misrepresentation by Heaths as agent of Chase and fraudulent non-disclosure by Heaths as agent of Chase if, but only if, such fraudulent non-disclosure by Heaths amounts to fraudulent misrepresentation.”
On the Court of Appeal’s narrow point relating to fraudulent non-disclosure not amounting to misrepresentation, the insurers’ appeal succeeds, and should be allowed to that extent. The cross-appeal by Chase fails and must be dismissed.
Walker v Boyle
[1982] 1 WLR 495, [1982] 1 All ER 634
Dillon J
National Conditions of Sale (19th edition). Condition 17(1) provided that ‘no error, the statement or omission in any preliminary answer concerning the property . . shall annul the sale’. There had been a pre-existing boundary dispute with a neighbour which was not disclosed in the course of the preliminary enquiries before contract.
‘I do not regard condition 17 as satisfying that requirement in the circumstances of this case. Another way of putting it is that Mrs Boyle has not shown that it does satisfy that requirement.’
….
‘It seems to me that the equitable barrier to specific performance extends not merely to matters of title where the vendor has failed to disclose defects known to him in his own title, but also to misrepresentation where the vendor has, albeit innocently, misdescribed the property or made some other misrepresentation about the property, when the true facts were within his own knowledge. A trifling misrepresentation where the truth would have had no effect on the purchaser and the purchaser would have nonetheless entered into the contract, rests in a different category because there the contract has not been induced by the misrepresentation, but here, as I find, the purchaser would reasonably have refused to contract unless the boundary dispute, if disclosed to him, had first been resolved. Therefore, it seems to me that on equitable principles and consistently with the authorities I have mentioned, and consistently also with the fairly recent decision of Walton J in Faruqi v English Real Estates Ltd [1979] 1 WLR 963, the vendor, Mrs Boyle, is not entitled in equity to rely on condition 17 in the circumstances of this case.’
With v O’Flanagan
[1936] Ch 575
Romer LJ
“I agree. The only principle invoked by the appellants in this case is as follows. If A with a view to inducing B to enter into a contract makes a representation as to a material fact, then if at a later date and before the contract is actually entered into, owing to a change of circumstances, the representation then made would to the knowledge of A be untrue, and B subsequently enters into the contract in ignorance of that change of circumstances and relying upon that representation, A cannot hold B to the bargain. There is ample authority for that statement and, indeed, I doubt myself whether any authority is necessary, it being, it seems to me, so obviously consistent with the plainest principles of equity.”
Howard Marinne and Dredging Co. Ltd v A. Ogden & Sons (Excavations) Ltd.
[1977] EWCA Civ 3 [1978] QB 574,
Master of the Rolls (dissenting)
THE COLLATERAL ORAL WARRANTIES
Ogdens submitted that, in the two telephone conversations in April 1974, Howards gave oral warranties as to the carrying capacity of the barges; and that, on the faith of these warranties, they tendered for the main excavation contract and entered into it: that the warranties are therefore binding on Howards on the authority of such cases as the Shanklin Pier case (1951) 2 King’s Bench 854: and Wells v. Buckland (1965) 2 Queen’s Bench 170. Further, that at the interview of 11th July, 1974, Howards gave a further oral warranty as to the carrying capacity of the barges: and that, on the faith of it, they did order the barges and took them on hire under the Charterparties.
On this point we were, as usual, referred to Heilbut v. Buckleton [1913] AC 30. That case has come under considerable criticism lately, particularly in view of the contemporaneous decision of the House of Lords in Schavel v. Read (1913) 2 Times Reports 64, see Professor Grieg’s Article in (1971) 87 Law Quarterly Review at pages 185/190. Much of what was said in Heilbut v. Buckleton is now out of date, as I mentioned in Evans v. Merzario (1976) 1 Weekly Law Reports at page 1081; and Esso v. Harden (1976) 1 Queen’s Bench at page 817. Ho doubt it is still true to say, as Holt C.J. said: “an affirmative at the time of the sale is a warranty, provided it appears as evidence to be so intended” – which I take to mean intended to be binding.
Applying this test, I cannot regard any of the oral representations made in April 1974 as contractual warranties. Ogdens invited offers from five different owners of barges. These five made separate offers. Howards made their written offer “subject to availability and contract”: which shows that they were not binding themselves to anything at that stage. It cannot be supposed that, in the telephone conversations, they were binding themselves contractually to anything. Nor would I regard the statement at the interview of 11th July, 1974 as a contractual warranty. It was made three months before the barges were delivered. And meanwhile there was the “on hire condition survey”: and the exchange of the draft charterparties in which you would expect any contractual terms to be included.
I agree with the judge that there were no collateral warranties here.
NEGLIGENT MISREPRESENTATIONS
Ogdens contended next that the representations by Howards, as to the carrying capacity of the barges, were made negligently: and that Howards are liable in damages for negligent misrepresentation on the principles laid down in Hedley Byrne v. Heller [1964] AC 465.
This raises the vexed question of the scope of the doctrine of Hedley Byrne. It was much discussed in the Privy Council in Mutual life Ltd, v. Evatt [1971] AC 794; and in this Court in Esso Petroleum Co. v. Harden (1976) 1 Queen’s Bench 801. To my mind one of the most helpful passages is to be found in the speech of Lord Pearce in Hedley Byrne v. Heller [1964] AC at page 539:
“… To import such a duty of care, the representation must normally, I think, concern a business or professional transaction whose nature makes clear the gravity of the inquiry and the importance and influence attached to the answer … A most important circumstance is the form of the inquiry and cf the answer”.
To this I would add the principle stated by Lord Reid and Lord Morris of Borth-y-Gest in the Privy Council case [1971] AC at page 812, which I would adopt in preference to that stated by the majority:
“… When an inquirer consults a business man in the course of his business and makes it plain to him that he is seeking considered advice and intends to act on it in a particular way … his action in giving advice … (gives rise to) … a legal obligation to take such care as is reasonable in the whole circumstances”.
Those principles speak of the “gravity of the inquiry” and the seeking of “considered advice”. Those words are used so as to exclude representations made during a casual conversation in the street; or in a railway carriage; or an impromptu opinion given offhand; or “off the cuff” on the telephone. To put it more generally, the duty is one of honesty and no more whenever the opinion, information or advice is given in circumstances in which it appears that it is unconsidered and it would not be reasonable for the recipient to act on it without taking further steps to -check it. Some instances are to be found in the books. One is Fish v. Kelly (1864) 17 C.B.N.S. 294. The other is Low v. Bouverie (1891) 3 Chancery 82, as explained by Lord Reid and Lord Morris of Borch-y-Gest in Mutual Life v. Evatt [1971] AC at page 813. And the actual decision in Heilbut, Symons & Co. v. Buckleton [1913] AC 30 was that an honest answer on the telephone did not give rise to a cause of action.
Applying this test, it seems to me that at these various conversations Mr. O’Loughlin was under a duty to be honest, but no more. Take the first two conversations. They were on the telephone. The callers from the North wanted to know what was the capacity of the barges. Mr. O’Loughlin answered it offhand as best he could, without looking up the file. If they had wanted considered advice, they should have written a letter and got it in writing. Take the last conversation. It was on an occasion when Mr. O’Loughlin went up to the North to discuss all sorts of things. In the course of it, he was asked again the capacity of the barges, he had not got the file with him, so he answered as best he could from memory. To my mind in those circumstances it was not reasonable for Ogdens to act on his answers without checking them. They ought either to have got him to put it in writing – that would have stressed the gravity and importance of it – or they ought to have got expert advice on their own behalf – especially in a matter of such importance to them. So I agree with the judge that there was not such a situation here as to give rise to a duty of care: or to make Howards liable for negligent misrepresentation at common law.
THE MISREPRESENTATION ACT,_1967.
Alternatively Ogdens claim damages for innocent misrepresentation under the Misrepresentation Act, 1967. It says: “… When a person a has entered into a contract after/representation has been made to him by another party thereto and as a result thereof he has
suffered loss, then, if the person making the representation would be liable in damages in respect thereof had the representation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe, and did believe up to the time the contract was made that the facts represented were true”.
This enactment imposes a new and serious liability OR anyone who makes a representation of fact in the course of negotiations for a contract. If that representation turns out to be mistaken -then however innocent he may be – he is just as liable as if he made it fraudulently. But how different from times past! For years he was not liable in damages at all for innocent -misrepresentation – see Heilbut v. Buckleton [1913] AC 13. Quite recently he was made liable if he was proved to have made it negligently, see Esso v. Mardon (1976) Queen’s Bench 801. But now with this Act he is made liable – unless he proves – and the burden is on him to prove – that he had reasonable ground to believe and did in fact believe that it was true.
Section 2(1) certainly applies to the representation made by Mr. O’Loughlin on 11th July, 1974, when he told Ogdens that each barge could carry 1600 tonnes. The judge found that it was a representation: that he said it with the object of getting the hire contract for Howards. They got it: and, as a result, Ogdens suffered loss. But the judge found that Mr. O’Loughlin was not negligent: and so Howards were not liable for it.
The judge’s finding was criticised before us: because he asked himself the question: Was Mr. O’Lcughlin negligent? Whereas he should have asked himself: Did Mr. O’Loughlin have reasonable ground to believe that the representation was true? I think that criticism is not fair to the judge. By the word “negligent” he was only using shorthand for the longer phrase contained in section 2(1) which he had before him. And the judge, I am sure, had the burden of proof in mind: for he had come to the conclusion that Mr. O’Loughlin was not negligent. The judge said in effect:
“I am satisfied that Mr. O’Loughlin was not negligent”:
and being so satisfied, the burden need not be further considered, see Robins v. National Trust Co [1927] AC at page 520.
It seems to me that, when one examines the details, the judge’s view was entirely justified. He found that Mr. O’Loughlin’s state of mind was this: Mr. O’Loughlin had examined Lloyd’s register and had seen there that the deadweight capacity of each barge was 1800 tonnes. That figure stuck in his mind. The Judge found that
“the 1600 tonnes was arrived at by knocking off what he considered a reasonable margin for fuel, and so on, from the 1800 tonnes summer deadweight figure in Lloyd’s register, which was in the back of his mind”.
The judge said that Mr. O’Loughlin had seen at some time the German shipping documents and had seen the deadweight figure of 1055-135 tonnes: but it did not register. All that was in his mind was the 1800 tonnes in Lloyd’s Register which was regarded in shipping circles as the Bible. That afforded reasonable ground for him to believe that the barges could each carry 1600 tonnes payload: and that is what Mr. O’Loughlin believed.
So on this point, too, I do not think we should fault the judge. It is not right to pick his judgment to pieces – by subjecting it – or the shorthand note – to literal analysis. Viewing it fairly, the judge (who had section 2(1) in front of him) must have been of opinion that the burden of proof was discharged.
THE EXCEPTION CLAUSE
If I be wrong so far, however, there remains the exception clause in the charterparty. It was, as I have said, included throughout all the negotiations: and no objection was ever taken to it. The important words are:
“Charterers acceptance of handing over the vessel shall be conclusive evidence that she is … in all respects fit for the intended and contemplated use by the charterers and in every other way satisfactory to them “.
In the old days we used to construe such an exception clause strictly against the party relying on it: but there is no need – and I suggest no warrant – any longer for construing it so strictly. The reason is that now by section 3 of the Misrepresentation Act 1967 the provision is of no effect except to the extent that the court may allow reliance on it as being fair and reasonable in the circumstances of the case. Under this section the question is not whether the provision itself is reasonable: but only whether “reliance on it is fair and reasonable in the circumstances of the case”.
If the clause itself is reasonable, that goes a long way towards showing that reliance on it is fair and reasonable. It seems to me that the clause was itself fair and reasonable. The parties here were commercial concerns and were of equal bargaining power. The clause was not foisted by one on the other in a standard printed form. It was contained in all the drafts which passed between them, and it was no doubt given close consideration by both sides, like all the other clauses, some of which were amended and others not. It was a clause common in charterparties of this kind: and is familiar in other commercial contracts, such as construction and engineering contracts, see for instance Pearson v. Dublin Corporation [1907] AC 356, and the useful observations in Hudson on Building Contracts, 10th Edition (1970) at pages 39,48. It is specially applicable in cases where the contractor has the opportunity of checking the position for himself. It tells him that he should do so: and that he should not rely on any information given beforehand, for it may be inaccurate. Thus it provides a valuable safeguard against the consequences of innocent misrepresentation.
Even if the clause were somewhat too wide (I do not think it is), nevertheless this is, I think, a case where it would be fair and reasonable to allow reliance on it. Here is a clause by which Ogdens accepted that the barges were “in all respects fit for the intended and contemplated use by the charterers”. Ogdens had had full inspection and examination of the barges They had had an on-hire survey by their surveyors. Any expert could have given them a reliable estimate as to the deadweight capacity. Yet they seek to say that the barges were not fit for the use for which they ended them – in that they were of too low carrying capacity, in support of this case they have no written representation to go upon. They only have two telephone conversations and one interview – as to which there is an acute conflict of evidence. It is just such conflicts which commercial men seek to avoid by such a clause as this. I would do nothing to impair its efficacy. I would allow Howards to rely on it. .
CONCLUSION
It seems to me, as a matter of probability, that all three representations should stand on the same footing – all three to convey the same meaning – all three true or all three false. Yet the judge drew a distinction between them. The first two were true. The third was untrue. But the distinction did not matter in the end before him. He held that none of the three was actionable. If we now draw a distinction – and hold that the third alone is actionable – we shall be making a rod for the back of the Official Referee. Ogdens will not be able to get damages for entering into the main contract for the work – but only for hiring the barges from Howards.That will give rise to a lot of speculation, Rather than commit the parties to all this trouble and expense, I would hold that Howards can rely on the exception clause – which was inserted, I believe, so as to avoid all such troubles as this case has given rise to. In my opinion, seeing that Ogdens had six months’ use of these barges, they ought to pay the hire for them, amounting to £93,l83.14p. I would dismiss the appeal, accordingly.
Forshall v. Walsh
[1997] IEHC 100
Shanley J
THE APPLICABLE LAW
(a) A Plaintiff seeking to establish the commission of the tort of fraud or deceit must prove-
(i) the making of a representation as to a past or existing fact by the Defendant
(ii) that the representation was made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false
(iii) that it was intended by the Defendant that the representation should be acted upon by the Plaintiff
(iv) that the Plaintiff did act on foot of the representation and
(v) suffered damages as a result.
129. Where fraudulent misrepresentation is alleged it must be established that the representation (as defined above) was intended to and did induce the agreement in respect of which the claim for damages arises.
(b) A party seeking damages for negligent misrepresentation must establish that the representor failed to exercise due care in making the representation as a result of which representation the person to whom it was made was induced to enter into the particular agreement and suffered damage in consequence of the inaccurate representation. Closely aligned to the claim of negligent misrepresentation is the wider tort of negligent misstatement. In relation to negligent misstatement, the first matter a Plaintiff must establish is that the Defendant owed him a duty of care. In Ward v. McMaster 1989 ILRM 400, McCarthy J. considered that the duty of care arose from the proximity of the parties, the foreseeability of the damage and the absence of any compelling exemption based upon public policy. And in Caparo Industries Plc v. Dickman, 1990 B.C. L.C. 273, Lord Bridge, in his speech in the House of Lords, said (at page 280):
“What emerges is that in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care, are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of “proximity” or “neighbourhood” and that the situation should be one in which the Court considers it fair, just and reasonable that the law should impose a duty of a given scope on the one party for the benefit of the other”
130. He observed in relation to decided cases in which a duty of care in respect of negligent misstatement had been held to exist, that the limit on the liability of a wrongdoer towards those who had suffered economic damage,
“….. rested on the necessity to prove, in this category of the tort of negligence, as an essential ingredient of the proximity between the Plaintiff and the Defendant that the Defendant knew that his statement would be communicated to the Plaintiff, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind (e.g. in a prospectus inviting investment) and that the Plaintiff would be very likely to rely on it for the purpose of deciding whether or not to enter on that transaction or on a transaction of that kind” .
(c) Finally, it should be noted that while an employer can be made vicariously liable for the torts of his employee, such liability can only be imposed for the negligence of an employee where the negligence is committed in the course of his employment and the employer is not liable for negligence committed outside the scope of his employment.
Bank of Ireland v. Smith
[1966] IR 646
Kenny J.
The modern cases, however, show a welcome tendency to treat a representation made in connexion with a sale as being a warranty, unless the person who made it can show that he was innocent of fault in connexion with it. The rule that an innocent misrepresentation causing loss does not entitle a person to recover damages for its falsity produces injustice in many cases. In Oscar Chess Limited v.Williams (1), Denning L.J., having referred to the famous ruling of Holt C.J., said:”The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice,” and in Dick Bentley Productions Limited v. Smith (Motors) Limited (2) the same Judge said:”It seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty. It is not necessary to speak of it as being collateral. Suffice it that the representation was intended to be acted upon and was in fact acted on. But the maker of the representation can rebut this inference if he can show that it really was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it.” I have not had the advantage of hearing counsel on these two cases but I believe that they express the true rule.
The statement in the advertisement was a representation and was made with the intention of inducing a purchaser to act on it: the purchaser was induced to enter into the contract by it. The representation was incorrect, but was made innocently and honestly: Mr. Mulcahy was innocent of fault in making it, but it would be unreasonable that his principals should not be bound by it. In this connexion the remarks of Lord Macnaghten which I have quoted are relevant, for it would be against conscience that the vendor in a Court sale should not be bound by a representation made by his agent in connextion with that sale.
It follows, in my opinion, that the purchaser is entitled to recover damages for breach of warranty relating to the undersowing of 40 acres.
I think I should deal with the other ground on which the purchaser based his claim. It was said that an auctioneer acting for a vendor should anticipate that any statements made by him about the property will be relied on by the purchaser and that he, therefore, owes a duty of care to the purchaser and is liable in damages to him if the statement was incorrect and was made carelessly. In my opinion, the decision in Hedley Byrne & Co. v. Heller (1) does not give any support to this startling proposition. It decides that, if a person seeks information from another in circumstances in which a reasonable man would know that his judgment is being relied on, the person giving the information must use reasonable care to ensure that his answer is correct, and if he does not do so, he is liable in damages: but the relationship between the person seeking the information and the person giving it, if not fiduciary or arising out of a contract for consideration, must be, to use the words of Lord Devlin, “equivalent to contract,” before any liability can arise. The basis of the decision in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. is, I think, contained in the speech of Lord Devlin when he said (at p. 528):”I think, therefore, that there is ample authority to justify your Lordships in saying now that the categories of special relationships which may give rise to a duty to take care in word as well as in deed are not limited to contractual relationships or to relationships of fiduciary duty, but include also relationships which in the words of Lord Shaw in Nocton v. Lord Ashburton (2) are ‘equivalent to contract,’ that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract.” Even if an auctioneer’s fees are paid by the purchaser (and in this case the vendors are liable for them), a contractual relationship between the vendors auctioneers and the purchaser does not exist. The decision of Davitt P. in Securities Trust Limited v. Hugh Moore & Alexander Limited (3) supports this conclusion. Moreover, the purchaser has not proved that Mr. Mulcahy was negligent. He was told by an employee of Mr. Smith that the lands had been undersown, he visited them on many occasions and the error which he made is one which could be made by the most careful of auctioneers. The claim in negligence against the vendors fails.
There has been the usual difference in opinion between the experts about damages. I accept the view that the yield of hay from grass undersown in barley is 2 tons to the acre. The representation complained of refers to “approximately 40 acres” the price of hay in the barn would have been £10 per ton. The purchaser lost the hay crop which he expected and so lost £800. There has also been conflict about the cost of sowing the lands to make them pasture. The agricultural contractor said that the cost would be £15 15s. 6d. an acre, but this includes the use of fertilizer which is not necessary. I will allow £11 an acre for the cost of ploughing, discing, sowing and harrowing. A claim is also made for loss of grazing, but this is not referred to in the letter of the 26th May, 1966, in which the purchaser’s claim is stated. The purchaser will be awarded compensation of £1,240, which will be paid out of the money in Court after the claim of the Bank but before the claim of the defendants.
All this unfortunate litigation has been caused by Mr. Smith who admitted in evidence that he had read the advertisement but said that he did not notice the error. I do not accept his evidence on this. The purchaser will be awarded his costs of this motion which will be taxed on the basis that they were incurred in the trial of an action, but limited to two days, and I will award these costs against Mr. Smith personally. As it may not be possible to recover them from him, the amount of the costs when taxed will be retained in Court on the allocation of the purchase money, and if the purchaser establishes that he cannot recover them from Mr. Smith by the usual methods of legal execution, they will be paid out of the sum retained.
Pat O’Donnell & Co. Ltd v. Truck & Machinery Sales Ltd
[1997] 1 I.L.R.M. 466
Moriarty J
Following upon the decision of the House of Lords in Hedley Byrne & Co. Ltd v. Heller & Partners Ltd [1964] AC 465 , it was accepted by Davitt P in Securities Trust Ltd v. Hugh Moore & Alexander Ltd [1964] IR 417 that an action for negligent misrepresentation could succeed in this jurisdiction where a relationship between two parties was of such a nature that upon one seeking information from the other damage resulted from a breach of a duty to take reasonable care that the information furnished was correct. In Doolan v. Murray , High Court 1990 No. 7753P, 21 December 1993 , Keane J approved the dictum of Lord Denning MR in Esso Petroleum Co. v. Mardon [1976] 2 All ER 5 , to the effect that:
If a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another — be it advice, information or opinion — with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable.
In setting forth a statutory entitlement to damages for non-fraudulent misrepresentation in 1980, the Oireachtas did not require that a duty of care should exist between representor and representee. By s. 45(1) of the Sale of Goods and Supply of Services Act 1980 , it is provided that:
Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable for damages in respect thereof, had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.
Having appraised the evidence on both sides, I am of the opinion that the counterclaimant is entitled to succeed in respect of misrepresentation both on a basis of negligent misrepresentation and statutory misrepresentation, but primarily in respect of the former.
Patently, Mr O’Donnell was under a duty of care in relation to the representations he made to Mr Mansfield with a view to inducing sales. He was a specialised and experienced dealer and up to 90% of his business was Volvo-produced, and he knew from previous dealings over dump trucks that Mr Mansfield was not a person who would exhaustively study vehicle specifications and he had, on his own evidence, assiduously canvassed Mr Mansfield as a large potential purchaser of L150s whilst further knowing of his difficulties regarding Zettlemeyer over whom Volvo had attained control.
Equally clearly, the recommendations made by Mr O’Donnell in relation to the L150 were instrumental in persuading him to enter into the agreement. The actual elements of conflict in accounts given by both principal witnesses are in fact appreciatively less than in many other areas of controversy in the counterclaim. Although there are conflicts it seems to me to be established as a relatively clear probability that in circumstances where he was made aware that Mr Mansfield required shovels that were at least the equal of the Caterpillar 966 for arduous quarrying work, Mr O’Donnell conveyed emphatically to Mr Mansfield that the L150 was a new and entirely up-to-date model of the highest standard that would be equal to, and in some ways superior to, the Caterpillar 966.
Mr O’Donnell was furnished with and was familiar with a significant amount of promotional and technical literature which conveyed to him that in such matters as speed in low gears, and in breakout force, a particularly significant attribute in a quarrying concept, the L150 was not equal to the Caterpillar 966.
He did not convey to Mr Kallmin that he was selling L150s to Mr Mansfield on a basis of being equal to or superior to the Caterpillar 966 nor did he tell him that quarrying was the main projected use by Mr Mansfield’s hirers.
Whilst I accept Mr O’Donnell’s evidence that he was surprised and dismayed at the content of the Volvo letter, and likewise accept the evidence of the Volvo witnesses that design modifications are part and parcel of the business of marketing an evolving product, it remains the fact of matters that on such significant aspects as the type of axle and the standard wheel fittings, significant preparations were in train and at an advanced state of development to adapt a product more suitable to Mr Mansfield’s needs. In the context of the allegedly extensive dealings between Mr O’Donnell and Volvo and the latter’s detailed consideration of whether or not to proceed with the proposed agreement at all on a basis of larger tyre fittings, it would seem that these aspects ought to have been elicited and conveyed to Mr Mansfield.
Anderson v Ryan
[1967] IR 34
HENCHY J. :
In the month of January, 1965, an advertisement appeared in a Dublin evening paper for the sale of an Austin-Healey (Sprite) motor-car. A Mr. Edwin Davis saw it and, being interested in cars, he telephoned a number indicated in the advertisement. As a result, two men called to his house with the Sprite. It happened that Mr. Davis had an Austin (Mini) motor-car. The two men seemed to take a fancy to the Mini, as Mr. Davis did to the Sprite, and the upshot of the negotiations was that it was agreed to exchange the Mini for the Sprite. The two men left with the Mini and Mr. Davis found himself with the Sprite. No money had passed; it was a straight swop. The unfortunate part of the transaction was that, unknown to Mr. Davis, the Sprite was a car that had been stolen in Northern Ireland. Within a week detectives descended upon him and took it away. Later a man pleaded guilty in the Dublin Circuit Court to fraudulently obtaining the Mini from Mr. Davis by falsely pretending that he was the owner of the Sprite. Mr. Davis eventually recovered the Mini and has since sold it.
In the meantime, someone approached the defendant in this action, who carries on business as a panel-beater in Cork Street, Dublin, and indicated that he was prepared to sell the defendant a Mini for £200. It was, in fact, the Mini belonging to Mr. Davis. The defendant was interested in the purchase but was not prepared to go through with it until he had obtained a purchaser to whom he could sell the car at a profit. The plaintiff, who is a garage owner in Bray, turned out to be such a person. He visited the defendant’s premises, where the Mini happened to be, inspected the car, and agreed to buy it for £225 plus £22 for panel repairs to it, which the defendant agreed to do. The plaintiff, having made enquiries which showed that the car was not subject to a hire-purchase agreement, there and then, on the 15th January, 1965, made out a cheque in favour of the defendant for the sum of £244 10s. 0d. to cover the 225 for the Mini and also to cover an account that the plaintiff owed to the defendant for panel beating which had been previously done for the plaintiff by the defendant. The defendant lodged the cheque to his account on the following day. My impression from the evidence is that the defendant had no title to the Mini when that deal was made. But, later, on the same evening as he got the cheque from the plaintiff, the defendant gave a cheque for £200 for the car to someone who purported to be, but was not, Mr. Davis. The defendant proceeded to do the panel beating which he had arranged with the plaintiff to do.
A few days later the plaintiff called to the defendant’s premises, paid the defendant the sum of £22 for the further panel beating, collected the registration book (which showed Mr. Davis to be the owner) and took the Mini away. He then placed it on display in the forecourt of his garage in Bray as a second-hand car for sale. Once again the arm of the law reached out. Two detectives called and said that the Mini was the subject matter of criminal proceedings. They told the plaintiff that he would have to allow them to take it away and that if he did not give it to them they would return with a warrant. He let them take it away. That is the last he saw of the car or his £247. The plaintiff recovered judgment in the Circuit Court against the defendant for the sum of £247, and the defendant has appealed against that judgment.
The plaintiff rests his case on ss. 12 and 21 of the Sale of Goods Act, 1893. In support of his contention that he is entitled to recover the £247 as money paid upon a consideration that has wholly failed, he relies upon sub-s. 1 of s. 21 which is as follows:”Subject to the provisions of this Act, where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.”
In the present case, it is clear that, if the defendant was not the owner of the Mini at the time he sold it to the plaintiff, the plaintiff got nothing for his money and he would be entitled to recover the £247 as money paid upon a consideration that had wholly failed. Counsel for the plaintiff says that the car was sold on the 15th January, 1965, when the plaintiff inspected it, agreed on the price and gave a cheque for £244 10s. 0d.; and that the defendant then had no title.
In my view, the flaw in that argument is that it confuses an agreement to sell with a sale. The distinction is made clear in s. 1 of the Act of 1893, which is in the following terms:”(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. There may be a contract of sale between one part owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale; but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.”
The transaction between the plaintiff and the defendant on the 15th January, 1965, was no more than an agreement to sell. The property in the car did not pass. It was plainly the intention of the parties that the property would not pass until the panel beating had been done by the defendant and the balance of £22 had been paid; until that had happened the agreement to sell would not have merged into a sale. Sect. 21, sub-s. 1, has reference only to a case “where goods are sold,” i.e. where there has been a sale of goods. It matters not for the purposes of the sub-section if the seller is not the owner at the time of the agreement to sell. He may mend his hand between then and the sale. But if at the time of the sale (i.e. when the property passes or is due to pass) the seller is neither the owner nor a person selling under the authority or with the consent of the owner, and in fact has no title whatsoever, the buyer would be entitled to claim the purchase money back on the ground that he has paid it on a consideration that has totally failed, subject to the proviso that the owner may be estopped by his conduct from denying the seller’s authority to sell. Sect. 21, sub-s. 1, is applicable in the present case only if I hold that the defendant had no title to transfer ownership when he handed over the car.
The plaintiff also rests his case on s. 12 of the Act to the extent that it provides that in a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is (a) an implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods, and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass, and (b) an implied warranty that the buyer shall have and enjoy quiet possession of the goods. The circumstances of this
case do not show a contrary intention, so the plaintiff would be entitled to damages for breach of an implied warranty if he shows that the true legal position is that, when the car was handed over to him, he did not get the property in it together with the ancillary right of quiet possession.
Therefore, the central question which decides the points raised under both s. 12 and 8. 21 is:”Did the defendant have a good title to the car when he sold and delivered it to the plaintiff?” To decide this question one must go back to the circumstances under which the original owner, Mr. Davis, parted with possession of the car. As I have said, he exchanged it for the Sprite. The inducement for him to do so was not alone the desirability to him of the exchange but also the representation by the other party that the Sprite was his property. That was a false and fraudulent representation as to an existing fact. The contract of exchange was, therefore, a voidable contract. Since Mr. Davis intended to pass the ownership of the Mini, the person who got the car in exchange acquired a title to it, but it was a voidable title, that is, voidable at the option of Mr. Davis. It would have been different if Mr. Davis had parted with the Mini as a result of larceny by a trick, for then no title would have passed. Authority for the conclusion that what passed on the exchange was a voidable title is to be found in Cundy v. Lindsay (1); Robin & Rambler Coaches, Ltd. v. Turner (2); Central Newbury Car Auctions Limited v. Unity Finance Ltd. (3) and Archbold on Criminal Pleading (36th ed.) para. 1497.
There is no evidence that there was any intermediate sale of the Mini between the fraudulent exchange and the sale to the defendant. In fact, all the likelihood is that the car was sold to the defendant by or on behalf of the person who effected the fraudulent exchange. One looks then to see what title, if any, such person conveyed to the defendant. The answer is to be found in s. 23 of the Act, which is as follows:”When the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.” It is clear from the evidence that Mr. Davis had not avoided the title of the person who sold the car to the defendant at the time of that sale, and it has not been suggested that the defendant bought otherwise than in good faith and without notice of the seller’s defect of title.
I am satisfied, therefore, that the defendant acquired a good title to the car and that he in turn passed a good title to the plaintiff. It is unfortunate that the plaintiff has been deprived of a car of which he was the rightful owner, but the fault for that does not lie with the defendant. As the plaintiff may wish to recoup his loss in other proceedings, I express no view on the legal interpretation to be put on the events that led to him being permanently deprived of a car that was lawfully his. I go no further than saying that no liability attaches to the defendant for the plaintiff’s loss and that the plaintiff’s claim must be dismissed. The order of the Circuit Court will be reversed.