Misrepresentation by Nathan Maran, PDF

MISREPRESENTATION BY NATHAN MARAN introduction – a vitiating factor What are vitiating factors? - They are factors which can invalidate or cripple the contract - Example of vitiating factors are :- misrepresentation, mistake, duress, undue influence and illegality - When vi...

MISREPRESENTATION BY NATHAN MARAN introduction – a vitiating factor What are vitiating factors? - They are factors which can invalidate or cripple the contract - Example of vitiating factors are :- misrepresentation, mistake, duress, undue influence and illegality - When vitiating factors exist in a contract, the affected party can either rescind the contract and claim for damages - The presence of a vitiating factor in a contract can make a contract void or voidable Void – Put the parties back in the position that they were before the contract (no contract) Voidable – Innocent party can chose to end the contract or not misrepresentation – general overview What? - An unambiguous false statement of fact or law by one party (representor) which is addressed to the party misled (representee, which is material and induces the other party to enter into a contract Effect? - Contract can be made void (Parties in pre-contractual position) - Claim for damages How? - In order for a misrepresentation to be actionable, 3 requirements need to be fulfilled (i) must be a statement of fact (not mere opinion) (ii) the statement made must be untrue/false (iii) must have induced innocent party to enter into contract  Types of misrepresentation Representor – Person making the Fraudulent Misrepresentation statement (representation) Negligent Misrepresentation at Common Law Representee – Person to whom representation was made – person Misrepresentation under Statute who relied on representation Innocent Misrepresentation o Affirmation o Lapse of Time Remedies for Misrepresentation o Impossible to return to pre contractual position o Third Party Rights - Rescission – Bars to Rescission - All or nothing - Indemnity payment - Damages Remoteness of damage  There should be a distinction between a promise and a representation  There is a very thin line that differentiates the two pre-contractual statements Promise (Terms) Statements that imposes obligation on another are promises (terms/clauses) Representation They are statements of inducement. They induce the other party to enter into the contract There is no obligation imposed and the buyer is not forced. Seller just wants to influence the buyer to purchase his goods and services. How to differentiate the two? - Using the Contractual Cartography Test - Developed by Lord Moulton in Heilbut Symons v Buckleton There should be made a distinction between a ‘promise’ and a ‘representation’ Both are fundamentally different – Kleinnwort Benson v Malaysia Mining Corporation Berhad (1989)  In the case of Kleinwort Benson - C agreed to make available to a subsidiary company of the D a £ 10 million credit facility ( a type of loan) - The D refused to act as guarantors but gave the C a ‘letter of comfort’ which stated “ it is our policy to ensure that the business of the subsidiary company is at all times in a position to meet its liabilities to you under the above arrangements” - There was a collapse in the tin market and the subsidiary company ceased making any trade when it owned the C 10 million - D refused to honour their word under the ‘letter of comfort’ and C tried to sue them for breach of contract - High Court, Hirst J said this letter was a contractual promise and D were liable - CoA stated that letter did not amount to a contractual promise and it was merely a representation of facts as to the defendant’s policy at the time the statement was made - D did not promise that they would not change their policy for the future Untrue / False statement A statement can be in any form :- spoken, written or even by conduct - The statement made however should be false and unambiguous as to its facts - Mere silence or failure to disclose any information cannot be a representation (Fletcher v Krell) A misrepresentation may occur where a statement was true when it was made but due a change in circumstances, it has become incorrect by the time it was acted upon. Keeping silent about that change can amount to misrepresentation (With v O’ Flannagan) However in some situations where it concerns existing relationship between parties, it is important to disclose information But English law does not recognize the existence of a general duty to disclose information. There should be made a distinction between a ‘promise’ and a ‘representation’ Both are fundamentally different – Klienwort Benson v Malaysia Mining Corporation Berhad (1989)  The following categories of statement have been held as not statement of existing fact and cannot amount to actionable misrepresentation (i) Mere puff – statement needs to be specific - Dimmock v Hallet (1886) - This could be mere sales talk – to recommend a product to a customer - This will not amount to a statement of existing fact - The land for sale was described as ‘fertile and improvable’ - Lord Turner J said this cannot be misrepresentation (except only in extreme cases) where innocent party can rescind the contract - The more specific the statement, the less (ii) Statement of opinion or belief - If it is proved to be unfounded it is not a false statement of fact - In Bisset v Wilkinson (1927), a farm vendor represented to purchaser - “ I believe that this farm can support 2,000 sheep” - In fact, it could not carry 2,000 sheep and purchaser sought to set aside contract - Courts held statement was an opinion. Owner didn’t know any better than purchaser since land hasn’t been used as a sheep farm before. - If maker of statement is in no better position to know the truth and the recipient knows about this, then maker’s statement is an opinion Also note the case of Esso Petroleum Ltd v Mardon (1976) - Esso represented to D (prospective tenant of a petrol station that was under construction) that throughput (rate of production) of petrol will likely to reach 200,000 gallons per year - However, with regards to construction, local authority refused planning permission for petrol pumps to face the main street - Instead the had to build it from back to front where access was only through a side street, - Esso through their experienced professionals assured D that this change would not affect the project throughput of petrol - In fact, throughout only reached 78,000 gallons per year. D suffered losses and Esso sough to repossess the station and the balance money owed. - D counterclaimed for damages under breach of contract – argued negligent misrepresentation - Esso argued statement was mere opinion and cannot be actionable - L. Denning distinguished Bisset and held representor had special knowledge and skill. Most likely with this – statement made can amount to a representation. In the case of Smith v Land and House Property Corporation (1884) - Seller of a hotel claimed hotel was let to Mr. Fleck – “he is a desirable tenant” - Facts proved otherwise – He debts were in arrears and paid very little - Courts held when seller said “ a desirable tenant” was not opinion - Combining Esso and Smith v Land – if representor has greater knowledge than the representee- courts will imply representation must be made with reasonable care and skill and representor knows facts which justify his opinion. Hence it is imposed upon such parties to take reasonable care in making their statements.. (iii) Statement of intention  A statement must refer to an existing fact – not something to be done in the future  When making a statement of intention - a person who fails to carry out his stated intention does not thereby make a misrepresentation.  But if a person who misrepresents his present intention does make a false statement of fact.  This is because, the state of his intention is a matter of fact In the case of Edgington v Fitzmaurice (1885) - Directors of a Co. invited the public for debentures (a type of loan/security to be given to company) - They said money is to be used to expand business - But in fact, real purpose of getting money is to pay of the company’s debts - Courts held directors misrepresented their actual intention – Bowen LJ’s judgement  Even when a statement of intention is true when it is made, depending on the circumstances and whether the statement of an intention is a continuing one, the statement maker may come under a duty to correct a statement of intention where the intention changes before the contract is made. INDUCMENT  In order for an actionable misrepresentation to take place, it must be shown that the representation was addressed to the innocent party  The innocent party must have relied on the misrepresentation  And because of that misrepresentation, the party was induced to entering into the contract  If the claimant is not aware of the statement being made or knew it was untrue – no inducement. if the representation did not affect the decision to enter into the contract, then no actionable misrepresentation.  If a party has knowledge as to the untrue statement – can prevent actionable misrepresentation  If innocent party does their own investigation as to the untrue statement and relies upon their own investigation, representor cannot be liable.  In the case of Redgrave v Hurd (1881) - A solicitor (P) placed an advert offering to take a partner for his practice and would also purchase his house - D replied to the advert and was told by the P that the law practice could bring in £ 300 a year. - P allowed the D to check on the documents but he did not. - It was later found out that business only made £ 200 a year - D had already signed the agreement and paid deposit to buy the house - After discovering the facts, D refused to continue sale, P brought action for specific performance - D counterclaimed for rescission of contract and damages for misrep. - Courts held : D (buyer) relied on P (solicitor/seller) words and although he had opportunity to check the documents, P is still liable - The contract was rescinded and his deposit returned In the case of Attwood v Small (1838) - The owners of a mine (vendor) made an exaggerated statement as to its earning capacity - The prospective buyer arranged their own agents to examine the mine and its properties - The agents (though wrongly) reported that the owner’s statements were true - The buyers bought the mine but later claim to rescind the contract alleging misrepresentation. - Courts held : Buyers bought the mine based on inducement by their own agents and not by vendor’s statements - In order for the principle in Atwood to work, claimant must have relied solely on his own investigation and not at all on the defendant's representation.  TYPES OF MISREPRESENTATIO N  There are 4 different types of misrepresentation (i) Fraudulent Misrepresentation (ii) Negligent Misrepresentation at common law (iii) Negligent Misrepresentation by statute (iv) Innocent Misrepresentation It is important to distinguish between the different types of misrep because they may give rise to different remedial consequences.  fraudulent misrepresentation  Fraudulent misrep constitutes the tort of deceit.  The word fraud is very broad in the common understanding – however in legal terms, its definition is rather narrow.  This is as a result of the decision of the House of Lords in Derry v Peek (1889) - The Plymouth, the Devonport and District Tramways company issued a prospectus stating that the company had permission to use steam trams, which would replace their horse-powered trams. - In fact, the company had no such permission because the right to use steam power was subject to the Board of Trade's consent. The company applied, honestly believing that they would get permission because it was a mere formality. - In reality, after the prospectus was issued, permission was refused and the company ended up in liquidation. Led by Sir Henry Peek, shareholders who had purchased their stakes in the company on the faith of the statement sued the directors in misrepresentation.  The House of Lords held that the shareholders' action failed because it was not proved that the director lacked honest belief in what they had said.  Lord Herschell established the following 3 propositions (i) There must be proof of fraud and nothing short of that is sufficient (ii) Fraud is proved when it is shown that a false representation has been made - knowingly - without belief in its truth or - recklessly, careless whether it be true or false (iii) If fraud is proved, motive of the person guilty of it is immaterial.  In the case of Polhill v Walter (1832), representor knew that his statement was false but his motive in making the statement was to benefit his principal and not himself nor to injure anyone else.  Notwithstanding this, he was liable under the tort of deceit.  Deceit is a difficult matter to prove and it should not be alleged unless there are good grounds to show fraud has been practiced. Fraud is not lightly invoked in courts negligent misrepresentation at common law  After the period of Derry v Peek, it was thought that negligent misrepresentation was not actionable in tort because liability in tort arose only in cases of fraudulent misrepresentation.  House of Lords later held that it was actionable only where there was a pre- existing contractual relationship (fiduciary relationship)  However in 1964, HOL finally expanded the ambit of liability of negligent misrep in the case of Hedley Byrne v Heller (1964). - Hedley Byrne were a firm of advertising agents. A customer, Easipower Ltd, put in a large order. - Hedley Byrne wanted to check their financial position, and creditworthiness, and subsequently asked their bank, - They provided a credit reference by stating that Easipower was “considered good for its ordinary business engagements” They further excluded liability by stating “without responsibility on the part of this bank” - In reliance upon that reference , the C (Hedly Byrne) placed orders which because of the subsequent default of Easipower resulted in a loss to them of £ 17,000. - Hedley Byrne alleged that D (Heller and P) were negligent in the preparation of the reference and were therefore liable in damages. - Their claim failed because of the disclaimer “without responsibility” - The important of Hedley Byrne lies not in the fact that the claim failed because of the disclaimer, but in fact that the HOL would have allowed the claim to succeed had it not been for that disclaimer. - The HOL also state obiter, that there could be liability for negligent misrep on the normal principles of trot, where there was a special relationship between parties.  It is still not clear what is a special relationship but broadly speaking, it appears that such a relationship will only arise where the maker of a false statement has some knowledge or skill relevant to the subject matter of the contract – Esso Petroleum Co Ltd v Mardon (1976) negligent misrepresentation by statute s. 2(1) of the Misrepresentation Act 1967 states : 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 to 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 the facts represented were true  This section operates independently of the Hedley Byrne line of authority and have been described as a ‘statutory tort’.  The section is drafted in a rather clumsy and unusual terms because it imposes liability by reference to liability for fraudulent misrep – eventhough representor has not been fraudulent.  However what is trying to put across by this statute is that – where one party enters into a contract as a result of a misrepresentation by the other, the innocent party can claim damages, unless the other party can prove that at  This statutory right has three advantages over a common law negligence claim (i) The Act does not require that there be a Hedly Byrne relationship between the parties Crucial case of Gosling v Anderson (1972) - The D who was selling her flat, represented to the C, through her estate agents, that planning permission had been obtained for building a garage when in fact, it had not been obtained. - In the CoA, Roskill LJ stated that had the action been heard before 1967, the C action would have failed unless she had been able to prove fraud. - But now, she was able to rely on s.2(1) of the Misrepresentation Act 1967, and was entitled to damages for misrepresentation - s.2(1) is a better remedy in comparison to fraudulent and negligent misrepresentation. - It is favourable to the representee for many reasons – one of its because there is no need to establish D.O.C. - Burden of proof is now on the representor (ii) Burden of proof is on the representor to show that he is not liable whereas a claim under common law - the burden of proof is on the representee to proof that the representor was negligent Howard Marine and Dredging Co. Ltd v Ogden and Sons (Excavations) Ltd - The claimant, Ogden, hired two dredging barges from the defendant, Howard Marine (HM), for £1,800 per week to carry out certain excavation works for Northumbrian Water Authority. - In order to make an accurate estimate for tender of the work to be completed, Ogden asked HM the capacity of the barge. HM checked Lloyds Register and stated it was 850 cubic metres which was equivalent to 1,600 tonnes. - In fact the entry in Lloyds register was wrong and the correct figure was 1,055 tonnes. - The capacity was in fact much lower. Consequently the work carried out by Ogden took much longer and cost a great deal more to perform. Ogden and Sons refused to pay the outstanding and Howard Marine sued for the balance. - The claimant counter claimed, inter alia for negligent misrepresentation. HM argued that they had reasonable grounds for believing the statement to be true as they had checked Lloyds register.  The COA held, Lord Denning dissenting, that the C had not discharged the burden of proof upon them showing that they had any obejective reasonable grounds to believe that the statement was true.  They had the registration document which contained the correct capacity and there was no reason why they would have chosen Lloyds register over the registration document.  The burden upon the representor is therefore a heavy one and it is likely to enable a representee to recover where at common law he would have failed.  For example, in Howard Marine, only Shaw LJ was of the opinion that a common law claim would have succeeded. (iii) The measure of damages recoverable under s.2(1) is the measure under tort of deceit - Authority for this proposition derives from the controversial case of Royscott Trust Ltd v Rogerson (1991)  Rogerson acquired on hire purchase a used Honda Prelude from a car dealer, Maidenhead Honda Centre Ltd. The car was priced at £7600, Rogerson paid a £1200 deposit (This was only 16%)  The balance came from a finance company, Royscot Trust Ltd.  On Rogerson's behalf, the dealer filled in the application forms, falsely misrepresenting that the total cost was £8000 and the deposit was £1600 (20% of the total). Royscot approved the loan; but, had accurate figures been stated, they would have refused finance since its policy was not to lend money if the deposit was less than 20%.  Rogerson began paying instalments, but in due course had cashflow difficulties. In August 1987 he dishonestly sold the car, knowing the car was not yet his to sell. A year later, he informed the finance company of the sale, and stopped paying instalments in September 1988, leaving the balance unpaid.  Royscot sued the car dealer in damages, alleging that they had relied upon the dealer's misrepresentation, which induced them into the finance plan.  Fraud was not mentioned, but Royscot claimed that had the dealer given the correct figures, they would have refused finance, and that the £3,625 loss was the dealer's fault.  The dealer countered that the actual cause of Royscot's loss was Rogerson's unlawful sale of the car, since, if he had not sold it, Royscot would be entitled to its repossession. The dealer alleged Rogerson's unlawful sale broke the chain of causation between any misrepresentation and Royscot's losss  The CoA held that damages under s.2(1) were to be assessed as if the D had been fraudulent, so that the C were entitled to recover their actual loss directly flowing from the misrep, whether or not loss was reasonably foreseeable.  The remoteness rule applicable was that derived from the tort of deceit, not the tort of negligence  The court held that the action of Mr. Rogerson in dishonestly selling the car was a direct result of the D’s misrep in the sense that there was no break in the chain of causation between the misrep and the loss.  Yet there is something odd with the result in Royscott  D were not fraudulent but they were treated as though they were. It was even more apparent when facts of this case was applied to Howard Marine.  What justification can there possibly be for treating the C in Howard Marine as if they had been fraudulent when it was not even proved that they have been guilty of negligence?  These anomalies could have been avoided if the courts in Royscott had accepted that the reference to fraud in s.2(1) was simply a fiction.  But Balcome LJ rejected the argument on the ground that it was inconsistent with the authorities and contrary to the “plain words of the subsection”  While the intention of Parliament in enacting s.2(1) may well have been to incorporate, by analogy, the rules for the tort of,  It is almost certain that Parliament could not have forseen the anomalies which would arise as a result of the analogy drawn – in terms of the distinction between Royscott and Howard Marine.  But Royscott makes the anomaly plain for all to see. There is no justification for treating an innocent party as if he had been fraudulent.  In Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd (1997). – Lord Steyn noted that Royscott had been the subject of ‘trenchant academic criticism’ and expressed ‘no concluded view’ the correctness of the decision.  So the point remains that if the Supreme Court does not overrule Royscott, or is not given the opportunity to do so, then it is suggested that legislation is required to remove this anomaly.  In conclusion, the rules applicable to the assessment of damages should be derived from the tort of negligence and not tort of deceit as per Gran Gelato Ltd v Richcliff where an analogy was drawn with the tort of negligence. innocent misrepresentation  An innocent misrepresentation is neither fraudulent nor negligent.  It is applied to misrepresentation that are made entirely without fault  It is for the courts, in its discretion to decide to award damages instead of rescission if it feels that, in the circumstances, it would be fair to do so.  If the misrepresentation was wholly innocent, then rescission may be an overreaction where damages would be enough to compensate the injured party especially if the misrepresentation is a trivial matter  Under s. 2(2), it states that Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party.  REMEDIES FOR MISREPRESENTATIO N rescission  Rescission is an equitable remedy. It seeks to put the parties back to their original position; before the contract.  It is available to all types of misrepresentation.  An injured party who decides to rescind the contract can do so by notifying the other party or any other possible way to indicate the intention to rescind  ‘Rescission for misrep’ arises where the contract is set aside for all purposes – both retrospectively and prospectively  ‘Rescission for breach’ arises when one party terminates performance of the contract because of breach of other party. This rescission does not operate retrospectively. In the case of Islington LBC v UCKAC (2006) , Dyson LJ states - A voidable contract continues to exist “until and unless it is set aside by an order of rescission made by the court at the instance of a party seeking to terminate it or bring it to an end - The requirement of a court order seems unwarranted - The decision to rescind a contract lies with the contracting parties themselves and NOT the court - The court can validly decide whther or not a party was entitled to rescind a contract and, in this sense can review the decision which was made  In the case of Car and Universal Finance Co Ltd v Caldwell - Mr Caldwell sold his Jaguar car on 12th Jan to a rogue, Norris, who had paid £10 cash deposit and left another car as security and gave a cheque for £965. - The following day Mr Caldwell went to cash the cheque and discovered it was fraudulent and the car left as deposit turned out to be stolen. Mr Caldwell reported the incident to the police and used his best endeavours to co-operate with the police to find Norris in order to rescind the contract of sale. - He also contacted the Automobile Association to try to locate the car. Norris had acquired a voidable title to the car as the contract was induced by fraudulent misrepresentation. - Norris sold the car on to a third party on 15th Jan. The question for the court was whether the actions taken by Mr Caldwell were sufficient to avoid the contract Mr Caldwell had successfully rescinded the contract. - He had taken all steps possible to demonstrate that he no longer wished to be bound by the contract. He should not be prejudiced by the fact that his endeavours failed to locate Norris. Courts held : -Mr Caldwell had successfully rescinded the contract. He had taken all steps possible to demonstrate that he no longer wished to be bound by the contract. He should not be prejudiced by the fact that his endeavours failed to locate Norris.  Despite the fact that rescission is available to all types of misrepresentation – it is a very drastic remedy as it brings the whole contract to and end. It is up to the courts discretion to award it as it as equitable remedy.  There is therefore bars (limitation) placed to control the application of recission - Innocent party affirms the contract - Lapse of time - Parties cannot go back to original position of contract - It would deprive an innocent third party of rights acquired over the property which is the subject of the contract. Affirmation - Once the innocent party is made aware of the misrep, he can chose to affirm or rescind the contract - To affirm, the innocent party must have full knowledge of the misrep and either declare their intention to proceed, or either imply that they want to proceed (by conduct) In the case of Long v Llyod (1958) - A purchaser of a lorry went on a long journey after discovering serious defects in the lorry. - It was held that the act of driving the lorry after figuring the defects was affirmation of the contract In the case of Re Hop and Malt Exchange and Warehouse Co, exp Brigss (1886) - A person who applies for shares upon the believing a prospectus containing misrepresentation is entitled to rescind the contract and to recover the price paid - But if after knowing about the misrepresentation that took place and subsequently decides to sell it off, the right to rescind is lost. - This is treated as though, the person intended to affirm the contract.  Simply doing nothing about a contract does not amount to affirmation but if once the innocent party knows about the misrepresentation – he or she takes no action for a long period of time to rescind the contract – this may be treated as evidence that the contract has been affirmed.  In cases of fraudulent misrep, lapse of time can operate as a separate bar to rescission where innocent party has no knowledge of the misrep and so cannot be treated as having implicitly affirmed the contract  Claimants are not allowed to rescind a contract if a long time has passed after the contract was made In the case of Leaf v International Galleries (1950) - C laimant purchased a painting of ‘Salisbury Cathedral’ from the D. Both parties believed that the painting was by the artist Constable. In fact 5 years later the claimant discovered the painting was not a Constable. The claimant brought an action based both on misrepresentation and mistake. - The claim based on misrepresentation was successful however, since it was an innocent misrepresentation, the claimant had lost the right to rescind the contract through lapse of time. With innocent misrep the time starts to run from the date of the contract not the date of discovery. - CoA state that it is the responsibility of the purchase to verify or as the case may be disprove the representation within a reasonable time, or else stand or fall by it. - The position of the courts would have been different had it been a fraudulent misrepresentation as courts would look at the lapse of time between discovering misrep and applying for rescission rather than the time since the contract was made. In the case of Zanzibar v British Aerospace (Lancaster House) Ltd (200) - Zanzibar government had purchased a jet from British Aerospace in 1992 - It later failed to pay the full price of the plane which was repossessed and sold. - Few year after original purchase of the plane, Zanzibar government initiated proceedings against British aerospace claiming inducement to purchase the jet by misrepresenting to them as to the airworthiness and the type of jet it was. - Zanzibar wanted to rescind the contract but was unsuccessful as they delayed bringing the proceedings for several years after receiving the plane – right to rescind is lost. Impossible to return to pre contractual positions  Rescission will not be ordered if it is impossible for the contracting parties to return to pre- contractual positions  This is because often times, the subject matter of the contract has been used or either destroyed In the case of Vigers v Pike (1842) - Contract between parties was with regards the use of a mine - But when one party decided to rescind the contract, mine had already been ‘worked out’ – there was nothing left to mine  If at least most of the subject matter of the contract can be restored to the other party though not in its original condition, a court may order the rescission together with financial compensation for the partial loss In the case of Halpern v Halpern (2007) - The dispute was between four children over the division of their father’s inheritance - The dispute was brought to an arbitrator to resolve it out of court - During arbitration, it was agreed all documents should be destroyed - Unfortunately, the agreement was not honoured and the claimant brought legal proceedings to enforce it.  During proceedings, D argued that the settlement which was agreed was done so under duress and hence it should be set aside.  C counter-argued that the remedy of rescission for duress not available because parties could not be returned back to original position since all the documents have been destroyed.  CoA held that inability to make counter-restitution would block a remedy of rescission  But it is very rare that counter-restitution would block a remedy of rescission because it would be found to be impossible. Third party rights - Rescission not possible after a third party has acquired the rights under the contract - The third party must be a bona fide purchaser for value which means he or she must have provided consideration and have been unaware of the earlier misrepresentation In the case of White v Garden (1851) - Parker bought fifty tons of iron from Garden by persuading him to take in payment a bill of exchange - A bill of exchange is basically a bill drawn by a person directing another person to pay the specified sum of money to another person  Mr. Brown draws a bill on Mr. Blue for 3 months for £ 50,000, payable to Mr. Green for his order on 15th April 2018. Mr. Brown has ordered Mr. Blue to pay £ 50,000 to Mr. Green. If the order is acceptable to Mr. Blue, he will write across the bill as ‘accepted’ When the drawee writes such acceptance on the bill, it becomes a bill of exchange.in the above example - The bill of exchange has apparently been accepted by a person called Thomas of Rochester. - Parker then resold the iron to White – who acted in good faith - Garden delivered the iron to White using a barge to transport it - Garden discovered from the bill of exchange was worthless because there was no such person as Thomas of Rochester. He therefore removed part of the iron that was still in the barge - Garden was held liable to White for the value of iron removed - The title to iron had passed to Parker under a contract that was temporarily valid and had been passed to an innocent purchaser. damages  A contractual claim for damages does not lie for misrep  It can only lie if it has been incorporated as a term of the contract (can claim for breach of contract)  But damages may be recoverable in tort where misrep was made fraudulently or negligently  s.2(1) and s.2(2) of MA 1967 also provides damages Fraudulent Misrep - Damages may be recovered under tort of deceit - Aim is to put the C in the position which he would have been had the tort not been committed - It aims to protect his reliance interest (Reliance damages is the measure of compensation given to a person who suffered an economic harm for acting in reliance on a party who failed to fulfill their obligation) - D also liable for all the damage directly flowing from the fraudulent inducement which was not rendered too remote by C own conduct whether or not loss was  Doyle v Olly as approved by the case of Smith New Court Securities Ltd v Scrimegeour Negligent Misrepresentation at common law - Misrepresentor committed tort and damages can therefore be claimed - Aim is to put the C in the position which he would have been had the tort not been committed - Representor will be liable for all losses which are reasonably foreseeable as a consequence of the misrep (remoteness test from Wagon Mound) - If C also at fault, then damages payable will be reduced on ground of contributory negligence - (Gran Gelato Ltd v Richcliff) Negligent Misrepresentation under s.2(1) - Damages recoverable are as same as fraudulent misrep - Some controversy about how damages should be recovered. - Lord Denning suggested it is to be by expectation measure of damages - This view was rejected and it is now approved that damages should be in reliance measure as decided in Royscott  This is said to be the correct approach as we have seen that ; representation and promises are functionally different.  A representor does not promise anything, he merely asserts the truth of his statement and invites reliance upon that statement  It is therefore appropriate that damages should be in reliance measure.  The reliance measure can encompass the loss of profit which the C would have obtained from entering into some other transaction if the misrep had not been made Innocent Misrep  Traditional common law rule ; damages not recoverable  Innocent Misrep not a tort and therefore remedy was either rescission or an indemnity  Damages are also unavailable where there was a past right to rescind but that right is now lost because of one of the bars to rescission.  However, to circumvent the strictness of this rule, courts tend to find if the representation was in fact not a representation but a contractual term  Or either by finding that representation as a ‘collateral contract’  De Lasalle v Guilford (1901)  Under s.2(2), courts now have a discretion to award damages in lieu of rescission in cases of innocent misrep  Things to note under s.2(2) : - Power to award damages is discretionary (courts has a broad discretion to what is equitable) - Representee (or claimant) has no right to damages in contrast to s.2(1) where it is available as of right - Since damages are in lieu of rescission, he cannot wish to rescind and recover damages at the same time - Courts are directed by the words of s.2(2) in a case where a representee has been induced by a misrep to enter into what has turned out to be a bad bargain for him