1.

FALSE STATEMENT OF FACT

Bisset v Wilkinson [1927] AC 177

The plaintiff purchased from the defendant two blocks of land for the purpose of sheep
farming. During negotiations the defendant said that if the place was worked properly, it
would carry 2,000 sheep. The plaintiff bought the place believing that it would carry 2,000
sheep. Both parties were aware that the defendant had not carried on sheep-farming on the
land. In an action for misrepresentation, the trial judge said:

“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…. 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.”

The Privy Council concurred in this view of the matter, and therefore held that, in the absence
of fraud, the purchaser had no right to rescind the contract.

Smith v Land & House Property Corp (1884) 28 Ch D 7

The plaintiff put up his hotel for sale stating that it was let to a ‘most desirable tenant’. The
defendants agreed to buy the hotel. The tenant was bankrupt. As a result, the defendants
refused to complete the contract and were sued by the plaintiff for specific performance. The
Court of Appeal held that the plaintiff’s statement was not mere opinion, but was one of fact.

Edgington v Fitzmaurice (1885) 29 Ch D 459

The plaintiff shareholder received a circular issued by the directors requesting loans to the
amount of £25,000 with interest. The circular stated that the company had bought a lease of a
valuable property. Money was needed for alterations of and additions to the property and to
transport fish from the coast for sale in London. The circular was challenged as being
misleading in certain respects. It was alleged, inter alia, that it was framed in such a way as to
lead to the belief that the debentures would be a charge on the property of the company, and
that the whole object of the issue was to pay off pressing liabilities of the company, not to
complete the alterations, etc. The plaintiff who had taken debentures, claimed repayment of
his money on the ground that it had been obtained from him by fraudulent mis-statements.
The Court of Appeal held that the statement of intention was a statement of fact and
amounted to a misrepresentation and that the plaintiff was entitled to rescind the contract.
Although the statement was a promise of intent the court held that the defendants had no
intention of keeping to such intent at the time they made the statement.

Esso Petroleum v Mardon [1976] QB 801

Esso’s experienced representative told Mardon that Esso estimated that the throughput of
petrol on a certain site would reach 200,000 gallons in the third year of operation and so
persuaded Mardon to enter into a tenancy agreement in April 1963 for three years. Mardon
did all that could be expected of him as tenant but the site was not good enough to achieve a
throughput of more than 60,000-70,000 gallons. Mardon lost money and was unable to pay
for petrol supplied. Esso claimed possession of the site and money due. Mardon claimed
damages in respect of the representation alleging that it amounted to (i) a warranty; and (ii) a
negligent misrepresentation.

The Court of Appeal affirmed the finding of negligence under the principle of Hedley Byrne
v Heller (1964). On the issue of warranty, Lord Denning MR stated:

“… 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 on it and he does act on 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…. 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.”

Solle v Butcher [1950] 1 KB 671

In 1931 a dwelling house had been converted into five flats. In 1938 Flat No. 1 was let for
three years at an annual rent of £140. In 1947 the defendant took a long lease of the building,
intending to repair bomb damage and do substantial alterations. The plaintiff and defendant
discussed the rents to be charged after the work had been completed. The plaintiff told the
defendant that he could charge £250 for Flat 1. The plaintiff paid rent at £250 per year for
some time and then took proceedings for a declaration that the standard rent was £140. The
defendant contended that the flat had become a new and separate dwelling by reason of
change of identity, and therefore not subject to the Rent Restriction Acts. This was held to be
a statement of fact. (Note: this is a case on Mistake.)

Smith v Hughes (1871) LR 6 QB 597

The plaintiff farmer asked the manager of the defendant, who was a trainer of racehorses, if
he would like to buy some oats, and showed him a sample. The manager wrote to say that he
would take the whole quantity. The plaintiff delivered a portion of them. The defendant
complained that the oats were new oats, whereas he thought he was buying old oats, new oats
being useless to him. The plaintiff, who knew that the oats were new, refused to take them
back and sued for the price. There was a conflict of evidence as to what took place between
the plaintiff and the manager. The court ordered a new trial. Blackburn J stated:

“… on the sale of a specific article, unless there be a warranty making it part of the bargain
that it possesses some particular quality, the purchaser must take the article he has bought,
though it does not possess that quality. And I agree that, even if the vendor was aware that the
purchaser thought that the article possessed that quality, and would not have entered into the
contract unless he had so thought, still the purchaser is bound, unless the vendor was guilty of
some fraud or deceit upon him. A mere abstinence from disabusing the purchaser of that
impression is not fraud or deceit, for, whatever may be the case in a court of morals, there is
no legal obligation on the vendor to inform the purchaser that he is under a mistake which has
not been induced by the act of the vendor.”

Nottingham Brick & Tile Co v Butler (1889) 16 QBD 778

The buyer of land asked the seller’s solicitor if there were any restrictive covenants on the
land and the solicitor said he did not know of any. He did not say that he had not bothered to
read the documents. The court held that even though the statement was literally true it was a
misrepresentation. There were restrictive covenants and the contract could be rescinded.

With v O’Flanagan [1936] Ch 575

During the course of negotiations for the sale of a medical practice, the vendor made
representations to the purchaser that it was worth £2000 a year. By the time when the contract
was signed, they were untrue. The value of the practice had declined in the meantime (to
£250) because of the vendor’s inability to attend to it through illness. Lord Wright MR
quoted:
“So again, if a statement has been made which is true at the time, but which during the course
of negotiations becomes untrue, then the person who knows that it has become untrue is
under an obligation to disclose to the other the change of circumstances.”

Therefore, the failure of the vendor to disclose the state of affairs to the purchaser amounted
to a misrepresentation.

Lambert v Co-Operative Insurance [1975] 2 Lloyd’s Rep 485

In 1963 Mrs Lambert signed a proposal form for an insurance policy to cover her own and
her husband’s jewellery. No questions were asked about previous convictions and Mrs L gave
no information about them. She knew that her husband had been convicted some years earlier
of stealing cigarettes and fined £25. The company issued a policy providing that it should be
void if there was an omission to state any fact material to the risk. The policy was renewed
from year to year. In 1971 the husband was convicted of conspiracy to steal and theft and
sentenced to 15 months imprisonment. Mrs L knew of the conviction but did not disclose it
and the policy was renewed. In 1972, seven items of the insured jewellery, valued at £311,
were lost or stolen.

Mrs L’s claim was repudiated on the grounds that she had failed to disclose her husband’s
first and second convictions. The judge dismissed the wife’s claim on the ground that the
1971 conviction was a material fact and that a prudent insurer, knowing of it, would not have
continued the risk. This decision was upheld by the Court of Appeal.

2. THE MISREPRESENTATION MUST HAVE INDUCED THE CONTRACT

Museprime Properties v Adhill Properties [1990] 36 EG 114

In a sale by auction of three properties the particulars wrongly represented the rents from the
properties as being open to negotiation. The statements in the auction particulars and made
later by the auctioneer misrepresented the position with regard to rent reviews. In fact, on two
of the three properties rent reviews had been triggered and new rents agreed. The plaintiff
company successfully bid for the three properties and discovered the true situation. They
commenced an action for rescission. The defendant company countered with the defence that
the misrepresentations were not such as to induce any reasonable person to enter into the
contract.
It was held that the plaintiff’s had established, and indeed that the defendants conceded, that
misrepresentation had occurred and any misrepresentation is a ground for rescission. The
judge referred, with approval, to the view of Goff and Jones: Law of Restitution (see Lecture
p2-3), that the question whether representations would have induced a reasonable person to
enter into a contract was relevant only to the onus of proof. Here the plaintiffs had established
their claim to rescission of the contract on the ground of material misrepresentation because
the inaccurate statements had induced them to buy the properties. They would therefore be
awarded the return of their deposit, damages in respect of lost conveyancing expenses and
interest.

Horsfall v Thomas [1862] 1 H&C 90

The buyer of a gun did not examine it prior to purchase. It was held that the concealment of a
defect in the gun did not affect his decision to purchase as, since he was unaware of the
misrepresentation, he could not have been induced into the contract by it. His action thus
failed.

Attwood v Small (1838) 6 CI&F 232

The purchasers of a mine were told exaggerated statements as to its earning capacity by the
vendors. The purchasers had these statements checked by their own expert agents, who in
error reported them as correct. Six months after the sale was complete the plaintiffs found the
defendant’s statement had been inaccurate and they sought to rescind on the ground of
misrepresentation. It was held in the House of Lords that there was no misrepresentation, and
that the purchaser did not rely on the representations.

Redgrave v Hurd (1881) 20 Ch D 1

The plaintiff solicitor advertised for a partner who would also purchase his residence. The
Defendant replied and during two interviews, the plaintiff represented that his business was
bringing in either about £300 a year, or from £300-£400 a year. At a third interview the
plaintiff produced summaries of business done, which showed gross receipts below £200 a
year. The defendant asked how the difference was made up and the plaintiff produced a
quantity of letters and papers which, he stated, related to other business which he had done.
The defendant did not examine the books and papers thus produced, but only looked cursorily
at them, and ultimately agreed to purchase the house and take a share in the business for
£1,600. The trial judge came to the conclusion that the letters and papers, if examined, would
have shown business of only £5 or £6 a year. Finding that the practice was utterly worthless,
the defendant refused to complete the contract, and the plaintiff brought an action for specific
performance. The Court of Appeal gave judgment for the defendant. Lord Jessel MR stated:

“If a man is induced to enter into a contract by a false representation it is not a sufficient
answer to him to say, “If you had used due diligence you would have found out that the
statement was untrue. You had a means afforded to you of discovering its falsity, and did not
choose to avail yourself of them.” I take it to be a settled doctrine of equity, not only as
regards specific performance but also as regards rescission, that this is not an answer unless
there is such delay as constitutes a defence under the Statute of Limitations. That, of course,
is quite a different thing.”

Edgington v Fitzmaurice (1885) 29 Ch D 459

For full facts, see above. The plaintiff was induced to lend money to a company by (a) the
statement of intent, and (b) his mistaken belief that he would have a charge on the assets of
the company. He was able to claim damages for deceit even though he admitted that he
would not have lent the money, had he not held this mistaken belief.

3. TYPES OF MISREPRESENTATION

Derry v Peek (1889) 14 App Cas 337

A special Act incorporating a tramway company provided that the carriages might be moved
by animal power and, with the consent of the Board of Trade, by steam power. The directors
issued a prospectus containing a statement that by this special Act the company had the right
to use steam instead of horses. The plaintiff bought shares on the strength of this statement.
The Board of Trade refused to consent to the use of steam and the company was wound up.
The plaintiff brought an action for deceit.

It was held by the House of Lords that in an action for deceit, it is not enough to establish
misrepresentation alone; something more must be proved to cast liability on the defendant.
There is an essential difference between the case where the defendant honestly believes in the
truth of a statement although he is careless, and where he is careless with no such honest
belief. Fraud is established where it is proved that a false statement is made: (a) knowingly;
or (b) without belief in its truth; or (c) recklessly, careless as to whether it be true or false. If
fraud is proved, the motive of the person making the statement is irrelevant. It matters not
that there was no intention to cheat or injure the person to whom the statement was made.
The defendants were not fraudulent in this case. They made a careless statement but they
honestly believed in its truth.

Hedley Byrne v Heller [1964] AC 465

Hedley Byrne were a firm of advertising agents. They intended to advertise on behalf of
Easypower Ltd. They wanted to know if Easypower were creditworthy, and asked their bank,
the national Provincial, to find out. The National Provincial got in touch with Easypower’s
bankers, Heller & Partners. Heller told the National Provincial, “in confidence and without
responsibility on our part,” that Easypower were good for £100,000 per annum on advertising
contracts. Hedley Byrne relied on this statement in placing orders on behalf of Easypower
and, as a result, lost more than £17,000 when Easypower went into liquidation. They sought
to recover this loss as damages.

In the House of Lords, Lord Pearce stated that a man may come under a special duty to
exercise care in giving information or advice. Whether such a duty has been assumed must
depend on the relationship of the parties. Was there such a special relationship in the present
case as to impose on Heller a duty of care to Hedley Byrne as the undisclosed principals for
whom National Provincial was making the inquiry? The answer to that question depends on
the circumstances of the transaction. A most important circumstance is the form of the
inquiry and of the answer. Both were plainly stated to be without liability. The words clearly
prevented a special relationship from arising.

Williams v Natural Life Health Foods Ltd (1998) The Times, May 1.
See Law Report.

Howard Marine v Ogden [1978] QB 574

The defendants wished to hire two barges from the plaintiffs. The plaintiffs quoted a price for
the hire in a letter. At a meeting, the defendants asked about the carrying capacity of the
barges. The plaintiffs’ representative replied it was about 1,600 tonnes. The answer was given
honestly but was wrong. It was based on the representative’s recollection of the deadweight
figure given in Lloyd’s Register of 1,800 tonnes. The correct figure, 1,195 tonnes, appeared
in shipping documents which the representative had seen, but had forgotten. Because of their
limited carrying capacity, the defendant’s work was held up. They refused to pay the hire
charges. The plaintiffs sued for the hire charges and the defendants counter-claimed damages.
By a majority, the Court of Appeal found the plaintiffs liable under s2(1) as the evidence
adduced by the plaintiffs was not sufficient to show that their representative had an
objectively reasonable ground for disregarding the carrying capacity figure given in the
shipping document and preferring the figure in Lloyd’s Register.