David is short of money and so decides to sell some of his antique furniture.

He
invites Rachel, an antiques dealer, to his castle to look at a desk. He (correctly) tells
Rachel that the desk was made in the 1600s. Rachel explains that antique furniture
is less valuable if it has been repaired and David assures her that the desk has not
been repaired. Rachel agrees to buy the desk for £20,000 and says she will collect it
the next day.

Later that evening David is looking for a stamp to post a letter to his brother William
to tell him that he has decided to sell the furniture. He thought the stamp might have
fallen behind the desk and so pulls it away from the wall. When he does so, for the
first time he sees a very crude repair on the back of the desk.

The next day Rachel collects and pays for the desk as arranged.

Rachel is unable to resell the desk as she had planned and still has it in her shop six
months later when she discovers the repair to the desk. A repaired desk is only
worth £2,000.

Advise Rachel as to any action for misrepresentation she may pursue against David.

Issues

1. The first issue is whether David made a misrepresentation when he made a

false statement that the desk had not been repaired? Yes

Yes – because the desk was repaired -> David made a false statement of
fact.

Yes – the statement was made at the time of the contract

Yes – the statement was made from David to Rachael

Yes – The statement was made to induce Rachael to buy the desk for a good
price i.e. £20,000

Yes – the false statement did convince Rachael to buy the desk.

2. The second issue is whether David made a fraudulent or negligent

misrepresentation?

When was the agreement made? Same day or next day? SAME DAY

Fraudulent? David was NOT intentionally lying.

YES - Negligent? Making a statement believing it to be true but NOT on reasonable

grounds.

Till the time the agreement was made between the parties – DAVID was
NEGLIGENT.
A contract is an agreement, ENFORCEABLE AT LAW.

But when Rachel provided CONSIDERATION, at the this a contract was made
between the parties.

WHY DID DAVID NOT DISCLOSE? Because he did not disclose, failure to disclose
a PRE contractual statement which has become false is also regarded as
misrepresentation -> FRAUDULENT MISREPRESENTATION.

3. The third issue is whether Rachael will be able to RESCIND THE

CONTRACT?

As we have established that it is fraudulent misrepresentation, TIME TO RESCIND

STARTS when the FRAUD is DISCOVERED.

SALT v STRATSTONE

4. The fourth issue is whether Rachael can also claim damages for
misrepresentation?

Yes – Section 2(1) MA 1967 – Burden of Proof is on the Defendant to prove that he
is innocent.

1. Identify the issues

2. Define misrepresentation
3. Prove the 5 requirements
4. Discuss type of misrepresentation
5. Remedies – rescission and bars
6. Damages

You have 1 hour for 1 Qs.

10 mins for reading the qs and making the issues.

45 mins for writing the ans.
5 mins for proof reading.
Ans3: This question requires analysis on law relating to misrepresentation. We need
to whether Rachel has any claim in the law of misrepresentation against David for
not disclosing the facts that the desk had been repaired. We will be discussing the
requirements of misrepresentation, the types of misrepresentation and the remedies
available under common law and Misrepresentation Act 1967. Misrepresentation can
be defined as a false statement of fact made by one party to another, made before or
at the time of the contract that, whilst not being a term of the contract, made to
induce the contract and it induces the other party to enter the contract. The effect of
an actionable misrepresentation is to make the contract voidable, giving the innocent
party the right to rescind the contract and/or claim damages.

In order to prove misrepresentation Rachel will have to satisfy 5 requirements.

(1) It must be a false statement of fact or law.

(2) It must be made before or at the time of the contract.
(3) It must be made by one party to the other.
(4) The statement must be made to induce the contract &
(5) The statement did induce the contract.

Rachel will first have to prove that David made a false statement of fact. She cannot
bring any claims for opinions (Bisset v Wilkinson). David assures her that the desk
has not been repaired. Later that evening David sees a very crude repair on the back
of the desk. This requires discussion on law relating to statements that become false
or concealment of truth. When a person makes a statement believing it to be true but
he later finds out that the statement has turned out to be incorrect then he must
disclose this to the buyer. Failure to disclose amounts to misrepresentation on part of
the seller. David should have disclosed the facts to Rachel when he came to know.
He intentionally did not disclose that now he had knowledge that the desk had been
repaired. Pre contractual statements automatically become part of the contract and if
a pre contractual statement becomes false then the seller must disclose otherwise
this will amount to misrepresentation (With v O’ Flanagan). Further concealment of
truth is regarding as misrepresentation (Horsfall v Thomas). The statement made by
David that the desk is not repaired was made with the intention to induce Rachel into
the contract and he further did not disclose to the truth to Rachel so she would buy
the desk. There was concealment of truth with intention to induce Rachel to buy the
desk and the statement that the desk was not repaired did induce Rachel to buy the
desk.

Now we will consider the type of misrepresentation. Once misrepresentation has

been established it is necessary to consider what type of misrepresentation has
been made. There are three types of misrepresentation: fraudulent, negligent and
wholly innocent. Fraudulent misrepresentation was defined by Lord Herschel in
Derry v Peek (1889) as a false statement that is "made (i) knowingly, or (ii) without
belief in its truth, or (iii) recklessly, careless as to whether it be true or false." Where
a person makes a pre contractual statement which becomes false then if the
defendant does not disclose this will be considered as fraudulent misrepresentation.
Thus, David made fraudulent misrepresentation.
In case of Misrepresentation two remedies are available which are inclusive of
recession of a contract and damages for losses resulting from the Misrepresentation.
Let’s explore both of them in detail within this answer.

The initial remedy of a Misrepresentation is a rescission where the contract is set

completely aside and the parties go back to the position as if the contract was never
made. Everything that is exchanged must be returned and none of the parties must
keep with them any belongings of the other. A contract becomes voidable when a
misrepresentation is involved thus it is obvious that rescission does not happen on
its own. In a scenario where a misrepresentation has occurred, the claimant has the
option of rescinding or affirming the contract. Rescission requires a notice of
rescission to be delivered to the representor.

In the case of Islington (2006) it was clarified that a contract will continue to exist
until and unless it is set aside by an order of rescission coming directly from the
courts on request of the party willing to terminate. In situations where the representor
deliberately ensures ways to block a rescission coming his way, notice of rescission
may be given to a relevant third party that will be acceptable.

In the case of Car and Universal Finance Company it was clarified that if a thief
encourages an owner to part with his car by a fraudulent misrepresentation, and thief
cannot subsequently be traced, the owner can validly rescind by notifying the police
or Automobile Association.

In case David absconds, Rachel can report to police. Otherwise if David does not
abscond, she has to rescind by court.

The second remedy available to Rachel will be damages. Where misrepresentation

is fraudulent damages may be recovered in the tort of deceit. The purpose of
awarding damages ensures that the claimant is put back in the position where he
would have been had the tort not been committed. Liability is also placed on the
defendant for all the damages that are directly coming from the fraud as seen in the
case of Smith New Court Security Limited (1997). Additional damages are also
awarded to compensate for psychiatric harm and for emotional injuries of the
claimant as seen in the case of [Archer v Brown (1985) Under the Misrepresentation
Act 1967. The misrepresentation act 1967 has created the fiction of fraud. If a
claimant can prove that there was a misrepresentation, bringing a claim under the
Act shifts the burden of proof to the representor to prove that they had reasonable
grounds to believe and did believe that the statement they made was true.

This is a heavy burden of proof, as seen in Howard Marine & Dredging Co Ltd v A
Ogden & Sons (Excavations) Ltd and more recently in Foster v Action Aviation Ltd
[2013] where the Court held that where a representor had made a statement on the
honest but mistaken belief that it was true (on the basis of the meaning of the term
‘accident’), this was a misrepresentation not made fraudulently but negligently under
s.2(1) of the Misrepresentation Act 1967.

Therefore, it can be concluded that Rachel will be entitled to rescission and also
damages under Misrepresentation Act 1967 (section 2(1)).