Remedies for Misrepresentation

Remedies for Misrep

Definition (AO1)

2 Remedies are available:

1. Rescission

2. Damages

Misrep occurs pre-contract and so there is no remedy for breach of contract.

Rescission

Definition (AO1)

Rescission aims to return the parties to the position they were in before the formation of the contract

Any misrep makes the subsequent contract voidable and so:

• Misrepresentee can choose:

  • To affirm the contract - CPs rights and obligations continue

    OR

  • To avoid the contract - by rescission - Contract terminated from the beginning (as if it never existed)

Discretionary remedy - Only awarded by courts if fair in all the circumstances

Rescission - To affirm

Rule (AO1)

Misrepresentee must expressly inform misrepresentor of intention to proceed with contract

OR

Act in such a way as to imply such intention

Rescission - To rescind

Rule (AO1)

Misrepresentee must expressly inform misrepresentor that he refuses to be bound by the terms of the contract

OR

Act in such a way as to imply such refusal

General rule

Misrepresentee must communicate intention to rescind:

• Within a reasonable time

• UNLESS misrepresentor cannot be found

Effects of rescission

Definition (AO1)

Makes contract void:

Where subsequent contract wholly / partially performed:

Must be possible to restore parties to pre-contractual position

4 Bars / Limits to Rescission

(AO1)

1. Protection of third party rights (T)

2. Affirmation by misrepresentee (A)

3. Restitution impossible (I)

4. Lapse of time (L)

Remember TAIL

Bars / Limits to Rescission - Third party rights

Rule (AO1)

Where innocent 3P has acquired rights under a voidable contract - then rescission will not be available.

Relevant when goods ares old onto another

Bars / Limits to Rescission - Third party rights

Case (AO3)

(Lewis v Averay)

C sold car to a rogue (pretended to be a well known actor).

Car was sold quickly to an innocent 3P

Rescission was not available

Bars / Limits to Rescission - Affirmation by Misrepresentee

Rule (AO1)

• Where misrepresentee demonstrates clear intention to proceed with contract

• After discovering misrepresentation

• Misrepresentee loses right to rescind

Relevant when C shows a willingness to continue despite the misrep.

Bars / Limits to Rescission - Affirmation by Misrepresentee

Case (AO3)

(Long v Lloyd)

C advised by D that lorry was in ‘excellent condition’ but it wasn’t and broke down.

Repairs were needed which D offered to pay half of, when it broke down again, C wanted to rescind contract.

Rescission was not available on basis of affirmation.

Bars / Limits to Rescission - Restitution Impossible

Rule (AO1)

Rescission requires both parties to be restored to their pre-contractual position:

If restitution is impossible than rescission is not available

Think practically - Can CPs be restored to pre-contractual position

Bars / Limits to Rescission - Restitution Impossible

Case (AO3)

(Clarke v Dickson)

No rescission of partnership as firm had become a limited company.

Bars / Limits to Rescission - Lapse of time / delay

Rule (AO1)

Consider time lapse of:

• Misrep

• Discovery of misrep

• Right to rescind

Lapse of time may:

• Be evidence of affirmation

• Allow misrepresentor to continue to perform

• Prejudice third parties

Bars / Limits to Rescission - Lapse of time / Delay

Case (AO3)

(Leaf v International Galleries)

Claim to rescind 5 years after C bought a fake painting. Only discovered misrep 5 years after purchase and so rescission failed.

Damages

Definition (AO1)

Consider Measure of damages and basis of calculating amount of damages for:

• Fraudulent Misrep

• Negligent Misrep

• Innocent Misrep

Damages for Fraudulent misrep.

Definition (AO1)

Damages are awarded under tort of deceit - Restored to position he would have been in had the fraud not happened

Innocent party is compensated for “everything that flows from the deceit”

Damages for Fraudulent misrep.

Case (AO3)

(East v Maurer) - claim of lost profits

Damages for Negligent misrep
Definition (AO1)

Under Misrepresentation Act 1967 s.2(1)

Where negligent misrep is followed by a contract:

• Damages may be awarded to misrepresentee in Tort - to put misrepresentee in position they would have been in had misrep not been made

Damages for Negligent misrep
Case (AO3)

(Howard Marine)

Damages for innocent misrep

Definition (AO1)

Under Misrepresentation Act 1967 s.2(2)

Where innocent misrep is followed by a contract:

Damages may be awarded to misrepresentee:

• As an alternative to rescission:

• In court’s discretion

• Damages probably limited to be nominal and to compensate for direct / unavoidable expenses;

No automatic right to damages!!!

Damages for innocent misrep

Case (AO3)

(Sindall v Cambridge CC)

Damages limited to additional costs incurred as result of misrepresentation as rescission inequitable to do so.

Indemnity

Definition (AO1)

The defendant must provide compensation to the C for expenditure occuring as a result of obligations which have been created by the contract.

Indemnity

Case (AO3)

(Whittington v Seale-Hayne)