Remedies for Misrepresentation

Rescission

Equitable remedy that sets aside a voidable contract and restores parties to their pre-contract position

Voidable contract

Contract remains valid until the representee elects to rescind

Communication of rescission

Representee must notify representor or commence court proceedings to rescind

Equitable nature of rescission

Remedy granted at court’s discretion, not automatic

Affirmation (bar to rescission)

Representee affirms contract by words or conduct showing intention to continue

Lapse of time (bar to rescission)

Delay in seeking rescission may prevent remedy

Restitutio in integrum

Requirement that parties can be restored to original position before contract

Impossibility of restitution (bar)

Rescission unavailable if subject matter changed or cannot be returned

Third party rights (bar)

Rescission barred if innocent third party acquires rights before rescission

Indemnity

Covers expenses or obligations necessarily incurred under the contract

Scope of indemnity

Only covers obligations arising from the contract, not all losses

Indemnity vs damages

Indemnity is narrower and linked to contract obligations, damages compensate loss

Damages for misrepresentation

Monetary compensation depending on type of misrepresentation

Fraudulent misrepresentation damages

Based on tort of deceit, all losses directly flowing recoverable

Remoteness (fraud)

Defendant liable for all direct loss even if unforeseeable

Mitigation (fraud)

Claimant must mitigate losses once fraud discovered

Contributory negligence (fraud)

Not available as a defence

Negligent misrepresentation s2(1)

Representor liable unless proves reasonable grounds to believe statement true

Burden of proof s2(1)

Shifts to representor to show reasonable belief

Damages under s2(1)

Same measure as fraudulent misrepresentation (“fiction of fraud”)

Contributory negligence (negligent)

Available to reduce damages

Innocent misrepresentation

Representor had reasonable grounds and honest belief in truth

Remedies for innocent misrep

Rescission and possibly indemnity

Damages for innocent misrep

Not available as of right

Damages in lieu of rescission s2(2)

Court may award damages instead of rescission for non-fraudulent misrep

Discretion under s2(2)

Court balances fairness between parties

Availability of s2(2) (non-fraudulent misrepresentation)

Only for negligent and innocent misrepresentation

Fraudulent misrepresentation test

Statement made knowingly false, without belief in truth, or reckless

Negligent misrepresentation test

Failure to prove reasonable grounds for belief in truth

Innocent misrepresentation test

Representor proves reasonable grounds and honest belief

Refusal of performance

Representee may refuse to perform contract and use misrepresentation as defence

Misrepresentation exemption clause

Clause excluding liability for misrepresentation

MA 1967 s3

Such clauses only valid if they satisfy reasonableness under UCTA

Burden under s3 exemption clause

Party relying on clause must prove reasonableness

Non-reliance clause

Clause stating parties did not rely on representations

Effect of non-reliance clause

Treated as exclusion of liability for misrepresentation

Validity of non-reliance clause

Subject to UCTA reasonableness test

Fraud exception

Liability for fraudulent misrepresentation cannot be excluded

Entire agreement clause

Clause stating contract contains full agreement between parties

Effect of entire agreement clause

May not be sufficient alone to exclude misrepresentation liability