Contract Reading Session 6

Chen-Wishart chapter 5:
 Generally there is no duty of good faith i.e. to disclose important
facts/attempt to reach agreement. There is a duty not to mislead.
 Actionable misrepresentation = an unambiguous, false statement of fact
that is made to P which induces him to enter the contract. If this occurs, P can rescind
the contract subject to certain bars. To claim damages as well, D must have been
“dishonest” or “careless” and the burden is for D to prove that he was not dishonest or
careless.
 If the misleading statement did not induce P to contract with D (e.g.
Hedley Byrne where it induced P to contract with X) then only tortious remedy is
available. However a contractual action will generally produce higher compensation
amounts than tort.
 If the false statement is a term in the contract then there are remedies for
breach of contract; if it’s a mere representation outside the contract, the 1967 Act
provides for damages; if its a “mere puff” then there is no remedy.
 A “representation” is itself not actionable but an assertion of the truth and
invites reliance on it but without providing an enforceable guarantee.
 The distinction between a term and an mere representation is made by
looking at the objective intention of the parties. The more important the statement of
truth is, the more likely it is to be a term. The court is more likely to find a term if the
speaker had specialist knowledge.
 If the maker of the statement was not asked to verify it, it is less likely to
be a term. Equally if the statement is being passed on by D from another party it is
less likely to be a term. If the statement was formally recorded it is more likely to be a
term.
 A statement can be made by words or conduct. A statement of intent
cannot necessarily be taken to mean a statement of fact.
 Statements of opinion are only actionable where they are dishonest,
unreasonable (is the party in a position to know the truth), or a term.
 Puffs are vague and exaggerated laudatory statements.
 Statements of law generally don’t give rise to actionable
misrepresentations but there are exceptions and a statement of law can be considered
a statement of opinion.
 There is no general duty of disclosure.
 There are exceptions to the no-liability rule for non-disclosure: Certain
types of contracts are considered contracts of “utmost good faith” or “uberrimae
fidei”; Fiduciary contracts; indirect methods (various including where one party
knows of the others mistakes, unconscionable bargains, non-commercial contracts of
guarantee, onerous or unusual terms, statutory duties of disclosure, tortious duties of
disclosure, implied terms); half-truths; failure to correct a statement that new
circumstances have rendered untrue.
 Inducement = no need for strict causation: it IS enough that it was active
in P’s mind + strongly inferable from importance of the statement. Generally no bar
that the claimant could have but didn’t verify the statement. Inducement is imposible
 where P is unaware of the statement, knows of its falsity, is unaffected by the
statement, or regards it as unimportant.
 Fraudulent misrepresentation is where a statement is made knowingly or
without belief in its truth (including ignorance) or is reckless as to its truth.
 Negligent misrepresentation is the tortious rule (see tort session 3)
 Statutory negligence- see Misrepresentation Act. Easier to succeed under
than negligent misrepresentation.
 Innocent misrepresentation is NOT actionable.
 Rescission is setting the contract aside i.e. restoring all benefits conferred
so that its as though the contract never happened.

1. Requirements of Misrepresentation

Attwood v Small (1838) 6 Cl & Fin 232: The purchasers of a mine were told exaggerated
statements about 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. Held: There
was no misrepresentation because purchaser did not rely on the representations - they
relied on that of their experts.

Redgrave v Hurd (1881) 20 Ch D 1: R was going to sell H his house at a high value based
on the fact that H would also be taking over his solicitor’s practice that he claimed
brough in £300 a year. To substantiate this he showed H papers showing the value to be
£200 and papers detailing “other business” which, if H had checked them, would have
proved no extra worth to the business so that it was only worth £200 total. CA said R was
entitled to rescission.

Jessel MR: He says that (1) where a person makes a statement to gain a contract that he
knew at the time to be false or was reckless as to whether it was true he should not be
allowed to gain a benefit from it. It is no defence to say he didn’t know the statement to
be false since he ought to have investigated to be sure that it was true. (2) If a person
makes a statement that he now knows to be false so as to gain a contract he cannot insist
on keeping the contract. Also, even where P could have investigated and seen that the
claim was false, he was under no obligation to do so and this doesn’t relieve D of his
duties.

Smith v Land and House Property Corp (1884) 28 Ch D 7: P offered to sell a hotel to D,
saying it was let to a desirable lessee for £400 a month for 20 more years. It turned out
that in fact the lessee was undesirable (he often missed payments) and, based on the
business facts, he could never have paid that much rent. CA held that the statement that D
was a “most desirable” lessee was not merely an opinion of fact but also contained an
assertion as to the fact that P had no evidence to the contrary. Since this was false, it was
a misrepresentation. There was no doubt that the misrepresentation had induced the
company to enter the agreement.

Bowen LJ: Where the facts are known by both the parties equally, then most statements
will be expressions of opinion. But “if the facts are not equally known to both sides, then
a statement of opinion by the one who knows the facts best involves very often a
statement of a material fact, for he impliedly states that he knows facts which justify his
opinion.”

Edgington v Fitzmaurice (1885) 29 Ch D 459: P bought bonds in a company based on

false statements as to what the money would be spent on (company claimed it was for
developing the business whereas in fact it was to meet existing debt payments) and as a
result, when the company collapsed, he got very little return on the investment. He sued
D (officers of the company. CA allowed his claim, since he was induced to pay for bonds
based on the fraudulent misrepresentation as to the purpose of the money raised.

Cotton LJ: It was material that the money was used for a purpose other than that claimed
since a man who lends money “reasonably wishes to know for what purpose it is
borrowed” and obviously if P had known the truth he would not have invested it. It didn’t
matter that there was another issue (charge on the property) which was critical but “it was
not necessary to show that the misstatement was the sole cause of his acting as he did”
and it was irrelevant that he was also influenced by another factor.

Bowen LJ: a misstatement is material if it was “actively present in his mind” when he
decided to pay the money. “The state of a man’s mind is as much a fact as the state of his
digestion”.

Bisset v Wilkinson [1927] AC 177: D sold P land for farming, stating that the believed
that the land could carry 2000 sheep when in fact it was less than this. Prviy Council held
that this was an honest statement of opinion, not a statement of fact and therefore P could
not rescind the contract.

Lord Merrivale: Unless fraud is established, an opinion (i.e. an honest opinion) is not
actionable, whereas a statement of fact is actionable. A statement of opinion is not a
representation unless the opinion of the person making the representation has some
special weight, e.g., he or she is a professional employed to give such opinion. In this
case there was no such special weight to be given to D who was not a farmer. It was
therefore an honest opinion and could not be fraud. Ordinarily a claim as to the capacity
of one’s own land would be a statement of fact since one has knowledge of ones own
land, but the circumstances here (lack of knowledge as to sheep farming) meant there was
no such knowledge.

With v O’Flanagan [1936] Ch 575: D sold a medical practice to P disclosing its full
value. However after disclosure and before the contract was signed circumstances
rendered the practice worth far less. The changes of the situation weren’t disclosed and P
signed the contract. He sought rescission. CA granted P rescission since that the
representation was made to induce the purchasers accept and must be treated as
continuing until the contract was signed, and that it was the duty of the vendor to
communicate the change of circumstances to the purchasers.

Lord Wright MR: Generally there is no duty of disclosure, but changing situations do
create such a duty. The burden of proving a duty exists lies on those claiming its
existence. Cases where there is a duty of disclosure: fiduciary relationships, uberrimae
fidei contracts, where a party makes a claim during negotiations which he later discovers
to be false. The alternative basis (to the “duty” basis) for the decision is that the
representation was continuous/ongoing, so that it was continually being made until the
contract was signed.

Banque Keyser v Skandia [1989] 3 WLR 25: Bs gave loans to Cs and L was to arrange
insurance in case of failed repayment, but L failed to disclose fully to Bs that there were
significant gaps in the insurance cover because it was in L’s financial interest to make the
deal go through ASAP. When the companies collapsed and Bs were unable to get
insurance payments due to the gaps left by L, Bs sued insurance companies in tort,
alleging that they had a duty to disclose the gaps left by L’s deceit. CA held that the bank
could rescind the contract and demand the return of the premiums paid to the insurers, but
could not claim for damages, since it was neither a tort nor a breach of contract or of
fiduciary duty.

CA: Insurance contracts are contracts requiring the utmost good faith and insurer and
insured owed each other reciprocal, absolute, duties of pre-contractual disclosure to make
the contract enforceable. The insurer’s duty extended at least to disclosing all facts
known to him which were material either to the nature of the risk or to the recoverability
of a claim under the contract, which a prudent insured would take into account in
deciding whether to place the risk with the insurer. By not disclosing L’s deceit they had
breached this. However, non-disclosure could not be construed as misrepresentation and,
even if it did, such a disclosure would not come within the Misrepresentation Act since it
was not a misrepresentation made by one party to another.

Slade LJ: “The common features of contracts which are classified by the law as contracts
uberrimae fidei is that by their very nature one party is likely to have the command of
means of knowledge not available to the other”. Special relationships are exceptions to
the general rule that disclosure is not required.

Pankhania v London Borough of Hackney [2002] EWHC 2441 paragraphs 48 – 57: Ps

successfully bid for a property under the representations by the auctioneers that the
people who used the car parks at the front of the properties did not have a legal right to
stay there, whereas in fact this was a wrong interpretation of law and they were protected,
reducing the value of the houses. The judge ruled that a misrepresentation of law could
give rise to rescission. Rex Tedd QC (the judge) said that the old distinction between a
misrepresentation of law which was not actionable and misrepresentation of fact had been
abolished rightly by the HL, since where it was reasonable for P to rely on D’s statement
of law, as here, there was little sense in denying P restitution for simple lack of legal
knowledge. A misrepresentation of the law IS a misrepresentation of fact.

2. Rescission for Misrepresentation

Misrepresentation Act 1967, s 1:

S.1: Where a person has entered a contract after a misrepresentation was made to him and
the misrepresentation has become a term OR the contract has been performed OR both,
and he would normally be entitled to rescind without having to allege/prove fraud, then
he is so entitled.

Erlanger v New sombrero Phosphate Co. (1878) 2 App Cas 1218, HL: D purchased a
lease on a mine and then nominally sold it to a new company he set up of which he was a
director and all the other directors were people clearly under his control. He then sold
shares in the company to the investors, prices being based on the price at which D sold to
his own company rather than the price at which he purchased. This was later discovered
when the shareholders voted to sack all the directors and replace them with new ones,
who sued D to rescind the sale of the island to the company and thereby entitling the
shareholders to get their money back. HL said the contract could be rescinded.

Lord Penzance: In fiduciary relationships such as trustee-trustor, principal-agent, father-

son etc. the courts grant relief from “unfair advantage” and the party accused of being in
the position of unfair advantage has the burden on him to show that he is not. On the
question of whether the contract was affirmed by delay, the question is “whether there
was such delay as fairly imports acquiescence”. In this case the total lack of knowledge
or capability to discover the truth means no acquiescence. Inevitably there would be a
delay between discovery of the truth and the bringing of an action, since a committee had
to investigate and then a resolution had to be passed to sue D. This is a reasonable delay.

Whittington v Seale-Hayne (1900) 82 LT 49: W leased an estate from S under S’s

innocent misrepresentation that the estate was sanitary, when in fact it wasn’t and W’s
stock died, his manager was made ill (costing medical bills) and a new sanitary system
had to be put in. Court allowed recission of the lease and indemnity-based recovery (i.e.
costs associated with rescission. However W couldn’t recover reliance-based losses for
lost stock, profits or medical bills. CW: these could now be recovered under s.2(1) of the
act unless D could show that the representation was innocently and reasonably made.

Leaf v International Galleries [1950] 2 KB 86: See sheet

Car and Universal Finance v Caldwell [1965] 1 QB 525: See sheet

3. Damages for Misrepresentation
(i) Fraudulent (Tort of Deceit)
Derry v Peek (1889) 14 App Cas 337: see sheet

Doyle v Olby [1969] 2 QB 158: P was induced to buy D’s business by false
representations as to profits and an undertaking that D would not open a new business
within a ten mile radius, which he later did. P lost money spent trying to make the
business work and later sold the business but was left with liabilities for £4000. CA held
that damages for deceit (as opposed to breach of contract) was all the damage directly
flowing from the tortious act of fraudulent inducement and that remoteness (i.e.
reasonable foreseeability) does not apply to deceit claims. Only P’s own acts could render
a claim too remote. The plaintiff's position before the fraudulent inducement should be
compared with his position at the end of the transaction. As in the instant case the
plaintiff had been tricked into buying a business which he would otherwise not have
bought at all, the court should award him his overall loss up to his final disposal of the
business, less any benefits he had received.

Lord Denning MR: It would be v unfair for a fraudster to be able to say they should not
be liable for the loss they have caused simply because the loss was not reasonably
foreseeable, A fraudster should bear the cost of the loss he imposes and so all damages
caused are recoverable. The distinction between breach of contract and tort of fraud is
that in the former you are trying to put P in the position as though the contract had been
fulfilled, whereas in the latter you are trying to put P in the position as though the fraud
had never happened (just because the latter is a negative and the former is a positive does
not explain why fraud should not have a remoteness requirement).

Smith New Court v Scrimgeour Vickers [1997] AC 254: D fraudulently induced P to buy
shares which lost value (1) when the fraud was discovered; (2) when a larger existing
fraud was discovered; (3) when, due to feasibility, they could not sell the property
straight away and as a result they kept shares whose value was falling. They ultimately
sold the property and HL awarded damages for the amount paid minus the amount sold.
The “existing flaws” of the property and the fact that P was “locked in” to the property
(they could not feasibly sell straight away) would not be taken into account in reducing
the loss compensable by D. HL held that D had to compensate for all the damages
flowing directly from the transaction and “reasonable foreseeability” was irrelevant. In
general P could recover the price he paid minus benefits e.g. market value of property
acquired. Benefits sometimes do not have to be discounted where the parties are locked
into the property or the fraud has continued so as to induce their retention of the property.
Impossible to state all circumstances where they don’t have to be discounted.
Consequential losses are compensable but there is a duty to mitigate on P. Because here P
was locked into the property, the compensation was the difference between the amount
paid by P and the amount they recovered through the sale, NOT the value of the shares as
soon as the fraud was discovered.
Lord Browne-Wilkinson: He supports conclusion of Doyle. “As a general rule, the
benefits received by P [to be reduced form the assessment of compensation] include the
market value of the property acquired as at the date of acquisition; but such general rule
is not to be inflexibly applied where to do so would prevent him obtaining full
compensation for the wrong suffered.” This includes cases where, for example, the fraud
continues after contract formation or the party is locked in to the property.

Lord Steyn: Justification for Doyle rule that makes negligent misrepresentation claims
subject to a remoteness test but not deceit claims is that deceit (which is committed
intentionally) is worse that negligence (which can be committed by carelessness) and it is
therefore better to make the intentional wrongdoer subject to wider liability, partly as a
matter of making liability fit the wrongdoing, partly as a deterrent.

East v Maurer [1991] 1 WLR 461: See sheet

Clef Aquitaine v Laporte Materials (Barrow) Ltd [2000] 2 All ER 493: P agreed to
purchase, sell and distribute D’s products at a price list set by D, following a
misrepresentation by D that D would not be selling any products below the prices below
the prices that D was buying at. In fact D did sell more cheaply to other clients. It was
also established that had the misrepresentation not occurred, P would still have entered
the contract but on better terms as to price, and so could have had greater profits. He sued
for these higher profits. CA awarded him the profits he would have made had he entered
into the contract on the same price terms as those other customers had been getting. CA
said there is no absolute rule requiring that the transaction fraudulently induced be loss
making (P had still been making a profit) and it was possible for P to show that but for
the misrepresentation he would have entered into a better agreement, and for losses to be
claimed on the difference between what he would have gained and what he did in fact
gain.

(ii) Negligent (Actionable in Tort of Negligence)

Hedley Byrne v Heller [1964] AC 465- see tort week 3

Esso Petroleum v Mardon [1976] QB 801 –see tort week 3

(iii) Negligent and Innocent Misrepresentation under the Misrepresentation

Act 1967

Misrepresentation Act 1967, s 2 (1), (2), s.3:

S.2(1): Where P has entered into a contract after a misrepresentation by D and as a result
he has suffered loss, then, if D would be liable for damages had the misrepresentation
been made fraudulently, he will still be 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.
S.2(2) Where a person has entered into a contract after a misrepresentation has been
made to him NOT fraudulently, and he would be entitled, by reason of the
misrepresentation, to rescind the contract, then, if it is claimed that the contract ought to
be or has been rescinded, the court may declare (NB Discretionary- not a right of the
plaintiff) the contract subsisting and award damages instead of rescission, if of the
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.

S.3 If a contract contains a term which would exclude or restrict—

(a) any liability to which a party to a contract may be subject by reason of any
misrepresentation made by him before the contract was made; or
(b) any remedy available to another party to the contract by reason of such a
misrepresentation,
that term shall be of no effect except in so far as it satisfies the requirement of
reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is
for those claiming that the term satisfies that requirement to show that it does.

Howard Marine v Ogden [1978] QB 574: H made a false representation to O that a boat
could hold a certain capacity, based on the details of the boat in an official register, but
which were entered incorrectly. O leased the boat under a contract with an exclusion
clause. After several months O realised the inaccuracy of the representation as to capacity
of the boat and refused to pay the full amount agreed for the lease. H sued O for the
outstanding money, while O counterclaimed for damages. CA (majority) held that H’s
misrepresentation fell within s.2(1) of the 1967 Act while the exclusion clause was
unreasonable under the Unfair Contract Terms Act.

Bridge LJ (Majority): Under s.2(1), it is obvious that damages would have been
forthcoming had the misrepresentation been fraudulent, since it aimed to induce O to sign
the agreement and did induce O to act on it. Therefore unless H can show that its grounds
for making the representation were reasonable, H will be liable for damages. On the facts
there were no reasonable grounds.

McKendrick: despite the fact that Ds relied on a fairly reliable source of evidence, they
failed to show reasonableness because they had the correct facts in their possession in
documents for a fair amount of time. This shows the difficulty of overcoming the
evidentiary burden placed on the misrepresentor. Therefore a claimant is better of using
s.2(1) than negligence, as well as the fact that the former has a reduced remoteness
restriction, and no proof of duty of care or breach is needed. The only problem is that it
can only be invoked between contracting partie, unlike negligent misrepresentation
claims. However a tort of negligence, aside from its application stretching beyond
contract, is also not susceptible to contributory negligence defences i.e. it still has
advantages. NB CW: The 1967 act, like the torts for negligence and fraud, uses the
reliance measure for assessing damages
Royscot Trust Ltd v Rogerson [1991] 3 All ER 294: D was to sell X a car, for which X
would pay the deposit and P would pay the balance. X was to repay P through
instalments, but defaulted and wrongfully sold the car. After suing X, P sued D for
damages due to a misrepresentation D had made as to the price, which had caused P to
suffer loss via the arrangement it had had with X. CA awarded P damages of the amount
P paid to D minus the amount X paid to P.

Balcombe LJ: There was a debate as to whether The Misrepresentation Act s.2(1) would
give rise to tortious damages (i.e. the position P would be in if the misrepresentation had
never been made) or the contractual one (i.e. the position P would be in if the
misrepresentation had been true). The answer is the tortious measure of damages. It is
also inferred from the section that it is the fraudulent tortious measure rather than the
negligent tortious measure. This matters since it means that claims brought under the act
are not subject to reasonable foreseeability etc. Regardless of the fact that it is harsh to
employ a “fiction of fraud” (i.e. to treat innocent people as fraudsters) this is the plain
intention of the act.

Sindall plc v Cambridgeshire CC [1994] 3 All ER 932: P bought land from D on the
condition that D discloses any encumbrances on the land of which it had knowledge or
ought to have had knowledge. P did not know of an encumbrance and CA held that P had
not breached the term. CA held that even if P had misrepresented the situation to D, it
[ the encumbrance] did not in practice seriously interfere with the use of the land” so that
it would be inequitable to rescind the contract and instead s.2(2) of the
Misrepresentations Act would apply to award damages.

Hoffmann LJ: section 2(1) is concerned with the damage flowing from having entered
into the contract, while section 2(2) is concerned with damage caused by the property not
being what it was represented to be. Therefore, unlike s.2(1) which allows damages based
on the “fraudulent misrepresentation” basis, s.2(2) damages “should never exceed the
sum which would have been awarded if the representation had been a warranty” i.e. the
difference between what was paid and actual value”.

Evans LJ: It would be unfair to allow rescission rather than damages where the
misrepresentation is of “little importance” and therefore s.2(2) would be invoked.

Witter Ltd v TBP Industries [1996] 2 All ER 573: P sold D P’s business but represented
(1) that all the accounts were audited under the same audit rules (they weren’t) and
(2)that a large expense recorded was a one-off (it wasn’t). In the contract were clauses
stating that the entire agreement was to be found in the written contract and not in
warranties etc outside the document. There was another clause stating that D was not
induced by any representation or warranty outside the contract. P sued D.

CA held (1) Rescission was impossible due to changes that had occurred within the
business + effect on TPs etc; (2) that damages awarded under s.2(2) did not require that P
had an effective right of rescission, but merely that P had at some point in the past had
one; (3) for an exclusion clause to be effective in excluding liability for
misrepresentation, it had to comply with s.3 of the 1967 Act and had to make it
“manifestly clear that the purchaser had agreed only to have a remedy for breach of
warranty and that the vendor's liability for damaging untrue statements was excluded”
(Jacob J); (4) The misrepresentations had become warranties, breach of which entitled D
to damages. In conclusion, damages here could be based either on negligent
misrepresentation or breach of contract. However there was no tort of fraud since the
misrepresentation had not had the sufficient degree of intent/recklessness as demanded by
Lord Herschell (see above).

CW: This case demonstrates the courts’ unwillingness to accept exemption clauses that
deny statements of fact

Govt of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333: P
contracted with D1 and D2 for D1 to buy aircrafts from D2, which P would lease and pay
rent on from D1. However there were many faults and P sent the aircraft to D2 for repair.
The faults persisted and P ceased payments to D1, who repossessed and resold the
aircraft. P sued D2 for rescission or damages. Court held that rescission was not an option
(due to exclusion clauses that were reasonable and valid under the Unfair Contracts Act)
and, declining to follow Witter, that damages under s.2(2) were only available as an
alternative to rescission and could not be awarded where the right of rescission had been
lost.

Judge Jack QC seems right in asserting that s.2(2) is an alternative and therefore can
only apply to cases where the right to rescission is made out- see wording.

4. Exclusion of Liability for Misrepresentation

Misrepresentation Act 1967, s 3 (as substituted by Unfair Contract Terms Act 1977, s 8)-
see above

Overbrooke Estates v Glencombe Properties [1974] 1 WLR 1335: D sold an object to P

through an auction, one of the conditions being that the agent/auctioneer had no authority
to make representations. When a representation by the auctioneer turned out to be false, P
attempted to rescind the contract. The court (Brightman J) said that agents were entitled
to limit the authority of their agents and such clauses are not invalidated by s.3 of the
Misrepresentations Act.

NB At the time the Unfair Contracts Act had not yet been introduced so s.3 permitted
exemption or limitation clauses that were “fair and reasonable” rather than those which
were reasonable under the Unfair Contract Terms Act. However, the test under UCTA is
no harder to satisfy than this one.

Cremdean Properties v Nash (1977) 244 EG 547, CA: Court of Appeal considered
whether a disclaimer contained in a footnote to special conditions of sale was effective to
exclude liability, having regard to the provisions of section 3 of the 1967 Act. P claimed
that the footnote was a statement of opinion and not a representation. CA dismissed this
claim, saying that the distinction was false.

Bridge LJ: “For my part the distinction seems to be one without a difference. The word
'representation' is an extremely wide term; I cannot see why one should not be making a
representation when giving information or when stating one's opinion or belief. To my
mind it would be a retrograde step if the court were to give the word 'representation'
when it appears in the Misrepresentation Act 1967 any narrow or limited construction,
less wide than the perfectly natural meaning of the word.” However, he also said that the
court are unwilling to “allow such ingenuity of language to defeat the plain purpose at
which s.3 is aimed”.

Watford Electronics v. Sanderson [2001] EWCA Civ 317 (23rd February, 2001)
paras 38–41- see week 5:

Chadwick LJ on “entire agreement clauses”: The courts should not refuse to give effect to
such clauses negotiated between parties of equal bargaining strength so that they can
order their affairs and avoid the legal uncertainty that comes from allowing
representations or supposed warranties from outside the document to be considered. Such
clauses are not void under s.3. “[The bargaining parties] should be taken to be the best
judge of the commercial fairness of the agreement, which they have made; including the
fairness of each of the terms in that agreement.” This second reason for allowing entire
agreement/non-reliance clauses to be effective is that it allows the parties to choose and
negotiate the terms on which they are willing to do the deal i.e. a more accurate reflection
of supply and demand. An acknowledgement of “non-reliance” could act as evidential
estoppel to prevent the acknowledging party from later refuting that claim.
NB This applies only to a case where the parties are of equal bargaining power- “entire
agreement” clause could still be ineffective in another context.

Walker v Boyle [1982] 1 All ER 634: P wanted to buy a house from D and D’s husband
answered one of P’s preliminary questions by saying that there were no boundary
disputes, an answer which D knew was incorrect though her husband did not. There was
a contractual condition that “no errors, mis-statement, or omission in any preliminary
answer…shall annul the sale.” Dillon J held that the condition could be made either not to
apply to misrepresentations through construction (it didn’t apply where the vendor had
knowledge of the true answer but gave/allowed a wrong answer to be given) OR since it
was voided under the Misrepresentation Act and s.11(1) UCTA. Therefore he found for
P.

Dillon J: This term, if applied, would deprive P of her normal remedies for
misrepresentation and therefore under s.3 it is for D to show that the term was UCTA
reasonable, which D had failed to do (tried to say it was reasonable since it had been
widely used- not good argument).

CW: this, together with Witter demonstrates courts’ unwillingness to allow terms that
deny a statement of fact such as “no inducement” (though NB this isn’t true for “entire
agreement” clauses which are outside scope of s.3- see Watford Electronics).
Articles and Casenotes
Atiyah and Treitel, “Misrepresentation Act 1967” (1967) 30 MLR 369:
 Uncertain relationship with the common law: If I rescind under the act can
I also claim damages fro breach (where the misrepresentation is warranty)? This
depends on whether “rescind” means destroy all existing obligations, but, since
rescind has not been defined, this is unclear. If this is the case it is unfair since, in
rescinding out of court, a party would be unaware that his right to damages has also
been lost. S.2(2) is an inadequate replacement for this since it leads to lesser damages
than s.2(1) provides.
 The fact that “innocent misrepresentation” can still lead to rescission is
unfair on the misrepresenter and will cause hardship e.g. if A sells a house to B and
uses the proceeds to buy a new house, he will be caused sever hardship if he has to
rescind. Of course, s.2(2) could be invoked but this will prove little comfort to A who
will still have to raise the money to repay B, though admittedly the time-lapse rule
may held. This is a choice between two innocent parties- the innocent mis-representer
and the innocent buyer who may be caused great loss by the misrepresentation. Given
this, the law is probably right to put the risk on the misrepresenting party, to act as a
deterrent to taking little care in verifying facts.
 S.2(2) is good in that it now means that the whole deal doesn’t have to be
undone because of some minor representation and a less harsh remedy is available,
but there s still uncertainty regarding where it is to be applied (Though the case law
seems to have cleared this up).

Taylor, “Expectation, reliance and misrepresentation” (1982) 45 MLR 139

Brown & Chandler, “Deceit, damages and the Misrepresentation Act 1967, s 2(1)” [1992]
LMCLQ 40

Beale, “Damages in Lieu of Rescission for Misrepresentation” (1995) 111 LQR 60