Misrepresentation

Question #1
‘It is difficult to justify the many limitations that might prevent a party from rescinding a
contract for misrepresentation.’ Discuss.

Answer
Misrepresentation means giving false information to the party one intends to get into
contract with, before the contract is made, inducing that party to make the contract.
Getting into such a contract and thus suffering a loss, while relying on the
misinterpretation, can allow that party to either rescind the contract or claim damages if
they can prove the misrepresentation (under common law and Misrepresentation Act
1987). The rescission of contract leads to unwinding of the transaction to restore the
parties as far back as possible towards the position they were at, before they entered
into the contract. This Right to Rescind can be lost however, if the following
circumstances ensue:
Affirmation: In this case, the misrepresented party is aware of the misrepresentation but
still carries on with the contract. By doing this, they affirm the contract and lose their
right to rescind, as happened in Long V Lloyd. On the other hand, if the claimant knows
of the misrepresentation and continues with the contract, but is not aware of their right
to rescind, then they have not lost their right to rescind (Peyman V Lanjani).
Lapse of Time: If the plaintiff comes to know about the misrepresentation after the
contract has been formed, but the lapse of time between discovery of misrepresentation
and the claim of rescission has been too great, it can be seen as evidence of
affirmation, as happened in Leaf V International Galleries. Here, the difference between
a fraudulent and non-fraudulent misrepresentation also counts. In non-fraudulent
misrepresentation such as that in Leaf V International Galleries, the lapse of time is
measured from the date of contract onwards. In cases of fraudulent misrepresentation
however, the lapse of time is measured from when the fraud was discovered (or ought
to reasonably have been discovered).
Third Party Rights: If the goods obtained by misrepresentation are sold in good faith to
an innocent third party, then that third party will not be asked to return the goods to the
first owner, from whom the goods were acquired via misrepresentation (White V
Garden). Although in such situations, the claimant should be advised to claim under
mistake, as remedy will not be available under misrepresentation because of rights of
third parties (Ingram V Little).
Restitution is Impossible: Restoration of the parties to their pre-contractual position may
not be possible if the nature of the subject matter of contract has changed (Clarke V
Dickson & Vigers V Pike). This can happen when the contractual goods have been
consumed, used or inextricably mixed. Although substantial restoration is possible, it
can be sought instead of precise restoration (Head V Tattersall), and diminution in the
value of goods is not a bar to rescission by itself (Armstrong V Jackson).
Damages instead of Rescission being the better remedy: If the court considers that
damages provide a better remedy instead of rescission, then rescission might not be
available (Misrepresentation Act 1967, Section 2[2]).

Question #2
Mick, a 50-year-old man and keen motorcyclist, decides it is time to give up
motorcycling. On 1 January he telephones Ringers, a motorcycle dealer, and asks if
they are interested in buying his bikes which he says are ‘a Ducati 2000 SP and an
Aprilia 250 that has been raced by Barry Gloss, a famous Grand Prix racer’. Mr Ringer
says he is interested and to bring the bikes round next week for him to look at. As he is
sure Ringers will buy the bikes, that evening Mick unsuccessfully searches the internet
for pictures of Barry Gloss racing the Aprilia which he will have framed as a memento
and realises for the first time that Barry Gloss never in fact raced the Aprilia.
On 14 January Mick took his two motorcycles to Ringers. Mr Ringer is busy so Mick
leaves the bikes for him to inspect later. Mr Ringer gives the bikes a quick look over but
does not inspect the registration documents left by Mick which Mick has never read.
Next Saturday Mick returns and Mr Ringer offers him £25,000 for the Aprilia and
£10,000 for the Ducati. Mick accepts. The bikes are in Ringer's showroom for two
months but there is little interest in either bike. Mr Ringer repaints the Ducati in lime
green to attract customers. After a further two months the bikes are still unsold. At this
point Mr Ringer decides to look more closely at both bikes. Although the Ducati is
badged with a ‘Ducati 2000 SP’ emblem and stickers, his mechanic discovers that it is a
less valuable Ducati 1800 BP model that has a less powerful engine. For the first time
Mr Ringer looks at the registration documents which also confirm that it is the 1800 BP
model. Mr Ringer then investigates the previous owners of the Aprilia and discovers that
it has never been raced by Barry Gloss. The value of the Aprilia, without the connection
to Barry Gloss, is £15,000 and the value of a Ducati 1800 BP is £5,000. Advise Mr
Ringer.

Answer
The core issue in this question revolves around the law concerning the concept of
misrepresentation. Firstly, a distinction should be drawn between the type of statement
that was made by Mick to Mr. Ringer while selling his bikes, in order to see if it was a
term of the contract or a mere representation. Another important issue that should be
dealt with is to see if the elements for proving misrepresentation were satisfied and if so,
would Mr. Ringer be able to bring in actions for it and, if he is successful in his actions
then what would be the possible remedies available, upon which he will be able to rely.