Vitiating Factors: Misrepresentation

Even where a contract appears to have been validly formed, it may be affected by a vitiating factor — a defect that undermines the validity of the agreement. Misrepresentation is one of the most important vitiating factors. A misrepresentation is a false statement of fact that induces the other party to enter into the contract. This lesson examines the definition of actionable misrepresentation, the three types, the available remedies, and the bars to rescission.

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Definition of Misrepresentation

A misrepresentation is:

A false statement of fact or law, made by one party to the other, before or at the time of contracting, which induces the other party to enter into the contract.

For a misrepresentation to be actionable, the following elements must be established:

Element	Explanation
False statement	The statement must be untrue or misleading
Of fact (or law)	It must be a statement of fact, not opinion, intention, or "mere puff"
Made by a party	The statement must be made by one contracting party to the other
Before or at the time of contracting	The statement must be pre-contractual
Inducement	The statement must have induced the other party to enter the contract

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What Counts as a "Statement of Fact"?

Statements of Fact vs Statements of Opinion

A statement of opinion is not actionable as a misrepresentation, because it is not a statement of fact.

In Bisset v Wilkinson [1927], a seller of land said he believed it could support 2,000 sheep. The buyer knew the land had not been used for sheep farming before. The Privy Council held this was a statement of opinion, not fact — the seller had no special knowledge and was merely expressing a view.

However, if a person states an opinion they do not actually hold, this can be a misrepresentation of fact. In Smith v Land and House Property Corp (1884), a seller described a tenant as "most desirable." In fact, the tenant was in arrears with rent. The court held this was a misrepresentation — the seller was in a position to know the facts, and the statement implied factual knowledge about the tenant's reliability.

Statements of Future Intention

A statement of future intention is not a statement of fact. However, if a person states an intention they do not actually have, this is a misrepresentation of their present state of mind.

In Edgington v Fitzmaurice (1885), company directors issued a prospectus stating that borrowed money would be used to improve the business. In reality, they intended to use it to pay existing debts. The court held this was a misrepresentation — they had misrepresented their present intention, which is a fact.

Silence and Non-Disclosure

The general rule is that silence does not amount to a misrepresentation. There is no general duty to disclose material facts in English contract law.

Exceptions where silence may amount to misrepresentation:

Exception	Explanation	Case
Half-truths	A statement that is technically true but misleading	Dimmock v Hallett (1866) — land described as "let" without disclosing the tenants had given notice
Change of circumstances	If a statement was true when made but becomes false before the contract, there is a duty to correct it	With v O'Flanagan [1936] — a doctor's statement about practice income was true when made but the practice declined before sale
Fiduciary relationships	Parties in fiduciary relationships owe duties of disclosure	—
Contracts uberrimae fidei	Contracts of "utmost good faith" (e.g., insurance) require full disclosure	Carter v Boehm (1766)
Conduct	Conduct that creates a false impression may amount to misrepresentation	—

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Inducement

The misrepresentation must have induced the claimant to enter the contract. This means:

1. The claimant must have been aware of the statement
2. The statement must have materially influenced their decision to contract
3. The claimant must have relied on the statement

In Attwood v Small (1838), the buyer of a mine commissioned his own surveyors to verify the seller's claims about the mine's value. The House of Lords held there was no reliance on the seller's statements — the buyer had relied on his own surveyors' independent assessment.

In Redgrave v Hurd (1881), the court established that the claimant does not need to have investigated the truth of the statement. A party is entitled to rely on a representation even if they could have discovered the truth. The mere opportunity to investigate does not negate inducement.

The statement need not be the sole inducement — it is sufficient if it was a reason for entering the contract (Edgington v Fitzmaurice [1885]).

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Types of Misrepresentation

There are three types, distinguished by the mental state of the person making the statement:

graph TD
    A["MISREPRESENTATION"] --> B["Fraudulent"]
    A --> C["Negligent"]
    A --> D["Innocent"]
    B --> E["Knowingly false or reckless<br/>(Derry v Peek [1889])"]
    C --> F["Careless statement /<br/>no reasonable grounds<br/>(Hedley Byrne [1964])<br/>(s2(1) MA 1967)"]
    D --> G["Reasonable belief<br/>statement was true"]
    B --> H["Remedies: Rescission +<br/>all damages (tort of deceit)"]
    C --> I["Remedies: Rescission +<br/>damages (remoteness more<br/>generous than contract)"]
    D --> J["Remedies: Rescission<br/>OR damages in lieu<br/>(s2(2) MA 1967)"]

    style B fill:#e74c3c,color:#fff
    style C fill:#f39c12,color:#fff
    style D fill:#3498db,color:#fff

1. Fraudulent Misrepresentation

A misrepresentation is fraudulent if the representor made the statement:

• Knowingly — knowing it to be false, OR
• Without belief in its truth, OR
• Recklessly — careless as to whether it is true or false

The definition comes from Derry v Peek (1889). A tramway company's prospectus stated that the company had the right to use steam power. In fact, they only had a licence to use horse power and needed Board of Trade consent for steam power (which was later refused). The House of Lords held this was not fraudulent — the directors honestly believed they would get consent. They were careless but not dishonest.

Lord Herschell stated: