11. Misrepresentation

Statements made to get the other side to contract are not all terms of the contract. Some are mere puffs. Some are representations. A representation becomes a misrepresentation when it is false, it is a statement of existing fact or of law, it is addressed to the other party, and it induces the contract.

An opinion stated as an opinion is not enough, unless the speaker had no real belief or was in a position to know the facts. Silence is not a misrepresentation, subject to these exceptions: a half-truth, a statement that becomes false before the contract is made, contracts of the utmost good faith, and a fiduciary relationship.

The person induced must have relied on the statement. If they relied on their own inspection, or were not influenced, the claim fails. Redgrave v Hurd is the other way: a person who was given the papers and did not check them can still say they relied on the statement.

The contract is voidable until it is rescinded. It is not void, unless the misrepresentation produced a fundamental mistake of the kind discussed in the last chapter. The example is a false statement about who the guarantor is, which may go to identity.

Fraudulent, negligent and innocent

Fraud is a false statement made knowingly, without belief in its truth, or recklessly. The injured person may do the following. Affirm the contract and sue for damages for deceit. Repudiate, and use the fraud as a defence if sued on the contract. Sue or counterclaim for damages and for rescission. And recover property obtained by the fraud, giving back any benefit received.

Innocent misrepresentation, in the older sense of a statement the maker believed, gives rescission. Remedies for innocent misrepresentation sit beside that. Damages in lieu of rescission may be awarded where the statute allows the court to refuse rescission. A negligent misstatement can also sound in damages. The practical division is this: fraud points to the tort of deceit; a non-fraudulent inducing statement points first to rescission.

Rescission is lost if you affirm the contract after you know the truth, if you delay, if you cannot give back what you received, or if a third party has acquired rights in good faith. Clarke v Dickson is the warning that you must be able to restore what you got.

A statement that is also a term of the contract is dealt with in the terms chapter. Bannerman v White and Schawel v Reade are the cases where the court held the statement was a warranty, not a mere representation.