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Misrepresentation in Contract Law

Assignment Brief

Using your research and knowledge of Misrepresentation , you are required to produce a written assignment, of approximately  2000 – 2500 words, that addresses the following:

  • A demonstration of your understanding of the rules using relevant statutes and/or case law. (LO 1)
  • An evaluation of the advantages and disadvantages of Misrepresentation. (LO 3)
  • An identification and analysis of any suggestions for the reform of Misrepresentation. (LO 3)

Based on the following case study – complete the tasks that follow the scenario.

Amina recently had the following experience.

Amina collects Rolex watches and is determined to have a full set from 1950 onwards. She is currently

missing a watch made in 1962, 1968 and 1973.

She sees an advert in an on-line auction house for a ‘1968 man’s Rolex watch, immaculate condition’, starting bid about £5,000. She is very excited by this and immediately offers to buy the watch for £6,000. She asks, however, for confirmation about the date of the watch.

The auction house emails Amina back, accepting her offer of £6,000 but stating that they think it is a 1968 watch as there is a receipt with the watch showing the initial purchase of it from a shop in Paris. The receipt is dated 14 April 1968.

Amina duly buys the watch. As soon as she gets it, she does full research on it and is devastated to find that it is a 1966 watch.

Tasks

  1. Explain the key rules and cases that are relevant to Amina claiming damages from the on-line auction house so that she can recover the full £6,000 and from the emotional stress.  (LO 1)

  2. Explain how the Courts would apply the rules in order to decide if Amina suffered a breach of contract.  (LO 2)

  3. Analyse any relevant case law and statutes that may apply to Amina.  (LO 2)

  4. Describe any vitiating factors that may have an invalidating effect on this otherwise well-informed contract.  (LO 2)

Sample Answer

Misrepresentation in Contract Law

Introduction

Misrepresentation is one of the key doctrines in contract law that protects parties from being misled during the formation of agreements. It occurs when one party makes a false statement of fact that induces another to enter into a contract. The consequences can be serious, allowing the injured party to rescind the contract or claim damages. This essay explores the rules of misrepresentation, its advantages and disadvantages, and potential areas for reform. It then applies these principles to the case of Amina, who purchased a Rolex watch under false information from an online auction house. Through analysis of relevant statutes and case law, the essay evaluates Amina’s legal options and explains how the courts would likely resolve her dispute.

Application to Amina’s Case

In Amina’s situation, the auction house advertised a “1968 man’s Rolex watch” but later admitted they only thought it was from 1968 based on a receipt. The watch was later confirmed to be from 1966. Amina relied on this statement when offering to purchase the item for £6,000.

This situation clearly involves a false statement of fact, the year of manufacture. The representation was material, as Amina’s decision to buy the watch depended entirely on its being a 1968 model. Therefore, the elements of misrepresentation are satisfied.

Relevant Case Law

In Smith v Land and House Property Corp (1884), the court held that a statement presented as opinion could amount to a statement of fact if the representor is in a better position to know the truth. Similarly, in Amina’s case, the auction house had access to the product and documentation, placing them in a better position to verify its date. Their claim that it was a 1968 model, even if couched in uncertainty, could therefore amount to misrepresentation.

The case of Esso Petroleum Co Ltd v Mardon (1976) also supports this reasoning. Esso’s estimated sales figures were treated as negligent misrepresentation because the company’s expertise gave the buyer the impression that the figures were reliable. Likewise, Amina trusted the auction house’s professional expertise.

Remedies and Damages Available to Amina

Rescission

The primary remedy for misrepresentation is rescission, which sets aside the contract and restores the parties to their pre-contract position (Car and Universal Finance Co v Caldwell [1965]). Amina could therefore demand that the contract be rescinded, returning the watch in exchange for her £6,000.

However, rescission is barred if it is impossible to restore the original position, if third-party rights intervene, or if the claimant affirms the contract. Since Amina acted quickly upon discovering the misrepresentation, rescission should remain available.

Damages

Under section 2(1) of the Misrepresentation Act 1967, damages for negligent misrepresentation are calculated as if the representation had been made fraudulently, as confirmed in Royscot Trust Ltd v Rogerson (1991). This means Amina could claim the full £6,000 she paid, as well as potentially additional compensation for consequential loss, such as emotional distress, if she can prove it was foreseeable.

While emotional distress is rarely compensated in contract law, exceptions exist where the contract’s purpose includes peace of mind (Jarvis v Swan Tours Ltd [1973]). Though Amina’s case concerns a purchase, the emotional significance of her collection could arguably support a minor claim for non-pecuniary loss.

Continued...

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