Chapter 7Introduction to the law of contractperson misrepresents what he intends to do in the
future, he may be liable for misrepresentation.
It must be shown that the statement has induced the
person to whom it was made to enter into the contract.
If the person attempts to check the truth of what has
been said, he clearly has not relied on the statement.237
Edgingtonv Fitzmaurice(1885)The directors of a company invited members of the pub-
lic to lend money to the company. The directors stated
that the money would be used to improve the com-
pany’s buildings and extend the business. The directors’
real intention was to pay off the company’s existing
debts. It was held that the directors’ statement was a
fraudulent misrepresentation. As Bowen LJ put it: ‘There
must be a misstatement of an existing fact: but the state
of a man’s mind is as much a fact as the state of his
digestion. It is true that it is very difficult to prove what
the state of a man’s mind at a particular time is, but if it
can be ascertained it is as much a fact as anything else.
A misrepresentation as to the state of a man’s mind is,
therefore, a misstatement of fact.’A statement of opinion will not normally be action-
able as a misrepresentation because an opinion is a state-
ment of belief which is not capable of proof.
Bissettv Wilkinson(1927)During the course of negotiations for the sale of a farm
in New Zealand to Wilkinson, Bissett stated that the land
would support 2,000 sheep. The farm had not previously
been used for grazing sheep and Wilkinson knew this. It
was held that Bissett was merely expressing his opinion.
There was no misrepresentation.There are occasions when a statement of opinion may
amount to a representation of fact. If it can be estab-
lished that the person making the statement did not
hold that opinion or that he was in a position to know
the facts on which his opinion was based, there may be
an actionable misrepresentation.
Smithv Land and House Property
Corporation(1884)
The vendors of a hotel stated that it was ‘let to a
Mr Frederick Fleck (a most desirable tenant)’. In fact,
Mr Fleck was in arrears of rent. It was held that the de-
scription of Mr Fleck was not a mere expression of
opinion. The vendors were in a position to know the facts
about their tenant. Their opinion that he was a desirable
tenant was not supported by facts within their knowledge.Attwoodv Small(1838)The seller of a mine made exaggerated claims about its
earning capacity. The buyer appointed expert agents to
investigate the mine. The agents reported that the seller’s
claims were true and the sale went ahead. The House of
Lords held that an action by the buyer to rescind the
contract must fail because the buyer had relied on his
agents’ report rather than the seller’s statements.
Comment. If a person is given an opportunity to test the
accuracy of a statement, but he does not take it, he can
still bring a claim (RedgravevHurd(1881)).Kinds of misrepresentation and
their effects
There are three kinds of misrepresentation: fraudul-
ent, negligent or innocent. In each case, the contract is
voidable.
1 Fraudulent misrepresentation. A person will be
liable for fraud if he makes a statement which he knows
to be false, or he has no belief in its truth or he is reck-
less, careless whether it is true or false (Derryv Peek
(1889)). The injured party may rescind the contract and
also sue for damages for the tort of deceit. The assess-
ment of damages for a fraudulent misrepresentation was
discussed by the House of Lords in the following case.Smith New Court Securities Ltdv
Scrimgeour Vickers(1996)
The claimant, Smith New Court, was induced by a fraud-
ulent misrepresentation made by the defendants’
employee to buy shares in Ferranti at 82.25p per share.
At the time of purchase, the shares were trading at about
78p per share. Unknown to either party, the shares were
grossly overvalued because Ferranti was the victim of a
fraud totally unconnected with the current case. When
the fraud became known, the price of the shares
slumped. The question for the court was whether the
claimant could recover the difference between the price
it had paid (the contract price) and the market price
(4.25p per share) or the difference between the contract
price and the value of the shares had it known of the