Briefing Document: Vitiating Factors - Misrepresentation

Subject: Contract Law: Misrepresentation as a Vitiating Factor

Source: Vitiating factors

1. Introduction: Vitiating Factors

 A contract, even with offer, acceptance, and consideration, may be non-binding if "at the time
the contract was made, certain factors were present which mean there was no genuine
consent." These are called "vitiating factors" because they invalidate consent. This document
focuses on one such factor: misrepresentation.

2. Definition of Misrepresentation

 A misrepresentation is "an untrue statement of fact by one party which has induced the other to
enter into the contract." (Thomas Sinkala v Engen Petroleum Zambia CAZ Appeal 208/2019)

3. Elements of an Actionable Misrepresentation

For a misrepresentation to be actionable, the following requirements must be fulfilled:

 Untrue Statement: "There must be an untrue statement." This statement must be made by the
other party or their agent. It can be spoken, written, or conveyed by conduct.

 Statement of Fact: "It must be a statement of fact, not mere opinion."

 Example of opinion not being misrepresentation: Bisset v Wilkinson [1927] AC 177 where a
vendor's judgement on sheep carrying capacity was not held as misrepresentation.

 A statement of future intention is generally not a misrepresentation unless it can be proven the
representor never intended to fulfill it Edgington v Fitzmaurice (1885) 29 Ch D 459

 Inducement (and Reliance): "It must have induced the innocent party to enter the contract."
The statement must be at least one of the reasons the party entered the contract and the party
must have relied on it. The statement must pre-date or coincide with contract formation.

 There is no reliance if the representee was not aware of the misrepresentation or relied on their
own judgement instead of the statement made. Attwood v Small (1838) 6 CI & F 232

4. Untrue Statement - Silence and Exceptions

 Generally, "Silence will generally not amount to a misrepresentation since no statement has
been made." Smith v Hughes (1871) LR 6 QB 597

 Exceptions where silence can be Misrepresentation:(i) Statement Subsequently Becomes

False: If a statement, true when made, later becomes false due to a change of circumstances,
there's a duty to disclose the change. With v O’Flanagan [1936] Ch 575

 (ii) Half-Truths: Misleadingly telling only part of the truth can be a misrepresentation.
  (iii) Contracts Uberrimae Fidei (Contracts of Utmost Good Faith): These contracts (e.g.,
insurance) require disclosure of all material facts where one party is in a strong position to know
the truth.

 (iv) Fiduciary Relationships: Relationships like parent/child, solicitor/client, trustee/beneficiary,

and principal/agent impose a duty to disclose important facts.

5. Statement of Fact vs. Promise

 A promise is a statement accepting an obligation to do something. A representation asserts the

truth of a fact and invites reliance. "A representation on the other hand is a statement which
simply asserts the truth of a given state of facts."

6. Types of Misrepresentation

 Fraudulent Misrepresentation: Defined in Derry v Peek (1889) 14 App Cas 337 as a false
statement made (i) knowingly, (ii) without belief in its truth, or (iii) recklessly, careless as to
whether it is true or false.

 Negligent Misrepresentation (Common Law): Established in Hedley Byrne & Co Ltd v Heller &
Partners Ltd [1964] AC 465. Requires a "special relationship" where the maker of the false
statement has relevant knowledge/skill and can reasonably foresee the other party relying on it.
Esso Petroleum v Mardon [1976] QB 801 exemplifies this.

 Negligent Misrepresentation (Statute): Covered by Section 3(1) of the Misrepresentation Act

Cap 69 of the Laws of Zambia. A person can be liable for damages even if the misrepresentation
was not made fraudulently.

 Innocent Misrepresentation: Misrepresentations made entirely without fault. The party can
avoid liability by proving they had reasonable grounds to believe the statement was true.

7. Remedies for Misrepresentation

 The contract is voidable, not void. The representee can choose to affirm or rescind the contract.

 Rescission: "Rescission is an equitable remedy, which sets the contract aside and puts the
parties back in the position they were in before the contract was made." Available for all four
types of misrepresentation.

 Bars to Rescission:Impossible to Return to Pre-Contractual Position (Restitutio in Integrum

Impossible): If the parties cannot be restored to their original positions. Vigers v Pike (1842) 8 CI
& F 562

 All or Nothing (Partial Rescission is Not Possible): De Molestina v Ponton Victim can rescind
whole contract, but not part of one.

 Third Party Rights: Rescission is not possible if a third party has acquired rights under the
contract. Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 is an example where
attempting to notify authorities sufficed as rescission.
  Affirmation: If the innocent party, aware of the misrepresentation, indicates an intention to
continue with the contract. Long v Lloyd [1958] 1 WLR 753

 Lapse of Time: If an unreasonable time has passed, the right to rescind is lost. Time starts
running when the fraud is discovered for fraudulent misrepresentation; otherwise, it runs from
the date of the contract. Leaf v International Galleries [1950] 2 KB 86

 Indemnity: A payment ordered by the courts to put the parties back in their former positions.
This is not damages, but for obligations necessarily created by the contract. Whittington v Seale-
Hayne (1900) 82 LT 49

 Damages: Available in certain circumstances, especially where rescission and indemnity are
insufficient.

8. Damages for Fraudulent Misrepresentation

 The aim is to put the claimant in the position they would have been in had the tort not been
committed. Damages are not limited to what was contemplated by the parties. Doyle v Olby
(Ironmongers) Ltd [1969] 2 QB 158

9. Excluding Liability for Misrepresentation

 It is impossible to exclude liability for fraudulent misrepresentation. Pearson & Son v Dublin
Corporation [1907] AC 351, 353

 Liability for other forms of misrepresentation is regulated by the Misrepresentation Act.

End of Briefing Document