LAWS104 Study Guide - Final Guide: Richard Baggallay, Uberrima Fides, Specific Performance
25 Jun 2018
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VITIATING FACTORS –
MISREPRESENTATION
Misrepresentation
-Where statements made during pre-contractual representations are false, the innocent party has a right
to seek damages for breach of contract
-The innocent party may be able to terminate the contract depending upon whether the terms are
classified as conditions, warranties, or intermediate terms (a matter of intention)
Elements of misrepresentation
-The representation must be a statement of fact
-The representation must be false
-The representation must have been intended to induce and did induce the innocent party to enter into
the contract
The representation must be a statement of fact
-Advertising puffery cannot amount to misrepresentation
-A puff is a promotional statement that no reasonable person would believe to be a statement of fact
-Promises or assurances as to the future are not statements of fact for the purposes of misrepresentation
Balfour & Clark v Hollandia Ravensthorpe NL the purchasers of a house were induced into the purchase
on the basis of a statement made by one of three companies that operated as a group in the construction and sale
of homes. An agent of one of the companies told the purchasers that they would be able to borrow from a
stipulated building society in two years’ time when it was necessary to repay the third company. The agent was
deemed to have known that the purchasers would not be able to obtain the necessary loan in two years’ time
because of the purchasers’ combined income being too low to support the loan needed to refinance. The
purchasers sought to set aside the purchase of the house from the group of three companies. The court held that
the statement was a statement of fact and therefore amounted to misrepresentation as to the existing policy of
the building society and as to the agent’s state of knowledge of that policy
Edgington v Fitzmaurice a prospectus issued by a company seeking public loan moneys stated that the
money borrowed would be used on improvements to the buildings of the company and to extend the business.
Edgington lent money to a company by way of debentures on the basis of the statement contained in the
prospectus to discharge some of the company’s existing liabilities to other creditors. The court held that the
representation was false and was a misrepresentation of an existing fact
Smith v Land & House Property Corporation Smith, the owner of a hotel, sold it with the existing tenant
to Land & House. Smith stated that the tenant was ‘a most desirable tenant’. In fact, the tenant had to be
pressured to pay rent and prior to completion of the sale went into liquidation. Smith sought an order for specific
performance of the contract of sale to Land & House. Land & House defended the action on the basis that the
statement as to the tenant was a misrepresentation and that therefore specific performance should be refused and
the contract set aside. The court held that the statement was one of fact and ruled in favour of Land & House
The representation must be false
-The falsity of a statement generally requires some positive statement or conduct by the representor –
this may be as little as a nod, or a wink, or a shake of the head
There are some cases where there is a positive duty to disclose facts that are known
1. Contracts uberrimae fidei (contracts of utmost good faith) impose duties of disclosure of material facts
2. If a statement is only partially true or a distortion of the truth, the failure to disclose the whole truth
amounts to a misrepresentation
3. If a statement is made that is true at the time it is made, but because of changed circumstances becomes
untrue, the representor has an obligation to disclose the changes circumstances because the time at which a
representation is to be evaluated is when the representee enters into the contract
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