LAW OF CONTRACTS: Your Sword, Your Shield 6

 

REMEDIES FOR MISREPRESENTATION

(A) RESCISSION

Car & Universal Finance v Caldwell [1965]

Facts

Caldwell sold his car to Norris.
The cheque was dishonoured when it was presented the next day. 

He immediately informed the police and the Automobile Association of the fraudulent transaction. 

Subsequently Norris sold the car to X who sold it to Y who sold it to Z who sold it to the plaintiffs. 

During the proceedings, one of the issues to be tried was whether the defendant's conduct and representations amounted to a rescission of the contract of sale. 

Holding
It was held that the contract was voidable because of the fraudulent misrepresentation and the owner had done everything he could in the circumstances to avoid the contract. 

As it had been avoided before the sale to the third party, no title was passed to them and the owner could reclaim the car.

 

Long v Lloyd [1958]

Facts

The defendant advertised for sale, a lorry, as being in 'exceptional condition' and he told the plaintiff purchaser that it did 11 miles to the gallon and after a trial run, all that was wrong with the vehicle. 

The plaintiff purchased the lorry and two days later, on a short run. 
Further faults developed and the plaintiff noticed that it did only about 5 miles to the gallon. 

That evening, he reported these things to the defendant and the plaintiff accepted the defendant's offer to pay for some of the repairs. 

The next day, the lorry set out on a longer journey and broke down.
The plaintiff wrote to the defendant asking for the return of his money. The lorry had not been in a roadworthy condition, but the defendant's representations concerning it had been honestly made. 

Holding
The Court of Appeal held that the plaintiff was not entitled to rescission of the contract as he had finally accepted the lorry before he had purported to rescind. 

The second journey amounted to affirmation of the contract.

 

Leaf v International Galleries [1950]

Facts

The plaintiff bought a painting after an innocent misrepresentation was made to him that it was by 'J. Constable'. 

He did not discover this until five years later and claimed rescission immediately.

Holding
The Court of Appeal held that the plaintiff had lost his right to rescind after such a period of time; delay defeats equity.

His only remedy after that length of time was for damages only, a claim which he had not brought before the court.

 

Armstrong v Jackson [1917]

Facts

A broker purported to buy shares for a client, but in fact sold his own shares to the client. 

Five years later, when the shares had fallen in value from nearly £3 to 5s, it was held that the client could rescind on account of the broker's breach of duty. 

He still had the identical shares and was able to return them, together with the dividends he had received. 

Holding
McCardie J. said:

"It is only... where the plaintiff has sustained loss by the inferiority of the subject-matter or a substantial fall in its value that he will desire to exert his power of rescission...
If mere deterioration of the subject-matter negatived the right to rescind, the doctrine of rescission would become a vain thing."

(B) INDEMNITY

Whittington v Seale-Hayne (1900)

Facts

The plaintiffs bred poultry and were induced to enter into a lease of property belonging to the defendants by an oral representation that the premises were in a sanitary condition. 

In fact the water supply was poisoned and the manager fell ill and the stock died. 

The terms of the lease required the plaintiffs to pay rent to the defendants and rates to the local authority and they were also obliged to make certain repairs ordered by the local council.
 
Holding
Farwell J rescinded the lease  and held that the plaintiffs could recover the rents, rates and repairs under the covenants in the lease but nothing more. 

They could not recover removal expenses and consequential loss (ie, loss of profits, value of lost stock and medical expenses) as these did not arise from obligations imposed by the lease (the contract did not require the farm to be used as a poultry farm). 

Had they been awarded, they would have amounted to an award of damages (ie, expenses resulting from the running of the poultry farm).

(C) DAMAGES

Doyle v Olby (Ironmongers) Ltd

Facts

After buying an ironmonger's business, things turned out to be very different from what the vendors had led the plaintiff to believe. 

Holding
He was awarded damages for fraudulent misrepresentations and the appeal concerned, among other things, the measure of damages. 

Lord Denning MR said that: "The defendant is bound to make reparation for all the actual damage directly flowing from the fraudulent inducement... It does not lie in the mouth of the fraudulent person to say that they could not have been reasonably foreseen."

 

East v Maurer [1991] 2

Facts

The defendant who owned two hair salons agreed to sell one to the plaintiffs. They were induced to buy, in part by a representation from the defendant that he hoped in future to work abroad and that he did not intend to work in the second salon. 

In fact, the defendant continued to work at the second salon and many of his clients followed him. 

The result of this was that the plaintiffs saw a steady fall-off in business and never made a profit. They were finally forced to sell for considerably less than they paid. 

Holding
The court at first instance found that the defendant's representations were false. The defendant appealed on the assessment of the award of damages.

The Court of Appeal held that the proper approach was to assess the profit the plaintiff might have made had the defendant not made the representation(s). 

'Reparation for all actual damage' as indicated by Lord Denning in Doyle v Olby would include loss of profits. The assessment of profits was however, to be on a tortious basis, that is, placing the plaintiff in the same position he would have been in, had the wrong not been committed.

The plaintiff could recover damages in respect of another such business in which he would have invested his money if the representation had been made, but not the profits which he would have made out of the defendant's business, if the representation relating to it had been true.

 

Royscott Trust Ltd v Rogerson

Facts

A car dealer induced a finance company to enter into a hire-purchase agreement by mistakenly misrepresenting the amount of the deposit paid by the customer, who later defaulted and sold the car to a third party. 

The finance company sued the car dealer for innocent misrepresentation and claimed damages.

Holding
The Court of Appeal held that the dealer was liable to the finance company for the balance due under the agreement plus interest on the ground that the plain words of the subsection required the court to apply the deceit rule. 

Under this rule the dealer was liable for all the losses suffered by the finance company even if those losses were unforeseeable, provided that they were not otherwise too remote. 

It was in any event a foreseeable event that a customer buying a car on HP might dishonestly sell the car.

Thank you for reading. I hope you have learnt a few things.

In my next write up, I shall move on to the other ways by which a contract may be terminated asides from misrepresentation.