I. Introduction

1. The nature of a representation
a) A representation is a statement that is not intended to be a term of the contract, but nevertheless induces the other to enter into it. Whether a statement is a term or a representation is to be determined by the intention of the parties.
But, naturally, all the surrounding circumstances have to be considered.
Harling v. Eddy 1951 - a promise in relation to quality of the thing sold was considered a term.
Hopkins v. Tanqueray 1854 - a similar promise made the day before was treated as a representation.
b) When a statement is untrue (whether made innocently or not) it is called a 'misrepresentation'.
c) People are normally not bound to make representations, therefore only active misrepresentation can give rise to legal action; mere silence, even about known defects, does not normally amount to misrep: Ward v. Hobbs 1878
This rule is an application of the 'caveat emptor' principle.

2. General effects depend on whether misrepresentation is innocent or fraudulent.


II. Legal consequences of fraudulent misrepresentation

1. This constitutes the tort of deceit or fraud. The following requirements must be fulfilled:
a) False representation of fact:
aa) The fact must be past or present; a statement about the future will not suffice.
bb) It must be a fact, not an opinion.
cc) The representation can be implied from one's way of acting.
b) The defendant must have known about its falsehood, or must have acted recklessly, without the belief in its truth: Derry v. Peek 1889
Even gross negligence will not suffice for this.
c) The defendant must have intended that his false representation is acted upon. The mere telling of a lie will not make the liar responsible to the world at large, for the liar does not always intend that people shall act upon what he says.
d) The plaintiff must have acted upon the representation to his detriment. If he acts anyway, in the knowlege of the falsity of the statement, he won't have a claim.

2. Remedies
a) The contract is valid but voidable at the option of the person defrauded. If the misrepresentation has, however, produced an operative mistake, the contract will be void. The plaintiff must, within a reasonable time, either:
aa) affirm the contract; or
bb) repudiate the contract. This may take the form of actual notification to the other party or of taking such steps to bring it to the other party's attention as is reasonable in the circumstances.
Until repudiation is communicated, innocent third parties may acquire rights over the subject matter.
b) The person defrauded may recover damages.


III. Legal consequences of innocent misrepresentation

1. Every misrepresentation that is not fraudulent in the sense defined above, but consists of a false representation of fact that is acted upon, is considered innocent; it does not matter whether one was negligent or not.

2. The contract is voidable at the plaintiff's option, not void, unless it has produced operative mistake. The contract may be avoided until third parties have acquired rights over the subject matter.

3. Formerly, the remedy of rescission was not available once the contract was executed. The Misrepresentation Act 1967 provides that rescission - at the discretion of the court - is available even though the contract is executed. The courts may also award damages in lieu of rescission if they think it just.

4. Formerly, it was not possible to obtain damages, although equity gave a limited right to compensation. The MA 1967 provides that damages, if they would have been recoverable had the misrep been fraudulent, may be awarded. But the defendant will escape liability if he proves that he had reasonable ground to believe that it was all true (exculpation).

5. Under the Hedley Byrne rule as developed in Caparo Industries plc. v. Dickman 1990, the defendant may be liable in tort for negligent misrepresentation.


IV. Exclusion of liability for misrepresentation

According to the Unfair Contracts Terms Act 1967, any clause which purports to exclude or restrict liability for misrepresen-tation, or which seeks to exclude any remedy for it, is of no effect unless it is reasonable.


V. Contracts requiring positive disclosure

1. Contracts in which the parties are in a confidential relationship (i.e. solicitor-client), require full disclosure of all material facts relevant to them (equity).