It is a question concern the law of contracts in particular, the law of misrepresentation.
It is my objective to identify the difficult concept of different kind of misrepresentation and analyze why it is problematic.
Misrepresentation is a false statement designed to encourage the other party to enter a contract. To prove a statement to be a misrepresentation, 7 essential conditions must be satisfied:
1.A statement must be made by word or conduct.
2.The statement must be factual.
3.The statement must be false.
4.The offeree must have reasonable relied on the statement.
5.The offeree must have been misled by the statement.
6.The statement must be material to the contract.
7.The statement must be a factor in including the offeree to enter a contract.
In the law of misrepresentation, there are three kinds of misrepresentation.
Fraudulent misrepresentation can be illustrated by Polaroid Far East Ltd. v Bel Trade Co. Ltd. (1990), where BTC, who was offered a special discount price by promising not export or re-export their product, re-exported PFELs films to North America and Europe. It was held that BTC had devised a deliberate scheme to buy film at a lower price and to re-export it, and were liable for fraudulent misrepresentation.
Fraudulent misrepresentation simply means a person deliberately tells a lie.
A person will be liable for negligent misrepresentation when the person making a misrepresentation has no reasonable grounds for believing that what he said is true. The concept is well illustrated by Esso Petroleum Company Ltd. v Mardon. In this case, the plaintiff leased a service station from the defendant after being told of the expected petrol sales from the site where the estimation was found to be overstated. It was held that the defendant could recover damages for the substantial financial loss he suffered as a result of the negligent misrepresentation.
Misrepresentation question involve two difficult concept:
1.whether it is mere representation or the term of contract,
2.whether the person made representation have reasonable belief on what he said.
Mere representation or the term of contract:
A representation is a statement of fact that induces or persuades a person to enter into a contract. If the representation proves to be untrue, it may constitute a misrepresentation and affect the validity of the contract. A term of contract contains a promise that is an integral part of the contract.
A broken contractual promise amounts to breach of contract. While term of a contract may be of a promissory nature, the concept of a representation is limited to statement of facts. The remedies for false representations are, therefore, different from that for breach of terms. The distinction between a representation and a term of contract is problematic for the
reason that the intention of the parties towards a statement is hard to determine.
In the case of Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd. (1965), the dealer of motor vehicle wrongly stated (innocently) that the car had traveled 20000miles while in fact it had traveled almost 100000 miles.
It was held that the statement was a term as the representation was made for the very purpose of inducing the other party to act on it. The above case shown that the intention of making a statement is difficult to prove and the judges may need some guidelines and critical minds to determine the truth.
Reasonable belief or not:
In the course of misrepresentation, whether a person have reasonable belief in the false statement he made is crucial as it help to determine whether it is fraudulent misrepresentation or not and the remedies vary. In Howard Marine and Dredging Co. Ltd. v A.
Ogden & Son (Excavations) Ltd. (1978), the plaintiffs that represented the capacity of two barges was some 1600 tones while the actual capacity was some 1055 tones shown in shipping documents was liable for negligent misrepresentation instead of fraudulent misrepresentation although the plaintiffs were aware of the actual figure in advance. It is because Lloyds Register, which have leading role in shipping industry. .