Misrepresentation

• Author: John D. McCamus
• Pages: 359-402

359

CHAPTER 10

MISREPRESENTATION

A. INTRODUCTION

When one party has induced another party to enter into an agreement

by making a material statement of fact that is false, a variety of reme-

dies may be available to the misrepresentee, both at common law and

in equity. The principal remedy is that of rescission, which, if available,

has the effect of unwinding or setting aside the agreement. The remedy

of rescission is available only if the parties to the agreement can be

restored to their initial position in the sense that there must be possi-

ble a giving back and a tak ing back of benef‌its received by both parties.

In this sense, the remedy is restitutionary in nature. The setting aside

of the agreement will be accompanied by restitutionary relief for both

parties. If the misrepresentation was made fraudulently, in the sense

that either the misrepresentor knew that the statement was false or

made the statement “recklessly and without care, whether it was true

or false, and not with the belief that it was true,”1 the resulting agree-

ment could be rescinded at common law. In equity, however, a decree

of rescission could be granted even in a case where the misrepresenta-

tion was innocently false in the sense that the misrepresentor did not

make the statement with fraudulent intent. The availability of rescis-

sion, however, is curtailed by the existence of a number of traditional

1 Redg rave v Hurd (1881), 20 Ch D 1 at 13 (CA) [Redgrav e v Hurd], Jessel MR.

THE LAW OF CONTR ACTS360

limitations or defences and, where such limitations apply, the misrep-

resentee may wish to pursue other forms of relief.

As well as or as an alternative to rescissionary relief, the misrepre-

sentee may in certain circumstances pursue claims for compensation

in tort. Where an agreement has been induced by a fraudulent misstate-

ment, the tort of deceit has been committed and the misrepresentee

will be entitled to recover compensatory damages. Although tortious

liability for fraudulent inducement of agreements has a lengt hy history,2

it was not until the latter part of the twentieth century that the tort of

negligence was extended to cover economic loss sustained as a result

of negligent misstatements.3 This form of liability was, in due course,

extended to embrace claims for injuries sustained as a result of enter-

ing into unattractive agreements induced by negligent misstatement.4

The measure of relief in tort extends to compensation for all losses

occasioned by the tortious misconduct and is thus more comprehen-

sive than the restitutionary relief that accompanies rescission of the

agreement.5

Before considering the various remedial alternatives available in

the context of misrepresentation, we turn to an account of the ele-

ments of operative misrepresentation and a consideration of the extent

to which non-disclosure of a fact may constitute misrepresentation in

the requisite sense. We will a lso consider the suggestion made by some

that a duty to disclose facts might be imposed where a standard of

good-faith conduct so requires.

B. THE ELEMENTS OF MISREPRESENTATION

In order to provide a basis for rescissionary relief, the misrepresenta-

tion must be a statement of present or past fact that is false. For these

purposes, statements of fact are distinguished from mere “sales talk,”

from statements of opinion or belief, from statements of intention or

promises and, under traditional doctrine at least, from statements of

law. Further, the fact that is misstated must be material to the decision

2 See, for example, Der ry v Peek (1889), 14 AC 337 (HL) [Derry].

3 Hedley Byrne & Co v Heller & Partne rs Ltd,[1964] AC 465, [1963] 2 All ER 575

(HL) [Hedle y Byrne].

4 Esso Petroleum Co v Mardon, [1976] QB 801 (CA) [Mardon]; Sodd Corp oration v

Tessis (1977), 17 OR (2d) 158, 79 DLR (3d) 632 (CA) [Sodd v Tessis].

5 For discussion of the d ifference between the rest itutionary and tort me asures of

relief, see Chapt er 1, Section C.

Misrepresentation 361

of the misrepresentee to enter the agreement and the misstatement

must serve as an inducement to the making of that decision.

1) Sales Talk

Vague and imprecise expressions or statement s puff‌ing or aggrandizing

the virtues of, for example, a seller’s product are not relied upon by a

reasonable purchaser. Such statements are mere sales talk, “puffery” or

“dealer’s talk” and not statements of fact that, if false, provide a founda-

tion for legal remedies. Thus, statements by a seller of land th at the land

is “improved”6 or is an “uncommonly rich” water meadow7 or “fertile

and improvable at moderate cost”8 or an exaggerated estimate of the

value of a crop produced by the land to be sold9 have all been held to

be mere sales talk that affords no ground for relief. In some cases, how-

ever, vague commendatory language from a seller who has privileged

information concerning the subject matter of the sale may be taken to

include an implicit statement of fact. Thus, the statement by a seller of a

used car that it was a “good little bus” was characterized as an implicit

statement of fact that the vehicle met a minimum standard of road-

worthiness.10 Similarly, the seller of a house who had acted as his own

contractor in building the home and who was aware of serious defects

in the construction was held to have made a misrepresentation when

describing the house as “well built.”11

2) Opinion

The distinction between statements of fact and statements of opinion

is similarly intended to exclude, as a basis for relief, statements upon

which the misrepresentee would not reasonably rely. Thus, where an

opinion is offered by someone who has no particular expertise in the

matter in question, the statement would be considered to be one of

opinion rather than one of fact. A reasonable person would not rely on

such an opinion. Thus, an estimate by a vendor of land who estimated

the sheep-bearing capacity of the land was held to have been a mere

6 Andronyk v Williams (1985), 21 DLR (4th) 557 (Man CA), leave to appeal to SCC

refused (1986), 42 Man R (2d) 242n (SCC).

7 Scott v Hanson(1829), 1 Russ & M 128, 39 ER 49 (Ch).

8 Dimmock v Hallett(1866), LR 2 Ch App 21.

9 Rasch v Horne, [1930] 3 DLR 647 (Man CA) [Rasch v Horne].

10Andrews v Hopkinson, [1957] 1 QB 229.

11Mariani v Le mstra, [2003] OJ No 750 (SCJ).