Misrepresentation

Misrepresentation is when one of the parties to a contract made a wrong statement about some material element of the contract and, because of this statement, the other party entered into the contract. Contract common law treats fraudulent misrepresentation differently from innocent misrepresentation. In his book The Law of Contracts in Canada, 1994, p. 295, Professor G. Fridman says there are four conditions that must be met before a court will accept that there has been fraudulent misrepresentation:

"(1) that the representations complained of were made by the wrongdoer to the victim (before the contract); (2) that these representations were false in fact; (3) that the wrongdoer, when he made them, either knew that they were false or made them recklessly without knowing whether they were false or true; and (4) that the victim was thereby induced to enter into the contract in question (a legal presumption exists in this regard)." (emphasis added)

Notice that the courts will not entertain a request to rescind a contract if the representation was merely a puffed-up opinion on a particular product. Parties should know better than to give full credence to commercial aggrandizements. Nor will a misrepresentation on the law be a cause for judicial intervention under this heading, and for the same reasons as given above: everyone is presumed to know the law. Silence can be construed as misrepresentation in certain circumstances.

Redgrave v. Hurd (1881)	A lawyer agreed to buy a law office from another based on exaggerated representations made on the value of the practice. When the practice proved to be "utterly worthless", the purchasing lawyer sued for rescission of the contract. The court allowed the rescission saying: "If a man is induced to enter into a contract by a false representation it is not sufficient answer for him to say, "If you had used due diligence you would have found out that the statement was untrue. You had the means... of discovering its falsity, and did not choose to avail yourselves of them.""
Smith v. Land and House Property Corp. (1884)	A leased property was sold on the representation that the tenant was "a most desirable tenant." Turns out the tenant had been defaulting on his rent and before the deal was closed, actually filed for bankruptcy. The purchaser asked the court to rescind the contract and the court agreed. Where the facts are equally known to both parties, then representations between the parties are mere opinions. But representations become "material facts" where the facts are not equally known, as was the case in this situation ("statements on a subject as to which prima facie the vendors know everything and the purchasers nothing").
Bank of British Columbia v. Wren Developments Ltd. (1973)	A corporate secretary renewed a personal guarantee on a company loan on the belief that collateral deposited as security when the guarantee was first signed, was still with the bank as security. It was not, having been released by the bank to the company president. "When he signed the second guarantee, (defendant) was misled by the words, acts and conduct of the plaintiff into believing that there had been no change in the collateral securities held by the plaintiff, and otherwise he would not have signed it. Defendant is not liable to the plaintiff."
Kupchak v. Dayson Holdings Ltd. Kupchak (1965)	Properties were exchanged between the parties including a motel. When the new owner of the motel found out that the stated past earnings of the motel were false, he sued for rescission of the contract. The court found that there was fraud and went on to say that rescission is a equitable remedy and while it is true that a court, under equity, cannot award damages as such, it can order one party to pay compensation to the other. The court preferred to order compensation because the party that had committed the fraud had already made permanent changes to the real property they had acquired by the contract. On the defence of laches, the court stated that this is feasible where "the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted.... Two circumstances, always important in such cases, are the length of the delay and the nature of the acts done during the interval." The court denied the defence of laches because several lawyer letters had transpired (in spite of long delays between those letters) and the institution of court action.
Redican v. Nesbitt (1924)	A house was sold without prior inspection. The keys were exchanged for the cheque and when the purchaser saw the property for the first time, ordered a stop-payment on the cheque. The vendor sued for payment and the purchaser defended by suing for rescission. "Innocent misrepresentation (i.e non-fraudulent but such as renders the subject of sale different in substance from what was contracted for), such as will support a demand for rescission in equity... will serve as a good equitable defence to a claim for payment under contract as well as afford ground for a counter-claim for rescission." The court first decided that the property did not differ to that extent from the representations made about it. Considering the circumstances of the case, notwithstanding that the cheque was stopped, the contract was executed (for innocent misrepresentation (i.e. non-fraudulent), rescission is not possible where the contract has been executed).
Heilbut, Symons & Co. v. Buckleton (1913)	A company underwriting a new share offering was contacted by a client and was asked if the new company was "alright." The underwriter replied that "we are bringing it out," from which the client implied a warranty. When the shares did not do well, the client sued based on fraudulent misrepresentation. The court could not find a collateral contract related to the character of the new company. The courts said these contracts are very rare, will be interpreted strictly and one must show animus contrahendi (i.e. an intention to contract) on the part of all parties to them. In order to succeed, the plaintiff must prove fraudulent misrepresentation "or what is equivalent thereto, must be made recklessly, not caring whether it be true or not."
Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. (1965)	Harold sold Dick a car saying that it only had 20,000 miles since major repair. Harold bought the car. Turns out the car had done much more then 20,000 since the last major repair. The court said: "An affirmation at the time of sale is a warranty, provided it appear on evidence to be so intended.... The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that would suffice." In this case the representation was made for the purposes of inducing the sale. The court said that it was thus prima facie ground for inferring that the representation was intended as a warranty. It is not necessary to speak of it as "collateral." The court went on to say that the defendant could rebut this presumption by showing that his representation was innocent. In this case, the vendor made the statements without checking them out and so the representations were not innocent.
Leaf v. International Galleries (1950)	A gallery sold a painting representing it as being done by a famous painter. Five years later, while trying to resell the painting, the purchaser found out that it was not done by that painter. The vendor honestly believed the identity of the painter to be that which he had represented. The plaintiff sued for rescission of the contract but his claim was denied because for five years he had held on to the painting without rejecting it.

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