Deck 5: Misrepresintation and Non-Disclosure

Question 1

Every misrepresentation can give rise to an action for damages.

Answer 1

False

Question 2

Aquafun Co is looking to purchase a new swimming pool complex to expand its operations into South West England. After a long search, a complex built in 1970, owned by Waterplanet, is found. Aquafun has the premises examined and everything seems fine. After the property is purchased, the city building inspector sees that the water pipes are completely rusted and will have to be replaced. Waterplanet was aware of this, but, as Aquafun never inquired as to the general soundness of the pipes, Waterplanet never informed them of the defects. Can the contract be rescinded for misrepresentation?

A) Yes, a seller must have 'clean hands' if he wishes to contract. Waterplanet is required to disclose all material facts that are of relevance to Aquafun.
B) Yes, Waterplanet was aware of the defects and by not saying anything misrepresented itself through silence.
C) No.

Answer 2

C

Question 3

Mick buys a suit in a clothing shop owned by Fred for £200. Which of the following statements made by Fred entitles Mick to rescind the contract if all the other requirements for an actionable misrepresentation are fulfilled?

A) 'Our suits will make you look like a millionaire.' When Mick wears his suit to work the next day, his colleagues deride him for wearing such a cheap looking suit.
B) 'I don't see why you couldn't use this suit to go deep sea diving.' Mick is an avid deep sea diver and wants to wear the suit to propose to his fiancée under water. The shoulder pads of the suit make it impossible to close the harness of the oxygen tank properly.
C) 'This suit's the last one of its kind, the manufacturer has decided to stop making them.' Fred has only heard a rumour that this would be the case. In fact, it was spread by another manufacturer to enhance his sales. Because he is told this, Mick decides to buy the suit immediately rather than shop around.

Answer 3

C

Question 4

Surry plc, an investment bank, has received a prospectus from Innovatrix Ltd, an internet start-up which provides music downloads to registered customers. On the basis of the prospectus, Surry plc decides to purchase £20,000 worth of shares in Innovatrix. For which of the following statements contained within the prospectus will Surrey not be able to rescind the contract for misrepresentation?

A) 'With the revenue collected from the sale of these shares, Innovatrix plans to expand its facilities in Northhampton.' Actually, it intends to use the money generated by the sale of shares to pay off existing debts.
B) 'With the funds generated from the sale, we will be switching to a more advanced server. This will mean an additional 10,000 users will be able to access our site daily.' This is what the server has informed them. The actual capacity will be only 5,000, meaning a serious drop in advertising revenues.
C) 'Recent judgments in foreign jurisdictions have exonerated websites offering free music downloads. Innovatrix will be able to offer downloads at next to nothing.' A month later, a judgment in the Court of Appeal finds a similar enterprise guilty of copyright infringement and orders it to cease operations and pay damages.
D) This coming year, Innovatrix plans to expand its services to include the free downloading of movies, an area which promises significant returns to investors.' That year Innovatrix has frequent problems with its server crashing because too many people are downloading music. They decide to abandon their plans to expand to movies.

Question 5

Consider the following two statements.
I)A misrepresentation can be made by both words and conduct.
II)A representee, who is given an opportunity to investigate the truth of a statement by the representor, but does not take it, may nevertheless be able rescind the contract for misrepresentation if the statement proves to be false.
Which of these statements is true?

A) Both I and II.
B) Only I.
C) Only II.
D) Neither I nor II.

Question 6

Realex Ltd is active in commercial real estate and is looking to buy several properties for different purposes. Realex makes three purchases in the span of a week. In which of the following scenarios can the contract be rescinded for misrepresentation?

A) A car dealership. Realex wishes to turn the building into a supermarket and asks Hannah, its current owner, whether that would be possible. Hannah replies that that wouldn't be a problem, although the building has never been used for retail purposes before.
B) A hotel. Realex wishes to let it as luxury apartments. Geoffrey, a lawyer and its current owner, is asked whether any planning permission would be needed before doing so and he replies 'not to my knowledge', although he has never bothered to check.
C) A restaurant owned by Yolanda. A year prior to the sale, the interior was completely redecorated. In the process of those redecorations, the contractor unknowingly painted over and concealed dry rot in the walls near the lavatories. Realex decides to renovate the interior and discovers the dry rot.

Question 7

According to section 2(1) of the Misrepresentation Act (MA) 1967: 'Where a person has entered into a contract after a misrepresentation …, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently ...'. This is known as the 'fiction of fraud'. A number of advantages flow from this fiction for the representee when compared to the action for damages for negligence at common law. Which of the following statements is false?

A) The basic measure of damages recoverable for misrepresentation is the tortious or reliance measure. Damages awarded on the fiction of fraud also include loss of opportunity to make other profitable contracts.
B) While damages for common law negligent misrepresentation are limited to that which was foreseeable by the other party, damages awarded on the fiction of fraud are not limited by remoteness. All losses flowing from the misrepresentation are recoverable, even if they were not foreseeable by the representor.
C) While damages for negligent misrepresentation can be reduced if the loss was partly the representee's fault, damages awarded on the fiction of fraud are completely immune to contributory negligence.
D) Where the representee is induced to buy property through misrepresentation, the starting point for an award is the difference between the price paid and the market value of the property at the time the contract was made. Damages awarded on the fiction of fraud can also take into account the fall in the value of the property after the time of the contract was made.

Question 8

Section 2(2) of the Misrepresentation Act (MA) 1967 provides the courts with the means to award damages in lieu of rescission. Which of the following statements is false?

A) Damages in lieu of rescission cannot be awarded where the misrepresentation was made fraudulently.
B) Damages in lieu of rescission cannot be awarded where an innocent third party has acquired property rights in the subject matter of the contract for value.
C) A court may award a representee damages under section 2(2) simultaneously with an award of damages under section 2(1) MA.
D) Damages in lieu of rescission are measured according to the moneys-worth of actual rescission of the contract.

Question 9

Liability for misrepresentation cannot be contractually excluded.

Question 10

Wesley has decided to sell his IT business and retire. Before buying the business, Francine inquires about recent industrial action taken by the employees in the warehouse and asks whether all labour disputes have been finally settled. Wesley informs her that all disputes have been settled, but forgets to mention that the employees in the software lab have been considering taking industrial action after the successes of their colleagues in the warehouse. To avoid liability in the event the software technicians strike, Wesley is considering inserting a clause into the contract. According to section 3 MA, terms which exclude or restrict liability or the available remedies for misrepresentation, 'shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977'. With which of the following clauses could Wesley evade the application of section 3?

A) 'The buyer has not relied on any statements made by the seller.'
B) No error, misstatement or omission in any preliminary answer shall entitle the buyer to annul the sale.'
C) 'This agreement contains the entire agreement and understanding between the parties respecting the subject matter hereof and supersedes and cancels all previous negotiations, agreements, commitments and writings in respect thereto.'
D) None of the options given is correct.