When an individual makes statements that have the purpose of inducing an individual to enter into a contract, then a representation (a convincing statement) and possibly a warranty (a guarantee of a period of fitness, or some other quantity) will exist. The statements that are made when negotiating a contract are legally binding.
Innocent Mistakes
When a contract is entered into, misrepresentation of the contracted-for item will allow an individual to successfully sue for damages only under certain circumstances. Fraudulent misrepresentation will hold in court only if the defendant can prove that the plaintiff had the intent to misrepresent or if the defendant acts in a reckless and careless manner in which the defendant, under normal circumstances, should know that the information had been misrepresented.
Heilbut, Symons & Co v Buckleton [1912] UKHL 2 stands as precedent for this. In that case, Heilbut, Symons & Co (Heilbut) were rubber merchants who were underwriting shares of what Buckleton assumed was a rubber company. Buckleton inquired about the shares and was told by an agent that we are bringing out a rubber company. Buckleton purchased a large number of shares in the company. However, the shares were not for a rubber company and the shares performed poorly. Buckleton sued for breach of warranty.
The court found that the agent for Heilbut had warranted that the company would be a rubber company but that this misrepresentation had neither been fraudulent, nor had it resulted from careless and reckless actions. The agent had believed that Heilbut was in fact unwriting shares for a rubber company. The court found that because the agent had made an innocent misrepresentation, Heilbut was not liable for damages. Heilbut would be bound to a contract if there was an intentially fraudulent misrepresentation. This and thus Buckleton was not awarded damages resulting from his purchase. If there is an innocent misrepresentation by a party, then the contract entered into by the parties can be rescinded. You cannot receive damages that result from innocent misrepresentation.
Misleading Statements
If misrepresentations are made, whether innocently made or not, the misrepresenting party can be held liable for damages. When determining whether misrepresentations will lead to damages, the court will look at.
If misrepresentations are made, whether innocently made or not, the misrepresenting party can be held liable for damages. When determining whether misrepresentations will lead to damages, the court will look at the intention of the parties when entering into the contract.
The words and behavior of the parties will be analyzed. The court will use an objective test to determine the intent of the parties; if, for example, a representation is intended to be acted upon and lead to a contract, then it is a warranty.
If, for example, a seller, who should have extensive knowledge of the item being sold, misrepresents the item sold, then the buyer may be able to recover damages. Consider Bentley (Dick) Productions v. Harold Smith [1965 CA] in which the plaintiff (Bentley) purchased a car from the defendant (Smith). Following the purchase, Bentley discovered that the car had been driven much farther and required further repairs. Bentley’s purchase replied on the representation that the car had only travelled 20,000 miles since being refitted with a new engine and gearbox.
Bentley successfully issued an action for breach of the warranty that the car would be fit for use for some time to come (on the basis that, with only 20,000 miles of wear and tear, the car was implicity warranted to be in good driving condition for the foreseeable future this was held by the court to be the warranty). The court found that there was a prima facie representation made in the course of the agreement. More importantly, the court stated that the representation had been made for the purpose of inducing Bentley into the contract. The court concluded that the representation included a warranty and subsequently awarded Bentley damages worth £400.
The foregoing issues can be avoided by clearly stating the length of the warranty period and avoiding the use of metaphorical language or untrue representations of product fitness.