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Misrepresentation

GENERAL
A Statement can include conduct
Gordon v Selico Co Ltd
Facts
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The C sought buy of a flat from the D

The D knew that the flat was in bad condition and had dry rot

The D arranged for the dry rot to be painted over. At the time of viewing the
flat no dry rot was evident.

Held
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Whether the covering up of the dry rot with fresh paint amounted to a
statement

D had taken a positive action in employing the painters to cover up the dry rot

This amounted to deliberate concealment which amounted to


misrepresentation

Implied representations as to a present intention


Crystal Palace Football Club (2000) Ltd. v Dowie
Facts
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A football club hired a manager

Held
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The claimant must prove that the defendant has made a clear representation of
present fact. But the representation may be either express or implied from
conduct

A half truth may amount to deceit if it is suggestive of a falsehood and


intended so to be.

A representation by the defendant of his present intentions may be a sufficient


representation of an existing fact to found a claim in deceit. Whether a person
does, or does not, intend to act in a certain way is a question of fact. So a
statement as to the future may imply a statement as to present intention.

A defendant who has made a statement that was true at the time it was made is
bound to correct it if, after it is made, but before the parties enter into the

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contract in question, the statement is falsified by events to the defendant's
knowledge. A representation is said to be continuing.
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The representation is deemed to be repeated throughout the interval between


the time when it is made and the time when it is acted upon.

Promises v Representations
Kleinwort Benson Ltd. v Malaysia Mining Corporation Berhad
Facts
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The C bank agreed with the Ds to make a loan facility of up to 10m available
to the Ds wholly owned subsidiary which traded tin.

As part of the arrangement the Ds furnished to the C two letters of comfort


each of which stated that "it is our policy to ensure that the business of
[subsidiaries are] at all times in a position to meet its liabilities to you under
the loan facility arrangements."

In 1985, the tin market collapsed and the subsidiary went into liquidation
owing the C bank the whole loan.

The C sought payment from the Ds who refused to pay.

The C brought an action against them, and the trial judge held that the C was
entitled to recover.

Held
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Allowing the appeal, that a letter of comfort from a parent company to a


lender did not have contractual effect if it was merely a statement of present
fact regarding the parent company's intentions and was not a contractual
promise as to the parent company's future conduct.

On the facts, the letter of comfort was in terms a statement of present fact and
not a promise as to future conduct and in the context in which the letters were
written was not intended to be anything other than a representation of fact
giving rise to no more than a moral responsibility on the part of the defendants
to meet the subsidiarys debt.

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PART A
Definition of an Operative Misrepresentation

An operative misrepresentation is an unambiguous, untrue statement of fact or law which is


made by one contracting party referred to as the representor.

This untrue statement of fact or law is made to the other party to the contract who is referred
to as the representee.

There must be:


1. An untrue statement of fact and,
2. Evidence that the untrue statement of fact induced one contracting party to enter into
the contract

1. Untrue Statement
a. Mere puff
Dimmock v Hallet
Facts
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An estate was about to be auctioned off to discharge a debt to a


mortgagee.

The estate included three parcels of land on of which was the Bull
Hassocks Farm.

The advertisement for the auction described the Bull Hassocks Farm as
having "fertile and improvable land", and described in the particulars
that each parcel was let out to paying tenants.

However, it was not mentioned that the tenants had, by the time of the
auction, already given notice to quit the property.

The eventual buyer, Mr Dimmock, sought rescission of the contract for


misrepresentation (among a number of other grounds).

Held
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Although the statement about the land being "fertile and improvable"
was merely a "flourishing description" and did not entitle the buyer to

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rescind, telling only a half truth about the tenants constituted good
grounds for unwinding the contracts.
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Land is fertile: A mere general statement that land is fertile and


improvable, whereas part of it has been abandoned as useless, cannot,
except in extreme casesas, for instance, where a considerable part is
covered with water, or otherwise irreclaimablebe considered such a
misrepresentation as to entitle a purchaser to be discharged. In the
present case, I think the statement is to be looked at as a mere
flourishing description by an auctioneer.

A vague statement as that the land in course of time may be covered


with warp, and considerably improved at a moderate cost, puts a
purchaser on inquiry, and if he chooses to buy on the faith of such a
statement without inquiry, he has no ground of complaint.

Tenants rent: Even the representation that the farm had been let to
Hickson at 290 15s. was not correct. He had occupied it for a year and
a quarter, paying only 1 for the first quarter; and this took place at a
time of year when the occupation must have been beneficial; for the
farm contained about 150 acres of pasture, which Hickson thus held at
a nominal rent from Midsummer to Michaelmas. I am of opinion,
therefore, that the particulars contain representations which were
untrue, and calculated materially to increase the apparent value of the
property. The Court requires good faith in conditions of sale, and looks
strictly at the statements contained in them.

Tenants quitting: There is no reference made in the particulars to the


fact that each of these tenants had given a notice to quit, which would
expire at Lady Day. The purchaser, therefore, would be led to suppose,
as to these farms, that he was purchasing with continuing tenancies at
fixed rents, whereas he would, in fact, have to find tenants immediately
after the completion of his purchase. I refer particularly to this, because
as to some of the other farms it is stated in the particulars that the
tenants had given notice to quit; so that the purchaser must have been

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led to believe that the tenants of the other lots were continuing. This
again, as it seems to me, is a material misrepresentation.

With v OFlanagan
Facts
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During the course of negotiations for the sale of a medical practice, the
vendor made representations to the purchaser, about the existing nature
of the practice which, by the time when the contract signed were
untrue.

The value of practice which, by the time the contract was signed were
untrue.

The value of the practice had declined in the meantime because of the
vendors inability to attend to it through illness.

The change of circumstances was not disclosed to the purchasers, and


when they took possession on that date they found that the practice was
almost non-existent

Held
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If a statement has been made which true at the time, but which during
the course of negotiations becomes untrue, then the person who knows
that it has become untrue is under an obligation to disclose to the other
the change in circumstances.

b. Opinion
Bisset v Wilkinson - a mere opinion is not a representation
Facts
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The C purchases from the D two blocks of land in NZ for the purpose
of sheep-farming.

During negotiations the appellant told the C that the land could hold
2000 sheep;

As both parties were aware the land had not at any time carried on
sheep-farming on the land.

There was an action for rescission for misrepresentation.

Held

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The statements made by D were not intended to be a serious


representation, qualified by any knowledge. It was known to both the
parties at the time of contracting that the D had not used the land for
sheep farming, and thus any statement as to the capacity would surely
be an estimate.

An erroneous opinion stated by the party affirming the contract, though


it may have been relied upon and have induced the contract on the
party of the party who seeks rescission, gives no title to relief unless
fraud is established.

Smith v Land & House Property Corp - A statement of opinion, from a


knowledgeable party to one who is not, is a representation. If false, it is actionable.
Facts
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D contracted with C to buy the title of the Marine Hotel constructed by


C.

C had advertised that it was let to Fleck, "a most desirable tenant".

D agreed to buy the hotel. However, Fleck, who had been overdue with
rent, went bankrupt just before transfer of title.

D refused to complete the transaction, defending C;s specific


performance on the basis that the description of Fleck's virtues was
grounds for misrepresentation.

Held
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If the facts are not equally known to both sides, then a statement of
opinion by the one who knows the facts best involves very often a
statement of a material fact, for he impliedly states that he knows facts
which justify his opinion.

The landlord "avers that the facts peculiarly within his knowledge are
such as to render that opinion reasonable."

It "amounts at least to an assertion that nothing has occurred in the


relations between the landlords and the tenant which can be considered
to make the tenant an unsatisfactory one... In my opinion a tenant who
has paid his last quarters rent by driblets under pressure must be
regarded as an undesirable tenant."

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c. Intention
Wales v Wadham
Facts
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C and his wife, D reached a compromise agreement whereby he would


pay her a sum out of his half-share of proceeds of the sale of their
matrimonial home if she would not make any further claim for
maintenance.

C sought rescission of the agreement on the ground that had he known


his wife intended to remarry he would not have entered the contract.

D had stated on several occasions before the contract she would never
remarry.

Held
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A statement of intention is not a representation of existing fact, unless


the person making it does not honestly hold the intention he is
expressing, in which case there is a misrepresentation of fact in relation
to the state of that persons mind.

The wife made an honest statement of her intention which was not a
representation of fact, and there is no basis for holding that D was
under a duty in the law of contract to tell her husband her change of
mind with respect her intentions.

D was not representing that she would never change her mind.

The court also took into consideration the reasonability of her changing
her mind. Given that D was relatively young it could not be expected D
would never marry.

Edgington v Fitzmaurice
Facts
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A company issued a prospectus which invited a loan from the public


(debentures) and stated that the money would be employed in the
improvement of buildings and the extension of the business.

This was untrue since the intention from the first had been to expend
the loan upon discharge of liabilities.

Held

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The prospectus was a fraudulent misrepresentation of fact.

The company had not made a promise which they might or might not
be able to fulfil; they had simply told a lie.

The state of a mans mind is as much a fact as the state of his


digestion. It is true that it is very difficult to prove what the state of a
mans mind at a particular time is, but if it can be ascertained it is as
much a fact as anything else. A misrepresentation as to the states of a
mans mind is therefore a misstated fact.

d. Law
Kleinwort Benson Ltd v Lincoln CC
Facts
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Kleinwort Benson had made payments to a local authority under swap


agreements which were thought to be legally enforceable.

Held
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It should be recognised that there was a general right to recover money


paid under a mistake, whether of fact or law. the mistake of law rule
no longer forms part of English law.

Money paid under a mistake of law should be recoverable on the same


footing as money paid under a mistake of fact, subject in the same way
to the defences available in the law of restitution, which include the
defence of change of position.

Pankhania v London Borough of Hackney


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Mr Rex Tedd (deputy judge):


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"I have concluded that the 'misrepresentation of law' rule has not
survived the decision in the Kleinwort Benson case. Its historical
origin is as an offshoot of the 'mistake of law' rule, created by analogy
with it, and the two are logically interdependent ... The distinction
between fact and law in the context of relief from misrepresentation
has no more underlying principle to it than it does in the context of
relief from mistake ... The rules of the common law should, so far as
possible, be congruent with one another and based on coherent
principle. The survival of the 'misrepresentation of law' rule following

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the demise of the 'mistake of law' rule would be no more than a
quixotic anachronism."

2. It must be addressed to the party induced


Commercial Banking Co. of Sydney v RH Brown and Co
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It is not necessary for liability that the misrepresentation should be made directly, it
can be made to one, to be passed on to another;

It is not necessary that it should be made to a particular person ; it can be made to a


group to which the plaintiff belongs so that the plaintiff is one of those intended to be
deceived.

The representation must, however, in one way or another, be made to the plaintiff to
induce him to act upon it.

Silence
Hands v Simpson Fawcett & Co Ltd
Facts
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A commercial traveller obtained employment with a company regarding


driving as an essential part of his duties.

He was not specifically asked if he is qualified to drive a car.

He kept quiet about his disqualification to drive a car.

The company contends that his silence amounted to a misrepresentation

Held
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There was no duty to volunteer the information and there was no


misrepresentation.

There are 4 exceptions to the rule that silence will not amount to a misrepresentation. They
relate to situations where:
a. Silence distorts a positive representation
Dimmock v Hallet
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The auctioneer stated that there were tenants on the property. He remained
silent as to the fact that they had given notice to quit.

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The C in that case was induced by the idea of having bought land with tenants
already in occupation.

D therefore distorted the positive representation of the existence of tenants

b. A representation though true when made, subsequently becomes false to the


representor knowledge
With v OFlanagan
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Medical practice case above.

If a statement has been made which true at the time, but which during the
course of negotiations becomes untrue, then the person who knows that it has
become untrue is under an obligation to disclose to the other the change in
circumstances.

c. There is a misrepresentation by conduct


Horsefall v Thomas
Facts
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The claimant purchased a gun which had a concealed defect.

The gun after being fired for six rounds, flew into pieces.

Held
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If it be a defect known to the manufacturer, and which cannot be seen


on inspection, then he would be bound to point it out to the purchaser;

But if it be a patent defect, and one of which the purchaser is as good a


judge as the maker, the latter is not bound to point it out, and in that
sense the maxim caveat emptor applies, as much to the case of a person
having an article made for him, as to the purchaser of a thing already in
existence.

However His action for misrepresentation failed as he hadn't inspected


the gun before purchasing it. Therefore the misrepresentation did not
induce him to enter the contract as he was unaware of it.

d. The contract is uberrimae fides


Bufe v Turner
Fact
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The Plaintiff having one of several warehouses, next but one which
took fire, on the same evening, after that fire was apparently

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extinguished, gave instructions, by an extraordinary conveyance, for
insuring that warehouse, then having others uninsured, but without
apprising the insurers of the neighbouring fire.
Held
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Though the terms of insurance did not expressly require the


communication, held that the concealment of this fact avoided the
policy.

3. The untrue statement of fact induced one contracting party to enter into contractual
relations
To amount to an actionable misrepresentation, an untrue statement of fact must induce an
individual or a misrepresentee to enter into contractual relations.

The false statement of fact must therefore be said to have induced the representee to enter
into the contract.

The requirements here are that


a. Materiality - The misrepresentation must be material
Museprime Properties v Adhill Properties
Facts
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Three (3) properties were for sale by auction by the D.

The D stated in the details that the rental value of the properties was
open to negotiation. This was not the case, new rents had been agreed
on two of the properties previously.

C had signed a contract for the properties and made a 10%


downpayment.

D took the deposit inCs default to pay the rest.

C brought an action for rescission of the contract, for the repayment of


the downpayment and for expenses incurred for the conveyancing.

The D argued that the misrepresentation was not material because no


reasonable bidder would have allowed it to influence his bid.

Held

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The materiality of the representation was not to be determined by


whether a reasonable person would have been induced to contract.

As long as the claimant was in fact induced, as was the case here, that
was enough to entitle him to rescission.

Reasonableness or otherwise of his or her behaviour was relevant only


to the burden of proof: the less reasonable the more difficult to
convince the court of a misrepresentation.

Edgington v Fitzmaurice - the misrepresentation need not be the sole inducement


Facts
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A company issued a prospectus which invited a loan from the public


(debentures) and stated that the money would be employed in the
improvement of buildings and the extension of the business.

This was untrue since the intention from the first had been to expend
the loan upon discharge of liabilities.

The C advanced money on some of the debentures under the erroneous


belief that the prospectus offered a charge upon the property of the
company, and stated in his evidence that he would not have advanced
his money but for such belief,

However, he also relied upon the statements contained in the


prospectus.

Held
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Issues: Whether a misrepsentor is liable when a party is induced by his


own mistake and a material misrepresentation?

Provide that the misrepresentation was was actively present to his


mind when he decided to advance the money then it was material.

Bowen LJ: What was the state of the Cs mind, and if his mind was
disturbed by the misstatement of the D, and such disturbance was in
part the cause of what he did, the mere fact of his also making a
mistake himself could make no difference

JEB Fasteners v Marks, Bloom and Co


b. Reliance - It must have been relied on
i.

The representee never knew of the misrepresentation

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Re Northumberland & Durham District Bank Co. ex parte Biggs
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ii.

The representee knew that the representation was untrue


Central Railway Co of Venezuela v Kisch
Facts
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The railway company sent a prospectus for investment.

The prospectus contained some misstatement and omission of


certain facts.

The Co. sought to rely on the statement in the prospectus that


the engineer's report, maps, plans, &c., may be inspected, and
farther information obtained at the offices of the company to
state that the investor(D) had no grounds for complaint as he
had opportunity to verify the veracity of the prospectus.

Held
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Where there has been fraudulent misrepresentation, or wilful


concealment of facts, by which a person has been induced to
enter into a contract, it is no answer to his claim to be relieved
from it, that he might have known the truth by proper inquiry.

You, who have stated what is untrue, or have concealed the


truth, for the purpose of drawing me into a contract, cannot
accuse me of want of caution because I relied implicitly upon
your fairness and honesty

Those who issue a prospectus holding out to the public the


great advantages which will accrue to persons who will take
shares in a proposed undertaking, and inviting them to take
shares on the faith of the representations, are bound to state
everything with strict and scrupulous accuracy, and not only to
abstain from stating as fact which is not so, but to omit no one
fact within their knowledge the existence of which might in any
degree affect the nature, or extent, or quality of privileges and
advantages which the prospectus holds out as inducements to
take shares

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The representee did not rely on the misrepresentation


Smith v Chadwick
Facts
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A prospectus contained a false statement that a certain


important person was on the board of directors.

However, the C admitted in cross examination that he had been


in no degree influenced by this fact.

Held
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It lay on C to prove that he had interpreted the words in the


sense in which they were false and had in fact been deceived by
them into taking the shares and that as he had as a matter of fact
failed to prove this the action could not be maintained.

C must establish that this fraud was an inducing cause to the


contract; for which purpose it must

be material, and it must have produced in his mind an


erroneous belief, influencing his conduct

If a statement with intent to lead plaintiff to act upon it, t which


they know may bear two meanings, one of which is false to
their knowledge, and thereby plaintiff putting that meaning on
it is misled, I do not think they can escape by saying he ought
to have put the other.

Attwood v Small - relied on own judgement instead of misrep. No relief.


Facts
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The Cs purchased an estate from the D.

Many of the properties were subject to leasehold and


generated income. The estates mines were to be worked by
and profit to go to the C.

The C agreed to purchase subject to being satisfied that the


reports and accounts given by the D were accurate.

The C had his accountants and directors check out the


accounts and reports who were satisfied they were accurate.

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The C proceeded with the purchase.

It transpired that the accounts had greatly exaggerated the


income generated by the estate.

The C sought to rescind the contract based on the


misrepresentations contained in the reports and accounts.

Held
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The claimant was unsuccessful.

By getting his own experts to check out the reports he had not
relied on the accounts but his own judgment.

Redgrave v Hurd
Facts
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A solicitor purchased into the partnership in the solicitors' firm.


He was told the partnership had an income of 300 per year and
was given the opportunity to look at the accounts.

The D did not examine the books and papers produced, but
only looked cursorily at them. The D later agreed and paid an
initial investment.

In fact the income was only 200 per year.

The D refused to pay and the C brought an action for specific


performance.

Held
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Court found D relied on Cs misrepresentation not on the


papers before him.

The court distinguished this case from Attwood v Small on the


grounds that the purchaser in that case was proven to have been
induced by his own judgement and not the misstatement.

Otherwise if it is a material representation calculated to induce


a person into a contract, it is an inference of law that he was
induced by the representation to enter into it.

In order to take away his title to be relieved from the contract


on the ground that the representation was untrue, it must be
shown

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1. He had knowledge of the facts contrary to the
representation, or,
2. He stated in terms or showed clearly by his conduct that
he did not rely on the representation.
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Where there is no evidence of such the inference remains that he was


so induced by the false representation.

Smith v Eric S Bush

PART C
Types of Misrepresentation
1. Common Law Negligent Misrepresentation
See Tort Law 1 Worksheet on Pure Economic Loss
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The elements are similar. Consider:


A. The knowledge of the representor
B. The purpose for which the statement was made
C. Whether reliance was reasonable

2. Statutory Negligent Misrepresentation


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Section 3(1), Misrepresentation Act Chap 82.35


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Where a person has entered into a contract after a misrepresentation has been
made to him by another party thereto and as a result thereof he has suffered
loss, 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, unless he proves that he had reasonable ground to
believe and did believe up to the time the contract was made that the facts
represented were true

3. Fraudulent Misrepresentation
4. Innocent Misrepresentation
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Section 3(2), Misrepresentation Act Chap 82.35

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