Denise is interested in breeding Dalmatians (a breed of dog).
She looks round for a suitable female dog (known as a bitch), and goes to see Carl, who sells Dalmatian puppies with a fully documented pedigree going back three generations. After Carl explains the pedigree, including the fact that it includes Cruella, a former winner at Tuft’s Dog Show, she buys Bella, a bitch, for £500.After a year Bella has her own litter of four puppies, but it appears that something has gone seriously wrong as the puppies lack most of the spots which are characteristic of Dalmatians.
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Denise investigates the pedigree, and it turns out to have been faked. Bella is not a descendant of Cruella, but instead comes from a line of bitches that are liable to produce offspring without spots. Bella and her puppies are virtually worthless.Denise calculates that, in addition to the £500, she has wasted £1000 on veterinary bills and upkeep for Bella, and that, if Bella had been of the pedigree described, she would have been able to sell the new puppies for £500 each.Advise Denise.
Does it make any difference whether or not Carl knew the pedigree had been faked?In order to advise Denise, it is necessary to identify any legal principles upon which any claim she may bring would rely. These legal principles, upon which, any court would base it’s decision will be discussed in part one.Part two will focus on the different scenarios concerning Carl and any knowledge he did or didn’t have. This part will, of course, include the different effects Carl’s knowledge, or lack of such, would have on a claim brought by Denise. Any remedies and damages available to Denise will be identified in part three. Part four contains a breakdown of any financial details of loss and damages.Part One :It appears that the degree of importance1 of the pedigree was so great that ita) was so fundamentally important to the contract that it would be considered a term.b) induced Denise into the contract.
It could be said that Denise and Carl placed great importance on the pedigree. The pedigree was, in fact, explained to Denise and it was only after this that she entered into the contract. This suggests that the pedigree is so important and fundamental to the contract that it should be interpreted as a term. If it could be shown that the pedigree did form a term of the contract, Denise could bring a straightforward claim in breach of contract. In deciding whether or not this was a contractual term, the court would question the intention of the parties by asking what the reasonable person would have thought the person making the statement intended2. For example, did Carl intend his explanation of the pedigree to become a term of the contract or did he intend it as a ‘mere representation’?If it is shown that the reasonable man would intend the statement to be a term, the burden of proof then shifts to the representee who has to show that he was induced to act in the way that he did3.There is a lack of evidence to suggest that this claim would be unsuccessful but without seeking further information from Denise, a claim arising from this would be difficult to pursue.It should be noted that if it could be shown that Carl had greater specialist knowledge than Denise, then it is likely that the statement would be considered as a contractual term.
However, if it can be shown that both parties have equal knowledge or that Denise has specialist knowledge, then the statement would be considered to be a ‘mere representation’ and have no standing as a contractual term4.However, there is evidence to suggest that Denise was induced into the contract by the representation of the pedigree. As the facts have been told, it seems that Denise has no specialist knowledge of Dalmatians or the breeding or pedigrees attached to them. It does, however, seem that Carl does have some previous knowledge and from the facts, it appears that Denise has relied on that knowledge, only entering into the contract after Carl has explained the pedigree to her.
When a ‘mere representation’ has been false, it is referred to as a misrepresentation and it allows the ‘wronged’ party to the contract to bring a claim for damages. It should be noted that a claim of this type does not apply to contractual terms where a claim under breach of contract could be brought. Misrepresentation is a vitiating factor that will spoil a contract or render it flawed thus rendering the contract voidable.Misrepresentation claims can be brought in two ways. The Misrepresentation Act 1967 can be applied to claims where a third party has advised someone incorrectly to enter into a contract. It must be established that the third party owes a duty of care to the advised party, in that perhaps they have some specialist knowledge that is relied upon. These claims are made under the case of Hedley-Byrne5 and are notably contracts between businesses.
There is no evidence to suggest that Denise would have grounds to bring a claim in this area so no further detail need be mentioned here.However, a claim under misrepresentation may be valid if it could be shown that Denise was induced into the contract by a false statement. It is suggested that Denise did rely on the information about the pedigree offered by Carl. At this point, it is not necessary to discuss whether or not Carl knew that the information he gave was false.
The effects this may have on a claim will be discussed in part two.The disclosure of information during the negotiations before a contract is formed constitute a fundamental part of the formation itself. It should be noted that Carl was under no obligation to disclose anything about the dog or it’s pedigree before the contract was formed. However, if he chose to disclose even the smallest detail, he would then be obliged to disclose all details. A half truth is not sufficient to exclude liability. Silence, however, can exclude a party from liability in that if nothing is mentioned, nothing can be relied upon.
Denise did, of course, have the opportunity to consult any third party6 to verify the validity of the pedigree or to seek independent expert advice. It seems that she chose not to. It could be said that she trusted what Carl had told her, in that she relied on his expertise. It is strongly suggested that Carl has expert and specialist knowledge as he was able to explain the pedigree to Denise.’Any behaviour by word or conduct is sufficient to be a misrepresentation if it is such to mislead the other party.7’Part Two :There are three types of misrepresentation. Negligent8, fraudulent and wholly innocent.
It is not necessary in this instance to discuss negligent misrepresentation9 as it applies to contracts where there is a special relationship. (See footnotes regarding the Misrepresentation Act and Hedley-Byrne).Fraudulent and wholly innocent misrepresentations are potential types of claim that Denise may decide to bring but it is here that what Carl knew or didn’t know becomes a matter of importance.Scenario A :It should be assumed that Carl knew that the pedigree had been faked.Although Carl was under no obligation to disclose any detail of the pedigree, he did. Therefore, Denise is able to bring a claim under fraudulent misrepresentation as what Carl told her was untrue. However, Denise would have to show that what Carl told her induced her into the contract. It must also be shown that Denise relied upon the false statement.
It should be noted that the false statement does not have to be the only reason a contract was entered into10 but it must be shown that the false statement contributed to the contract formation11 and that as a result of the flawed contract, the ‘wronged’ party suffered loss.In this scenario, Carl could argue any claim by stating that he was giving only his opinion and not fact. In response, it could be convincingly argued that his attempt to explain a complex pedigree spanning three generations would amount to specialist knowledge. Even opinion when given by an expert can amount to misrepresentation12 as it is said that an expert is assumed to have knowledge of the facts in order to give an opinion. It is for this reason that in this scenario, there is strong evidence to suggest a claim would be successful.Scenario B :It should be assumed that Carl knew nothing of the pedigree being faked.
In this scenario, a claim could still be made under wholly innocent misrepresentation. A successful claim would lead to rescission however, this is subject to the conditions outlined in s2(2) of the Misrepresentation Act13.Carl’s lack of knowledge does not exclude him from liability.
Part Three :If it could be shown that the pedigree was so important as to form a term of the contract, Denise would be entitled to damages for breach of contract. The damages available to her would compensate her as if to put her in the position she would have been in had the contract been performed.In the event of her claim being successful, she could claim up to £500. This amount relates only to the profit Denise would have realised from the first litter of puppies. Although further puppies may have brought further profit, Denise may only bring a claim for any foreseeable profit on a basis of expectation loss.Scenario A :It should be noted that damages in both scenarios A and B are calculated as per the law of tort14.
This means that Denise could be compensated leaving her in the position she would have been in had she not relied on the false statement. This remedy would return her to the position she was in before entering into the contract. Denise would receive a larger sum of money in damages by bringing a successful claim in this area than she would receive under the law of contract for breach of contract.
Fraudulent misrepresentation claims, when successful, are remedied by rescission and damages.Rescission would return Denise to where she would have been had she not entered into the contract. It is an equitable remedy and Denise must inform Carl if she wishes to rescind.
The decision or intention to rescind must be communicated to the other party.It is not always possible to rescind. Bars to rescission include delay, or lapse of time15, since the misrepresentation here was not discovered until the birth of the litter of puppies, one year after the contract, it could be argued that this bar to rescission applies. In response, it could be argued that this bar is unreasonable in this case as Denise had no reason to verify the pedigree before the puppies were born16.
Another bar to rescission is affirmation. This is when something is still accepted even though a misrepresentation has been discovered17. This does not apply to Denise.If it is impossible to return the ‘wronged’ party to where they were before entering to the contract, it is said that rescission is barred due to impossibility. Rescission could be argued by Carl in this instance as it could be said that Bella has changed by having a litter of puppies.It should also be noted that a court will not allow a party to rescind where it would affect an innocent third party. This means that the party must rescind before goods have passed to a third party.In scenario A, Denise would also be able to claim damages, details of which can be found in part four.