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FactsEdit

Redgrave advertised to sell his business premises and a share in his business, representing that it brought in between £300 and £400 a year when it truly grossed less than £200 a year. The defendant purchased the property and a partnership in the law practice on the premises on the basis of this representation. However, when he discovered that the law practice was "utterly worthless" he refused to complete his payments. The plaintiff sued for specific performance. Redgrave was successful at trial and Hurd appealed.

IssueEdit

  1. Can a defendant rescind a contract because of a misrepresentation?

DecisionEdit

Appeal allowed, contract rescinded.

ReasonsEdit

The plaintiff argues that the defendant cannot rescind the contract because he simply should have used due diligence and sought more information before purchasing the premises. However, the judge rejects this and says that the only limitation on suing for a misrepresentation is the limitation period, which starts when the fraud reasonably should have been discovered.

Jessel states that if it is shown that a representation was made in an attempt to induce a party to enter into a contract, and the contract was in fact formed, then there is a presumption that the representation was relied upon. This can only be refuted by proving that the party hearing the representation had definite knowledge to the contrary, or by explicit evidence that they did not rely on the representation. Where you have neither evidence that he knew the facts showing that the statement was untrue, or that he did anything to show that he did not rely upon the statement, the inference remains that he relied upon the statement as being a material statement (condition) in the contract. Therefore, its being untrue is sufficient ground for the rescission of the contract. This comes from the courts of equity; common law takes a different approach.

In this case the judge finds the misrepresentation to have been innocent. Therefore, the contract can be rescinded but damages are not awarded.

RatioEdit

  • Innocent misrepresentations lead to a contract being able to be rescinded.
  • There is a presumption that any statement made in an attempt to induce another party to enter into a contract is relied upon as a condition if the contract is eventually formed. This can be rebutted by proving knowledge to the contrary of the statement, or express proof that the party did not rely on the statement. However, if these cannot be shown then the contract can be rescinded upon discovery of the fraudulent misrepresentation.
  • In innocent misrepresentations you can only ask for damages if you cannot rescind the contract.
  • No inducement if contract entered for independent reasons 
  • It does not matter if he checked the truth of the statement p 

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