The Gazette 1979

JULY-AUGUST

1979

GAZETTE

Statutory Reform of the Law of Misrepresentation by ROBERT CLARKE

Section 11(3), as amended, provides: "Where a con- tract of sale is not severable, and the buyer has accepted the goods, or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there be a term of the contract, express or implied, to that effect." While this amended section 11 no longer precludes re- cission of a contract for specific goods simply because property has already passed, acceptance of the goods or a part thereof under a non- severable contract will preclude rescission unless an express or implied term to the con- trary can be found. "Acceptance", the key to the amended Section 11 is defined in Section 20 of the 1978 Bill (which amends S. 35 of the 1893 Act) as an intima- tion from the buyer that he has accepted the goods or any act in relation to the goods inconsistent with the owner- ship of the seller, for example sale or pledge by the pur- chaser. Further, if after a reasonable time the buyer retains the goods without intimating rejection (See Leqf v. International Galleries [1950] 2 KB 86) that will be deemed acceptance. Thus in contracts for the sale of goods there are clear limitations upon the right to repudiate a contract for mis- misrepresentation. However, the terms of Section 11 do not extend into contracts of hire purchase or for the supply of services. Such a contract may still be capable of being set aside notwithstanding lapse of time if induced by a misrepresentation. Leqf v. International Galleries (supra) does not apply the doctrine of laches but a separate rule adapted from Sections 11 and 35 of the Sale of Goods Act. The rule in Seddons case Section 41(b) of the 1978 Bill attempts to repeal the doctrine first countenanced in Wilde v. Gibson (1848) 1 H.L. Cas. 605 at 632-3 by Lord Campbell who stated that "where the conveyance has been executed . .. a court of equity will set aside the contract only on the ground of actual fraud." This doctrine was subsequently developed and applied to all executed contracts and became known as the arbitrary rule in Seddon v. North Eastern Salt Co. Ltd., [1905], 1 Ch. 326. The rule in Seddon v. North Eastern Salt Co. Ltd. was applied in Ireland in Lecky v. Walter [1914] I.R. 378. In that case the plaintiff pur- chased bonds issued by a dutch company as the result of a misrepresentation made by the defendant's agent who stated that the bonds were fully secured and charged against the companies assets. The bonds were not so secured and were described by the court as virtually worthless. The plaintiff brought an action claiming rescission of this executed contract. The action failed for it was said that an executed contract, whether for land or chattels cannot be rescinded on the grounds of innocent misrepresentation. An executed contract can only be repudiated if the representation is fraudulent or if there 77

In this article the author intends to examine the effects the Sale of Goods and Supply of Services Bill 1978 has on the general law of misrepresentation. Whilst the Draftsman has relied heavily upon terms of the English Misrepresentation Act 1967, the Site of Goods and Supply of Services Bill 1978 however does not have as wide an ambit and it is suggested that the provisions of the 1978 Bill should be extended into areas of Irish law which have not been included within the ambit of the recent Bill. Part V of the Bill is headed "Misrepresentation" and comprises four sections. Section 40 provides: "In this Part 'contract' means a contract for the sale of goods, a hire purchase agreement, or a contract for the supply of a service." This provision, whilst understandable in the context of a piece of legislation designed primarily, though not ex- clusively, to amend the law relating to sale of goods, hire purchase and services contracts, immediately reduces the scope and importance of this part of the Bill. Section 41 of the Bill is designed to remove certain bars to the right to rescind a contract which has been induced as the result of an innocent misrepresentation, that is, a representation that was not made fraudulently within the test laid in Derry v. Peek( 1889) 14 App. Cas. 337. This section, which corresponds with Section 1 of the 1967 English Act provides: "Where a person has entered into a contract after a misrepresentation has been made to him, and (a) the misrepresentation has become a term of the contract, or (b) the contract has been performed, or both, then if otherwise he would be entitled to rescind the contract without alleging fraud, he shall be so entitled, subject to the provisions of the Act of 1893 and this Bill notwithstanding the matters mentioned in paragraphs (a) and (b)". Thus, Section 41(a) attempts to clarify the vexed but underlitigated question of whether the incorporation of a misrepresentation into a contract, either as a condition or a warranty, subjects the misrepresentation to the limita- tions that attach to a contractual term qua a condition or qua a warranty. In other words once a misrepresentation takes on the status of a contractual term does it, strictly speaking, cease to be a misrepresentation giving rise to a right to repudiate? Benjamin's Sale of Goods (1974) paragraph 758 suggests that the better view is that the right to repudiate would be subject to the rules relating to contracts for the sale of goods because the equitable rules on misrepresentation and the right to repudiate were developed simply to fill a lacuna in the law. Under Section 41(a) then the limitations on the right to repudiate turn upon the Act of 1883 as amended by the 1979 Bill itself, in particular, Section 11 of the 1893 Act which caused several difficulties and which 9 is now proposed to amend so as to allow a greater degree of flexibility to a judge faced with an action involving recission of a contract.