MISREPRESENTATION INTRODUCTION During the course of pre-contractual negotiations a number of statements may be made with a view to inducing the other party to enter into the contract. For example a seller of a car may describe it as a good little runner or accidents free or as having very low mileage. Such statements may affect the nature and extent of the parties contractual undertakings. If an undertaking or assurance is a term of the contract or a collateral contract and it proves to be false, an action may lie for breach of contract. In that case the representee sues upon what is in truth a promise. But if this is the case then the representee must show that this promise forms part of a valid contract. On the other hand, if the promise does not constitute a term of the contract but a mere representation, and it proves false, the remedy will lie, in most cases, in an action for rescission and or damages for misrepresentation. The basic problem in misrepresentation is therefore the effect of pre-contractual statements. A misleading statement made during the negotiations leading to a contract may fall into one of three categories. First, it may be a mere puff, a commendatory expression which by virtue of its vagueness or extravagance would not be expected to and does not ground any form of liability. Secondly, the preliminary statement may be intended by neither party to have contractual effect, but nevertheless may seriously affect the inclination of one party to enter into the contract. It is then known as a representation. If it proves false, the party misled will not be entitled to claim damages for breach of contract, for no contractual stipulation has been broken; but will be entitled to claim the relief accorded by the law in the case of misrepresentation. Thirdly, the preliminary statement may be a term of the contract, or constitute a warranty collateral to the contract, if the party making the statement undertakes or guarantees that it is true. There is an overlap between the second and third categories because a statement that is a misrepresentation may become a term of the contract. In such cases there will be a choice of remedy since the party misled will be entitled to claim damages for breach of contract and to relief for misrepresentation. DEFINITION AND NATURE OF MISREPRESENTATION A misrepresentation is a false statement of fact, made pre-contractually, which is intended to induce the representee to enter into a contract and which has that effect. It has thus been defined as a statement of fact made by one party to the contract (the representor) to the other (the representee) which, while not forming a term of the contract, is yet one of the reasons that induces the representee to enter into the contract. A misrepresentation can also be viewed as a representation that is untrue. A representation means a statement of some specific existing fact or past event, not a statement of intention or of opinion of law. An opinion is a statement of a belief based on grounds incapable of actual proof. This means that statements of future conduct or intention do not constitute misrepresentation if they prove to be false. The law therefore 1
draws a distinction between a representation of fact which is untrue and an unfulfilled promise to do something in future. The above mentioned distinction does not mean that a statement of intention can never be a representation of fact. It at least implies that the alleged intention does exist and if it is untrue it may amount to a misrepresentation of an existing fact. In Edgington v. Fitzmaurice [1885] 29 Ch. D. 459, company directors raised money from the public by stating that the money would be used to expand the business. In fact their intention was to use the money to pay off the company s existing debt. It was held that the prospectus was 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 prospectus represented something other than it really is. Such a misrepresentation is one of fact. Bowen L.J. said: the state of a man s 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 man s 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 state of a man s mind is, therefore, a misstatement of fact. Thus it has been held that, if a person buys goods having at the time no means to pay or having formed an intention not to pay for them, that person makes a fraudulent misrepresentation. As already observed, statements of belief or opinion do not amount to a misrepresentation. But there can be circumstances in which an opinion is construed as a statement of fact, as for instance where the opinion is not honestly held. Again, there is also the view that where a layman relies on an expert statement as a positive assertion to back up his own view as if they were true facts, liability in misrepresentation will lie if it turns out to be incorrect. Should the representor assert that his statement was only an opinion, he might be met with the argument that, as an expert, he is impliedly saying that he knows facts which justify his opinion. These views will be the subject of illustration in subsequent paragraphs. Nevertheless some expressions of opinion are mere puff and cannot amount to misrepresentation. For that matter, eulogistic commendation of products by sellers and advertisers cannot for the most part be regarded as representations. Thus to describe land as fertile and improvable or as uncommonly rich water meadow is not to constitute a representation. Bondzi-Simpson has provided further insight into the subject. He writes: A representation is a statement of fact that is made by one party to another intended to induce and that induces the other to enter into a contract. A misrepresentation is a false statement of fact that is intended to induce and in fact induces another to enter into the contract. The author expatiated on his definition with some useful deductions. He noted that if the statement is one of opinion only, and not a statement of fact, even if false, there is no misrepresentation. Continuing, he noted that if the statement related to law or legal effects, rather than it being a statement of fact, there is no contract. Concluding his analysis, the learned author stated that, if even the statement was false, but the 2
one alleging misrepresentation was not aware of the statement or did not rely on it, then there is no misrepresentation because there was no inducement. Case law illustration of the definition and nature of misrepresentation is possible. In Bisset v. Wilkinson [1927] A.C. 177, the respondents agreed to purchase from the appellants certain lands at Avondale, in the Southern Island of New Zealand, for the purpose of sheep-farming, and in reliance on the appellant s statements that he estimated the lands would carry two thousand sheep. The land, unfortunately, was incapable of holding two thousand sheep. The appellant had not, and no other person had at any time, carried out sheep-farming on the lands in question. When the appellant claimed the balance of the purchase price, the respondents counter-claimed rescission of the contract on the ground of misrepresentation. The Judicial Committee of the Privy Council held that the statement was merely an opinion which the appellant honestly held and accordingly the claim for rescission failed. Again, in Economides v. Commercial Union Assurance Co. plc [1997] 3 W.L.R. 1066, a statement that the cost of replacing the contents of a flat was 16,000 made by a 21-years-old student with no special knowledge was a statement of opinion. Bondzi-Simpson contrasted the scenario in the above cases with Esso Petroleum Co. Ltd v. Mardon [1976] 2 ALL ERS. Here, the Court of Appeal held that a forecast made by a person who possessed special knowledge and skill was not a statement of opinion but a statement of fact. If false it amounted to a misrepresentation and damages would lie. In the case, a tenant was induced to take a lease of a petrol station, from an oil company by a statement made by an experienced salesman on the company s behalf, as to the potential future turnover of the premises. As the tenant had relied on the salesman s superior knowledge and experience, it was held that the company was under a duty of care at common law (N/B: A duty of care may exist at common law even in a purely commercial relationship, such as that of buyer and seller or landlord and tenant). Lord Denning MR made some useful statements in the Esso Petroleum case. He said: it was a forecast made by a party, Esso, who had special knowledge and skill. It was the yardstick by which they measured the worth of a filling station. They had much experienced and expertise at their disposal. They were in a much better position than Mr. Mardon to make a forecast (emphasis added). Lord Denning stated further: it seems to me that if such a person makes a forecast intending that the other should act on it and he does act on it it can well be interpreted as a warranty that the forecast is sound and reliable in this sense that they made it with reasonable care and skill If the forecast turned out to be an unsound forecast, such as no person of skill or experience should have made, there is a breach of warranty. (Emphasis added again). In Brown v. Raphael [1958] Ch. 636, it was held that an opinion may be actionable as a misrepresentation where the representor is in a far stronger position to ascertain the facts than the representee. It must be noted that there are many commercial relationships in which each party consciously relies on his own skill or judgment or where it is reasonable for the 3
representor to assume that the representee will be advised by his own experts. In such cases there would be no duty of care at common law; though, even in the absence of a special relationship, there can be liability in damages under the English Misrepresentation Act. MEANING OF INDUCEMENT To be actional the false statement must induce the contract. As a general rule, there can be no liability in respect of a falsehood which does not induce the other party to enter into the contract. Consequently, there will be no reliance and hence no inducement in the following circumstances: (i) The misrepresentation did not come to the plaintiff s notice. For example, where false reports of a company s financial affairs have been published but the plaintiff had not read them. (ii) The plaintiff relied not on the misrepresentation but on his own judgment. In Attwood v. Small [1838] 6 C.L.L F 232, the plaintiffs asked questions as to the capabilities of the property. The defendant s answer was verified by persons appointed by the plaintiffs. Six (6) months after the sale was completed, the plaintiffs found that the defendant s statements had been inaccurate, and they sought to rescind on the ground of misrepresentation. It was held that the plaintiffs could not rescind the contract since they had not been induced to contract by the defendant s statements, but rather by their own engineer s report. This rule does not apply to fraudulent misrepresentation. If, however, the plaintiff had been induced to contract by misrepresentation, it is no answer to say that he had been afforded the means of verifying it. Thus in Redgrave v. Hurd [1881] Ch. D. 1, a party was induced to purchase a solicitor s house and practice by innocent misrepresentation as to the value of the practice. He was allowed rescission even though the books and papers which he had been invited to examine, and did not, would have revealed the falsity of the representation. In Central Railway Co. of Venezuela v. Kisch [1867] L.R. 2 H.L. 99, the defendants issued a prospectus which contained representations which were untrue and deceptive. The plaintiffs were given the opportunity of inspecting certain reports and plans which supplied the correct data. It was held that it is not sufficient to mitigate a falsehood by giving the victim a chance to verify the statement from plans and documents. Chitty holds the view that, if the misrepresentation did not affect the representee s mind, because he was unaware that it had been made, or because he was not influenced by it, or because he would have entered into the contract even had he known the true facts, or because he knew that it was false, he has no remedy. Thus in Horsfall v. Thomas [1862] 1 H. & C. 90, a seller delivered to a buyer a gun which was defective, for after being fired it exploded, and the buyer was injured; the buyer had not examined the gun, but he alleged that the sale had been procured by fraudulent misrepresentation and that the defect had been concealed. The Court rejected his claim because, as the buyer had never examined the gun, an attempt to conceal the defect, if such an attempt had been made, had had no effect on his mind. However, an action for breach of the implied terms as to quality and fitness would probably lie in such circumstances today. 4
Again, it is not necessary for the plaintiff to show that the misrepresentation was the only/sole inducement for him to enter into the contract. It is sufficient if it can be shown to have been one of the inducing causes. Thus in Edgington v. Fitmaurice (supra) the plaintiff was induced to take debentures in a company partly because of a misrepresentation in the prospectus, but also because of a mistaken belief of his own that the debentures conferred a charge on the company s property. He was held to be entitled to have the contract rescinded, and Cotton L.J. said, It is not necessary to show that the misstatement was the sole cause of his acting as he did. In other words, where a person seeks to rescind a contract on the ground of misrepresentation, it is not necessary for him to prove that if the misrepresentation had not been made, he would not have made the contract; it is sufficient if there is evidence to show that he was materially influenced by the misrepresentation. MATERIALITY Treitel argues that a misrepresentation generally has no effect unless it is material or of importance to the other party. He says that the misrepresentation must be one which would affect the judgment of a reasonable person in deciding whether, or on what terms, to enter into the contract; or one that would induce him to enter into the contract without making such inquiries as he would otherwise make. Chitty also remarks that there is no clear authority denying relief to a representee who has, in fact, been influenced by a misrepresentation which would not have influenced a reasonable man. He submits further that, where the representor knows or ought to know that the representee is likely to act on the misrepresentation, relief will not be denied merely because a reasonable man would not have been influenced by it SILENCE OR NON DISCLOSURE As a general rule caveat emptor prevails so there is no duty of disclosure in precontractual dealings. Therefore, mere silence as such is not misrepresentation. Putting it differently, the general rule is that mere non-disclosure does not constitute misrepresentation, for there is, in general, no duty on the parties to a contract to disclose material facts to each other; however dishonest such non-disclosure may be in particular circumstances. So, for example, in Percival v. Wright [1902] 2 Ch. 421, a company director who had inside information about certain facts likely to enhance the value of the company s shares was held to be under no duty to disclose this fact to a shareholder from whom he bought some shares. In general there is no duty on a party to a contract to disclose problems voluntarily. Thus if one party is labouring under a misapprehension, there is no duty on the other party to correct it. In Hands v. Simpson Fawcett [1928], it was held that a commercial traveler who failed to disclose at a job interview that he had had serious motoring convictions made no misrepresentation. He was not obliged to disclose such brushes with the law. However, silence can amount to a misrepresentation and thus afford the ground for relief in three circumstances, namely: 5
1. Where the statement is a half-truth such that it conveys the wrong impression or because of what it leaves unsaid. Again, where the statement was true when made, but due to a change of circumstances has become false by the time it is acted upon. Treitel says, a person may have to disclose material facts which come to his notice before the conclusion of a contract if they falsify a representation previously made by him. Thus in With v. O Flanagan [1936] Ch. 575, negotiations for the sale of a medical practice were begun in January, when the practice was said to be worth 2,000. A contract of sale was made on May 1, by which time the practice had become worthless because of the intervening illness of the vendor. The contract was set aside on the ground that the vendor ought to have communicated this change of circumstances to the purchasers. 2. In contracts uberrimae fidei (of the utmost good faith), there is a duty to disclose all the material facts as one party is in a strong position to know the truth, for instance insurance contracts. Two reasons can be advanced for the existence of a duty to disclose in contracts uberrimae fidei. The first is that, in certain classes of contract, one of the parties is presumed to have means of knowledge which are not accessible to the other, either at all or only by incurring disproportionately high costs. The party who is presumed to have the information is therefore bound to disclose everything which may be supposed likely to affect the judgment of the other party. Contracts of marine, fire, and life insurance and indeed contracts of insurance of every kind are of this nature. The second reason is that, in certain situations, the relationship between the contracting parties is not a pure arms length commercial relationship but one of trust and confidence or one of dependence which imposes upon the party in whom confidence is reposed a duty to make disclosure. 3. Where a fiduciary relationship exists between the contracting parties, there is a duty to disclose all material facts. Such relationships include: trustee and beneficiary; bank manager and client (customer); principal and agent; solicitor and client; doctor and patient; partner and partner; priest and disciple; but it does not include master and servant. The main contracts that fall within this category are contracts of insurance, guarantees and family settlements. TYPES OF MISREPRESENTATION There are three types of misrepresentation: fraudulent, negligent and innocent. FRAUDULENT MISREPRESENTATION Referring to several authorities, Bondzi-Simpson explains that, a fraudulent misrepresentation is one made by a person to induce another into a contract knowing very well that the statement he is making is false, or recklessly making a statement not caring that it is true or false, or stated differently, knowingly and fraudulently stating a material untruth which brings about wholly or partially the contract. At common law a fraudulent misrepresentation not only renders the contract voidable at the suit of the party misled, but also gives rise to an action for damages in respect of the deceit. 6
In Derry v. Peek [1889] 14 App. Cas 337, the House of Lords held that a statement is fraudulent only if made (i) with knowledge of its falsity, or (ii) without belief in its truth, or (iii) recklessly, not caring whether it is true or false. Recklessness goes beyond mere carelessness. Fraud is a serious charge which must be clearly and distinctly proved. The meaning of fraud is provided by Derry v. Peek where it was also decided that in order for fraud to be established, it is necessary to prove the absence of an honest belief in the truth of that which has been stated. In Derry v. Peek, a company issued a prospectus stating that it was entitled to use steam power to run trams; the respondents obtained shares on the strength of this representation, which was in fact false, although at the time the company had reason to believe that permission would be granted by the Board of Trade as a matter of course. Permission to use steam power was, however, not granted and the company was wound up; in an action for deceit the House of Lords held that the directors were not liable in damages for fraudulent misrepresentation. The decisive factor, in Lord Herschell s words, was that they honestly believed that what they asserted was true. By way of summary, if a representor honestly believes his statement to be true, he cannot be liable for deceit, no matter how ill-advised, stupid, or even negligent he may have been. Traditionally, fraud has attracted the best remedies for the representee but it is difficult to establish. The burden is a heavy one to discharge. Once the representee proves that there has been a fraudulent misrepresentation, the burden shifts to the representor to show that he was honest in his belief. In an action for deceit, motive is irrelevant. Once it has been established that the representee has acted upon a fraudulent misrepresentation, liability ensues, although the representor may not have been influenced by any bad motive. However, the representor is not liable until the representee has acted on the representation and thereby suffered loss. NEGLIGENT MISREPRESENTATION In simple terms, Bondzi-Simpson defines negligent misrepresentation as a false statement made by a person who had a duty of care towards the other. Treitel also states that, a misrepresentation is negligent if it is made carelessly and in breach of a duty owed by the representor to the representee to take reasonable care that the representation is accurate. According to him, it used to be thought that such a duty could arise only where the relationship between representor and representee arose out of a pre-existing contract between them, or where it was fiduciary. But this narrow view was rejected in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 where the law was greatly widened by the decision that a duty to take care in making statements could arise out of many other special relationships. However, the enactment of the English Misrepresentation Act of 1967 has somewhat reduced the scope of the duty of care as far as the law of contract is concerned. In Esso Petroleum v. Mardon [1976] Q.B. 801, it was said that the special relationship arises where the representor has or purports to have some special skill or knowledge and knows or should know that the representee will rely on the representation. In Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. (supra), the claimants suffered loss as a result of having given credit to a firm called Easipower Ltd., in reliance on a reference carelessly given by Easipower s bank, who knew of the purpose for which the 7
reference was required. The actual decision was that the bank was not liable because the reference had been given without responsibility. But the House of Lords made it clear that, had there been no such disclaimer, the bank would have owed to the claimants a duty to take reasonable care in the making of statements contained in the reference. The importance of the Hedley Byrne case lies in its recognition that the duty arises not only in situations of fiduciary and contractual relationships, but also in situations where there is a special relationship between the parties. INNOCENT MISREPRESENTATION Until 1963, the term innocent misrepresentation was used to describe all misrepresentations which were not fraudulent. In the light of the decision in the Hedley Byrne case, the phrase innocent misrepresentation may now be used to refer to a statement without any provable fault. In other words, with innocent misrepresentation the maker of the statement has reasonable grounds for believing in its truth. An innocent misrepresentation is a statement which the maker honestly and reasonably believes to be true. In an innocent misrepresentation the law represents an attempt to strike a balance between two innocent parties, the maker of the statement and the person who has been induced to make a contract in reliance on that statement. Beatson asserts that the term innocent misrepresentation must be understood to mean a misrepresentation in which no element of fraud or negligence is presented. (Emphasis added). Again, Bondzi-Simpson writes that, innocent misrepresentation is one that contains a falsehood that was unknown to the declarant or that the declarant believed to be true. In innocent misrepresentation, there is no moral blame ascribed to the declarant. REMEDIES AVAILABLE FOR MISREPRESENTATION Every type of misrepresentation attracts a remedy once the plaintiff has established his case. And the appropriate remedy is determined by the lack of care exercised by the misrepresentor. The remedies are rescission, damages and sometimes indemnity. 1. Remedy for Fraudulent Misrepresentation: The remedies for fraudulent misrepresentation are several. At common law, a fraudulent misrepresentation renders the contract voidable. The injured party may either affirm the contract or bring an action for damages for deceit or may elect to rescind the contract, i.e. have it set aside, and sue for damages. For any loss suffered. If the injured party is sued for specific performance or damages, the fraud may be set up as a defence and a counterclaim for damages for any loss suffered may be brought. If the contract has not yet been executed, the injured party may repudiate it and recover any money paid in an action had for money had and received, but it has been held that an account of profits made by the fraudster does not lie. The party misled may also recover in respect of opportunities forgone as a result of entering into the contract. Thus in East v. Maurer [1991]1 W.L.R.461, the plaintiff purchased a hairdressing salon on the basis of a fraudulent misrepresentation. Damages were awarded for the profit the plaintiff might have made had he bought a different 8
salon in the area, i.e. he could recover for the opportunity cost of relying on the misrepresentation. 2. Damages for Negligent Misrepresentation: The representee may choose to claim damages under the principle in Hedley Byrne v Heller and Partner in the tort of negligence or he may decide to rescind the contract. The award of damages under Hedley Byrne differs from the damages in deceit only in that, under Hedley Byrne, the remoteness test is that of reasonable foreseability. If the representee sues in negligence, he has to satisfy the Court that the representor owed him a duty of care and had breached it. 3. Remedy for Innocent Misrepresentation: At common law no remedy whatsoever was available for innocent misrepresentation. The common law recognized fraud, or the breach of a contractual term, but gave no relief whatsoever for an innocent misrepresentation which merely induced the formation of a contract. It was left to the Courts of Chancery to grant relief by the application of equitable principles. In equity, a contract could be set aside for innocent misrepresentation. But it was not a ground for an award of damages, for damages are a legal remedy and they were not available in the Courts of Chancery. Accordingly, where a misrepresentation is described as wholly innocent, the misled party s sole remedy is rescission. The innocent party in this situation has no right to damages but may ask the court to grant the equitable remedy of rescission, i.e. restoration to the pre-contractual state of affairs. Generally, rescission involves a process of restitution, i.e. a process whereby each party restores what he has obtained from the other party under the contract. RESCISSION The effect of misrepresentation is to make the contract voidable and not void. What this means is that the contract is valid unless and until it is set aside by the representee. When the representee discovers the misrepresentation, he has the option to affirm or to rescind the contract. A contract is affirmed if the representee on discovering the misrepresentation nevertheless declares his intention to proceed with the contract or does some act from which such an intention may reasonably be inferred. On the other hand that representee may rescind the contract by indicating that he refuses to be bound by its provisions. Rescission is available for every type of misrepresentation. Where a contract is rescinded it is terminated ab initio (from the outset.) or as if it had never existed. In Newbigging v. Adam [1886] 34Ch.D.582, the plaintiff entered into a partnership with the defendants and provided 10,000 of new capital. He was induced to enter into the partnership by a material innocent misrepresentation as to the capacity of certain machinery. The business failed and the plaintiff sued for rescission of the agreement, for recovery of his capital, and for an indemnity against all claims which might be made against him by virtue of his having 9
become a partner. All members of the Court of Appeal agreed that the plaintiff was entitled to the relief for which he asked. Lord Atkin stated: where one party to a contract expresses by word or act in an unequivocal manner that by reason of fraud or essential error of material kind inducing him to enter into a contract, he has resolved to rescind it, and refuses to be bound by it, the expression of his election, if justified by the facts, terminates the contract, puts the parties in status quo ante and restores things, as between them, to the position in which they stood before the contract was entered into. A contract can be rescinded by giving notice to the representor, but this is not always necessary. It can also be rescinded by any other act indicating repudiation of liability, e.g. notifying the authorities (see Car and universal Finance Co. Ltd v. Caldwell [1961] 1Q.B.525). The injured party may also apply to the court for an order of rescission. Rescission is effective from the date of communication to the representor and not before. An order of rescission may be accompanied by the court ordering an indemnity. This is a money payment by the misrepresentor to restore the parties to their original position as if the contract was never made. An award of indemnity relates only to obligations necessarily created by the contract or incurred as a result of the representation. An indemnity is thus different from damages. BARS OR LIMITS TO RESCISSION (i) (ii) (iii) The following are the limits or bars to rescission: Affirmation: if the representee with full knowledge of the facts and of the misrepresentation elects to affirm the contract, the affirmation is complete and final and provides a bar to rescission. Because it is complete and final it cannot be revived. Changes made by Misrepresentee: where a person has been induced by misrepresentation to purchase something and the buyer has so changed the subject matter to the extent that he can no longer restore what he obtained under the contract, the buyer may lose the right to rescind. Similarly, the purchaser of a business cannot get back his purchase money after carrying on the business for some months and disposing of some of its assets. Changes made by the Misrepresentor: A sale may also be induced by misrepresentation on the part of the buyer, e.g. as to his solvency (his ability to pay his debts) or as to the value of the subject matter. The seller s right to rescind would be affected in a practical sense where the buyer consumes the property or so alters it that the seller has no interest in getting it back. As a matter of law, however, a buyer who is guilty of fraud cannot rely on his own dealings with the subject matter as a bar to the seller s right to rescind. A very obvious example of impossibility of 10
(iv) restoration is where the subject matter is food which has been eaten. A modern tendency is for the courts to award rescission if the substantial identity of the property remains even though the parties cannot be precisely restored to their pre-contract position, financial adjustments being made where necessary. Lapse of Time: lapse of time may in certain circumstances bar the right to rescind. It may be treated as evidence of affirmation where the party misled fails to exercise the right to rescind for a considerable time after discovering the representation to be untrue. So representees must act timeously or within a reasonable time. In Leaf v. International Galleries[1950]2K.B.86, the plaintiff bought from the defendants a picture of Salisbury Cathedral which the defendants innocently represented to him at the time of the purchase to have been painted by Constable. Five years later, when he tried to sell it, he discovered this was not the case. He endeavoured to return the picture and recover the price. The defendants refused, whereupon he brought an action claiming rescission of the contract of sale. The Courts of Appeal held that the right to rescind had been lost. (v) Third party Rights: the rule was enunciated in White v Garden [1851]10 C.B.919 that rescission cannot be ordered where third party rights have accrued, bonafide and for value. Thus if A obtains goods from B by misrepresentation and sells them to C, who takes in good faith, B cannot later rescind on learning of the misrepresentation in order to recover the goods from C. 11