Facts
- The case concerned a property transaction where Smith (the seller) sought to sell a hotel to Land & House Property Corporation (the buyer).
- Smith described the hotel's tenant, Fleck, as “a most desirable tenant” during negotiations.
- At the time, Fleck was in significant arrears, owing six months’ rent, and the tenant was struggling financially.
- The buyer’s representative expressed concerns regarding the tenant's situation and the condition of the town.
- Before completion, Fleck declared bankruptcy.
- The buyer refused to finalize the purchase on the basis of alleged misrepresentation regarding the tenant's financial status.
- Smith commenced proceedings seeking specific performance; the buyer countered seeking rescission on grounds of misrepresentation.
Issues
- Whether Smith’s description of the tenant as “a most desirable tenant” constituted a mere statement of opinion or a representation of fact.
- Whether Smith’s knowledge of the tenant’s arrears rendered the statement actionable as a misrepresentation.
- Whether the buyer was entitled to rescind the contract for misrepresentation.
Decision
- The Court of Appeal held that Smith’s statement was not a mere opinion but an implied statement of fact, given his superior knowledge of the tenant’s finances.
- The court ruled that information asymmetry can transform an apparent opinion into an actionable misrepresentation if the representor knows facts contradicting the implication of their statement.
- Smith’s misrepresentation concerning the tenant’s reliability was held to be sufficiently material to justify rescission of the contract.
- The claim for specific performance by Smith was denied, and the buyer was permitted to rescind the contract.
Legal Principles
- A statement of opinion may be treated as a statement of fact where the representor has superior knowledge of the relevant matter.
- Where facts are not equally known to both parties, the representor’s statement may carry an implied assertion of facts sufficient to support that opinion.
- Misrepresentations made by a party with particular knowledge, even if initially framed as opinion, can allow the contract to be set aside.
- The accuracy and candour of representations in contractual negotiations are essential, especially where information asymmetry exists.
Conclusion
Smith v Land & House Property Corp established that statements of opinion can be actionable as misrepresentations when made by a party with superior knowledge of the facts. The decision reinforces the obligation for parties to negotiations to avoid misleading statements where they possess material information not available to the other side.