If you paid $2.5 for a car that's worth $3 if of the age represented, why would you get (1) an award or (2) loss of bargain damages?

Question

I don't grok the emboldened hypothetical. I simplified the math in the title; dividing prices by 1000 doesn't change factual pattern.

If car = 3K if of the age repesented, then Alex got a bargain of 500 = (3 – 2.5)K.

1. Thus why would Alex get "an award of £800 (£3,000 less the £2,200 value of the car received)"? Alex wouldn't get anything!

2. What's his "contractual loss of bargain"? Why give him it "rather than returning each party to their starting positions"?

Prof Richard Taylor, Damian Taylor. Contract Law Directions (6 edn, 2019). p 189. All sections refer to Misrepresentation Act 1967.

Damages in lieu of rescission

Alex buys a car from Phillippa for £2,500, but due to a misrepresentation about the car’s age, the car is only worth £2,200. If Alex rescinded, he would return to Phillippa the car worth £2,200 and get his £2,500 back from Phillippa. So he has his £2,500 back in his hands.

If the court decides to award damages in lieu of rescission under s.2(2), such damages would have to achieve the same result. Since no rescission is being ordered, Alex keeps the car worth £2,200 so he needs another £300 to bring him up to the £2,500 he could have got under rescission. What these damages should not cover, however, is any other items of loss, for example suppose Alex has purchased £100 of accessories which only fit models of the year he thought he was purchasing and which are now useless to him. Such losses would have been left equally uncompensated if rescission plus indemnity had been awarded and they can only be recovered if Alex establishes some other right to damages, for example under s.2(1), which is considered later. [1.] Similarly, if the car would have been worth £3,000 if of the age represented, there should be no question of getting an award of £800 (£3,000 less the £2,200 value of the car received) since that would be to give him [2.]¸his contractual loss of bargain rather than returning each party to their starting positions. To gain such loss of bargain damages, Alex would have to prove that the age of the car was a term, not just a representation and that there was therefore a breach of contract.

Answer 1

Its the difference between two different causes of action

Facts

• Phillipa says she is selling a 2003 Super-X car
• The market value of a 2003 Super-X is £3,000
• Alex and Phillipa agree on a price of £2,500 and complete the transfer
• The car is actually a 1999 Super-X
• The market value of a 1999 Super-X is £2,200

Question: Is the error (1999 vs 2003) a misrepresentation or a term of the contract?

Misrepresentation

It is clearly misrepresentation and this gives Alex grounds to sue. His remedies for misrepresentation are:

• Recision of the contract: Alex gets his £2,500 back and Phillipa gets the car back, or
• Damages for his loss. He gets £300 (£2,500 - £2,200) keeps the car and Phillipa keeps the balance of the money.

Misrepresentation restores you to the position you would have been in if the contract had not happened

Breach of contract

If Alex can prove that the misrepresentation was more than a pre-contractural statement that induced him to enter the contract, that is, he can show that the year of the car is actually a term of the contract, then he can sue for breach of contract. His remedies for breach of contract are:

• Recision (as above) plus damages based on his expectation of profit from the contract. Alex gets his £2,500 plus the £500 profit he expected; Phillipa gets the car back, or
• Damages based on his expectation of realizing £3,000. He keeps the car (worth £2,200) and Phillipa pays him the £800 difference between that and the value of the car.

Breach of contract puts you into the position you would have been in if the contract had been completed without the breach

TL;DR

Not all legal remedies are equal. The same fact pattern may give different grounds for action - some are better than others.

Answer 2

why would Alex get "an award of £800 (£3,000 less the £2,200 value of the car received)"?

When speaking of "[being] worth" £2,500 (or £3,000), the author presumably refers to the amount Alex paid for the car under his agreement with Phillipa. That can differ from the car's market price. The author uses interchangeably the term of "worth" to refer to Alex's disbursement (be it 2,500 or 3,000) and the market price of the car (that is, 2,200), which causes confusion.

The award of £500 (or £800, accordingly) results from Phillipa's misrepresentation of the car's age, since it is otherwise unreasonable (at least a priori) for Alex to agree to pay in excess of the market price. To avoid liability, Phillipa would need to prove that disclosing the car's true age would not have prompted Alex to renegotiate the price or to desist from the transaction altogether.

What's his "contractual loss of bargain"?

In the Alex's context, the difference between the amount he paid for the car and the market value of the car based on its true age.

Why give him it "rather than returning each party to their starting positions"?

A priori there is no general reason why a court would discard rescission. The decision is just the author's hypothetical and would depend on the particularities of each case. See section 2(2) of the Misrepresentation Act of 1967, reflecting that the decision would need to be premised on "the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party".

That being said, one of the "*other right[s] to damages" (such as the expenses of accessories £100) is the civil counterpart of the Fraud Act of 2006. Whereas section 2 of the Misrepresentation Act of 1967 binds only the parties to a contract, the Fraud Act of 2006 provides actionability for the [unqualified] losses Alex incurred as a result of the misrepresentation.

Consequently, under the Fraud Act Alex's losses need not be restricted to his payment to Phillipa. By contrast, what matters is the extent to which Phillipa's misrepresentation is traceable to [her] dishonesty and intent to make a gain for herself (by making detrimentally untrue representations in her purpose of selling the car). See section 2(1) and 2(2) of that Act.