EXPECTATION, RELIANCE AND MISREPRESENTATION

AuthorR. D. Taylor
DOIhttp://doi.org/10.1111/j.1468-2230.1982.tb02474.x
Publication Date01 Mar 1982
EXPECTATION, RELIANCE AND
MISREPRESENTATION
INTEREST
in the distinction between expectation damages and
reliance damages, once an almost exclusively American pre-occu-
pation, has been increasing amongst English lawyers who are now
assisted, as previously they were not, by excellent texts on the law
of
damages which deal with the distinction.g However, the distinc-
tion is not always accurately observed in academic usage“ nor
adverted to by the courts. The purpose
of
this article is
to
examine
a
specific area, namely damages for misrepresentation actionable
under section
2
(I)
of
the Misrepresentation Act
1967,
where it is
particularly important to observe the distinction but where observ-
ance has not always been evident, and to argue that decisions and
1
The normal measure of damages for breach of contract, often described as
loss
of bargain
’’
damages, although if the expectation interest were protected
beyond the field
of
contractual promises the reference
to
bargain would
no
longer
be appropriate. It must also be remembered that the reliance interest may sometimes
be substituted for the expectation interest,
e.g.
under the exceptional rule in
Bain
v.
Forhergill
(1874)
L.R.
7
H.L.
158,
or where the plaintiff chooses to claim the reliance
interest instead
of
the expectation interest as in
Anglia
T.V.
v.
Reed
[1972]
Q.B.
6O-quaere
whether the plaintiff should always be free to make this choice.
See
below note
77.
2
The leading article in the
field
is Fuller and Perdue
(1936) 46
Yale
L.J.
52, 373.
3
Street,
Principles
of
the Law
of
Damages,
esp. pp.
240-245.
McGregor
on
Damages,
esp. Chap.
2.
Ogus,
The Law
of
Damages,
esp. pp.
283-289, 346-354.
Throughout this article the term reliance interest is
used
in its wider sense to include
the restitution interest
cf.
Fuller and Perdue
op.
cil.
at pp.
55
and
71.
For
a
classification which keeps the reliance and restitution interests distinct see
Ogus,
op.
cit.
p.
286,
and for recognition that restitution may be regarded as within reliance
see
ibid.
pp.
289, 348
and
361-368.
4
See,
e.g.
Cane
(1979)
95
L.Q.R.
117, 118
questloning whether
. . .
the consumer
should be entitled to recover damages for
loss
of expectation, that is for
loss
of
bargain, for the mere fact that the product is worth less than what he paid for
it..
. .”
This is surely reliance rather than expectation interest and thus answers
Cane’s point that “it is only by a bargain that expectations as to quality as such
are legitimately created.” The fact that a product is worth less than was paid for
it only gives rise to this expectation interest where one can assume the customer
expects his purchase to be worth
no
more than he paid for it, in that case the
expectation and reliance interest would produce the same result. However, the
assumption would appear to be unjustified (see below) and ignores what Harris,
Ogus
and Phillips
(1979) 95
L.Q.R.
581
call the consumer surplus-the value or benefit
which the purchaser expects to get over and above the value of the price he pays,
Perhaps in Cane’s defence one could say that the .manufacturer’s
‘‘
non-consensual
warranties
are treated as only giving rise to limited expectations,
i.e.
that the
product will be worth the price at which it is available to the public. This would,
however, be a rather artificial analysis and the reality of the
loss
is best catered for
by placing it within the reliance interest. Indeed Cane recognises at
p.
139
that the
loss
he speaks of could be recovered in the tort
of
deceit where damages are based
on
reliance rather than expectations-see
Doyle
v.
Olby (Ironrnongers)
Lid.
[1969]
2
Q.B.
158.
139
140
THE
MODERN
LAW
REVIEW
[Vol.
45
dicta to the effect that expectation damages are available under
section
2
(1)
ought not to be followed and that the correct measure
of damages is the reliance measure. Since the normal contractual
measure is the expectation interest and since the normal tortious
measure, in the context of misrepresentation, is the reliance interest
(putting the plaintiff in the position as though the misrepresentation
had not been made or relied on) the distinction between the expec-
tation and reliance interests can conveniently be equated with the
distinction between the contractual and tortious measures.
The potential importance of the distinction between the two
measures can be illustrated by the following example
:
A
purchases
an article from
B
which
B
has represented to have quality
X.
The
article with quality
X
would have been worth
f1,2006
but
B
in
fact supplies an article lacking quality
X
which is consequently
worth only
f900.
If
the purchase price
was
€1,200,
i.e.
the value of
the article
as
represented, the two measures would produce the
same result. The contractual measure would give
A
the difference
between the value of what he expected to receive and what he
actually received,
€1,200
-
€900
=
2300.
The tortious measure
would give him the difference between what he has paid out and
what he has received
in
return, again
€1,200
-
€900
=
E300.
How-
ever, if
A
has paid an amount either above or below the value of
what he expected to receive, the two measures will obviously pro-
duce different results. Thus if
A
has paid
a
price below
the
expected
value,
e.g.
€1,000,
i.e.
if he has made
a
good bargain, the contractual
measure would still yield him
€300
but the tortious measure would
yield only
€100.
Similarly,
if
he has made
a
bad bargain and paid
an amount above expected value, say
€1,400,
the contractual mea-
sure would still yield
€300
because it is unaffected
by
the price paid
whereas the tortious measure which does depend on the price paid,
on
A’s
change of position in reliance,B would produce an increased
award of
f500.9
Thus
the
question
of
the correct measure
of
dam-
ages under section
2
(1)
can often be a vital one.
6
However, the reliance interest may be an alternative contractual measure
supra,
note
1.
This means that a court need not always decide conclusively between the
contractual and tortious measure. See
Andre
&
Cie
S.A.
V.
Ets.
Michel
Blanc
&
Fifs
C19771
2
Lloyd’s Rep.
166,
below p.
154.
IJ
This may be the same
as
the market value,
or
the market value may be less,
the balance being made up by the
I‘
consumer surplus
or
alternatively by the value
of
the profitable use to which it was intended that the article be put. However, the
duty to mitigate may often mean this balance is not recoverable,
or.
again, it may
be too remote, see Harris,
Ogus
and Phillips,
op.
cir.
7
This is true in a case
of
misrepresentation as to quality where the price has been
paid (and the contract
is
not rescinded), Where the price is not paid,
e.g.
where the
misrepresentation is as to title as in
Watts
V.
Spence
[1976]
Ch.
165
(below), the
price agreed does become important.
*
This type of case affords an example
of
the reliance interest being coextensive
with the restitution interest because the representee’s reliance consists solely
in
enriching the representor. See note
3
supra.
This example is only one
of
the types
OP
situation where the two measures will
produce different results. Other situations are illustrated by the cases considered later

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