Smith v Land & House Property Corporation is a leading English contract law case on misrepresentation, particularly regarding the distinction between a statement of opinion and a statement of fact. The case is often cited to show that an opinion expressed by a party who holds superior knowledge of the underlying circumstances may amount to a representation of fact.
This decision clarified that such a representation, if untrue, can lead to misrepresentation and justify the refusal to complete a contract.
Facts of Smith v Land & House Property Corporation Case
The dispute in Smith v Land & House Property Corporation arose from the attempted sale of a hotel known as the Marine Hotel at Walton-on-the-Naze. The property was put up for sale by the claimant, Mr Smith, who described in the sale particulars that the hotel was let to “a most desirable tenant”, a man named Mr Fleck. This description formed an important part of the seller’s presentation of the hotel’s value.
The defendant, Land and House Property Corporation (LHP), sent a representative to inspect the property. Following the inspection, the representative compiled a report which stated that the tenant could barely pay his rent and that the surrounding town was in a state of dilapidation.
As a result of these findings, the representative advised the defendant not to pay more than £5,000 for the property. The negotiations concluded with the parties agreeing on a sale price of £4,700.
Before the contract could be completed, the tenant, Mr Fleck, went into liquidation. This development caused the defendant to refuse to proceed with the transaction. The claimant then sought specific performance, arguing that the defendant was contractually bound to complete the purchase.
In response, the defendant counterclaimed, alleging that the claimant had misrepresented the nature and reliability of the tenant when describing him as “a most desirable tenant”.
It subsequently emerged that the tenant had been behind on his rent for some time and had made payments only in small instalments and under pressure. These details were known to the claimant.
Legal Issues
The central question in Smith v Land & House Property Corporation concerned the legal character of the claimant’s statement that the property was let to “a most desirable tenant”. The court needed to decide whether this was merely a statement of the seller’s personal opinion or whether it amounted to a factual representation capable of being classified as a misrepresentation.
The court also considered whether the defendant relied on this statement when entering into the contract, and whether this reliance justified the defendant in refusing to complete the transaction. If the statement was held to be a representation of fact, and if it was shown to be false, the contract could be rescinded.
Smith v Land & House Property Corporation Judgement
The Court of Appeal held that the claimant’s statement was not a statement of opinion. Instead, it was a representation of fact. The key reasoning was delivered by Bowen LJ, who explained that while many statements may appear to be expressions of opinion, they frequently carry an implied assertion that the party expressing the opinion possesses certain facts that justify it. This is particularly true where the person expressing the opinion has superior knowledge or control over the relevant facts.
Bowen LJ found that the claimant was in a far better position than the defendant to know the true condition of the tenant’s financial reliability. Therefore, the statement that the tenant was “most desirable” implicitly conveyed that there were no issues affecting the tenant’s ability to meet rent obligations.
However, the claimant knew that the tenant had been paying rent in “driblets” and only under pressure. In Bowen LJ’s view, a tenant with such a rent-payment history could not reasonably be described as “most desirable”.
Bowen LJ famously stated that if the facts are not equally known to both parties, a statement of opinion from the party with superior knowledge often implies a factual basis. In this case, the claimant’s assertion effectively amounted to an assertion that the tenant was satisfactory and reliable, which was untrue.
Since the statement was a misrepresentation and it induced the defendant to enter into the contract, the claimant was not entitled to specific performance. The defendant was therefore justified in refusing to complete the transaction. Baggallay LJ and Fry LJ agreed with the reasoning and conclusion of Bowen LJ.
Decision and Outcome
The court concluded that the statement was a misrepresentation, not a mere expression of opinion. The claimant had sufficient knowledge of the tenant’s true financial state to speak about the tenant’s reliability as a matter of fact.
Because the claimant knew that substantial rent arrears existed and that payments had been made only in small pressured instalments, the statement that the tenant was “a most desirable tenant” was false.
The misrepresentation was held to be material and influential in inducing the defendant to enter the contract. As a result, the defendant was entitled to rescind the contract. The claimant was denied the remedy of specific performance.
Thus, the outcome of Smith v Land & House Property Corporation reinforces that a false representation made by someone with superior knowledge cannot be shielded as “mere opinion”.
Conclusion
Smith v Land & House Property Corporation is a landmark decision emphasising the distinction between opinion and representation in English contract law. It establishes that where a seller has special knowledge of the facts, a statement presenting a tenant as desirable can amount to a representation of fact rather than mere opinion.
Because the claimant knew of the tenant’s rent arrears and financial difficulties, describing him as a “most desirable tenant” was misleading. The misrepresentation allowed the defendant to rescind the contract, and the claimant’s claim for specific performance failed.
The case continues to be an important authority in misrepresentation law and remains widely used to teach how courts interpret statements made during negotiations, particularly where one party possesses superior knowledge.