Misrepresentation in Contract Law
Discuss about the Business Law for Cola Manufacturing Company.
The legal issue in the present factual scenario is whether there was an element of misrepresentation. The issue is whether Jessica has misrepresented the profits amount her business is making to Angela.
Misrepresentation is a contract vitiating factor and the section deals with the fact that if there was any misrepresentation or not. Kalabakas v Chubb Insurance Company of Australia Ltd [2015] VSC 705 is a landmark case dealing with the case of misrepresentation and the court in this case defined the meaning of misrepresentation as a false statement given by one party to another inducing him to get into a contract. In the obiter dicta of the case, misrepresentation was defined to mean a false statement given by one party or an agent of the party. Again, in the case of Bisset v Wilkinson [1927] AC 177, the court gave out a crux definition of misrepresentation and laid down three tests that constitute a contract within the definition of contract. The three elements defined by the court to mean that there was a misrepresentation by one party to another are as follows:
- In cases when one party makes a statement of fact and not just an opinion, it will constitute misrepresentation. The consideration of statement of facts to mean misrepresentation was held in the case of Esso Petroleum v Mardon [1976] QB 801.
- There shall be no element of truth in the facts that the party makes to the other party and the statements made by him need to be factually false.
- Once the party makes a false statement to the other party, he shall be induced into believing him and entering into the contract.
In cases when the person to whom the opinion is expressed has means to find out the truth, it shall not account to misrepresentation. In the case of Smith v Land & House Property Corp (1884) 28 Ch D 7 the claimant had purchased a hotel and the claimant informed that one of the tenants was “most desirable” and the information came from the seller. The seller was aware of the financial condition of the tenant and knew that he was almost on the verge of bankruptcy. The Court held that this does not mean a statement of fact under the definition of contract and it was merely an opinion expressed by the seller which the claimant had opportunity to check. Again, in the case of Edgington v Fitzmaurice (1885) 29 Ch D 459 the claimant had purchased shares from a company by relying on the prospectus of the company which said that the shares shall be used for the purpose of raising money (Taggart and Squire 2015). The company had made a false statement in the prospectus because in reality the money was going to be used for the purpose of paying debts. The court in this case held that there was an actionable claim of misrepresentation because the company did not have any intention to use that money for expanding purpose but was being used for recovering the financial condition of the company. Horsfall v Thomas [1862] 1 H&C 90 laid down the rule of truth and reliance and held that in cases when the party to whom the fact was conveyed had placed reliance on him and had entered into contract, it will be held to be misrepresentation. Australia follows common law and is guided by the Misrepresentation Act 1972. Attwood v Small [1838] UKHL J60 held that if a person had the resources to find out the truth and had the opportunity to check the veracity of the statement, it cannot be said that he relied on the statement. A fraudulent misrepresentation is said to have been made when the representation had the intention to defraud.
Tests for Misrepresentation
Angela and Jessica entered into a contract for the purchase of a restaurant. In one of the negotiations between the parties, Jessica made a statement that her restaurant has been making profit in the tune of $10,000. Jessica gave a chance to Angela to verify the statements made by her by providing Jessica with the details of the account. When Angela was handed over the papers, she only checked the records of the year 2007. To establish that Jessica had made a false statement to Angela to dupe her to enter into the contract, it needs to be proved that there was a false statement made by Jessica and Angela had relied on the statements. As was held in the case of Smith v Land & House Property Corp that when the party gives opportunity to check the facts and after checking the same, the party enters into the contract, it will be termed as actionable misrepresentation. The party has to be given an opportunity to check the facts and after checking the same if they enter into the contract. They cannot be held to have been induced. Applying the same logic to the factual scenario, it can be said that Jessica had given an opportunity to Angela to check the veracity of the statements made by Jessica. Though Angela had the opportunity to check the account, she did not check the entire accounts. Therefore, there is a clear case of establishing reliance and Jessica can claim that facts were misrepresented to her. Jessica was very well aware of the financial condition of the restaurant and was also aware about the profits that the restaurant had made. Therefore, making reference to Derry v Peek, it can be held that Jessica had a fraudulent statement about the restaurant and had misrepresented facts. Therefore, Angelacan claim damages for the misrepresentation of facts that were made by Jessica.
Negligence is defined as a breach of duty of care by one person to the other which has resulted in grave hurt and damage. Negligence is the branch of tort law that allows the aggrieved party to be compensated by the person who has caused the harm. The negligence occurs due to an act or omission that causes harm or injury. For a negligence suit to succeed, it is not important to prove if there existed a contractual relation between the parties. To make sure that there was a case of negligence, it is important to establish that the wrongdoing party owed a duty of care and there was a significant breach of that duty of care. Therefore, duty of care forms the basis for which a negligence suit can proceed. The most landmark judgment in relation to negligence is the case of Donoghue v Stevenson [1932] AC 562. The courts established that there shall be a duty of acre in between neighbours. Therefore, to identify that there was a duty of care, it is important to prove that the parties were neighbours. The Courts established the foreseeability test in this case which held that if the party can foresee that his actions can result in harm or injury, he is bound to act with proper care and caution. Therefore, in such cases where the harm can be foreseen, it is important that the element of duty of care is present. The case of Donoghue v Stevenson [1932] AC 562 dealt with similar situations where a snail was found in a bottle of beer. By consuming the beer which had snail, the party got sick and had incurred huge expenses in the hospital. The party consuming the beer filed a suit against the beer manufacturing company. The beer manufacturer made a counter claim saying that there was contract between the parties and therefore he was not in the position to compensate the party for the sickness he suffered due to the consumption of the beer. When the matter was heard in contract, it was ruled that the beer manufacturer had a duty of care and by providing a drink which had snail, he had breached that duty of care. The court ruled in favour of the plaintiff. A similar case of negligence was found in the case of Grant v Australian Knitting Mills HCA 35 (1933) where the court had similar judgments. In the case of Caparo Industries pIc v Dickman [1990] 2 AC 605 the court found the caparo test which is a primary foundation of establishing duty of care. In cases of caparo test, the assumption is that there is a responsibility that one party owes to the other which states that there is an assumption of responsibility and reasonability in cases where the party is expected to act with care. The caparo test as well as the proximity test was established in the case of Caparo Industries pIc v Dickman [1990] 2 AC 605, where it was held that parties who are in close proximity with each other owe a duty of care. Liverpool Catholic Club Ltd v Moor [2014] NSWCA 394 the foreseeability test which was held in this case stated that if a person can reasonably foresee that his actions will lead to injury or hurt, he has to act with proper care. The duty of care is a prerequisite for establishing negligence and it is important to prove that there has been a breach of that duty to take care. The Civil Liability Act 2002 talks about the provisions of duty of care. Under common law, it is important to establish that there has been a duty of care which the party owed to the other party and there has been a significant breach of that duty. The objective test which was laid down by the courts in judging negligence also lays down the reasonability test which means negligence will be judged in the perspective of a reasonable man and how he would have acted under those circumstances. Vaughan v Menlove (1837) 3 Bing. N.C. 467 and Synod of the Diocese of Brisbane v Greenway [2017] QCA 103 talked about negligence and the court applied the reasonable man test. Section 5C of the CLA 2002 established the standard of care and there shall be proper precautions taken to make sure that the person had taken precaution to avoid the risk. Negligence can be said to have taken place only in cases where the wrongful act had resulted in the loss. Damage which cannot be foreseen or are too remote cannot fall under the negligence bracket and the party cannot claim that there has been negligence.
Sandra had purchased a carton of cola from the local corner store which was consumed by her husband and subsequently the husband fell severely. The husband and Sandra incurred large medical expenses and they could not go to work. As a result of bearing the medical expenses the family went bankrupt and they could not further finance themselves. In the case of Donoghue v Stevenson it was held by the court that there was no need for a contract to be in place between the parties to claim negligence. Damages can be claimed of the injury was not very remote and the wrongdoing party could foresee that his activities will eventually suffer harm and injury. Therefore, applying the caparo test, proximity test and the caparo test, it is important to show that the parties suffered loss due to the actions of the wrongdoing party and the harm was reasonably foreseeable. Therefore, the cockroach in the drink would have resulted in the sickness of the aggrieved party is reasonable foreseeable. A reasonable person would not have left a cockroach in the drink and consuming a drink infested with cockroach would have eventually harmed the health of the person. It can be clearly stated that a reasonable person would have foreseen that a cockroach in the drink would cause health hazard to the person.
The Cola manufacturing company has caused negligence and has acted in breach of his duty to care. The family can recover damages for falling sick after consuming the drink.
References
Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428
Bisset v Wilkinson [1927] AC 177
Caparo Industries pIc v Dickman [1990] 2 AC 605
Civil Liability Act 2002 (NSW)
Derry v Peek (1889) 5 T.L.R. 625
Donoghue v Stevenson [1932] AC 562
Edgington v Fitzmaurice (1885) 29 Ch D 459
Kalabakas v Chubb Insurance Company of Australia Ltd [2015] VSC 705
Liverpool Catholic Club Ltd v Moor [2014] NSWCA 394
Misrepresentation Act 1972 (SA)
Smith v Land & House Property Corp (1884) 28 Ch D 7
Wagon Mound no 1 [1961] AC 388
Taggart,J., and Squire, M., (2015) Contemporary Business Law Workbook” 3rd edition,
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