Contract Law, Misrepresentation and Fraud - Case Study Example

Student Name: Student ID: Assessment Name: Word Count (1631) Misrepresentation of Facts The case presented between Manfredi and Eggplant involves misrepresentation of facts in common law. Misrepresentation of facts involves the presentation of false statement(s) by one party to another, whereby the other party is induced to enter into contract after relying on the misrepresentation of facts1. In the case of Manfredi and Eggplant, it is evident that, Eggplant as the director for HappyHippie Pty Ltd provided Manfredi with false facts about the current financial status of the business. Eggplant made up the financial figures of the current position of the business; the figures were inflated by sixty percent and this was false. There are various elements of proof for a misrepresentation of facts to be a valid case that can be executed either in criminal or civil action2. The first element of proof is that, to warrant a misrepresentation of facts, there must be false statement of fact. An act of misrepresentation must involve a fact which is falsely stated and not an opinion. In the case of Bisset v Wilkinson (1927) AC 177, a false statement of opinion does not warrant a misrepresentation of fact3. In the case between Manfredi and Eggplant, there is presence of false statement of fact that warrants the act as a misrepresentation of fact. 4A material fact is anything that influences a person who is reasonable to enter into a contract. If one of the parties does not provide material fact, the contract can be regarded as voidable. The case between Lambert V Co-Operative Insurance Society (1975) 2 Lloyd’s Rep 485, clearly demonstrates that, there is a duty of disclosure in cases where the relationship between the parties of a contract is fiduciary5. In the case of Manfredi and Eggplant, the parties had a fiduciary relationship and that Eggplant had a duty to disclose a material fact. The second element of proof is the misrepresentation of fact must have induced the other party to enter into a contract. This element of proof requires that, the statement that was false must have provoked the other party to enter into a contract6. The misrepresentation of fact must be material and the other party must have relied on this misrepresentation to make a decision for entering into the contract. In the case between Museprime Properties V Adhill Properties (1990) 36 EG 114, it was decided that, any misrepresentation that provokes someone to enter into contract should be considered as a ground for rescission of such a contract7. If the misrepresentation made reasonable person enter into a contract, then it should be considered that the representee was induced to enter into a contract. In the case of Manfredi and Eggplant, the misrepresentation of facts by Eggplant induced Manfredi to enter into a contract of buying the vegetarian café. The other party must have relied on the misrepresented fact s to enter into a contract. In the case between Horsfall V Thomas (1862) 1 h & c 90, there is evidence that, reliance is not valid if the misrepresentee was not aware of the misrepresentation8. The case between Attwood V Small (1838) 6 CI & F 232, stipulate that if the representee does not rely on the misrepresented fact and relies on his or her own judgment, then reliance for the misrepresentation is not valid9. In the case between Manfredi and Eggplant, Eggplant was aware of the misrepresentation and Manfredi relied on the misrepresented facts to enter into the contract. Therefore, Manfredi has a right to sue Eggplant for misrepresenting fact. If the representor claims otherwise, then they must prove that the representee did not rely on the misrepresentation of fact either wholly or in part10. If the misrepresentation could not induce a reasonable person to enter into a contract, then the misrepresentee has a duty to prove that the misrepresentation had induced him or her to act in such a manner. In the case between Manfredi and Eggplant, the misrepresentation presented by Eggplant was clear to induce Manfredi to enter into a contract and Eggplant could not argue otherwise because there is prove that, the intention was to induce the other party to enter into a contract. 11After establishing that misrepresentation has been made, it is important to consider the type of misrepresentation that has been made. In common law, a misrepresentation occurs in three categories as fraudulent, negligent, or wholly innocent misrepresentation. The reason for establishing the types of misrepresentation is to identify the remedy that is available for each. A fraudulent misrepresentation is one that occurs as a result of one party knowingly making a false statement of a fact. 12In the case between Derry V Peek (1889), a fraudulent misrepresentation was defined as a statement that is false and was made either knowingly, without belief in the truth or recklessly careless as to whether it be true or false. However, if a false statement is made by a person with the knowledge that it is the truth, then such as statement cannot be regarded as fraudulent. The case between Derry V Peek (1889) 14 App Cas 337, it was decided that, the plaintiff carries the burden of proof13. The person asserting fraud has the mandate to prove it. The remedy for a fraudulent misrepresentation is rescission and damages in tort of deceit. 14Negligent misrepresentation is a statement which is false that is made by a person who doesn’t have a reasonable ground for believing it to be true. Claims for negligent misrepresentation can be done in two ways; either negligent misstatement as common law or negligent misrepresentation under s2 (1) misrepresentation ACT 1967. The case between Hedley Byrne V Heller (1964) AC 465, it was decided that, negligent misstatement at common law provides for the party who suffers financial loss to recover damages in tort15. The success of the claims is determined by the proof provided on the special relationship that exists between the involved parties. In the case between Esso Petroleum V Mardon (1976), a negligent misstatement at common law arises mostly in purely commercial relationships whereby, the representor is found to have or purports to have the knowledge and understands or it is reasonable for him to assume that the other party who is the representee will majorly rely on the representation. the remedy for a negligent misstatement at common law as decide in the case between Williams V Natural Life Health Foods (1998) The Times, May 1, is rescission and damages in the tort of negligence16. Negligent misrepresentation under s2 1) misrepresentation ACT 1967 occurs when one party enters into a contract after the other party made a misrepresentation to him or her and has suffered a loss thereof. The person making the misrepresentation is liable to damages in respect that the misrepresentation was made fraudulently. 17The person claiming for misrepresentation must provide proof for fraudulent misrepresentation and that there was a reasonable ground for that person to believe and thereto did believe the facts that were presented were to true for him or her to enter into a contract. After proving that there was a misrepresentation that induced a person to enter into contract, the party making the misrepresentation is liable in damages unless evidence is provided to proof that, the person has reasonable ground for believing and did believe that the misrepresented facts were true. Damages for such a case are usually based in the tort of deceit. 18A wholly innocent misrepresentation is a statement which is false and made by a person who honestly believes that it is true. This type of misrepresentation has the remedy of rescission with indemnity or damages in lieu of rescission under the courts discretion in s2 (2) Misrepresentation Act 1967. For the above described types of misrepresentation, the case between Manfredi and Eggplant is a fraudulent misrepresentation. The reason is that, Eggplant knowingly made false statements of the financial status of the café and presented these false facts to Manfredi. Eggplant was careless and recklessly presented false information to Manfredi without caring it to be true or false. There are different remedies for actionable misrepresentation that are available to the misrepresentee. Since the case between Manfredi and Eggplant is a fraudulent misrepresentation, Manfredi has a right to claim for rescission. 19A rescission sets aside the contract and puts back the parties involved in the contract in their original position as if the contract was never made. The party which is injured has the authority to rescind the contract by proving the representor with a notice or notifying the authorities the intention of rescinding the contract. However, the injured party may lose the right of rescinding the contract in the circumstance where there is affirmation of the contract; lapse of time, restitution in integrum impossible and a third party acquires the rights in property. In our case, Manfredi had just acquired the café and noted that he was provided with the wrong financial information of the business. Therefore, no circumstance bars him from rescinding the contract. In the case between Whittington V Seale-Hayne (1900) 82 LT 49, the injured party, and in our case Manfredi, can also be awarded indemnity by the court20. Indemnity involves money which is paid by the misrepresentor with respect to expenses that were incurred in the process of creating and complying with the terms of the contract. The injured party (Manfredi) can also claim for damages as a result of fraudulent misrepresentation in the tort of deceit. Damages serve the purpose of restoring the injured party to the initial status before the making of the representation. This was supported in the case between Doyle V Olby (Ironmongers) Ltd (1969) 2 QB 158, whereby the court decided that, the injured party may recover all direct loss that was incurred due to the fraudulent misrepresentation in spite of foreseeability21. Bibliography Books and Articles California State University, Northridge. Key Concept 6 Misrepresentation and Fraud. 2010. Emily M. Weitzenböck. English Law of Contract: Misrepresentation. University of Oslo. Norwegian Research Center for Computers & Law, 2012. The Chartered Institute of Legal Executives. Contract Law. Ilex, 2012. Thomson Reuters. Misrepresentation. Practical Law, 2014. Cases Attwood V Small (1838) 6 CI & F 232 Bisset v Wilkinson (1927) AC 177 Derry V Peek (1889) Derry V Peek (1889) 14 App Cas 337 Doyle V Olby (Ironmongers) Ltd (1969) 2 QB 158, Hedley Byrne V Heller (1964) AC 465, Horsfall V Thomas (1862) 1 h & c 90, Lambert V Co-Operative Insurance Society (1975) 2 Lloyd’s Rep 485 Museprime Properties V Adhill Properties (1990) 36 EG 114 Williams V Natural Life Health Foods (1998) The Times, May 1 Whittington V Seale-Hayne (1900) 82 LT 49, Read More