Preliminary Negotiations - Case Study Example

MISREPRESENTATION INTRODUCTION The preliminary negotiation before a formal offer is made includes ments of two kinds: i.e. those which do not become part of the contract and are known as the terms of contract and those which do not become part of the contract but nevertheless play an important role in inducing the parties entering into the contract. Such statements are known as representations. There is a misrepresentation if the statement is untrue. Misrepresentation is untrue statement of facts which is made by a contracting party to the other party before, or at the time of contracting which is intended .It is intended to induce and actually induces the other party to whom it is made to enter into the contract. 1 THE CASE Silence is not usually a misrepresentation except when a statement made in the course of negotiations subsequently becomes false and is not corrected. When Portia insisted that a cuddle was okay, Ahmed the seller said nothing. But he knew or he ought to have known that the dog had started becoming restless and was not the same as when it won the crufts Dog show the previous year. Ahmed’s non- correction of Portia’s statement then amounts to misrepresentation. He ought to have informed Portia of the dog’s current health condition. Secondly, such contracts are uberimae fidei contracts i.e. contracts of utmost good faith. These are contracts whereby the seller is bound and under an obligation to disclose all relevant facts/ information on what he/she is selling. Ahmed did not disclose to Portia the fact that the dog had in the recent past developed a condition of restlessness. This non- disclosure of vital information amounts to ‘silence which is misrepresentation’. This was held in the case of With Vs O’Flanagan, 1936. 2 In this case the defendant, a medical practitioner was selling his practice. In Jan 1934, the defendant told the plaintiff that the income from the practice was £ 2000 year. The contract was not signed until May 1934. In the meantime owing to the illness of the defendant, the income fell to £5 a week. No mention of this fact was made when the contract was signed. The plaintiff successfully sued to have the contract set aside. The defendant’s silence amounted to misrepresentation. 3 For a person to bring an action of misrepresentation against the other, the statement must have been made before or at the time of making the contracts. Portia’s’ statement that the dog had successfully won the crufts Dog show was made when the contract was being made. Ahmed’s silence that amounts to misrepresentation is also presumed to have been made at the time of making the contract. The other remedy available to Portia is rescission of the contract. This contract is voidable at Portia’s option. It is binding to Portia until she sets it aside. If Portia, after realizing that she has already been misrepresented expressly agrees to it again then she would be deemed to have affirmed the contract. Additionally, she must rescind the contract at the earliest possible time since lapse of time or delaying the rescission act may be implied to mean affirmation of the contract as delay defeats equity. This was held in the case of Leaf Vs International Galleries where the plaintiff delayed for five years in bringing an act of rescission. It was held that the plaintiff could not enforce this right as it had been time barred. 4 As for Ahmed, it is important for him to allege that he did not harbour any information/ history about the dog’s ill health. This would then reduce the misrepresentation to that of innocent misrepresentation. The effect of this is that Ahmed cannot refund Portia the money that she had already paid i.e. £500. In fact Ahmed had even requested Portia to have a look at the dog before purchasing, a request that she (Portia) turned down. He can use the principle of “caveat emptor” as his remedy defence. This principle means that the buyer should be aware of what he/she is purchasing. The seller is not bound to voluntarily disclose the defects of the goods he is selling. The veterinary surgeon did not fully know the side effects of Felium, the drug that he prescribed for the dog. But he proceeded into prescribing the drug which made it become aggressive and attacked Portia. This amounts to fraudulent misrepresentation because the veterinary surgeon made a statement assuring Portia to continue using the drug knowing that it could develop side effects. His action was reckless and he didn’t show any caring to Portia. Portia had no means of establishing the effectiveness of the drug. Even though he might have been negligent for using the drug, he has the remedy of claiming damages from Herriot for the money he used for buying the drugs and also for the injuries she suffered when the dog attacked her. This is because she totally relied on the misrepresentation in her actions. These facts were held in the case of Redgrave Vs Hurd 1881. In this case, the plaintiff negotiated with H for a sale of his business. He represented that his income from the business amounted to £ 300 per annum. He also evidenced this through some documents. He relied on R’s statement and bought the business. He did not take care to examine the documents. Had he examined the documents, he would have discovered the falseness. It was however held that as it had relied on the statement made by the plaintiff, he could rescind the contract. It could not matter whether he had all the means of discovering the untruth. 5 Relating the above facts before the case of Portia and Herroit, it could be no defence for Herroit to allege that he had warned of the side effects associated with the drug. The truth of the matter is that Portia wholly relied on Herroit’s statement (that of continuing to use the drugs) turned out to be a misrepresentation. She is therefore entitled to be compensated for the loss she suffered. A Similar judgement was also given in the case of Derry vs. peek 1889. In this case, a company stated in its prospectus that it would operate steam trams in plymoath. The directors, when they issued the prospectus honestly believed they would have no difficulty in obtaining the necessary authority from the board of trade to run the trams. However authority was not given and the company was wound up. The plaintiff brought an action against the directors for fraud. It was held that the directors were not liable in damages since the misrepresentation was innocent. CONCLUSION Misrepresentation is a vitiating factor that negates the principle of free consent of entering into the contract. Misrepresentation can either be innocent, fraudulent or negligent misrepresentation. But this case has ventured more on fraudulent misrepresentation where parties made false statements without believe in their truth. Misrepresentation renders the contract voidable at the option of the innocent party, i.e. the contract is valid and binding unless and until the innocent party takes legal steps to render it void. TABLE OF STATUTES 1. With vs. O’ Flanagan 1936 Ch 575 2. Leaf vs. International Galleries 1950 2 KB 86 3. Redgrave vs. Hurd 1881 20 Ch D 1 4. Derry vs. Peek 1889 14 App Cas 337 References Jertz, A. and Miller L. R. (2004): Introduction to Business Law, 3rd Edition, London, Macmillan Publisher Penrose, R (2005): Road to Reality: A Complete Guide to the Laws of the Universe, London, Longman Publisher Read More