Business Law - George and Lucy - Case Study Example

Business Law George, a developing and inexperienced artist, decided to buy a piano. Since his technical knowledge regarding pianos was limited, he relied on the description of the piano, in the newspaper advertisement, made by Lucy. He was convinced by her description, and assumed that the piano was in a very good condition, as had been fraudulently claimed by Lucy. This deceptive statement of Lucy induced George to enter into a contract of sale. George intends to bring in a claim for misrepresentation against Lucy, since the piano, he had bought from her, proved to be defective. The action against Lucy can be based on these claims: Under Section 2(1) of the Misrepresentation Act 1967; in respect of the false statement, that the piano is of a high quality and had been recently valued at £1500. Under Section 14 of the Sale of Goods Act 1979, for breach of an implied term regarding quality and fitness for purpose , in respect of the defective keys on the piano. Under Section 13 of the Sale of Goods Act 1979, for breach of an implied term relating to description by statement, which had specified that, the piano was well maintained and tuned on a regular basis. Under the provisions of the law, an untrue statement of fact made at the time of negotiation, which induces the other party to enter into the contract, constitutes a misrepresentation. There are several remedies available for the injured party, and these remedies depend on whether the misrepresentation was fraudulent, negligent, or innocent1. A statement of opinion cannot be considered to be a fact. The 1967 Misrepresentation Act provides several legal consequences for misrepresentations. There is a difference between innocent, negligent and fraudulent misrepresentations. An innocent misrepresentation would affect a contract. A negligent misrepresentation may result in liability for negligence; whereas, a fraudulent misrepresentation attracts liability for fraud and deceit. In the case of innocent misrepresentation, the remedy available is that the innocent party can rescind the contract, in its entirety2. As such, under the common law, a misrepresentation can be any false or misleading expression of facts that entails a wilful intention to deceive or defraud the other party to the contract. Moreover, advertisements that involve a false representation of facts are also classified under misrepresentation. Therefore, any contract based on misrepresentation, becomes voidable. The party who has suffered a loss, due to having acted upon such misrepresentation, can claim damages3. In Derry v Peek, the court held that it was not necessary to prove mens rea, in order to establish deception by a party. It was sufficient for the plaintiff to establish that the defendant was aware or believed that his statement was false or misleading4. A plaintiff who suffers a loss, due to the fraudulent misrepresentation of the defendant, can claim damages for such loss5. According to this decision, intention to deceive is not an important aspect of establishing misrepresentation. In Hedley Byrne v Heller, it was held that compensation for damages in tort was a distinct possibility for negligent misstatements. In such cases, the party making the statement must have been aware that the party, to whom the statement was made, was likely to rely on that statement, without making any other independent enquiry, in this regard. In this case, the House of Lords held that in acts of tort it was possible to recover damages from the party that had made the negligent or incorrect statements6. It is essential for the other party to the contract to have acted on the basis of such a statement, without having conducted any enquiry. As such, these statements result in a disadvantage to the other party, after it has acted upon it7. In this case the House of Lords decided that in acts of tort it is possible to recover damages from a party for the negligent or incorrect statements, made by it. However, their Lordships stated that such recovery of damages was subject to certain specific conditions. In the case of Spice Girls Ltd v Aprilia World Service BV, the category of misrepresentation by conduct was established8. The Court held that the plaintiff company, the Spice Girls Ltd, had made a representation by their conduct and induced the defendant company to enter into the agreement. A misrepresentation differs from a statement of opinion, and it can render a contract voidable. In this case, the plaintiffs, the Spice Girls Ltd, had entered into a contract in respect of advertisements with the defendants the Aprilia World Service or AWS. This contract was to be effective up to March 1999. Accordingly, the Spice Girls Ltd, participated in the advertisement of the AWS. The company had also supplied logos and images of the Spice Girls. As such, they had induced the defendant company to enter into a contract. After sometime, the Spice Girls Ltd announced that one of its members was leaving the group. The defendant company, the AWS, argued that the Spice Girls Ltd, had been aware of the fact that one of its members was about to leave, at the time of entering the agreement with them9. Thus, the AWS claimed, the Spice Girls had deliberately made a misrepresentation. The Court decided that the plaintiff, the Spice Girls Ltd, had made a representation by their conduct and induced the defendant company to enter into an agreement. It also stated that no member could rescind the contract before March 1999, the date till which the advertisement contract was in force10. The Misrepresentation Act requires the courts to consider the possibility of awarding damages instead of rescission of the contract, in cases where rescission is claimed by the parties. The Act provides a right to the innocent party to recover damages from the other party who had made a misstatement. However, under those circumstances, the injured party is under an obligation to prove that he had faith in that representation, on the basis of reasonable grounds11. The party has also to establish that he had believed the facts to be true, till the time that he had entered into the contract. In case of fraudulent misrepresentation, the injured party can rescind the contract and claim damages in tort for deceit. There is a vast difference between tort in misrepresentation and in a breach of contract.12. Based on the above discussion and case law, in our present problem, the representation made by Lucy can be deemed as Fraudulent; since she knew that the piano was not in a good condition and that it was not of much value, as claimed by her in the advertisement, and in the telephonic conversation, at the time of negotiation. She made a false statement regarding the value and condition of the piano, in order to induce George to purchase it. Hence, Lucy is liable for a claim of fraudulent misrepresentation under the provisions of the Misrepresentation Act 1967, for inducing an innocent customer to enter in to a contract, which proved to be to his disadvantage. George can rescind the contract. He can also claim damages for the fraudulent misrepresentation made by Lucy, under the provisions of Misrepresentation Act. Under the provisions of section 14(2) of the Sale of Goods Act 1979, the goods sold in the normal course of business are to be of satisfactory quality. As such, suppliers will be held liable, if the goods sold, are not of satisfactory quality13. Section 13 states that goods sold by description, should conform to their contractual description. In the absence of such conformity, these goods can be rejected14. In Beale v Taylor, the court held that the plaintiff had relied on the description of the goods, in respect of a purchase; as such, the defendant was liable under the provisions of the Sale of Goods Act 197915. In our present problem, George purchased the piano for his personal use, based solely on the statement of Lucy. The piano did not conform to its original description. This constitutes a material breach of the implied term of conformity of goods with their description. Moreover the piano notes were defective. This constitutes a breach of an implied term regarding quality and fitness. The Sale of Goods Act 1979 provides several remedies for breach of contract of sale to the buyers. These are replacement of the defective goods, repair, partial refund of the price of the goods, rejection of the goods, or a full refund of the price. Moreover, goods are assumed to be defective from the beginning, if a defect occurs within six months of their purchase16. Goods that are sold in the normal course of business must be of standard quality, and this is an implied term. As per the provisions of Sections 13 and 14 of the Sale of Goods Act 1979, Lucy had breached the implied terms of the contract. Hence, George can rescind the contract and reject the goods under the provisions of Sale of goods Act, for breach of implied terms. He can make a claim for the replacement or repair of the piano. Moreover, he can make a claim for damages, for breach of contract under the provisions of the Sale of goods Act. List of References Beale v Taylor (1967) 1WLR 1193 Bradgate, Robert & White, Fidelma, ‘Commercial Law’, Oxford University Press, 2007 Derry v Peek (1889) LR 14 App Cas 337 Hedley Byrne v Heller (1964) AC 465 Misrepresentation, In Collins Dictionary of Law, 2006, [online] [16 December 2009] Misrepresentation, In The Hutchinson Unabridged Encyclopedia including Atlas, 2009 [online] [16 December 2009] Sandra Speares, ‘Law: Contract: Mean what you say, say what you mean is key to prefixture Lloyds List’, March 1, 2000 Misrepresentation Act 1967 Sale of Goods Act 1979 Sale of Goods Act as inserted by the 1994 Act Spice Gils Ltd v Aprilia World Service BV (2000) EMLR 478 Read More