Business Law: The Finding of Misrepresentation - Case Study Example

Business Law The finding of misrepresentation permits a misled party to avoid the obligation posed by the resulting contract if the ment eventually turns out to be false’ Misrepresentation is defined by the courts as being false statements of existing facts made by one party to the other which, while not forming a part of the contract, is however among the reasons that induces them to enter into the contact (Taylor & Taylor, 2007). The first part of this article will discuss the statement ‘The finding of misrepresentation permits a misled party to avoid the obligation posed by the resulting contract if the statement eventually turns out to be false’ and following part will explore the statement I do not see how the equitable principle of promissory estoppel can not be justified’ by showing how the principle of promissory estoppel is applied. The attitudes towards pre-contractual negotiations have been changing and as such, the law has presented some relief through misrepresentation and fraud doctrines as a way of helping people who may have been misled while making pre-contractual agreements and negotiations. As a universal law, a party must not, at any time, make any misleading or false statements to another party which may want to use these statements to enter into a contract. Should this happen, the misled party may make a claim of misrepresentation. Even though there is no general duty to divulge material facts, a single word, a smile, a nod or a shake of the head may amount to misrepresentation of a fact if it emerges to be misleading and has been relied upon (Taylor & Taylor, 2007). A finding of misrepresentation allows the misled party to avoid obligations that come with the resulting contract; this is if the statement subsequently turns out to be false. While silence does not otherwise amount to misrepresentation, disclosure done partially may do so. A statement made by a party may omit certain facts that render whatever has been said to be misleading of false. For example, if a comment made during a pre-contractual negotiation to the effect that a piece of machinery had operated for a decade minus hitches and the same statement omits information that it (the machinery) had broken down severally during the 11th year could be interpreted as misrepresentation. This is also the case when a statement is made at a particular time is true then, but to the statement issuer’s knowledge ceases to be true before the contact is entered into. In these cases, the failure to inform the party being issued with the statement of the change in circumstances amounts to misrepresentation. Much of a misrepresentation case is concerned with the determination of the kind of statements that are seen as reasonable and can be relied upon. In this context, fact statements, which are actionable, have been distinguished from other forms of statements that are seen as not being capable of forming the basis of an action. These statements include unverifiable and extravagant sales talk, opinion statements or intention statements. The rationale behind the distinction remains sensible in most cases. It seems reasonable, for instance, to expect individuals to read contracts or seek legal advice instead of relying on statements of law made by laymen. In a similar way, sales talk and statements of opinion are in most cases understood as ‘gust’ which one has to be cautions before believing them. A case in point is Bissett v Wilkinson (1927) in which the vendor of land, which to the knowledge of both parties had not been utilized for sheep farming, made a statement to the effect that the land could support approximately 2000 sheep. The land however, had never been utilized for sheep farming for a period longer that a brief time period and this only happened on a small part of it. The court held that this was but a mere statement of opinion which, when proved to be unfounded, was not actionable (Kelly, Holmes & Hayward, 2005). However, courts have always shown some reluctance to apply the ‘rule’ relating to opinions where one party is in a position to know more about the issue at hand. In Esso Petroleum Co. Ltd v Mardon (1976), an expert’s inaccurate approximation of the future sales figures of a filling station based on negligently prepared data was found to be a ‘considered judgement’ which was actionable (Smith, 1999). If a representee is to lodge a successful claim for misrepresentation, they must also be able to prove that they relied on the statement and that it induced the contract. This are to do by clearly establishing that the misrepresentation was engineered to induce entry into the said contract, and that the representee has, in fact entered and that it is a fair interference that they were manipulated by it. It used to be the case that it was in defence to claim misrepresentation when the representee might have discovered a contract’s falsehood by the application of reasonable care. But, since the enforcement of the 1967 Misrepresentation Act, the judiciary have distinguished between the cases in which, it was reasonable for the representee to make use of an opportunity to discover the truth and those that it was not. Yet again, the courts have shown willingness to look into relative equality of the bargaining power in these cases. For instance, in Smith v Eric Bush (1990), the claimants relied on a negligent valuation of a house they were purchasing which was undertaken by a surveyor under contract to the building society they were using (Clements & Fairest, 1996). Their claim against the surveyor was successful even though they might have found out the truth if they had employed a surveyor of their own. The House of Lords ruled that it was not appropriate for them to take this step as the house was of modest value. This ruling may have been different had the house had a high value or if the case had involved commercial premises. The law currently recognizes four types of misrepresentations and these can be categorised according to the state of mind of the representor. These are fraudulent misrepresentation, negligent misrepresentation, innocent misrepresentation and misrepresentation for which the misrepresentors cannot prove that they believed that the truth was misrepresented. All are capable of causing losses and are actionable but the remedies of the injured party are generally broadest in the case of fraud and much narrower for innocent or negligent misrepresentations. A party that proves that a misrepresentation induced them to enter into a contract, even if it was not the sole inducement, is entitled to rescind the contract or in some cases or in some circumstances claim damages. Rescission entails setting the contract aside and treating it as though it never happened. This means that both the parties must be able to return what they may have exchanged. I do not see how the equitable principle of promissory estoppel can not be justified’ An equitable doctrine that comes from the context of a contract that already exists is known as a promissory estoppel. This part of the article will explore the phrase I do not see how the equitable principle of promissory estoppel can not be justified’ by showing how the principle of promissory estoppel is applied. The promissory estoppel is a new application of an old equitable principle, which has since received a significant level of attention in the recent times. The effect of the doctrine is to hold the promisors to their word and bar them from going back on a variation of a contract where others have depended on it. Be that as may, a number of certain elements must be present if this doctrine is to be invoked. Firstly, there has to be a pre-existing contractual relationship that shows the duties and rights between the concerned parties. Secondly, following the making of the contract, one party must later make a lucid assertion or promise that they fully enforce their existing rights. They may do this for a myriad of reasons some of which may include changing circumstances in the business. Thirdly, it must be intended that the promise be relied upon and the promise must in fact, rely on it. Nevertheless, according to Lord Denning in Alan and Company limited v El Nasr Company (1972), this does not necessarily imply detrimental reliance. In his view, the promisee has to only have been led to act differently from how they would otherwise have acted, for instance, paying the agreed upon lower rent (King & Gutteridge, 2001). The effect of promissory estoppel is to stop the promisor from retracting from the promise and insisting on their legal rights under the existing contract. The distinguishing factor that differentiates this equitable doctrine from the rule established in Williams v Roffey Bros and Nicholls Ltd (1991) is that the emphasis is not on finding consideration for the variation. On the contrary, its focus is on reliance. It is also important to note that this doctrine of promissory estoppel relates, to a large extent to the temporary suspension of the original contract. On providing a reasonable notice, the promisor is able to insist on a resumption of his strict rights (Teeven, 1998). However, this is not at all times possible and in some circumstances, the variation can turn out to be final and irrevocable if positions cannot be resumed. Where rights are only suspended, the promisor can sue to enforce his or her original rights as to the future, but cannot recover any balances owed while the forbearance took effect. Moreover, the general view is that the promisee can only utilize the promise as a defence to such an action, but cannot sue on the promisor’s promise to waive his full rights as he or she provided no consideration for it. Metaphorically put, the equitable doctrine of promissory estopell can be utilized as ‘a shield but not as a sword’ (Kelly & Holmes, 2002). Technically then, it does not create new rights so as to abolish the doctrine of consideration by the ‘back door’ but can only provide temporary relief from unworkable contract in certain situations. The Coombe v Coombe case also showed that the equitable estoppel doctrine can be used as a ‘shield and not as a sword’. In this case, Lord Denning emphasized the point he had stated in the High trees Case (1947) to the effect that equitable estoppel cannot be used to justify the enforcement of a promise for which no consideration has given; it can only be used as a defence to an action. Since it is an equitable doctrine, one among the numerous requirements for its application is that it must be unjust for the promisor to go back on the promise they have given. As a result, the doctrine is applied at the courts discretion. It was on this ground that Lord Denning based his judgement in D&C Builders v Rees (1966). In that case, D&C, which was a small firm of builders, did some work for Rees at a cost of 482 British pounds. Having pressed for payment for several months, they reluctantly agreed with Rees’ wife, who knew they were in financial difficulties, to accept £300 in completion of the account. Mrs Rees told them that if they declined to accept the lesser amount, they would get nothing. D&C later sued for the balance of the original debt (Mead & Sagar, 2006). The court ruled that their promise to accept the £300, which was not supported by consideration from Rees, was a type to raise the estoppel principle but the court decided that it was necessary to take account of the nature of the dealings that had occurred between the two parties. They found that Mrs Rees had held the claimants to ransom and, as such, her conduct amounted to unfair pressure. The judges concluded that as a result, it was inequitable to permit D&C to go back on their promise and recover the whole amount. The High Trees judgement, which reaffirmed the promissory estoppel doctrine, has since found acceptance with the House of Lords, subject to some uncertainty about its limits. Nevertheless, there have been some judicial differences between Lord Denning, who sought to extend the doctrine and the House of Lords, which has given warnings about the need for coherent exposition. The practical result of the establishment and development of the equitable promissory estoppel in the post-world wars years and the decision of Williams v Roffey that an increasing number of revised agreements are being enforced and these agreements reflect fair and commercially viable alterations to agreements. It has become clear that, while traditional doctrines may make sense philosophically, they do not always make sense in the practical context. From the above mentioned cases, it can be seen that the doctrine of equitable promissory estopel is justifiable and therefore, I do not see how the equitable principle of promissory estoppel cannot be justified. References Clements, L. and Fairest, P.B. (1996). Housing Law: Text Cases and Materials. New York: Routledge. Kelly, D. & Holmes, A.E.M. (2002). Business Law. New York: Routledge. Kelly, D., Holmes, A.E.M. and Hayward, R. (2005). Business Law. New York: Routledge Cavendish. King, R. and Gutteridge, H.C. (2001). Gutteridge and Megrahs law of bankers commercial credits. New York: Routledge . Mead, L. and Sagar, D. CIMA Learning System Fundamentals of Ethics, Corporate Governance and Business Law. Oxford: Butterworth-Heinemann. Smith, D. (1999). Company Law. Oxford: Gulf Professional Publishing. Taylor, R. and Taylor, D. (2007). Contract Law Directors. New York: Oxford University Press. Teeven, K. (1998). Promises on prior obligations at common law. 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