Common Law Misrepresentations Arising from the Contract - Essay Example

Name: Instructor: Course: Date: Contract law case analysis Existence of a contract A contract is said to exist where there is an agreement between the parties accompanied by consideration and an intention to be bound by the agreement. Before the parties can enter into a valid agreement, they must have the legal capacity to enter into a contract.1An agreement in contract law is entered into through an offer and acceptance. An offer is a promise, by one party, to do or not to do something. In order for the agreement to be complete, the other party, to whom the promise has been made, must accept the offer. Such an acceptance is a communication by the other party showing willingness to be bound by the terms of the offer made. In Carlil v Carbolic Smoke Ball Co.2 the court held that once an offer is made, an agreement arises once another person, to whom the offer was directed, accepts that offer.3 Consideration, on the other hand, is the price paid for the promise made by the other party.4 For a contract to be binding there must be consideration. Further, once consideration has been paid, it must be clear from the agreement and the circumstances of the case, that the parties intended to be bound by the agreement. The payment of consideration is in most cases a sign that the parties intended to be bound by the agreement.5 In this case, Mr. Spoke advertises the sale of his bicycle store business. Bob happens to see the advertisement and decides to follow up. In the process, Bob makes an offer to buy the business and Mr. Spoke showed him the profitability of the business to induce him to buy the business. Once this was done, Bob and Mr. Spoke entered into an agreement which was cemented by the payment of consideration in form of the purchase price paid to Mr. Spoke. It is clear from the facts of the case that the parties intended to be bound by the agreement.6 Common law misrepresentations arising from the contract Bob enters into a contract for the purchase of a bicycle store from Mr. Spoke. Before the making of the contract, Bob decides to enquire from Mr. Spoke regarding the profitability of the business since he did not know much about running the business. Mr. Spoke uses the opportunity to provide false information in order to induce Bob into making the contract for the purchase of the business. The figures presented by Mr. Spoke in the form of historical accounts were not accurate. Mr. Spoke knew that the information was inaccurate but he went ahead to use it. Such conduct constitutes a misrepresentation under common law. A misrepresentation is an untrue statement made before the making of the contract in order to induce the other party into entering into the contract.7A misrepresentation generally renders the contract voidable giving the representee the right to seek remedies for the misrepresentation. In this case, Mr. Spoke intentionally makes false statements in regard to the profitability of the business just to induce Bob into purchasing the business. This constitutes fraudulent misrepresentation. The court in Derry v Peek8 defined a fraudulent misrepresentation as a false statement that is made knowingly or without belief in its truth or recklessly as to whether it is true or false. Mr. Spoke was aware that the statements in regard to the profitability of the business were incorrect. He, however, went ahead and made the statement with the purpose of inducing Bob into the contract.9 The party to whom the statements were made has to rely on the information relayed to him for a misrepresentation to be said to exist. In Mutual Life & Citizen’s Insurance Co Ltd v Evatt10it was held that the person making the misrepresentation must know that the other party would rely on such representation and therefore holds himself out as having some special skill. In this case, Bob had no experience in running a business and hence when he enquired about the profitability of the business, Mr. Spoke knew or ought to have known that he would rely on such information. Bob actually relied on the representation in regard to the profitability of the business in entering into the contract. He saw the business as an opportunity to actualize his dream of running a bicycle store. From the facts of the case, it is clear that the representation made by Mr. Spoke was false and was meant to induce Bob into making the contract. Bob relied on the information and entered into the contract. Later on he realized that the information was false and that he would require more money to keep the business running that he had thought. Had he known about this he would probably not have entered into the contract. Under common law, rescission is available as a remedy to misrepresentation. Once Bob decides to rescind the contract, the contract would be terminated ab initio once he has informed Mr. Spoke of the decision to rescind the contract.11 Misleading or deceptive conduct under the Australian Consumer Law Misrepresentations that are made before a contract is made can give rise to statutory remedies under the Competition and Consumer Act 2010 (Australian Consumer Law).Section 18(1)12prohibits a person in trade and commerce from engaging in conduct that is misleading or deceptive or conduct that is likely to mislead or deceive another party.A wide range of remedies are provided under Chapter 5 of the Australian Consumer Law (ACL).13 These remedies include damages, injunctions and compensatory orders which can be made by the court.The reference to trade and commerce in section 18 extends to contracts entered into between persons or between companies.14 In this case, the provision in section 18 of ACL applies to the contract formed between Bob and Mr. Spoke. Mr. Spoke uses false information to induce Bob into entering into the contract for the purchase of the bicycle store.15 In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd,16 the court interpreted the words ‘engage in conduct’ to mean either spoken, written words or even the refusal to do something which includes silence. In this case, Mr. Spoke actually made statements in regard to the profitability of the business. The spoken statements fall within the ambit of section 18.17 Misleading or deceptive conduct as provided for in section 18 was interpreted by the court in Henjo Investments Pty Ltd18 case to mean any conduct that is meant to lead or induce another person into making an error. Whether conduct will be regarded as misleading or deceptive will depend on the knowledge of the representee and the skill of the representor. In this case, Mr. Spoke was well versed in the affairs of the business while Bob was not aware of how to run the business. He did not know that the information was inaccurate. This means that Mr. Spoke’s conduct falls within section 18 of ACL and therefore constitutes misleading or deceptive conduct.19 Chapter 5 of Australian Consumer Law provides a variety of remedies. However, in relation to contracts entered into as a result of misleading or deceptive conduct, the favorable remedy would be damages. Injunctions would be of little value where a contract has already been entered into.A person who has suffered loss as a result of misleading conduct can recover the amount of the loss or damage.20This means that Bob has the right to recover the total cost that would be required to make the business work. The extra cost for running the business was a direct consequence of the misleading conduct hence Bob can be able to claim for compensation.21 Conclusion Mr. Spoke’s conduct amounts to a misrepresentation under common law. Bob therefore has the right to rescind the contract and would therefore be restored to the point he would have been had the contract not happened. Under the Australian Consumer Law, Bob can be able to seek damages for the extra cost that would be required to make the business run effectively and compensation for any other loss that may have arisen from the misleading conduct. Work cited Thampapillai, Dilan. ‘Misleading and deceptive conduct.’Australian Commercial Law (2015): 462. Eivazi, Kathy. ‘Google liability for misleading or deceptive conduct: Australian perspective.’Computer Law & Security Review 30.5 (2014): 579-585. Carter, John W., David J. Harland, and Kevin E. Lindgren. Contract law in Australia. (MICHIE, 1996). Healey, Deborah, and Andrew Terry. Misleading or deceptive conduct. (CCH Australia, 1991). Paterson, Jeannie, Andrew Robertson, and Peter Heffey. Principles of contract law. (Lawbook Co., 2005). Griggs, L. D. ‘Australian Consumer Law-An overview, unfair contracts, consumer guarantees and remedies.’Australian Consumer Law. 2011. Competition and Consumer Act 2010 (Cth) Corones, Stephen G. The Australian Consumer Law. (Thomson Reuters, Lawbook Co., 2013). Treitel, Guenter Heinz. The law of contract. (Sweet & Maxwell, 2003). Ayres, Ian. Studies in Contract Law. (Foundation Press, 2012). Chen-Wishart, Mindy. Contract law. (Oxford University Press, 2012). Craswell, Richard. ‘Taking Information Seriously: Misrepresentation and Nondisclosure in Contract Law and Elsewhere.’Virginia Law Review (2006): 565-632. Anson, William Reynell, et al. Anson's law of contract. (Oxford University Press, 2010). Knapp, Charles L., Nathan M. Crystal, and Harry G. Prince. Problems in contract law: Cases and materials. (Aspen Publishers, 2003). McKendrick, Ewan. Contract law: text, cases, and materials. (Oxford University Press, 2014). Read More