The Advice for Mr Manfredi Purchased a Vegetarian Cafe - Case Study Example

Student’s Name Institution Date Introduction The given case involves an act of misrepresentation. Under the law of contract, misrepresentation is a vitiating factor which allows the innocent party to avoid the contract. Misrepresentation has been defined as a false statement of fact.1 This definition is however not complete given that it lacks the basic requirement of misrepresentation. It can therefore be said that misrepresentation is an untrue statement which is made with an intention of inducing the other party into entering the contract.2 In Australia, misrepresentation is governed by Misrepresentation Act of 1972 which has so far been amended severally. The Act provides for criminal sanctions in case of a person who misrepresents another. It states that in any event where, for the purposes of inducing another into entering a contract, a person misrepresents a particular state of affairs; he or she may be liable to a fine as stipulated in the Act. This Act actually establishes this as an offence.3 Misrepresentation may either be innocent, negligent or fraudulent. Under common law, misrepresentation allows a party to rescind the contract, seek damages where the party has suffered loss. In attempt to look critically into Mr Manfredi’s case, the basic requirements for misrepresentation must be crosschecked against the case in hand. For misrepresentation to have taken place, several requirements must exist. 1) A statement by one party to another. 2) The statement made must be of existing facts. 3) Misrepresentation must induce the contract. 4) Misrepresentation must be material The first thing will be to identify whether all the requirements are met in the given case. Mr Manfredi’s entered into an agreement in the belief that the business was worth more than it actually did. All this having been represented to him by the director of HappyHippie. This in essence amounts to fraudulent misrepresentation under common law. The director inflated the figures so that he could induce mr Manfredi into buying the business. In misrepresentation is, as stated above, supposed to be a misrepresentation of fact4. In Bisset v Wilkinson 5, the representation was only of an opinion which could not constitute an action against the defendant. In his judgment, the learned judge held that "In ordinary circumstances, any statement made by an owner who has been occupying his own farm as to its carrying capacity would be regarded as a statement of fact.... This, however, is not such a case.... In these circumstances... the defendants were not justified in regarding anything said by the plaintiff as to the carrying capacity as being anything more than an expression of his opinion” . One must therefore show that the representation made was not a mere opinion but a fact. In our case, the director of HappyHippie , Elvis Eggplant altered historical accounts which now reflected a much bigger number than the actual figures. Accounts, in companies are documents which are prepared to show the financial position of a company or a business. They are therefore statements of fact and changing them in any to reflect a false position amounts to fraudulent misrepresentation. In the case of With v O'Flanagan 6, a statement that was made before the signing of the contract regarding the income of the business in question was not true at the time of the signing since the owner that not been consistent in attending his work place since he was sick. The income as per the time of signing was way below the stated amount. The Judge in this case held that the vendor was under the obligation to inform the purchaser of the change in circumstances. This case therefore shows that a vendor must disclose all material facts regarding to the profitability of the business. If anything changes the party should disclose the information. There can therefore be no room to have the facts as to the financial position of a business altered whether fraudulently or otherwise especially where the party making the representation knows that the financial position or the facts represented by him are not true or changes with his knowledge and does not inform the other party of the change. Mr manfendi’ s case therefore stands a great chance of succeeding given the fact the financial statements were presented to him in form accounting documents. In the case of Alati v Kruger7 a scenario of documents in print which represented a position that was untrue to the knowledge of the representor arose where it was said that either the representor knew or represented the facts negligently. The innocent party in this case was entitled to rescind the contract and was also awarded cost for the suit and other expenses that had been incurred during the transaction. The innocent party in this case being my Manfendi is therefore entitled to rescind the contract since he entered into the contract in the belief that the business was profitable than it actually was. The other issue that needs to be addressed is if the innocent party relied on the misrepresentation in entering into the contract. Several cases have come up in trying to explain what can be said to constitute a party as having relied on the misrepresentation. Some have argued that if the party would not have entered into the contract had it not been for the misrepresentation, then that may be said to constitute an inducement. In East v Maurer 8, the defendant operated two salons and made arrangements to sell one of the salons to the plantiff. The plaintiff agreed to buy the salon believing that the defendant was not going to operate the other salon in the near future since she made a representation to the plaintiff that she was to relocate to another country. The defendant did not relocate and went on to operate the other salon. The plaintiff suffered losses as a result and went on to claim for damages. In the case, the contract was entered into as a result of a misrepresentation that the defendant would no longer operate the other salon. Had the plaintiff known of that the defendant would not relocate, then possibly she would not have entered into the contract or if she did, she would have would have entered into the contract with the knowledge that the clients may follow the defenadant. There must therefore be the existence of an inducement for the claim to be sustained. Looking at our case, Mr Manfendi entered in to the contract believing that the business will be profitable, had it not been for the representation that the business will be profitable, through the changing or alteration of the accounts, he possibly would not have entered into the contract. The misrepresentation must be material. This cannot be dismissed in cases where the facts misrepresented are not material such as to induce the innocent party into entering the contract, then the aggrieved party might not get relief. Remedies In the above mentioned case of Alati v Kruger the judge in the case lays down the reliefs available for an aggrieved party who claims misrepresentation. The judge brings out the issue of Rescission of the contract. This provides the aggrieved party with a chance to go back to his original position which he was had the contract not been performed. The case of Car & Universal Finance v Caldwell9 further explains the issue of rescission. Other remedies available to Mr. Manfendi include indemnity where he is supposed to be paid for the loss suffered. The case of Whittington v Seale-Hayne 10 explains the issue of indemnity. He may also seek for damages on the loss incurred. Damages are a common law remedy but are also provided for in the statute. Doyle v Olby (Ironmongers)11 explains more on the issue damages on account of fraudulent misrepresentation. The case of Mr. Manfrendi satisfies all the elements of fraudulent misrepresentation. As a result, he is entitled to any of the above listed remedies of misrepresentation. He entered into the contract believing that the business was worth 60% more than it was actually worth. He gets to see the altered documents later after he had entered into the contract. Had he known this fact, he might not have agreed to sign the contract. The law therefore gives him an opportunity to avoid the contract and also seek for damages in case of any loss incurred by him. Bibliography S.A. Stephen, Atiyah’s Introduction to the law of contract (New York, Oxford University press, 2006). H G Beale and W D Bishop, Contract: Cases and Materials (Cases & Materials) (OUP Oxford; 5 ed., 2007) Government of South Australia, Misrepresentation Act 1972 (n.d) Michael H. Whincup, Contract Law and Practice: The English System with Scottish, Commonwealth, and Continental Comparisons (Kluwer Law International, 2006). Read More