Misrepresentation in English Contract Law from an Economic Perspective - Case Study Example

Business Law Name: Course Tutor: Institution Department Facts In the present case study, Bob has always loved to work, ride, and deal with bikes. Recently, he has been working in various sporting organizations but after a disagreement with his boss he has decided to move into business. Accordingly, through an advertisement Bob learns about a business run by Mr. Spoke- a bicycle store. Interested, Bob inquires about the business from Mr. Spoke and is given all relevant documents including financial statements. The presented documents indicated that the store had been operating well and that it was financially good for the past. Nonetheless, after engaging the help of his former classmate and an accountant, they realized that the sales had been inflated by 55% so as to coarse Bob to purchase the store. As such, for the business to keep running Bob would have to inject more capital. Issue Based on this, there are numerous issues that emerge from the aforementioned case study including: Analyzing the legality of the contract between Bob and Mr. Spoke- if the contract is legally binding or not. Secondly, to evaluate if there are any remedies for the rights of Bob in the contract under the law of contract. Rule In this case study the most relevant law is the law of contract. This case will be guided by the principle underlined in the Australian business laws in relation to binding contracts. Another rule relevant in this case involves misrepresentation and the law of tort. Lastly, the case will heavily rely on common law in Australia to arrive at the most appropriate conclusion according to the set precedent. Analysis Principally, misrepresentations are false statements made by one party in a contract inducing the other party to enter into a contract. In many instances, a representation very significant in a contractual setting, since, promises are considered to be part of a contract’s consideration, making them be contractual terms1. As such, a court takes the position that if one of the contracting parties perceived a statement to be of significance, such as statement would have been included as a term of the contract. Nonetheless, representations under the Australian law is not enforceable as terms of contracts but, contracting parties that have been misled by a misrepresentation of facts have their protection under the law of misrepresentation. However, the difference exists at the time of discovery of the maker of the statement (was at the time of the contract, and its significance to the party relying on it). In most cases, the representor and the representee are the involved parties for misrepresentation. Under the Australian constitution, it is underlined that if the representee is not a party to the contract, then the representee can claim remedy on the representor. However, the contract remains enforceable when representor is not linked to the contracting party, through vicarious liability, common design or as an agent2. To prove representation, legal requirements demands that; they can must qualify to be either written or oral, the made statement must have been made with respect to an existing circumstance and a past event, and not a statement of intention. Further, they should be promises concerning some impending conduct and are by and large excluded. Nevertheless, statements of future conduct may be presumed to represent future intentions- For example, a business person with the intention of supplying goods in the future but factual has no ability to supply, or instances where representation is made to supply but the representor does not have the with the intention to supply. Statements of intention would not be misrepresentations any if the presenter of such a statement had a premeditated intention to carry out the expressed deed3. Accordingly, to pass as misrepresentation, the maker of the statement should be proved by having a better knowledge or way of knowing the information in concern than the receiver. Similarly, under the Australian laws, silence does not amount to a misrepresentation, not unless it is a contract of the utmost good faith, the statement was half-truths, instances where the circumstances since a true prior statement was made have changed, or one of the contacting party was in a fiduciary relationship to release information for the benefit of the other external parties. More so, representation passes when the made statement is unambiguous when judged in a common sense way within the context of the existing circumstance4. Fraud is another dimension of misrepresentation where a party to the contact misleads the other so that they can gain or take advantage of the unforeseeable facts. Subsequently, the disadvantaged party suffers injuries because of relying on the misrepresentation. Under business, law fraud occurs when there is a misrepresentation of material facts that if that would have changed the judgment of the offeree had they been truthful5. Additionally, it can be through reliance where the injured party is presumed to have solely relied on the made statement or promise and thus the injury. At this point, it is evident that there exist fraud and misrepresentation of facts in the present case. Mr. Spoke knowingly forged his documents so that he gain wrongfully from Bob. In such an instance, Bob has a right to rescind the contract promptly after learning the fact, and he must clearly express his intentions to cancel that contract. Fraud is rewarded damages as well as punitive damages for the tort of dishonesty6. However, at some instances, a person cannot rescind and at the same time argue for damages. As such, they are required to choose which remedies fits them best. Further, it is evident that Bob fully relied on Mr. Spoke’s information thus the principle of at most faith is applicable7. This fact is strengthened by the fact that Bob did not have any prior knowledge about business, and he made his judgment solely depending on the records presented by Mr. Spoke. Finally, the issue of tort arises in this case whereby the defendant (Bob) is owed a duty of care to the plaintiff (Mr. Spoke). It is evident that Mr. Spoke owed Bob a duty of care to inform him accordingly as an expertise in the bicycle industry, but he failed to fulfill his obligations. Consequently, this breach caused Bob a financial loss/ injury which was to inject more capital into the business. As such, Bob has the right to demand damages caused both emotionally and financially. In this instance, the damages may include full compensation for the contractual value or a compensation cover the added capital. This move is well represented in a recent ruling by an Australian high court which stated that negligence is not “fixed determinate” on the measures of the conduct that it dictates and that it is also pleaded with respect to injuries it effects indirectly and subsequent ‘ripple’ effect[Sul01]. Conclusion In summary, common law misrepresentation has a blurred boundary with the provisions of statutory misleading conduct and in practice is only significant where the Competition and Consumer Act 2010 falls inadequate, that is, in non-trade contexts. As such, a consequential pre-contractual misrepresentation happens in instances where one party makes a 'false representation' either through word of mouth or in writing. Accordingly, the representation is one of fact and not as a statement of opinion or a future prediction. Thus, such a misrepresentation must be made to the other contracting party so as to coarse them into agreeing with the contractual terms. Generally, the most appropriate remedy for misrepresentation is rescission- damages are not awarded unless the misrepresentation establishes a tort – meaning that the misrepresentation is also a fraud and involves negligence. More so, even where misrepresentation is proved, rescission still has limits – primarily, if compensation is not rewarded, the right to rescind is denounced8. In this instance, Bob has full proof of both misrepresentation and fraud by Mr. Spoke. This is indicate by the fact that Mr. Spoke intentionally forged, falsified the financial records son that he can coarse Bob into buying the shop. Secondly, as explained earlier, the Constitution explains the expectations of contractual relationships, and this has been proved through the outlines of the constitution under the law of contract9[Na13]. Similarly, the Australian courts have set precedents through numerous court cases to supplement the constitution. Therefore, both these rules are applicable in this case and it is a fact that a contract entered through misrepresentation of facts is not enforceable, and the defendant has a right to rescind as well as to get a damages for injuries resulting from the misrepresentation. Lastly, if the case proves to be fraudulent like in the present case study the plaintiff (Mr. Spoke) is further liable for criminal charges according to the Austrian constriction. Bibliography Sul01: , (Sullivan v Moody, 2001), Na13: , (N.a , 2013), Read More