Advice Sofia and Her Father on the Legal Position - Essay Example

David Jones was a coin dealer who specialised in American coins, and traded under the "HOCKLEY COINS". Sofia Ali was looking to buy a present for her father, who was a keen coin collector. One day Sofia visited "HOCKLEY COINS" and asked to see a selection of American coins. Her Father had mentioned that he would like to acquire an example of a "Birmingham cent". Apparently, at the turn of the century various American coins were minted in Birmingham and these coins bore the letter "B" in their inscription. "Birmingham" coins were a rarity, with a market value considerably higher than non Birmingham coinage of the same period. David Jones showed her an 1885 cent coin which bore the letter "B" in the inscription. Sofia was delighted to find such a rarity and paid the £3,000 asking price. A few days later she gave her father the coin as a present and he was equally delighted. Three months later, Sofia’s father decided to have his coin collection valued for insurance purposes. An expert from the Birmingham Coin Club viewed the collection. In the course of valuation the expert came across the 1885 cent, but to the dismay Sofias father declared it to be counterfeit. (This was later confirmed by a coin expert at Sothebys who said it was worthless.) Sofia returned to Hockley Coins to demand the return of her money. David Jones apologised for the embarrassment caused but claimed that he sold the coin in good faith, believing it to be genuine, as he could not tell that it was counterfeit he could not accept liability in the matter. He refused to return Sofias money and pointed to large sign- No refunds/Credit Notes only- in the shop. Sofia refused a credit note. Task- advice Sofia and her father on the legal position.(advice them separately) In order to advise Sofia and her father with regard to their legal position it is necessary to consider the law in relation to misrepresentation and examine the elements that they would need to prove in order to succeed in such a claim. The starting point is to refer to the Misrepresentation Act 1967 in order to determine whether either party might be able to substantiate a claim under these provisions. In order for the court to decide that a misrepresentation has occurred they will require proof that the person claiming misrepresentation was induced into entering into the contract as a direct result of comments made by the other party. In law the courts will consider that a misrepresentation has occurred if the plaintiff can show that the respondent made a false statement about the product which induced them into entering into that contract. Historically the courts have recognised three distinct forms of misrepresentation, fraudulent misrepresentation, negligent misrepresentation1 and innocent misrepresentation2. When determining damages it is important for the court to distinguish whether the misrepresentation has been fraudulent, negligent or innocent. The courts will determine that a fraudulent misrepresentation has occurred if it can be proven that the person making the representation to the plaintiff made the statement without belief in the truth of that statement. The courts have regarded the misrepresentation to be fraudulent in instances where the person making the statement knew that the representation was false as well as on occasions where that person was reckless or did not care whether the representation was true or false3. Persons having been deceived in this manner are entitled, under the 1967 Act, to rescind the contract, claim damages or both. If the person making a claim for misrepresentation is basing their claim on the negligence of the other party the 1967 Act places the onus on the respondent to disprove the negligence. This would mean that the respondent would have to prove that he had reasonable ground to believe and did believe up to the time the contract was made the facts represented were true4. Fraudulent misrepresentation was not deemed to have occurred in the case of Derry v Peek (1888)5. In this case the prospectus issued by the company stated that the tram company had power to use steam trams rather that horse powered trams. This was proven to be fraudulent since the company required the consent of the Board of Trade in order to use steam power. Believing the statement to be true shareholders purchased shares in the company and subsequently brought an action against the company for fraudulent misrepresentation when the company went into liquidation. In this particular case the court held that there had been no fraudulent misrepresentation based on the fact that the plaintiffs could not prove that the director lacked honest belief in the statement he had made. Since fraudulent misrepresentation can be difficult to prove most claims for misrepresentation are either brought under negligent misrepresentation or innocent misrepresentation. Negligent misrepresentation is deemed to have occurred where the defendant carelessly makes a representation without having a reasonable basis to believe that the statement is true. Negligent misstatement was first recognised in the case of Hedley Byrne v Heller & Partners Ltd [1964]6 in which the House of Lords determined that it was possible to claim for pure economic loss where such a loss has not occurred arising from a contractual relationship. In this case the plaintiffs were advertising agents who wanted to check the financial position of a prospective customer that had submitted a large order. The plaintiffs asked their bank to get a report from the customer’s bank, Heller & Partners Ltd. The court found that the respondents ought to have known that the information supplied by them might be relied upon by the plaintiff in determining whether to enter into a contract with the customer. In the final summation the court determined that the disclaimer contained in the heading was sufficient to absolve the respondents of liability for the negligent misstatement7. By contrast in Smith v Eric S Bush [1989]8 the court determined that the liability waiver was insufficient to absolve the respondent from liability. In this case the respondents were surveyors acting on behalf of a mortgagee. Having conducted a survey of the property the surveyors stated that there was no significant repairs required on the property. As a result of this the plaintiff purchased the house. Soon after the chimney stack fell down and the plaintiffs brought an action for negligent misstatement. The court held that it was normal practice for a purchaser to rely on the evaluation provided by the surveyor and that to allow the liability waiver to absolve the respondents of liability would breach the test of reasonableness dictated by the Unfair Contract Terms Act 1977. In this case the court found that the respondents should be held liable for the misrepresentation and they were ordered to compensate the plaintiffs for their loss. In the earlier case of Esso Petroleum Co Ltd v Mardon [1976]9 Lord Denning made the stated that negligent misrepresentation should be actionable ‘if a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another…with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable.’ Innocent misrepresentation has been argued in cases where the person making the representation can demonstrate that they had reasonable grounds for believing the false statement to be true10. In general terms where the misrepresentation is proven to be innocent the courts will order the rescission of the contract thereby placing the parties in the position they were in before the contract had taken place. Innocent misrepresentation was deemed to have occurred in the case of Curtis v Chemical Cleaning CO [1951]11 in which the respondents asked the plaintiff to sign a document absolving them of any liability that might be caused to the item of clothing whilst carrying out the cleaning process. In this instance the assistant who asked the customer to sign did not know that the disclaimer included any damage to the fabric of the dress and had wrongly assumed that the disclaimer was only in respect of the beads and sequins12. As a result of this the shop assistant did not alert the customer to the disclaimer for any fabric damage. The court held that the respondents had not deliberately deceived the plaintiff and allowed rescission of the contract on the grounds of innocent misrepresentation. A similar decision was reached in Rex v Kylsant (Lord) [1932]13 in which the court stated that a representation might be literally. In general terms the silence of the respondent does not amount to misrepresentation. There are however a number of exceptions where the courts have rules that silence can be regarded as misrepresentation. This has been deemed to be the case where the plaintiff has been able to prove that the respondent remained silent so as to mask a half truth. Silence has also been discounted in cases where the truth of a statement has changed from when the initial statement was given and the respondent fails to communicate this change to the plaintiff. This was held to be the case in With v O’Flanagan [1936]14 in which the respondent failed to notify the plaintiff that the medical practice had taken a downward turn in profits from that declared in the original statement. As a result the value of the practice had diminished significantly by the time the contract was signed. In this case Lord Wright stated that "...a representation made as a matter of inducement to enter into a contract is to be treated as a continuing representation." In summing up his decision Lord Wright stated that the respondents had a duty to notify the plaintiff of the downward trend and their failure to do so meant that they were liable for negligent misrepresentation. In the particular scenario above it is also necessary to discuss the rights of persons who are not party to the original contract to determine whether they have any right to pursue a claim for misrepresentation. In general terms misrepresentation can only usually be pursued by the parties to the contract, however, the courts have allowed third parties the right to sue in certain circumstances. Under the Contracts (Rights of Third Parties) Act 1999 a person who is not a party to the original contract can bring an action against the respondent if they can demonstrate that a term in the contract purports to confer a benefit on him. In the recent case of Tubzee Ltd v Safron Foods Ltd [2008]15 the court allowed a claim by a third party. In this case the plaintiff was supplying ice cream purchased from the respondent company. Through misrepresentation of the product produced by the respondent customers of the plaintiff company purchased the respondents product believing it to be the plaintiff’s product. The court held that the respondent had negligently misrepresented their product and that the plaintiff’s customers were entitled to claim against the respondent as they had mistakenly believed they were buying the plaintiff’s product. Having considered the various types of misrepresentation it is now possible to advise Sofia and her father with regard to any claims they might have against Hockley Coins. Given that Sofia’s father was not a party to the contract it in the above it could be argued that he is not entitled to rescind the contract, however, following the decision in Tubzee Ltd above, and the wording of the Contracts (Rights of Third Parties) Act 1999, the courts may decide that a benefit would have been conferred on him and therefore he would be entitled to claim. With regards to Sofia, as she was a party to the contract, she should be able to argue that she was induced into entering the contract on the mistaken belief that the coin was genuine. If she can prove that Hockley Coins knew the coin to be fake she could pursue an action for fraudulent misrepresentation. In this particular case David Jones has asserted that he genuinely believed that the coin was not a fake and therefore unless Sofia can prove otherwise it is likely that the court would only consider the actions of David to be an innocent misrepresentation. In such a case the court would allow Sofia to rescind the contract. This would effectively mean that Sofia would not be under any obligation to accept the credit note offered by David as the intention of rescission is to place the parties into the position they would have been in had the contract not been entered into. It is unlikely that the court would endorse the right of David to refuse to give a refund, despite the fact that the shop displays a sign stating no refunds. In order for the court to have given this consideration David would have had to have drawn Sofia’s attention to the sign at the time that she purchased the coin. In this particular case there is nothing to suggest that this happened and therefore the courts are likely to treat the notice as ineffective. Given that the misrepresentation was innocent the courts would be likely to order rescission regardless of any notice given to the plaintiff prior to purchase. Bibliography Beale, HD, Bishop, WD, Furmston, MP, Contract Cases and Materials, 3rd Ed, 1995, Butterworths Bixby M.B., Beck-Dudley C., Cihon P.J. The Legal Environment of Business, (2002). Civil Procedure Volume 1 2002, Sweet & Maxwell Civil Procedure Volume 2, The White Book Service, 2002, Sweet and Maxwell Dignam, Alan J., “Company Law”, 4th ed. / Alan Dignam, John Lowry, Oxford Oxford University Press, 2006 Goode, R M, “Commercial law ”, 3rd Edition, London, Penguin 2004. Harvey, b & Marston , J . Cases & Commentary on Tort, 1998, 3rd Ed, Pitman Publishing Keenan, D and Riches, S, Business Law, 7th Ed, 2005, Longman Mozeley & Whiteley’s, Law Dictionary, 1993, 11th Ed, Butterworths Rose, FD, Statutes on Contract, Tort & Restitution, 10th Ed, 2000, Blackstone’s Treitel, G H. Law of Contract, 1999, 10th Ed, Sweet & Maxwell Curtis v Chemical Cleaning CO [1951] 1 KB 805 Derry v. Peek (1888) LR 14 App Cas 337 Esso Petroleum Co. Ltd. v. Mardon [1976] Q.B. 108 Hedley Byrne v. Heller & Partners Ltd [1964] AC 465 L’Estrange v Graucob [1934] 2 KB 394 Low v Bouverie ([1891] 3 Ch 82 Olley v Marlborough Court [1949] 1 KB 532 Rex v Kylsant (Lord) [1932] 1 KB 442 Smith v. Eric S. Bush [1989] 1 AC 831 Tubzee Ltd v Safron Foods Ltd 2008 WL 4125363 With v. O’Flanagan [1936] Ch. 575 Contracts (Rights of Third Parties) Act 1999 Misrepresentation Act 1967 Unfair Contract Terms Act 1977 Read More