Contract and Problem-Solving essay

General Introduction

In law, misrepresentation is a tort where one makes an assertion or a manifestation through words or even conduct that is not in line with the facts. The definition of misrepresentation is made up of three important elements that include:

  1. There should be a false statement of the facts. According to Chen-Wishart, this is where there a test of falsity and a determination could be made in order to determine as to whether the statement is substantially correct. The term statement could mean mere action in some cases and not the words used.
  2. The facts that are false are material to the terms being agreed in the contract.
  3. The false statement led to the contract.
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Misrepresentation has to be based on a statement of facts and not a statement of law or opinion. This is important since both parties entering a contract have to be aware of what makes up provisions of the law and, therefore, cannot bring to court an issue that is related to substance of law or opinion. McKendrick points out that in Bisset v. Wilkinson, a statement of opinion is not misrepresentation of fact only if the individual had no grounds for basing the opinion. In Pankhania v. London Borough of Hackney, it was determined that unless one makes misrepresentation of law without a reasonable basis, it is not considered as misrepresentation.

The statement of fact basically is held by one of the parties and is not reasonably known to the other party who relies upon it to make a decision on the contract. Misrepresentation being a tort means that one will face civil liability in any case the false statement leads to loss to the other party that relied on the information that has been misrepresented. The only means through which one may be able to create liability to the maker of the false statement is through proving that he or she did rely on such facts and by so doing, one did face some loss.

Types of Misrepresentation

For one to be in a position to determine the remedies that are available, it is important for one to provide an explanation that differentiates various types of misrepresentation.

  • Fraudulent Misrepresentation

This is also known as deceit. It involves false statement that is made without belief in truth, knowingly or recklessly without being sure that it is actually true. McKendrick affirms that this was the case in Derry v. Peek. The intention of fraudulent misrepresentation is to deceive the other party into a contract that may not be favourable to him/her.

  • Negligent Misrepresentation

This is a situation in which the misrepresentation that is made is not fraudulent and has not been made fraudulently. Stone and Devenney explain that this involves a case where the statement that has been made is made in a careless manner. In common law, where there is a relationship between the two parties and the one is under duty for ensuring that the information given is reasonably correct, this is illustrated in Hedley Byrne v. Heller & Pnrs.

  • Innocent Misrepresentation

This occurs in a case where the misrepresentation is not negligent and not fraudulent at the same time. The individual making the statement believes in the form of truth of the statement at the time of making it and did not have any grounds to honestly believe that the statement made was not true. DiMatteo reiterates that before Hedley Byrne v. Heller & Pnrs, it was understood that all cases being not fraudulent in nature were actually innocent.

Assessment Task

Facts of the Case

Stuart is the property developer with important knowledge in the respective field. This means that any individual that deals with Stuart believes in his position when it comes to matters that are related to property development. Calaborough Surveyors Ltd carried out a survey and found out that there was damp in flats 3, 4 and 5, and the cause of the damp could be originating from the basement. The company advised Stuart that further research should be done to determine the real cause of the dump. However, Stuart did not carry out any further investigations but only decided to make quick repairs to the affected areas and decided to sale the property. This was done even with the knowledge that there was a need for determining the real cause and dealing with it.

The other important element of the case is the fact that Stuart had rented the flats to tenants. Some of the tenants were defaulting in terms of rent payments for several months and were still residing in the apartments. The fact that some of the tenants were defaulting makes up key information that would be relied upon in any case someone was planning to buy the property. Marion needed to invest, and was looking for the best property in which she could invest in after having made some money from the capital market. She was able to identify Stuarts advertised property and relied upon the information, which was provided by Stuart before purchasing the building. She relied on the fact that Stuart is an expert in this field and that his word was a true reflection of the state of the buildings and the flats.

Nature/Type of Misrepresentation

Stuart made important statements to Marion that were actually false, and he made those statements knowingly having received a report from Calaborough Surveyors Ltd, which actually stated that there was a dump in some of the flats and that it was important for Stuart to commission further contracting work in order to determine exactly where the source of the problem was. It means that even though Calaborough Surveyors Ltd did not fully determine the exact source of the problem, Stuart was careless with the truth as he did not carry out the instructions, which were given to him by Calaborough Surveyors Ltd that asked him to carry out further investigations to determine what could be the cause of the problem.

There are up to six important elements that are known to make up fraudulent misrepresentation. Chen-Wishart opines it is important that someone must be able to make a false statement. Marion enquired about the soundness of the building and Stuart stated that his builders had done an extensive work on the building and that it was completely sound. Stuart is giving an affirmation that the building is sound, yet there was no extensive work done apart from a few repairs that were carried out within the affected areas. Marion also enquired about the tenants and she was told that the tenants were good and were always paying regularly. This was also not true as there were some tenants who had defaulted in their payments.

The misrepresentation has to be material to the transaction to be considered as fraudulent. For this case, the statements given by Stuart to Marion were directly related to the contract involving the purchase of the building. It was important that Marion understood the condition of the houses and the behaviour of the tenants before buying the building. This was an important aspect of the terms of contract as Stuart was supposed to pass a property that is suitable for the purpose.

The other element is that misrepresentation has to be made with the knowledge of the fact that it falls or has a reckless form of disregard as to whether it is true or not. Stuart knew that some of his tenants did not pay the bills in time and that he has had trouble collecting rent a couple of months before. He knows about this fact, but he did not disclose it to her. As Mitchell explains, Stuart had a reckless disregard as to whether the building was in right condition or not. He did not carry out further investigations to determine the real cause of dump.

The intention of the misrepresentation has to be tailored in such a way that it will dupe the other party into the contract. Stuart needed to sale the building, and the fact that he knew the poor condition of the building and the bad status of the tenants would ruin his bargaining power. Therefore, he decided to go with a lie as to what the true condition of the building was.

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It is also expected that the other party has to rely on the lie when it comes to making the decision for this to be a fraudulent misrepresentation. Marion was obviously depending on Stuarts word in her decision whether to buy the building or not, and Stuart actually provided false information which she relied upon to make an important decision.

It is crucial to note that fraudulent misrepresentation has to be a positive form of assertion, and it has to be that thing, which is aimed at inducing or deceiving the other party. It can be inclusive of gestures and be a simple form of silence to some extent when it would have been expected that one would talk the needed truth.

Remedy

There are various forms of remedies that are available for the aggrieved party when it comes to misrepresentation. Most of these remedies are applicable in this case and could be applicable for Marion in her bid to seek for justice.

Rescission

This is an equitable remedy and is available for all forms of misrepresentations; be it fraudulent, innocent, and negligent. In this case, it means that the innocent party may decide to rescind the contract or to go ahead and affirm its content in the case. In rescission, the main intention is to ensure that the parties are taken to their original position before they entered into the contract. McKendrick states that in general, the innocent party can decide to notify the representor to rescind as it was in the case of Car and Universal Finance Co. Ltd v. Caldwell. Rescission is a remedy that can be applied to Marion in her quest to get back to her original position before entering the agreement with Stuart. All she needs to do is to prove that the contract she entered into was due to misrepresentation by Stuart and that she has suffered loss due to the false statements made. Stone and Devenney inform that there are situations, which may not allow Marion to rescind the contract, and they include the one when she had already affirmed the content of the contract as it was determined in Long v. Lloyd. She would also not rescind the contract in any case because she had already shown some interest in the property in good faith.

The right to rescind a contract is lost in the case one takes longer than reasonable time during which he/she can rescind. In any case, Marion would have realized that Stuart had misled her, and she did take a long period of time before rescinding the contract. It would be assumed that she is okay with the provision of the contract and that she would find no reason to alter its content. DiMatteo confirms that the lapse of time is only applicable from that time when it is actually discovered that there was misrepresentation of fact during the negotiation process. This exemption does not work when it comes to fraud or breach that is related to fiduciary duty.

Damages

The damages that are available for Marion are related to tort of deceit. As the innocent party, Marion can manage to recover all the losses that she would have suffered, and this is inclusive of any consequential losses, which are directly related to the breach because of misrepresentation. McKendrick asserts that this was the case in Doyle v. Olby (Ironmongers) Ltd. As the innocent party, Marion is eligible to get back the compensation for all the losses that she suffered after entering the contract. It is the role of Stuart to actually tell the court that as per time of entering into the contract, he actually believed that the information that he gave to Marion was true.

It is important that Marion should be able to prove to the court that Stuart made grievous misrepresentation during the negotiation before they entered into the contract, and that she relied upon the misrepresented information when making the decision to enter into the contract. To get compensation for the damages, she will have to prove that she suffered losses due to the contract, and that she stands to be compensated or returned to her original value before the contract.

Summary and Conclusion

Maxims of equity basically make up the principles that were developed under the English Court of Chancery and other courts that have been used in administering justice under the jurisdiction of equity. The first maxim where equity will not suffer unfairly with any remedy is very important. This is an indication that every wrongdoing under equity must be rectified through a remedy. From the case, it is apparent that Marion has been duped into a contract which will amount to her suffering loses rather than gaining from the contract. She does not need to worry since she is covered by common law.

Stuart has managed to misrepresent the true status of his building in order to induce Marion into buying the building. This means that Marion has to incur some extra costs in terms of repairing the damages while dealing with the dump and to take in some losses from tenants who have not been paying their rent. Such information was critical to the contract, but it was hidden by Stuart due to the fact that he clearly understood that he will not be in a position to seal the deal in any case he states the true condition of the building.

The above case is a case of fraudulent misrepresentation, where Stuart has knowingly misinformed Marion with intention to deceive her. In the process, the woman has suffered losses due to the misinformation which she relied heavily upon. She has to incur more in terms of repairing the building and to take in losses from the tenants who are no cooperative when it comes to payment of the rent. The law offers remedies to such people as Marion who suffer misrepresentation. The remedies come in two forms which include rescission and damages. Rescission involves the situation where the innocent party can be taken back to its original position before entering into the contract. The contract is therefore deemed as being null and void for the sake of the aggrieved party.

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Contract and Problem-Solving essay

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