This article discusses the concept of misrepresentation in contract law and its implications. It explains the elements required to establish misrepresentation and the rights of the innocent party. The article also provides case references and legal principles related to misrepresentation.
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Commercial Law
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1 Answer-1 Issue Whether the promise made by N to reduce the rent is enforceable or he can enforce P to give him full rent as well as arrears? Rule When a party makes a promise based on the already existing contractual relationship between parties, then the person is bound by the terms of the promise due to the principle of promissory estoppel (Gan2015, p.55). This is equitable estoppel which protects the rights of the promisee by binding the promisor to his/her promise. The aim of this principle is to ensure that a person did not prevent on his/her promise which would be inequitable or unjust for the promisee for a promise which is made without consideration. The application of this principle can be understood by evaluation of the judgement given by Denning J in Central London Property Trust v High Trees House Ltd[1947] 1 KB 130. In this case, the plaintiff (London Central Property Trust) lent its property to the defendant (High Trees). The defendant told the plaintiff that the flats are not occupied during the period of World War II due to which the plaintiff agreed to reduce the rent of the property (Hudson 2016). After the war, the flats were occupied, and the plaintiff demanded full rent from the defendant as well as arrears. The plaintiff decided to claim the full rent from the defendant for the property along with the rent arrears which were not paid by the defendant during the period of World War II. DenningJestablishedpromissoryestoppelinthiscasebyprovidingthatalthough consideration is not present, but the promise is enforceable. He further provided that the plaintiff can demand full rent; however, it cannot recover arrears because there was evidence that the rent was reduced due to World War II which was ended (Barker 2014). Specific elements were established in this case which is necessary to be present to apply the principle of promissory estoppel. The court held inLegione v Hateley(1983) 57 ALJR 292 that the parties between which a promise is made must be in a pre-contractual relationship. It was held by the court inD and C Builders Ltd v Rees[1966] 2 QB 617 that it must be inequitable in the given scenario to let the promisor go back on the promise. Lastly, it was
2 held in the judgement ofWaltons Stores (Interstate) Ltd v Maher(1988) 164 CLR 387 that the promise must result in altering the position of the promisee due to reliance on the promise and the promisee must suffer a material disadvantage which makes it impossible for the promisee to resume the previous position in the contract. The position of the parties must be changed after the promise which must resulted in change in their contractual position which makes it impossible for them to go back to previous setting. Application Since P was struggling financially, he asked N to reduce the rent of his property. N also had vacant properties, and he did not want to lose P due to which he agreed to reduce the rent. Later, when N was struggling financially, he demanded full rent from P as well as arrears. P can rely on promissory estoppel to stop N from going back on his promise as discussed in Central London Property Trust v High Trees House Ltd. The elements of promissory elements are present. N and P were in a pre-contractual relationship (Legione v Hateley). The availability of consideration is not a key requirement in this principle since the promise can be enforced even if the parties did not exchange a consideration. It would be inequitable for the court to let N go back on his promise because P is still facing financial problems (D and C Builders Ltd v Rees). Lastly, the position of P was altered by the promise, and it would be impossible for him to go back to the original position because his financial condition is still not improved (Waltons Stores (Interstate) Ltd v Maher). N reduced rent because P was facing financial problems and P’s business has still not improved; thus, N cannot enforce him to pay full rent (Central London Property Trust v High Trees House Ltd). Conclusion Based on the above observations, P can make legal arguments based on the principle of promissory estoppel to settle this case. The court is likely to provide judgement in favour of P and reject N’s demands based on the principle of promissory estoppel because all the elements are present.
3 Answer-2 Issue Whether the damages suffered by XYZ due to the failure of ABC are enforceable or ABC can limit his liability up to $150,000 as per Clause 20 of the contract? Rule The contractual parties have the right to enforce the terms of the contract on another party to make sure that they comply with them or else they can claim remedies such as rescission or damages for the loss suffered by them. However, the contractual liability which is raised because of a party’s failure to comply with the contractual terms can be completely eliminated or limited by the parties through exclusion clause (Sims 2012, p. 739). Through exclusion clause (or unfair term), a contractual party can limit his/her liabilities which are enforceable in the contract if the terms of the contract are not fulfilled. However, there are certain elements which are necessary for parties to establish if they wanted to limit their liability by using an exclusion clause. In the judgement ofThornton v Shoe Lane Parking Ltd [1971] 2 QB 163 the court recognised a general rule which parties have to follow if they wanted to rely on the defence of exclusion clause to limit or eliminate their liability. As per this rule, the contracting party that wanted to rely on an exclusion clause to limit his/her liability must take reasonable steps to bring the clause to the attention of the other party. The court held in the judgement ofOlley v Marlborough Court Ltd[1947] 1 KB 532 that if the clause is not brought into the attention while the contract is forming or before its formation, then it cannot be a part of the contract. However, there is an exception to this rule in which the exclusion clause is considered valid by the court even if it is not brought into the attention of the other party. In the judgement ofL’Estrange v F. Graucob Ltd[1934] All ER 16, the court recognised this exception. It was held that by the court that if the exclusion clause is a part of the written contract, then its general rule did not apply to determine its validity. The court provided that even if the party was not aware of the exclusion clause or he/she did not understand the clause, it will be considered as valid if it is a part of the written contract between parties. Therefore, the parties can avoid the enforceability of the general rule of exclusion clause if they include it intothe written
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4 contract which is signed by the contracting parties which allow them to limit their contractual liability. Application While signing a contract to provide the service of electrical engineering specifications in the building of XYZ, ABC included an exclusion clause in the contract under Clause 20. As per this clause, the contractual liability which may arise due to performance or non-performance of the service will be limited to $150,000 maximum. XYZ suffered a total loss of $600,000 because due to fire in the building which was a result of the failure of ABC to correctly calculate the materials which were used in the fittings of the building. XYZ can make a claim against ABC to recover $600,000 by stating that the company was not aware of the exclusion clause. ABC did not rely on the defence of this exclusion clause to limit its liability because the general rule was not fulfilled because the company did not take reasonable steps to bring the clause into the attention of XYZ while they were signing the contract or before the formation of the contract (Olley v Marlborough Court Ltd). However, the clause was part of a written contract which was formed between XYZ and ABC based on which the exception provided by the court in the case ofL’Estrange v F. Graucob Ltdapply in this scenario. Since the clause was a part of the written contract, it is considered as valid due to which ABC can limit its liability. Conclusion Based on the above observations, XYZ can only recover $150,000 in damages from ABC because of the exclusion clause which was included in Clause 20 of the contract which limits the liability of ABC.
5 Answer-3 Issue Whether Yul has the right to terminate the contract with Zig and give back the business and the property by claiming a refund? Rule Misrepresentation is referred to a false statement which is made in order to induce a person to enter into a contract. If a contract is formed based on misrepresentation, then it gives the right to the innocent party, who signed the contract while relying on the false statement, to set aside the contract as it becomes voidable (Cartwright 2012). Generally, these statements are made by the parties during the negotiation stage of a contract to influence the decision of another party. While proving that the contract is formed based on misrepresentation of facts, there are certain elements which parties have to establish. The court provided in the case ofBisset v Wilkinson[1927] AC 177 that the first element is that the party must make a false statement regarding the fact or law rather than a statement to estimate future events or providing a personal opinion. It is important that the person makes a statement as opposed to mere silence because it cannot be constituted as a valid misrepresentation as provided by the court inSmith v Hughes(1871) LR 6 QB 597. Although non-disclosure of facts also did not consider as misrepresentation; however, the court considered it as a misrepresentation in the judgement ofKrakowski v Eurolynx Properties Ltd(1995) 183 CLR 563. The court provided that any information which is significant to the formation of the contract which is likely to change the decision of another party must be disclosed by the party or else it constitutes as misrepresentation. The parties that have made the false statement must be in a position where it would be reasonable to assume that he/she knew the facts as provided by the court inSmith v Land & House Property Corp(1884) 28 Ch D 7. The element inducement or reliance must be present in the case which must provide evidence that the false statement was the reason due to which a party signed the legal contract. In case the representee is aware of the statement false, then the element of inducement or reliance cannot be established. In the case ofRedgrave v Hurd(1881) 20 Ch D 1 the court provided
6 that if an opportunity is given by the representor to the representee to check the validity of the false statement and the representee did not check the facts, then they can still demonstrate the presence of reliance on the statement. The court provided that as long as it is demonstrated that the party show reliance on the false statement, the contract is considered as voidable based due to misrepresentation (Beale 2016, p.356). Application During the negotiation stage of the contract, Yul asked Zig whether the timber in the property has white ants. Zig replied that the timber is good and he gave the opportunity to Yul to check it himself after which he changed the topic of the conversation. Yul showed reliance on the statement of Zig, and he signed the contract after which he found white ants in the timber of the property. Therefore, as discussed inRedgrave v Hurd, Yul can demonstrate reliance on the false statement of Zig. As the former owner of the property, Zig was in the position to know the truth due to which it is considered as misrepresentation (Smith v Land & House Property Corp). Moreover, Zig asked Yul whether he is aware of the news of the local factory that is in the business of making car mirrors. Yul replied that he heard that the company is moving. Zig knew that the local factory is a major client of the business and it is shutting down after some time. However, he also knew that this statement would change the decision of Yul; thus, he did not disclose it to him. As provided in the case ofKrakowski v Eurolynx Properties Ltd, an information which is significant in the contract and that can change the decision of another party must be disclosed by the party or else it is considered as misrepresentation; therefore, the non-disclosure of information by Zig is considered as misrepresentation due to which the contract becomes voidable, and Yul can rescind it. Conclusion Based on the above observations, it can be concluded that Yul has the right to terminate the contract because it was formed based on misrepresentations made by Zig and he can claim arefundfromZig.Thenon-disclosureoftheinformationalsoconstituteas misrepresentation because its might have changed the decision of Yul.
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7 References Barker, D 2014,Law made simple, Routledge, Abingdon. Beale, H 2016, ‘Penalty Clauses in English Law’,European Review of Private Law,vol. 24, no. 3, pp.353-372. Bisset v Wilkinson[1927] AC 177 Cartwright,J2012,Misrepresentation, mistakeandnon-disclosure, Sweet & Maxwell, London. Central London Property Trust v High Trees House Ltd[1947] 1 KB 130 D and C Builders Ltd v Rees[1966] 2 QB 617 Gan, O 2015, ‘The Justice Element of Promissory Estoppel’,John's L. Rev.,vol. 89, p.55. Hudson, A 2016,Understanding equity & trusts, Routledge, Abingdon. Krakowski v Eurolynx Properties Ltd(1995) 183 CLR 563 L’Estrange v F. Graucob Ltd[1934] All ER 16 Legione v Hateley(1983) 57 ALJR 292 Olley v Marlborough Court Ltd[1947] 1 KB 532 Redgrave v Hurd(1881) 20 Ch D 1 Sims, A 2012, ‘Unfair contract terms: A new dawn in Australia and New Zealand’,Monash UL Rev.,vol. 39, p.739. Smith v Hughes(1871) LR 6 QB 597 Smith v Land & House Property Corp(1884) 28 Ch D 7 Thornton v Shoe Lane Parking Ltd[1971] 2 QB 163 Waltons Stores (Interstate) Ltd v Maher(1988) 164 CLR 387