Corporation and Business Law

Running head: CORPORATION AND BUSINESS LAW
Corporation and Business Law
Name of the Student
Name of the University
Author Note

1CORPORATION AND BUSINESS LAW
Part A
Issue
Whether legal issue has been raised by the situation.
Rule
Misrepresentation implies a statement relating to law or a material fact that has an
influenced the consent of a party involved in the contract to enter into the contract, which is
false and misleading. In case the offer contains any representation forming part of the
contract and the same has been proved to be misleading or untrue, the same can be
considered to be a misrepresentation. Misrepresentation can be of three kinds namely,
innocent, fraudulent and negligent misrepresentation. The law relating to misrepresentation
has been discussed in the case of Seddon v The North Eastern Salt Co Ltd [1905] 1 Ch 326.
A contract obtained by way of misrepresentation may yield two options in favour of the
party whose consent was so obtained. The aggrieved party may either rescind the contract,
seek damages or ratify the contract.
Misrepresentation must include a false statement regarding a fact, which is material to the
contract and forms an essential part of the contract. The same can be illustrated with the case
of Bisset v Wilkinson [1927] AC 177. In this case, it was held that to bring an action against
misrepresentation, the aggrieved party must prove that the statement must be of a fact which
is essential to the contract and would not include a statement of a fact which is collateral to
the contract. An opinion related to the contract, which does not form the part of the contract
and is remote to the purpose of the contract will not be rendered to be a material fact relating
to a contract. A misstatement of the same will not amount to misrepresentation. The same can
be illustrated with the case of Esso Petroleum v Mardon [1976] QB 801. In this case a

2CORPORATION AND BUSINESS LAW
misstatement of a future sales projection was not considered to be a material fact. However,
misleading statement regarding a statement of law is not regarded as misrepresentation as
was decided in the case of Pankhania v Hackney [2002] EWHC 2441. In this case, it was
held that an action for misrepresentation cannot be brought for misstatement of a law.
However, mere silence towards a fact relating to the contract will not imply
misrepresentation. A person assuming a silence to be a statement of a fact would not incur a
right of misrepresentation based on the assumption. This rule has been applied in the case of
Smith v Hughes (1871) LR 6 QB 597. In this case, it was held that a silence regarding a fact
cannot be regarded as misrepresentation. Again, in case the contract requires one of the
parties to rely his consent upon the statements made by others, then the disclosure of all the
material facts needs to be made and failure of the same would amount to misrepresentation.
This can be explained by the case of HIH Casualty and General Insurance Ltd v Chase
Manhattan Bank [2003] UKHL 6. In case of contracts where one party requires to base his
consent to the contract upon another parties disclosed facts, then suppression of any material
fact will be considered to be misrepresentation.
Application
In the present situation, Sunnybank Pty Ltd entered into a contract with John Gravatt to
sell his restaurant to him. The contract was entered into by the parties based on the facts
provided by Sunnybank Pty Ltd. Therefore, it can be stated that if any statement has been
made by the Sunnybank Pty Ltd, which is false or untrue, then the same will amount to
misrepresentation and will provide John Gravatt with a right to bring an action for
misrepresentation. In such an event, John Gravatt will have an option of either rescinding the
contract or claim damages for the same. In case of his failure to take an action, the contract