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Types of Misrepresentation - Doc

   

Added on  2021-06-14

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Question 1The issue in the present case is related with the misrepresentation that has been made by Jessicaregarding the fact that the restaurant was making an annual profit of $10,000 while the realitywas that the last five years; the business has been making a profit of only $2000. On the otherhand, Angela had relied on this statement and was induced to enter into the contract for thepurchase of the restaurant. Now Angela wants to know what position under the common law. According to the common law, a misrepresentation can be described as a false statement of factor law. Such a statement should have induced the other party to enter the contract. The lawprovides that when a statement has been made by the parties while they were involved innegotiations, that statement is known as representation instead of a term of the contract.Therefore, if such statement turns out to be untrue, the other party may take action formisrepresentation. In this regard there are three types of misrepresentation. These are innocent,misrepresentation, negligence and fraudulent misrepresentation. When it has been found that amisrepresentation has been made by a party to the contract, the contract becomes voidableabsorption of the other party. Therefore, although a valid contract is present between the partieshowever, it can be set aside by the other party to the representation was made. The remediesavailable to the other party depend on the type of misrepresentation. However, generallyremedies for misrepresentation consist of recession of contract and/or damages. A statement can be treated as actionable misrepresentation if the following requirements aresatisfied.

False Statement: A false statement should have been made by one party regarding fact or law asagainst the opinion of such party or estimate regarding future events (Bisset v Wilkinson,1927).It also needs to be noted that generally a false statement of law is not considered as actionablemisrepresentation (Pankhania v Hackney, 2002). In the same way, generally silence also does notamount to misrepresentation (Smith v Hughes, 1871). Similarly, unless the contract is of utmostgood faith like an insurance contract on where the party making the representation is in thefiduciary position, in case of such contracts there is a duty which requires the party to disclose allmaterial facts. Any failure to do so may result in an action for misrepresentation (HIH Casualtyand General Insurance Ltd v Chase Manhattan Bank, 2003). In case a statement was madebecomes false later on as a result of a change in circumstances, an obligation is present on part ofthe party making statement to disclose a change of circumstances (With v O'Flanagan, 1936). Inducement/Reliance: after it has been established that a party to contract has made a falsestatement, it is necessary to establish that the other party was induced by the false statement toenter the contract. However, there can be no inducement or reliance on the statement if the otherparty was not aware of the false statement (Horsfall v Thomas, 1862). Similarly if the other partyor its agent has checked out the validity of the statement, it cannot be said that the party hadrelied on the statement (Attwood v Small, 1838). In case the party was given a chance to checkout the truth of the statement but it does not do so, sat by the may still establish the reliance onthe statement (Redgrave v Hurd, 1881). In the present case, when negotiations were going on between Angela and Jessica regarding thepurchase of the restaurant, Jessica had told Angela that that the restaurant was making $10,000per annum. He also gives a box of papers containing the accounts and asked Angela to verify

them. However, Angela relies on the statement made by Jessica and only takes the accounts for2007 in which a profit of $10,000 was shown. Later on, Angela founds that the annual profit ofthe business was only $2000. Even if a chance was given by Jessica to verify the accounts,Angela had not done so. Therefore she decided to rely on the statement made by Jessica. As aresult in the present case, it can be said that Jessica was induced by the misrepresentation to enterthe contract. It can be stated that a misrepresentation has been made by Jessica. On the otherhand, Angela relied on the misrepresentation and was induced to enter into the contract.Therefore the remedies provided by common law, in case of misrepresentation are available toAngela.In the present case, Angela can rescind the contract or seek damages.

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