Commercial Law Assignment: Misrepresentation and Contract Breach

This assignment solution addresses key concepts in Australian commercial law. Part A analyzes the Indian legal system through the lens of Hart's legal system requirements, focusing on the rule of recognition, change, and adjudication, comparing it with the Australian legal framework. Part B delves into a case study involving a business sale, examining issues of misrepresentation and breach of contract. The analysis explores fraudulent misrepresentation, deceptive conduct under the Australian Consumer Law, and the determination of contractual terms. The solution considers whether a contract is voidable due to misrepresentation and whether there has been a breach of contract based on the representations made during the sale. The document concludes that the contract is voidable due to fraudulent misrepresentation and that the seller has breached various terms of the contract, entitling the buyer to damages. This document serves as a valuable resource for students studying contract law and commercial law principles.

AUSTRALIAN COMMERCIAL LAW
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PART A
Question 1(b)
For the purpose of this task, India has been chosen as the requisite foreign country whose
legal system would be critically analysed in wake of the Hart’s legal system requirements.
 Rule of Recognition
With regards to the Indian legal system, there are well defined law sources which include the
following1.
 Constitution – A written constitution exists which tends to act as the highest source of
law and any law which violates the key principles enshrined is declared invalid.
 Legislation – These are essentially statute laws as they are enacted by the law making
bodies comprising of people’s elected representatives.
 Case law – This takes into consideration the judicial precedents
 Customary Law – These are derived in accordance with the Indian society’s values
and customs.
 Rule of Change
The laws can be changed and there is a defined procedure for the same. New laws are
formulated by the parliament (both at the centre and state) while old laws are repealed.
Also, the law making power of the state and centre government is highlighted in the
constitution. Further, the procedure for amendment has also been clearly highlighted in the
Constitution itself. Thus, a well-defined system exists in place to deal with change in
laws2.
 Rule of Adjudication
In wake of disputes and their consequent resolution, a well-established judiciary exists in
India. There are courts at various levels which have their well-defined jurisdiction. This
judicial system is headed by the Supreme court which has wide power in adjudication and
resolves disputes of high significance. Additionally, administrative tribunals and other
such forums also provide dispute resolution mechanism3.
1 Indian Government , Source of Law (n.d.) <https://archive.india.gov.in/citizen/lawnorder.php?id=6 >
2 Sheela Rai, Hart's Concept of Law and the Indian Constitution (2012) < http://www.supremecourtcases.com/index2.php?
option=com_content&itemid=5&do_pdf=1&id=783 >
3 Ibid. 2

In wake of the above discussion, it would be appropriate to conclude that Indian legal system
tends to comply with the three part Hart legal system description. The system also seems
quite comparable to that of Australia since it also boasts of well-defined law sources which
tend to overlap with that in India. The only exception is customary law, however, even in
Australia, the traditions, customer and belief is also indirectly reflected through laws made on
various subjects. Further, the procedure for the law change is similar in both India and
Australia considering a written constitution and legislative power divided between the state
and Federal level. Also, the rule of adjudication is also adhered to in Australia since it also
has an elaborate network of courts as part of a hierarchical judicial system. Further, just like
India, in Australia also, the interpretation of the Constitution is carried out by the highest
court4.
PART B
Question 2
Issue
It needs to be opined if the underling contract between Barry and Angelo is void or not taking
into consideration common law and statute law.
Relevant Law
Misrepresentation refers to a situation where false representations are made to the buyer by
the seller so as to ensure that a contract is enacted. The type of misrepresentation refers to
the underlying intention of the representor. In case, the representor is aware that misleading
information is passed on, then such cases would be fraudulent misrepresentation. In such
cases, the contract would be voidable and also damages can be claimed by the plaintiff.
To establish misrepresentation, it is essential that two major conditions listed below have to
be complied with5.
1) A factual statement should have been represented falsely by the seller
The first condition for misrepresentation is that the seller or representor should have
falsely stated a given fact. It is imperative that falsification is required for factual
4 Latimer, Paul, Australian business law, (CCH Australia Ltd, 24th ed., 2015)
5 Andy Gibson, Douglas Fraser, Business Law (Pearson Publications., 8th e, 2014)

information and opinion would not be included in the ambit of misrepresentation. Further,
as highlighted in the Smith v Hughes6 case, the silence on the part of the seller cannot be
equated with misrepresentation. For misrepresentation to be present, it is essential that the
representation given by the seller must be false. If no representation is made, then
obviously misrepresentation cannot be present7.
2) It is imperative that buying ought to be lured by the misrepresented fact
This requirement has been added so as to ensure that for a misrepresentation claim, the
fact stated incorrect should be significant with regards to the contract execution. This
ensures that misrepresentation claims are not made to incorrectly stated facts which are not
key to the decision made. Also, it is imperative that in cases involving misrepresentation
claims, if evidence was made available to the buyer with regards to verifying the
representation, then the buyer should not be negligent regarding the same. This is apparent
from Redgrave v Hurd8 case since even though there was misrepresentation but the verdict
was against the representee and not the representor as the former had been negligent in the
conduct and ignored the evidence which was provided9.
Further, the statute law in the form of Australian Consumer Law can also be applicable in
such cases. The relevant section dealing with deceptive conduct is s.18(1) , CCL10. For the
conduct to be considered deceptive or misleading under this given section, the following
conditions ought to be satisfied.
 The underlying transaction has to be commercial in nature since domestic
transactions are excluded.
 It is not essential the deception actually has occurred and mere chances of being
deceived are sufficient
 As indicated in the Perre v Apand Pty Ltd11, it is not essential that there needs to be
presence of intent to deceive. Partial advantage from deceiving is good enough.
 The buyer needs to suffer real financial loss and not only potential loss
Application
6 Smith v Hughes (1871) LR 6 QB 597
7 Ibid. 4, pp. 67-69
8 Redgrave v Hurd (1881) 20 Ch D 1
9 Shayne Davenport, Business and Law in Australia (Thomson Reuters, 4th ed, 2012)
10 Competition & Consumer Law 2010(Cth)
11 Perre v Apand Pty Ltd [1999] HCA 36

As per the details of the representations made in the case, it becomes clear that Angelo has
made incorrect representation about factual information such as presence of competitor,
monthly revenue along with expense detail. Also, it is evident that this was instrumental in
making the deal attractive for Barry. This is because the profit figure can be obtained by
subtracting the expense from the revenue. The fair valuation of the business would be
derived from the underlying profits that the business produces. In the given case, the
consideration of $ 200,000 has been agreed by Barry assuming a profit of $12,000 on a
monthly basis whereas the actual profits earned are considerably lower. Also, Barry did
not had any means to verify the representation made by Angelo as no books pertaining to
the financial performance of the business were presented. Therefore, Barry had to act in
accordance with the representation given by Angelo. Therefore, it is apparent that Angelo
has indulged in fraudulent misrepresentation due to which the contract would be voidable
if Barry intends that.
Also, it is apparent that the advertisement displayed by Angelo could be termed as
deceptive as outlined in s.18(1) of Australia Consumer Law The advertisement clearly
pertained to a commercial transaction. Also, irrespective of intention, Angelo did rely on
the deception to bring interested parties for the business. Further, on account of the false
claims, Barry has suffered actual financial losses since business has already been
purchased.
Conclusion
In line with the discussion above, it would be appropriate to conclude that the given
contract will be termed as voidable since fraudulent misrepresentation is present. Also,
Barry can argue that through the misleading advertisement, Angelo has deceived Baary
and can demand to be compensated.
.
Question 3
Issue
Assuming the contract cannot be nullified, the key issue is to outline if in wake of the
given contract for the sale of business, there has been any breach of contract or not.

Relevant Rule
The key component of contract refers to the contractual terms which need to be adhered by
the contracting parties so as to avoid any breach of contract. Some of these terms are
expressly stated in contract. However, there are others which are not captured in the
written form and are not explicit and are known as implied terms. Further, it is
noteworthy that terms are derived on the basis of various representations made by the
seller during the negotiation phase of the contract. Considering these representations, it
needs to be determined as to which of these qualify as terms. This process is significant
since unlike representations, terms are legally binding on the contracting parties12.
There are certain factors which ought to be considered to determine if a particular
representation can be taken as a contractual term or not. One of these is the parole
evidence rule which tends to rely on the understanding that representations that are able to
find place in the written contract are terms while those which remain in oral form are ere
representations. The second parameter which is crucial is the representor’s expertise in the
context of the given situation. As per the decision pronounced in Oscar Chess Ltd v
Williams13 case, it has become evident that a representor with greater expertise making a
representation would be quite often considered a term 14. This is particularly the case when
owing to limited knowledge the representee tends to rely on the expertise of the
representor for the product’s description and functionality.
.Yet another factor which is of relevance is the significance attached to the representation
made by the representee. The more significant the representation, the higher is the
likelihood of the underlying representation being classified as a contractual term. In this
context, the Bannerman v White15 case assumes relevance as for the purpose of making
beer, the buyer had demanded hops which were treated with sulphur. However, the seller
provided hops that were devoid of sulphur treatment. During this transaction, the buyer
had stated that he would not buy hops which were not sulphur treatment. This reflects on
the importance of hops being sulphur treated and hence court ruled that the sulphur
treatment of hops was a term for the given contract16.
12 Robert Bryan Vermeesch, Kevin Edmund Lindgren, Business Law of Australia (Butterworths, 12th ed. 2011)
13 Oscar Chess Ltd v Williams [1957] 1 WLR 370
14 Pathinayake, Athule, Commercial and Corporations Law, (Thomson-Reuters, 2nd ed., 2014)
15 Bannerman v White (1861) 10 CBNS 844
16 Pendleton, Wayne & Vickery, Roger, Australian business law: principles and applications, (Pearson Publications, 5th ed.,
2015)

Application
In accordance with the relevant rule discussed above, it may be appropriate to conclude
that those representations which have had a critical bearing on the decision of Barry to buy
the business would be considered terms besides those which are stated in the written
contract. The case description clearly states that Barry became first interested in the
business by the financial numbers and further the value of the business has also been
linked to the financial performance of the business. Therefore, the representations
regarding the monthly revenue and corresponding expense would be considered terms of
the contract considering their significance to the contract. Also, in terms of this
information, Barry was essentially relying on expertise of Angelo who had been running
the business and hence would be aware of the relevant financial details. Besides, it is
possible that had the correct financial figures made known to Barry before the enactment
of contract, he would not have bought the business or surely the payment for the business
would have been considerably less17.
Besides, in the written contract also, there are two terms linked to the value of loader and
van. The value of the van has been recorded as $ 15,000, however, the van is only leased
and not owned by the business of Angelo. Further, there are additional liabilities for the
business in terms of outstanding lease payments for the van which Angelo has not
disclosed. Hence, it is clear that the conduct of Angelo has led to terms of the contract for
the sale of business. Thus, Barry can initiate legal proceeding against Angelo for
demanding damages on account of breach of contract.
Conclusion
It is evident form the discussion carried out above that the various terms in the contract
have been breached and hence damages can be recovered from Angelo if Barry decides to
initiate legal action against him.
17 Ibid, 14, p. 89-91