University Business Law: Negligent Misstatement Case Study Analysis

This case study analyzes a scenario involving a couple, John and Natalie, who are planning to start a motel business and seek advice from Mrs. Wentworth. Mrs. Wentworth, presented as an expert, advises them on a motel property, initially suggesting its suitability and potential profitability. However, she later misrepresents the motel's potential, leading the couple to invest based on her statements. The analysis focuses on the legal concept of negligent misstatement, highlighting the duty of care and the consequences of providing incorrect information that leads to financial loss. The document examines the elements of negligence, the principle of duty of care established in Donoghue v Stevenson, and the application of misstatement principles. The case study concludes that the couple can claim damages from Mrs. Wentworth due to her negligent misstatement, as her expertise and the couple's reliance on her advice resulted in financial harm, making her liable under the law.

Running head: BUSINESS AND LAW
Negligent misstatement
Name of the student:
Name of the university:
Author note

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Introduction:
The present case is based on the chapter of negligence that is a part of the Tort law.
The term negligence means a careless action that becomes harmful to others. The primary
objective of the negligence is that a person should act diligently to avoid any accident
where the outcome shall be detrimental in nature. It is the duty of a prudent man to act
diligently and cautiously to avoid any harmful effect regarding any specific act. If there is
a laxity regarding the same cropped up, the person can be held liable under the law of
negligence.
Negligence:
There are certain essential elements present for committing a valid negligence. The
first essentials are Duty of care. The principle of duty of care is, for the first time
established in a historic case of Donoghue v Stevenson [1932], where the court was
pleased to held the manufacturer of the Ginger bottle liable, where the decomposed body
of a snail had found, for non-performance of duty of care. The negligence law of
Australia was established with the case law of Grant v Australian Knitting Mills (1936).
The second essential found when there is any breach regarding the duty occurred. The
case of Donoghue v Stevenson is a historic case in the negligence arena and the chapter
of negligence has been reviewed and renewed by this case. The general rule is that when
a person speaks anything, he is bound by law to perform the duty and if he has failed to
do so, the necessary provisions of law will apply on them.
The third essentials of the negligence are the harmful effect of such breach of duty by
the person. It is a fact that every person has certain rights to secure their own interest. If

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that interest is affected by the acts of others, the victim has a right to sue the wrongdoer in
the competent court of justice.
Misstatement:
The present case is based on the principle of negligence. Apart from the essentials of
the negligence, the case is attracted the provisions of the misstatement. It has been stated
earlier that negligence is a part of the law of Tort. By Tort, it is meant that any act that is
malice in nature and caused certain damages and can be prosecuted before the civil court
of law. The term negligent misstatement means a wrong statement that is delivered by the
person who stated certain facts or suggested certain things in good faith but the nature of
the statement is careless. The wrongdoer in this case usually holds certain knowledge on a
specific subject that the advice taker does not hold. It is obvious that if the statement
made by the person, become wrong, it will impose serious burden on the advice taker and
may injure him economically or physically.
In this case, the elements of the contract will be applicable and the provision of the
duty to take reasonable care will impose. In case if misstatement, the person to whom the
statement are to be made, relied on the statement and take it as expert’s opinion.
Therefore, if such statement indicates towards the wrong path, it will cause serious injury
to the advice taker. In Shaddock & Associates Pty Ltd v Parramatta City Council [1981]
HCA 59, it was held that the advice of the solicitor on behalf of the associates caused
losses to the council employees and therefore, the Associates held liable for the act of
misstatement.

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Application:
From the facts of the case, it is clear that John and Natalie are spouse to each other
and wanted to start a motel business. They had certain conversations with Mrs Wentworth
and they had taken the advices as expert’s opinion. Mrs Wentworth told the couple that
she had certain motels in her hand that can be suitable for the start up business and
showed them the same. The motel costs $100,000 and certain facts are stated to them
regarding the non-profitability of the hotel. However, at the time of the payment, Mrs
Wentworth told them that the motel would run smoothly at the time of the winter vacation
and now they are investing into a gold mine. Believing the facts, the couple bought the
motel at a lump sum amount but could not make profit within six months.
Advice:
Therefore, it is advices that both John and Natalie can claim damage from Mrs.
Wentworth under the law of negligence. The provision regarding the case is misstatement
by Mrs. Wentworth. It is a fact that by the misstatement of Wentworth, both the parties
had suffered monetary loss. Mrs. Wentworth was an expert in the motel industry and the
couple was novice. They invested their money on the words of Mrs. Wentworth.
Therefore, the acts of Mrs. Wentworth attract the provision of misstatement and John and
Natalie can claim damage from her.