LL4002 Law of Contract Case Study: Misrepresentation

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LL4002 –Law of Contract
SECOND ASSESSED COURSEWORK 2018-19
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Contents
Introduction................................................................................................................................3
Issue............................................................................................................................................4
Whether or Not Donald has any claim against Melania for Misrepresentation.....................4
Rules...........................................................................................................................................4
Royal Mail Case.....................................................................................................................5
Royscot Trust Case................................................................................................................5
Remedies for Misrepresentation............................................................................................6
Applicability...............................................................................................................................6
Facts of the Case....................................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8
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Introduction
A Contract is a legal document which binds the parties to meet their obligations as stated in
such document or instrument. To form a legally binding contract it is necessary that the
contract must consist of essential elements, such as capacity to contract, offer and acceptance
and free consent. A contract made with fraudulent intention or if the party deceives the other
to believe him/her then such contracts are voidable at the option of the party who has been
deceived. The Sale and Supply of Goods Act 1994 lays down the provisions related to
formation of a valid contract. The Misrepresentation Act 1967 deals with misrepresentation
and is formed to amend sections 11 and 35 of the Sale of Goods Act 1893. The Act deals with
the cases of both innocent and fraudulent misrepresentation of facts where the party has acted
based on the presented facts. In the present case study scrutinizes the case Melania and
Donald, where Melania represented some false facts to Donald and eventually formed
contract based on the misrepresented facts. The case discusses the related provisions and
application of such provisions on the present case.
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Issue
Whether or Not Donald has any claim against Melania for Misrepresentation
In the given case the issue relates to the claim that could be made against Melania for
misrepresenting the facts to Donald. And it shall also be assessed whether the
misrepresentation made by Melania was innocent or fraudulent.
Rules
The Sale and Supply of Goods Act 1994 (HMSO) legislates the principles of Contract Law
in the UK. According to the Act both the buyer and seller are legally bound by the terms
stated in the contract. The Act ensures the three aspects of the contract which are as follows:
 Satisfactory Quality of goods
 Goods which are sold are whether or not as per the description
 That there is transfer of Ownership
In case of breach of any of the elements drawn under the Act, protection is available to both
the buyer and seller. Seller is at the responsibility to outline all the facts related to the goods
that he/she wishes to sell. The intentions of the seller must not be deceptive or fraudulent, if
one of the parties deceives the other then it is called Misrepresentation. Although, there are
certain obligations on seller but the buyer is also responsible for applying due diligence and
reasonable care while making purchase. If the buyer buys good by being deceived by the
seller, then he/she has the right to file law suit against the seller whether to rescind the
contract or claim damages from the seller (Poole, 2016).
The Misrepresentation Act 1967 lays down the provisions which deals where a party to a
contract has deceived the other party to become party to the contract.
The term misrepresentation connotes to any misleading statements which are made at the
time of formation of Contract or at the time of negotiations before forming contract. Before
commencement of this Act common law categorized misrepresentation as, Fraudulent and
Innocent. The Act further divided innocent misrepresentation in two different categories as:
Wholly innocent and negligent.
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Generally, the remedies available to the plaintiff is the option of rescinding the contract or
can claim for damages. The remedies to the plaintiff or aggrieved party are given based on
the type of misrepresentation suffered by them.
As per the provisions laid down under section 2 of the Misrepresentation Act 1967, the sub-
section 1 of Section 2 states that if any person becomes party to the contract after being led
by the misleading statements of the party, then the party who has been misled is liable to
claim damages from other party. In this scenario the burden of proving the fact that the party
who has been misled has reasonable reasons to believe that the statements stated by other
party were true. If the plaintiff fails to prove that he/she had reasonable grounds to believe
that the statements represented were true, then the court shall presume that the
misrepresentation was not fraudulent (Chen, 2017).
According to sub-section 4 of Section 2 of the Misrepresentation Act 1967, If any person has
right to redress the issue of conduct which constitute act of misrepresentation under Part 4A
of the Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277), then
such party cannot make the claim under section 2 of the Misrepresentation Act 1967
(Legislation.gov.uk., 2019)
Few of the leading cases related to the act of misrepresentation are discussed below:
Royal Mail Case
The Royal Mail Case or R v Kylsant & Otrs, Lord Kylsant, one of the directors of the Royal
Mail Steam Packet Company asked his accountants to make false statements regarding the
profitability of the company to attract potential investors. The accountants and auditors
followed the same and eventually investors made huge investment in the company by
believing the untrue statements stated by the company. The auditors of the company were
arrested. Consequently, the suit was brought in the court of law and the case was resolved
under the influence of provisions of misrepresentation and contract law. The aggrieved
parties were remediated by giving them option to rescind the contract or to claim damages.
Royscot Trust Case
Royscot Trust Ltd v Rogerson the case attracted the provisions of the Misrepresentation Act
1967 and examines to what extent the party could me made liable under section 2(1) of the
Act in case of negligent misrepresentation.
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Remedies for Misrepresentation
A person who has suffered any loss due to misrepresentation of facts, following are the
remedies available to the aggrieved party:
1. Rescission of Contract: The Party can terminate or rescind the contract on the ground
of misrepresentation. The remedy was available in the leading case of Car &
Universal Finance v Caldwell, the court held that the contract between parties was
voidable.
2. Damages: If the seller deceives the buyer or makes buyer to believe the fact which is
not true. Believing the misrepresented facts if the buyer buys the goods then buyer has
the right to claim damages from the seller. The seller cannot claim that the damages
suffered by the buyer were not foreseen. This was held in the famous case of Doyle v
Olby (Ironmongers) Ltd.
Applicability
Facts of the Case
 A device was designed by Melania through which she claimed that it would enable
the driver to rotate all wheels over 90%. Accordingly, this will ease the driver to
resolve parking problems by enabling the cars to park in small space.
 She approached Ford with her idea to which the Chairman of the Ford appreciated the
idea but also replied with the fact that the idea would not work and it is impractical to
implement the idea without lifting the height of the wheels beyond axis.
 She then puts the idea before Donald who runs a development company and claims
that her idea is a sure thing and is also appreciated by Ford.
 She suggests Donald to recheck the working of the model by his own expeerts but
Donald chose to trust Melania.
 She also wishes to book an exhibition at a prestigious Royal Motor Show and
communicates the same to Donald.
 Later she receives the information that she cannot exhibits her design as it is illegal to
exhibit products which have not received safety licence as per the Highways Act,
2018.
 But she does not inform the same to Donald.
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 An investment of £100,000 was made by Donald in the project.
 Eventually the when the prototype collapsed by its own weight and as result of
collapse the project was abandoned.
As per the facts of the present case, Melania misrepresented the facts by providing false
information to Donald. She manipulated the statements made by the Ford Chairman in order
to deceive Donald to invest in her project. She also concealed the information about the
illegality regarding the exhibition of the project. Concealing the important facts also falls in
the category of fraudulent intention (Karim and Sifat, 2018). Clearly, the misrepresentation
was not innocent, the misrepresentation was made with fraudulent intention. Hence, Melania
is liable for committing act of misrepresentation. The rules of Contract law stated under the
Sale and Supply of Goods Act 1994 and the provisions of the Misrepresentation Act 1967
shall be applied in the given case.
As per section 2(1) of the Misrepresentation Act 1967, Donald can make claim against
Melania. Though, Donald was at the responsibility of checking working of the model by his
experts but as per the rules outlined in the case of Doyle v Olby (Ironmongers) Ltd. it is
clear that Melania deceived Donald to invest and Donald has valid grounds to believe
Melania and she cannot claim that the collapse was not foreseen. Hence, she is liable to pay
damages to Donald.
Conclusion
After studying the case and related provisions thoroughly it is quite clear that Melania
misrepresented the facts to Donald as a result of which Donald suffered loss of £100,000 is
the amount which he invested in the project. Hence, Donald has legal right to make claim
against Melania.
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References
 Car & Universal Finance v Caldwell [1965] 1 QB 525
 Chen, J., 2017. Should English Contract Law Adopt a General Duty to Negotiate in
Good Faith. BLR, p.18.
 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158
 Karim, R. and Sifat, I.M., 2018. Treatment of silence as misrepresentation in
contracts: A critical comparative analysis of common law and Islamic
jurisprudence. International Journal of Law and Management, 60(1), pp.69-78.
 Legislation.gov.uk Consumer Protection from Unfair Trading Regulations 2008 (SI
2008/1277) [Available Online]
https://www.legislation.gov.uk/uksi/2008/1277/contents/made [Accessed on
24.05.2019]
 Poole, J., 2016. Textbook on contract law. Oxford University Press.
 Royscot Trust Ltd v Rogerson [1991] EWCA Civ 12
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