Contract and Tort Law: Misrepresentation and Negligence Analysis

This assignment addresses two legal scenarios involving misrepresentation and negligence. The first scenario examines a case of misrepresentation in a business transaction where a restaurant's profit was misrepresented, leading to a contract dispute. The analysis explores the elements of misrepresentation under common law, including false statements, inducement, and reliance, and discusses the available remedies such as rescission and damages. The second scenario involves a negligence claim against a beverage manufacturer, Acme Cola Company Ltd., after a consumer found a cockroach in a can of cola, causing illness. This section delves into the principles established in Donoghue v Stevenson, outlining the manufacturer's duty of care towards consumers, even without a direct contractual relationship, and discusses the potential liability of the manufacturer for defective products, and the implications of the Australian Consumer Law (ACL). The assignment concludes that the injured party can successfully sue the manufacturer under negligence law.

Question 1
The issue in the present case is related with the misrepresentation that has been made by Jessica
regarding the fact that the restaurant was making an annual profit of $10,000 while the reality
was that the last five years; the business has been making a profit of only $2000. On the other
hand, Angela had relied on this statement and was induced to enter into the contract for the
purchase 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 fact
or law. Such a statement should have induced the other party to enter the contract. The law
provides that when a statement has been made by the parties while they were involved in
negotiations, 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 for
misrepresentation. In this regard there are three types of misrepresentation. These are innocent,
misrepresentation, negligence and fraudulent misrepresentation. When it has been found that a
misrepresentation has been made by a party to the contract, the contract becomes voidable
absorption of the other party. Therefore, although a valid contract is present between the parties
however, it can be set aside by the other party to the representation was made. The remedies
available to the other party depend on the type of misrepresentation. However, generally
remedies for misrepresentation consist of recession of contract and/or damages.
A statement can be treated as actionable misrepresentation if the following requirements are
satisfied.

False Statement: A false statement should have been made by one party regarding fact or law as
against 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 actionable
misrepresentation (Pankhania v Hackney, 2002). In the same way, generally silence also does not
amount to misrepresentation (Smith v Hughes, 1871). Similarly, unless the contract is of utmost
good faith like an insurance contract on where the party making the representation is in the
fiduciary position, in case of such contracts there is a duty which requires the party to disclose all
material facts. Any failure to do so may result in an action for misrepresentation (HIH Casualty
and General Insurance Ltd v Chase Manhattan Bank, 2003). In case a statement was made
becomes false later on as a result of a change in circumstances, an obligation is present on part of
the 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 false
statement, it is necessary to establish that the other party was induced by the false statement to
enter the contract. However, there can be no inducement or reliance on the statement if the other
party was not aware of the false statement (Horsfall v Thomas, 1862). Similarly if the other party
or its agent has checked out the validity of the statement, it cannot be said that the party had
relied on the statement (Attwood v Small, 1838). In case the party was given a chance to check
out the truth of the statement but it does not do so, sat by the may still establish the reliance on
the statement (Redgrave v Hurd, 1881).
In the present case, when negotiations were going on between Angela and Jessica regarding the
purchase of the restaurant, Jessica had told Angela that that the restaurant was making $10,000
per 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 for
2007 in which a profit of $10,000 was shown. Later on, Angela founds that the annual profit of
the 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 a
result in the present case, it can be said that Jessica was induced by the misrepresentation to enter
the contract. It can be stated that a misrepresentation has been made by Jessica. On the other
hand, 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 to
Angela.
In the present case, Angela can rescind the contract or seek damages.

Question 2
The issue that is present in this question is if the manufacturer of the drink, Acme Cola Company
Ltd. can be sued by the Smiths in negligence.
Earlier, the prospects of claims by plaintiffs were restricted by the doctrine of privity of contract.
However this situation was changed by the decision given Donaghue v Stevenson (1932). It was
stated in this case that the "manufacturer of the product that is sold by the manufacturer in such a
form which reveals that the manufacturer intended the product to reach the ultimate consumer in
the same form in which the product left the manufacturer, and where there are no possibilities of
intermediate examination and when the manufacturer is aware of the fact that if reasonable care
is not exercised in preparing or putting up the product, it may result in an injury to the health or
the property of the consumers, such manufacturers owe a duty towards the consumers of the
product to take such reasonable care (Caparo Industries PLC v Dickman, 1990). In this context,
the ultimate consumer can be described as the party that has consumed the product in fact. It is
not necessary that such party should also be the purchaser of the product with whom the
manufacturer or the seller may have concluded the contract of sale. In most of the cases, the
manufacturer as a wholesaler, sells its products to the consumer through retail outlets. However,
the law provides that the liability of the manufacturers is still present even when the goods have
been detained by the wholesaler to the consumer (Shaddock V Parramatta City Council, 1981).
For example, in Grant v Australian Knitting Mills Ltd (1936) the garments were sold by a
retailer to the plaintiff. The court held that as wholesaler, the manufacturer was still responsible
for a defect in the garments due to which bodily injury (dermatitis) was caused to the consumer.
In this way, it can be said that the manufacturer of the product can be considered as an insurance
against the situation where the product may prove to be defective. In case a person suffers an

injury or loss, the manufacturer can be held liable. On the other hand, the manufacturer cannot be
held liable regarding the defects that appeared in the product after the product has left the place
of manufacture. For example, in case tinned food goes off. Later on, due to the reason that it was
stored under direct sunlight by the retailer for a long period, it is likely that the manufacturer may
not be held liable for the injury or the laws that may be caused by the consumption of such food.
After a decision given in Donaghue v Stevenson, the fact that other persons like the distributors
or retailers had an intermediate chance to inspect the product before it reached the consumer, has
not been considered as absorbing the liability of the manufacturer from the duty of care that the
manufacturer owes towards the ultimate consumer of the product. In case the product reaches the
consumer in a state that was not begin play different from the state in which the product has left
the manufacture, the manufacturer can be held responsible.
On the other hand, the manufacturer will be be generally held liable if the product has been put
to use to which it is reasonably foreseeable that such product will be put to use and an injury or
loss is caused as a result of such use. At the same time, the law provides that the persons who
erect, repair or assemble the products are also having the same liability as the liability that has
been imposed on the manufacturers by Donaghue v Stevenson (1932). In this context, products
include all type of artificial goods or structures. As a result, a duty has been imposed on the
wholesalers, suppliers and retailers of products to ensure the safety of the consumers. This duty
arises in case of the circumstances of particular case. As a result of which they should give a
warning or spec the product. Regarding the use to which such product can be put to. Under the
ACL, the persons involved in the manufacturing, distribution, sale or repair of products have
been made liable to provide compensation to the persons who have suffered a loss or injury due

to the defect present in the goods. As a result, liability has been imposed for the loss caused to a
person.
As a result of the constraints present in case of contract law, there are several agreements to have
suffered injury due to defective products may rely on traditional law of tort. In this regard, a
manufacturer has a duty of care towards the ultimate user of the product manufactured by them.
When it is found that the defective goods have caused a threat of injury or the safety of the
claimant, a remedy may be available under common-law negligence for the breach of duty of
care if it can be established that fault was present on part of the manufacturer. In case of liability
in negligence, the focus is on the fact if the damages have been caused as a result of the conduct
of the person, which has fallen below a reasonable standard instead of focusing on inadequate
quality of the product. In this regard, it is required that the danger should be reasonably
foreseeable, and it should not be too remote. In this way, the source of modern law negligence
remains the case of Donaghue v Stevenson (1932). This case is also known as the snail in the
ginger beer case. As the plaintiff have suffered shock and severe gastroenteritis, but she was not
in a position to sue the woman of the café as the bottle of ginger beer was purchased by her
friend and she did not have a direct contact with them. Under the circumstances, the plaintiff
decided to sue the manufacturer of the ginger beer.
In the present case, also, the carton of cola was purchase by Sandra Smith. Her husband took out
a can and drank it after which he became seriously ill. It was found after examining the contents
of the can that there were the remains of a cockroach in the can. The family had to pay a large
amount of money as medical expenses. At the same time the corner store from where the can was
purchased also became bankrupt. As a result, the family now wants to sue the manufacturer of
the cola can in Australia, Acme Cola Co. Ltd., In view of the legal position and case law

mentioned above, it is clear that the husband of Sandra Smith, Andy can sue the manufacturer of
cola in Australia, Acme. Even if there is no direct contract present between the parties still the
manufacture of cola can be sued under the law negligence. In this case, it was the duty of Acme
to ensure that the products supplied by them were reasonably safe. However, this duty has been
breached when the company allowed the remains of a cockroach present in the cola can. As a
result, Andy became seriously ill, and family had to spend a lot of money on his treatment. Both
husband and wife remained out of work.
Therefore in the present case, the Smiths can successfully sue Acme for negligence.

References
Attwood v Small [1838] UKHL J60
Bisset v Wilkinson [1927] AC 177
Caparo Industries PLC v Dickman [1990] UKHL 2
Caparo Industries PLC v Dickman [1990] UKHL 2
Grant v Australian Knitting Mills Ltd (1936) AC 85
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6
Horsfall v Thomas [1862] 1 H&C 90
Pankhania v Hackney [2002] EWHC 2441
Redgrave v Hurd (1881) 20 Ch D 1
Shaddock V Parramatta City Council (1981) ALR 385
Smith v Hughes (1871) LR 6 QB 597
With v O'Flanagan [1936] Ch 575