1 Contract Law
!"#$#%& %( %)*$+* %(, -)%./$0 ,"+$-(")& /%+ )"0"(*12 345-/* % +#%11 .)$(*$(35+$("++6 7/" ,4"+ (4* 8(49 #50/ %345* .)$(*$(.)$(*$(- *"0/(414-26 74 +/" %+8+ %+8+ /") :)$"(, ;/)$+& 9/4 /%+ 94)8", $( .)$(*$(- %11 /$+ 1$:"& *4 /"1. /") :$(, % +5$*%31" .)$(*$(- .)"++6 ;/)$+ *%8"+ !"#$#% *4 +"" <%=$, 9/4 ,"%1+ $( %11 8$(,+ 4: )"04(,$*$4(", :%0*4)2 #%0/$(")26
!"#$#% ">.1%$(+ *4 <%=$, */%* +/" ("",+ % .)$(*$(- .)"++ */%* 0%( *5)( 45* ?@&AAA +/""*+ .") /45)& %(, .)4,50" -44, B5%1$*2 04.2 *4 % #%>$#5# .)$(* +$C" 4: DA #$11+6
<%=$, +/49+ !"#$#% % */)""E021$(,") .)$(*$(- .)"++& .)"++& 04+*$(- FGA&AAA6 H"
%++5)"+ /") */%*& I*/$+ .)"++ 9$11 3" J5+* )$-/* :4) */" J43K6 ;/)$+ %,,+& LM */$(8 245L)" -"**$(- % )"%1 3%)-%$( /")"6 M*L+ -4$(- *4 3" =")2 "::$0$"(*K6
!"#$#% $##",$%*"12 ,"0$,"+ *4 .5)0/%+" */" #%0/$(" %* % .)$0" 4: FGA&AAA6 H49"=") :41149$(- */" /"%1*/ %(, +%:"*2 +$*" $(+."0*$4(& +/" ,$+04=")+ */%* */")" $+ $(+5::$0$"(* +.%0" +.%0" %)45(, */" #%0/$(" *4 #""* 05))"(* +%:"*2 +%:"*2 )"-51%*$4(+6 )"-51%*$4(+6
7/"
,"0$,"+ *4 .%2 F?A&AAA :4) ("0"++%)2 %1*")%*$4(+ *4 */" :%0*4)2 +.%0"6 H49"=")& 9/"( */" #%0/$(" $+ :$(%112 4.")%*$(-& +/" ,$+04=")+ */%*N O$P */" #%>$#5# .)$(* +$C" $+ QA #$11+R O$$P */" .)"++ 0%((4* .)4,50" #4)" */%( @&AAA +/""*+ .") /45)R %(, O$$$P */" #%)8"* #%)8"* =%15" 4: */" .)"++ $+ 4(12 FQA&AAA6 M( */" :$)+* :$)+* */)"" #4(*/+& */" =415#" 4: .)$(* .)4,50", $+ /%1: 9/%* !"#$#% /%, ">."0*",6
S,=$+" !"#$#% %+ *4 %(2 )"#",$"+ +/" #%2 /%=" %-%$(+* <%=$, 4) ;/)$+ $( */" 1%9 )"1%*$(- *4 1$%3$1$*2 :4) :%1+" +*%*"#"(*+ $( T(-1$+/ 1%9
U4*"N O$P O$P
S(+9")+ 9$11 3"(":$* :)4# % .)%0*$0%1 %..)4%0/ *4 %,=$+$(- !"#$#% $( */" 0$)05#+*%(0"+ 4: /") 0%+"6
O$$P
V45 +/451, (4* 04(+$,") */" 1%9 )"1%*$(- *4 $#.1$", *")#+ 5(,") */" 7%1" 4: W44,+ S0*
2 In English contract law, a duty is imposed to the party not to make any false statements to the other contracting party to induce him to enter into the contract. In this case, Jemima has been the victim of false statements from both David and Chris. The first issue that arises is: Has there been a misrepresentation from David, as far as the machine is concerned? If so, what remedies can Jemima claim? A misrepresentation “may be defined as an unambiguous, false statement of fact or law which is addressed to the party misled, which is material (although this requirement is now debatable) and which induces the contract.”
1
-This statement can be made by words. In this case, Jemima explicitly told David she needed a printing press that could “turn out 15,000 sheets per hour, and produce good quality copy to a maximum print of 40 mills”, and David assured her that “this press [would] be just right for the job”. However, the press can only turn out 5,000 sheet per hour, and the maximum print size is 20 mills. David’s statement is clearly unambiguous and false. -The statement must be addressed to the party misled. In this case, David directly told Jemima that the press would be right for the job. -The statement must have induced the contract. If the misrepresentation was enough of an inducement to have a reasonable person to enter the contract, the onus of proof is placed on 2
the representor to show that the representee did not in fact rely on the representation , as seen 3
in Museprime Properties Ltd v Adhill Propertes Ltd (1991) . In this case, Jemima “immediately decide[d] to purchase the machine”. She relied both on David’s and on Chris’s statement to make her purchase; however David’s statement does not have to be the only one she relied on. David’s statement clearly induced Jemima to entry into the contract. So David’s claim that his “press will be just right for the job” is a misrepresentation.
1
Ewan McKendrick, Contract Law (9th ed. Palgrave MacMillan, 2011) p. 218. McKendrick, ibid , p. 221. 3 Museprime Properties Ltd v Adhill Propertes Ltd (1991) (1991) 61 P & C R 111, 124, cited in McKendrick, ibid , p. 221. 2
3 The remedies Jemima may have depend on what type of misrepresentation it is. Fraudulent representation was analysed by Lord Herschell in Derry v Peek (1889) 4: there must be proof of fraud; fraud is proven when it is shown that a false misrepresentation has been made knowingly; and if fraud is proved the motive of the person guilty is immaterial. Thus it is only needed to show that David knew he made a misrepresentation. In this case, David is a person “who deals in all kinds of reconditioned factory machinery”, so arguably he knew the machine he was trying to sell, and knew it was not conform to what she wanted. Jemima had also made very clear the specifications of the machine she needed, so David cannot argue he did not know exactly what she wanted. David knew his statement was false; therefore he has made a fraudulent misrepresentation and is liable in the tort of deceit. Misrepresentation also allows Jemima to ask for a rescission of the contract. The Misrepresentation Act 1967, section 1, reads that misrepresentation renders a contract voidable if the contract has been performed. So Jemima may decide to rescind it. Rescission for misrepresentation has both a retrospective and a prospective effect. Jemima would then be entitled “to recover the value of the enrichment which the defendant has 5
received under the contract prior to it being set aside” . The parties have to be restored to their pre-contractual positions. In this case, David he would give Jemima back the £30,000 she paid for the machine; in turn she would give the machine back to David. Following the decision in Erlanger v New Sombrero Phosphate Co Co (1878) (1878) 6, Jemima would also need to give David an account of “any profit made through the use of the product together with an allowance for f or any deterioration of
4
Derry v Peek (1889) (1889) 14 App Cas 337. McKendrick, ibid , p. 227. 6 Erlanger v Ne w Sombrero Phosphate Co (1878) Co (1878) 3 App Cas 1218. 5
4 7
the product” . In the facts, Jemima has used the machine for three months, and as such she would have to give David a monetary compensation for the use of the machine. If Jemima decides to rescind the contract, it is set aside for all purposes, so she cannot claim any contractual damages. However, as long as there is no element of double recovery, fraudulent misrepresentation allows the claimant to claim for damages in the tort of deceit. Tort of deceit which will put the claimant in the position in which he would have been had the tort not been committed. According to Doyle v Olby [1969] Olby [1969]8, the defendant will also be liable for all the damages created by the misrepresentation. In this case, Jemima has paid £10,000 for “necessary alterations to the factory space” because, “following the health and safety site inspection, she discovers that there is insufficient space around the machine to meet current safety regulations”. Hadn’t Jemima relied on David’s misrepresentation, she would not have bought the machine, and consequently would not have had to make the “necessary alterations”. These alterations therefore flow directly from David’s inducement; he will have to compensate for her £10,000 loss. In addition, Jemima has been affected by a loss of money from her business. The volume of print “is half what Jemima had expected”, so the profit she made is probably halved too. She may claim damages against David for the loss of profit.
The next issue that arises is whether there has been a misrepresentation from David as far as the price of the machine is concerned. It has been established in Keates v Cadogan Cadogan (1851) 9 that there is no general duty to disclose material facts known to one contracting party but not to the other. There is no obligation of good faith from the seller, who does not have to sell his good for the market price. In this case, c ase, David told Jemima the machine cost £30,000 but at no point did he tell her 7
McKendrick, ibid , p. 229. Doyle v Olby [1969] 2 QB 158. 9 Keates v Cad ogan (1851) ogan (1851) 10 CB 591. 8
5 that it was the market value of the press. Therefore Jemima cannot claim to have bought the machine for £30,000 because David implied it was the market price. She cannot claim any remedy against him for selling her the press for a higher price.
As far as Chris is concerned, the case that applies is Chaudhry v Prabhakar (1989) (1989)10. The claimant had asked her friend to help her a second-hand car because he knew more about cars than her. When asked if the car had been involved in a traffic accident, the defendant had stated it hadn’t; it was later discovered that this statement was not true. The claimant decided to sue him for breach of the duty of care arising from his accepting to help her choose the car. It was held that the defendant “could recover form the gratuitous agent[, a gent[, as] he owed a duty of care and his skill was to be measure objectively. He fell below the standard expected.” 11 In Jemima’s case, she asked her friend Chris, “who has worked in printing all his life”, for help in finding a suitable press. When David made his representation about the machine being “just right for the job”, Chris confirmed it by telling her it was “going to be very efficient”. Having worked in printing all his life, Chris should have known that this was a misstatement. In addition, when David told Jemima he would sell her the press for £30,000, Chris told her: “I think you’re getting a real bargain here”. He must have known it to be false, as he was a professional in the printing business. As in Chaudhry v Prabhakar (1989), Chris owed Jemima a duty of care and has breached his duty to exercise skill and care; and it was reasonable for Jemima to rely on Chris’s claims. Therefore, she can claim damages from him.
10
Chaudhry v Prabhakar (1989) (1989) 1 WLR 29 (CA). Michael Connolly, Briefcase Connolly, Briefcase on C ommercial La w (2nd Edition, Cavendish Publishing Limited, 1998) p. 34.
11
