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Angela enters into negotiations with Jessica to purchase her restaurant. During their discussions, Angela asks Jessica what are the annual profits of the restaurant. Jessica tells her that ‘the restaurant has been making $10,000 per year in profits’. She hands her a box of papers and says ‘Here are the accounts, you can check for yourself if you like’.

Angela trusts Jessica and only checks the accounts for 2007, which do show profits of $10,000. Relying on what she has told them, Angela decides to purchase the business. However, after a few months, when business is very slow, she has another look at the accounts and realises that the business has only been making $2,000 per year for the last 5 years (since 2008).

Advise Angela of her common law rights.

Sandra Smith purchased a carton of cola from her local corner store. The following week, on a very hot day her husband, Andy, took a can from the refrigerator and drank it. He became violently ill and was rushed to hospital where he remained for three days. On closer inspection of the contents of the can it was found to contain the remains of a cockroach. The family faced large medical expenses, a problem exacerbated because neither parent could work in their casual jobs for a week.

The corner store has gone out of business due to bankruptcy and the family wishes to sue the Australian manufacturer, Acme Cola Company Ltd. Advise the Smiths as to their chances if they were to sue Acme for negligence.

Background Information

Issue

Is the contract amid Angela and Jessica is based upon misrepresentation?

Law

The common law of misrepresentation is applicable in order to resolve the issue.

Misrepresentation is said to incur by one party over another when one party to the contract makes statements which are of factual nature and which are intentionally made so that the other party who is relying on the statements makes a contractual relationship with him. (Teacher)

A contract based with misrepresentation has no significance and can be terminated by the aggrieved party to the contract, who has made contract by relying on the misrepresented statements. The aggrieved party also has the right to sue the wrongdoer and can claim damages for the loss suffered by relying on the misrepresentation and are held in the leading case of (Edgington v Fitzmaurice (1885) ).

The main elements that are required to prove misrepresentation comprises of:

  1. Statement of fact – It is necessary that a misrepresentation can only be made regarding some factual scenario. No misrepresentation can be made if any opinion is made by the defendant. If the defendant’s statements are mere his expressions then the same are not misrepresentation in law and is held in (Bisset v Wilkinson ).
  2. The statement must be made by the defendant. Silence is not considered to be misrepresentation in law.
  • The statement of fact that is made by the defendant must not be true in nature. The defendant must be aware that he is making an untrue statements;
  1. The main intention of the defendant of making the untrue statements is to induce the plaintiff so that a contract can be established by him and is rightly held in (Museprime Properties v Adhill Properties).
  2. It is necessary that the plaintiff has made a contract with the defendant only on the basis of the statement of fact that is made by the defendant. If the basis of contract formation is not the statements which are made by the defendant but the contract is based on some other grounds, then, the contract is not suffered from misrepresentation and is held in the leading case of (Derry v Peek ).

The law is now applied.

There are two parties involved, that is, Angela (buyer) and Jessica (seller). Angela is wishing to buy the restaurant of Jessica. However, it is submitted that there is misrepresentation that is caused by Jessica upon Angela. The same is submitted as follows:

  1. During the discussing when Angela enquired regarding the annual profits, a statement of fact was made by Jessica that the annual profits of the restaurant is $10,000. The statement is neither an opinion nor mere any expression. Rather, the statement that is made is of fact as the receipt  of 2007 accounts states that the annual profits for the said year was $10,000;
  2. The statement that was made by Jessica was a positive statements and not construed in silence;
  • The statement that is made by Jessica was not true and the same was in the knowledge of Jessica. Jessica is aware that the annual profits of $10,000 are only for the year 2007. After 2007, that is, from 2008, the annual profits that are derived from the restaurant is only $2000 and not $10,000. Thus the statement that was made was not true in nature.
  1. The statement that was made by Jessica was made so as to induce Angela so that he enters into a contract with her for the purchase of the restaurant. Jessica is aware that Angela is relying on the statements made by Jessica before finalizing the decision of the buying the restaurant or not. the decision is solely made on the statements that are made by Jessica and not on any other grounds;
  2. Angela after relying on the statements so made by Jessica purchased the restaurant.

Thus, it is submitted that the statement that are made by Jessica are misrepresentations in law. there was no truth in the statements and the statements were merely made in order to indulge Angela so that she enters into a contract with Jessica. The statements ere not opining but are the statements of facts which are not true.

Conclusion

Thus, the contract that is made by Jessica and Angela is based on the misrepresentation that is made by Jessica upon Angela and thus because of misrepresentation the contract has no validity in law. Angela has full right to terminate the contract and can sue Jessica for the losses that are suffered by her on account of misrepresentation.

Issue

Whether Sandra and Andy are eligible to bring the negligent action against the local corner store and the law company?

In (Donoghue v Stevenson ), Lord Atkin has simply imposed a duty of care on the manufacturer or seller or retails to supply the products in such manner so that no loss is caused to any person who is their neighbor. The main question that arises is as who is considered to be the neighbour of the manufacturer and when the liability can be imposed. Lord Atkin has submitted that a person is negligent when he is able to prove three main essentials of every negligent act, which includes, an obligation to provide, the violation of such an obligation and the resultant damages because of such breach of obligation. (Lunney and Oliphant)

Misrepresentation Law and Its Applicability

The duty of care is the first essential. The duty of care principles submits that any manufacturer is duty bound to conduct his acts in such a manner so that no damages of any kind is caused to the plaintiff who is his neighbor and who is reasonably foreseeable and is held in (JD v East Berkshire Community Health NHS Trust and others). A plaintiff is considered to be the neighbor of the defendant when there is closeness amid the two and is held in (Graham Barclay Oysters Pty Ltd v Ryan). The closeness and proximity amid the two is of such an extent that the acts of the defendant will hamper the plaintiff without any interference of any acts of any other person. It is also very essential that the plaintiff is reasonably foreseeable by the defendant and is held in (Farrugia v Great Western Railway ). If the defendant is of no idea that the plaintiff is present there cannot be element of duty of care that can be imposed upon the defendant. (Plunkett)

When the duty of care is imposed then to make the defendant liable under the law of negligence it is necessary that same must not be fulfilled by the defendant. There is non-compliance of the duty, that is, no reasonable care is undertaken by the defendant which is expected from a normal prudent person in the like situation and is held in (Rothwell v Chemical and Insulating Co). The reasonable care varies, that is, if the risk is high the care is also high, when the gravity of harm is high then also the care is high, etc. (Plunkett)

When the duty is not comply with and causes injury to plaintiff, then, the defendant is negligent when the loss is not remote, that is, it must be caused because of the acts of defendant and the loss that is caused is incurred because of the acts of the defendant (causation) and is held in (Harriton v Stephens). (Plunkett)

All three elements together makes a defendant negligent.

The law is now applied to the facts of the case.

Sandra Smith and her husband Andy can sue the Acme Cola Company Ltd. It is held in (Donoghue v Stevenson ) that normally any plaintiff can bring the action for the loss of negligence against the seller. However, it was also rightfully held that when the seller is found to be bankrupt and is not able to fulfill the loss that is attributed to the plaintiff, then, the manufacturer can be imposed with the act of negligence.

Elements of Misrepresentation Law

Thus, it is found that the local corner store (seller) was bankrupt in his business and thus is not able to make good the loss that is suffered by the plaintiffs. So, the Acme Cola Company Ltd is can be imposed with the liabilities that are suffered by the plaintiffs because of the negligent actions.

However, it is important to first prove all the element of the negligence upon the local corner store in order to impose the liabilities of negligence:

  1. There exits duty of care upon the local corner store.  The duty of care can be imposed if the elements of proximity and reasonable forseeability can be proved.

It is submitted that Sandra Smith purchased the cola from the seller. Every seller has a duty that he must provide safe products to his consumers as they are in proximate relationship with them. The proximity is extended to the ultimate consumer who is expected to use the said product. Thus, in the given case a carton of cola is bought by Sandra Smith and which will obviously be consumed by her husband. Thus, the seller is aware that Sandra or her family will consume the cola. Thus, there is closeness amid the Seller and Sandra Smith and all the ultimate consumers who are expected to consumer the cola (JD v East Berkshire Community Health NHS Trust and others).

Further, the seller can reasonably expect the presence of the plaintiff, that is, Sandra Smith and Andy. Every seller can reasonably expect that the consumer will be his ultimate neighbor as thus can easily reasonably predict the presence of the plaintiff.

Thus, both the elements of duty of care, that is, neighborhood principle and reasonably forseeability is proved. Thus, there is duty of care that can be imposed upon the seller and ultimately to the company (Graham Barclay Oysters Pty Ltd v Ryan).

  1. It is submitted that Andy being the reasonably foreseeable neighbor of the seller, consumed the cola. The bottles contain the body parts of the cockroach. It is submitted that the level of precaution that is expected while selling a product which is consumed by the ultimate consumer is not met and the level of care fall short of what is expected in reasonable situations. Thus, the duty is violated(Rothwell v Chemical and Insulating Co).
  • When the bottle of the cola is consumed by Andy then because of the presence of the body parts of the cockroach which is also consumed by Andy, he suffers loss as he become ill and he was taken to hospital for the injury that us sustained by him. Thus, there is causation because the illness of Andy is because of the consumption of cola. Also, there is no remoteness because any reasonable person can predict that because of consumption of contaminated cola a consumer might become ill. Thus, there is no remoteness of damages and there is presence of causation which results in proving damages on the Andy and which is caused because of the acts of seller/manufacture.

But, the loss that is caused to Sandra is not because of the acts of the seller. She lost her income from work but that loss is too remote to predict by the seller and is also incurred not because of the negligent acts of the seller. So the seller or the manufacturer will not make the loss that is caused to Sandra (Harriton v Stephens).

It is thus, submitted that the seller/ manufacturer is negligent in their actions resulting in loss to Andy and thus must make good the loss that is suffered by him on account of negligence.

Conclusion 

Thus, Andy has full authority to sue Acme Cola Company Ltd for the loss that is caused to Andy for the negligent actions of the local corner store. Sandra Smith cannot be claiming the expenses that are suffered by her because the loss that is suffered is to remote to predict.

Bisset v Wilkinson . No. 177. AC. 1927.

Derry v Peek . No. 14. App Cas. 1889.

Donoghue v Stevenson . 1932.

Edgington v Fitzmaurice (1885) . No. 29. Ch D . 1885.

Farrugia v Great Western Railway . No. 2. All ER. 1947.

Graham Barclay Oysters Pty Ltd v Ryan. 2002.

Harriton v Stephens. HCA. 2006.

JD v East Berkshire Community Health NHS Trust and others. No. 2. WLR. 2005.

Lunney, Mark and Ken Oliphant. Tort Law: Text and Materials. Australia: OUP Oxford, 2013.

Museprime Properties v Adhill Properties. No. 36. EG. 1990.

Plunkett, James. The Duty of Care in Negligence. Australia: Bloomsbury Publishing, 2018.

Rothwell v Chemical and Insulating Co. UKHL . 2007.

Teacher, The Law. The Law Teacher. 2018. 21 May 2018 <https://www.lawteacher.net/cases/misrepresentation-cases.php>.

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[Accessed 03 March 2024].

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