Common Law Misrepresentation And Liability Of Manufacturers For Defective Products

1.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.

2.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.

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.

Conditions for Actionable Misrepresentation

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.

Manufacturer's Duty of Care towards Consumers

In the present case, Angela can rescind the contract or seek damages

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.

Manufacturer's Liability for Defective Products

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