Advisory Report - Misrepresentations And Breach Of Contract

Issue

Barry was sick of his day job, and wanted to buy a business so he could become his own boss. He saw that a fruit and vegetable store was up for sale at his local shopping village. The owner had posted an advertisement on the notice board at the shopping village as follows:

Highly profitable venture in bustling suburban shopping centre with turnover of $20,000 per month. No competitors. $250,000 plus stock-in-trade. Ring Angelo on 0434 123 456.

Barry telephoned Angelo and asked about the store. He asked what the expenses of the business were, and Angelo told him that they were $8,000 per month. Barry liked what he had heard, so he decided to check out how busy the shopping centre was. On the weekend, when he wasn’t working, he went to the shopping centre a few times and noticed that it was open all day Saturday and Sunday and was busy most of that time. He negotiated with Angelo and eventually agreed to buy the business for $200,000. To save money, he did not hire a lawyer, and signed a contract which included the following term:

The sale includes the following plant and equipment:
Item Value
Delivery van   $15,000
Loader           $2,000

Barry paid for the business and took over running it on 1 January 2018. When he took over the store, he discovered the following problems:

(a) Although the shopping village was busy on the weekends, it was very quiet during the week. In the first two months the turnover was only $13,000 per month.

(b) There was a grocery store in the shopping village that sold a wide range of fruit and vegetables.

(c) After six weeks, a man from a finance company arrived at the shop and repossessed the delivery van. It turned out that the van was only leased by the previous owner, and since Barry had not made the lease payments, the lease was in default. Barry’s expenses at the shop had been below $8,000 per month, but if he had paid the van lease, the expenses would have been on average about $8,500 per month.

(d) The loader, which was a small motorised machine for putting pallets on and off the back of the van, was broken down and could not be fixed for less than the cost of replacing it.

You are providing a written report to your supervising partner. To impress him, you want to show that you worked hard at university by demonstrating your knowledge of law and your ability to use it. You need to provide a written report providing the following advices.

1.Advise how Barry might challenge the validity of the contract on the basis of the statements made by Angelo before the contract was entered into. You should consider both common law and statute law.

2.Assuming Barry does not get out of the contract, advise on the possibility of an action for breach of contract.

In the given scenario the issue that is said to exist is whether the terms of the contract that had been signed between Barry and Angelo were misrepresented and whether the contract was a valid one.

Misrepresentation in the terms of a contract can be defined as a false statement or expression given by either of the parties to the contract on which the other party relies. Misrepresentation negates the validity of the terms of the contract. In case party relies on the misrepresentation and su9bsequetly suffers a loss, the aggrieved party is entitled to rescind the contract and claim damages.  The case Money v Westpac Banking Corporation (1988) ATPR (Digest) 46-038misleading and deceptive conduct. It had been held in this case that a party has the right to enter into another contract if he has been a victim of misrepresentation.

In the case Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 it had been held that for any person to take action against misrepresentation, it must be proved by such person that the statement on which he relied and the statement which constituted misrepresentation was false in nature and different from normal state. However it can be stated that a person is not allowed to take action against any misrepresentation made by a party which is in relation to a future event or an upcoming event, as held in the case Edgington v Fitzmaurice. However, there is one exception to this rule which gives the right to the aggrieved party to take actions against the misrepresenting party in relation to future upcoming events only when the misrepresented terms are formed in the contract.

The notable case Smith v Land & House Property Corp deals with misrepresentation which is constituted by false statement of fact. In this case it had been held that any person giving a false statement in the form of an opinion, who was in a position to know that the true facts of the case, his opinion would constitute a false statement of facts.   In the case Solle v Butcher it had been held by the court that where any misrepresentation has been constituted by a statement of law, the aggrieved party will not have the right to take actions against such misrepresentation.

As held in the case Lambert v Co-Operative Insurance misrepresentation can be constituted by a statement which has the capacity to encourage the other party to enter into the contract due to such false statement. In this case it had been provided that if any of the parties to the contract who had strong knowledge about the truth of the facts, fails to disclose a material fact the other party who relied on such information would be entitled to avoid the contract.  

Misrepresentation can be categorized in to three categories which are Fraudulent Misrepresentation, Negligent misrepresentation and wholly innocent misrepresentation.

Fraudulent Misrepresentation is of particular importance in this given scenario. Fraudulent misrepresentation had been illustrated in the case Derry v Peek as a statement of fact which is false in nature and which was given knowingly by the misrepresenting party or without belief to be true or recklessly. In such a case the plaintiff who asserts the fraud will have the burden of proof.  In case an actionable misrepresentation has been established the aggrieved party has the right to set the contract aside as held in the case Car & Universal Finance v Caldwell. Further it has been provided in the case Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 that the aggrieved party has the right to claim damages for fraudulent misrepresentation.  

Law

In this given scenario it has been provided that Angelo had given an advertisement for the sale of is vegetable shop. It was particularly mentioned in the advertisement that the farm had no competitors and that it had a turnover of 20,000 dollars. Barry had relied on the advertisement and bought the farm, however it was later discovered that terms of the advertisements were false. Therefore as per the decision of the case Smith v Land & House Property Corp, it can be stated that the conduct of Angelo constituted misrepresentation by false statement of facts. Further by the application of the decision of the Lambert v Co-Operative Insurance case it can be stated that Barry has the right to avoid the contract as Angelo had strong knowledge of the truth of the statements which he misrepresented. Thus the contract is voidable by Barry. By the application of the Derry v Peek case it can be stated that the advertisement constituted fraudulent misrepresentation as Angelo had given a false statement of facts knowingly with the intention to induce Barry to enter into the contract. Further by the application of the Doyle v Olby (Ironmongers) Ltd case it can be stated that in addition to setting the contract aside the Barry will have the right to claim damages from Angelo due to Fraudulent misrepresentation.

Conclusion

Thus in conclusion it can be stated that the contract is voidable by Barry. Barry can also claim damages from Angelo for misrepresenting the facts.

In the given scenario the issue that has been identified is what actions Barry can take for breach contract with Angelo.

The Competition and Consumer Act 2010 governs certain provisions of the Sale of Goods Act 1954 in Australia. The sale of goods act is applicable to those consumers who purchase goods within the territory of Australia. In accordance with the provisions of the Australian Consumer Law which has been provided in schedule 2 of the Competition and Consumer Act 2010 it can be stated that any person who purchases any product for household or domestic consumption and any product whose worth is less than 40,000 dollars can be defined as a consumer. However it is worth mentioning that any product or good purchased outside the territory of Australia does not fall under the purview of the Australian Consumer Law.

It can be stated that the provisions of common law legislation imply certain terms to a contract so as to ensure that express terms of the contract are carried out in an efficient manner. Such terms that are assessed by the courts to be existing in the contract are known as implied terms. It had been held in the case Commonwealth Bank of Australia v Barker [2013] FCAFC 83 that implied terms are added to the contract for the purpose of adding efficacy to the contract and make it more effective. The case, Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur (Australia) Ltd deals with the terms that are implied in contracts due to custom or trade usage.  In this case the criteria for implying terms in contracts had been set out by the court. Further it has been provided in section 19 of the Sale of Goods Act 1954, that sellers have the implied obligation to deliver products that are assessed to be of reasonable quality by the purchaser even when there are no terms in the contract which determine the quality of the goods.

It can be stated that there are several remedies available to the purchaser which are granted to the consumers by the provisions of common law legislation in case of breach of contract. Some of the remedies available to the consumers for breach of contract are specific performance, injunction, recession and claiming damages. As held in the case Doyle v Olby (Ironmongers) Ltd it can be said that it is the duty of the seller to provide damages to the consumer, that have been sustained by him due to the breach of the contract.          

In this given scenario it is evident that Barry and Angelo had entered into a contract which was duly signed by the parties. It is worth mentioning that the contract between the parties had many terms incorporated in it. It was clearly provided through the terms of the contract that Barry would be given a loader and van by the seller.  However after the purchase Barry came to know that the van was on lease and he had to pay 500 dollars if he wanted to us the same. Subsequently the cost of managing the business by Barry increased to 8500, which was originally promised to be 8000. It was realized by Barry that the loader was broken and the cost of fixing the loader was more than its original cost. Thus in this case it is clearly evident that Angelo had breached the terms of the contract as the loader was not of acceptable quality according to the application of section 19 of the Sale of Goods Act 1954.

Further in accordance with the judgment of the notable case Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, it can be stated that the Barry can claim damages from Angelo for the rent of the van which had not been disclosed to him fraudulently by Angelo.

Conclusion

Thus to conclude, it can be stated that Barry can claim damages from Angelo for fixing the loader and can also claim damages for leasing the van.

Reference List:

Money v Westpac Banking Corporation (1988) ATPR (Digest) 46-038

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31

Edgington v Fitzmaurice (1885) 29 Ch D 459

Smith v Land & House Property Corp (1884) 28 Ch D 7

Solle v Butcher [1950] 1 KB 671

Lambert v Co-Operative Insurance [1975] 2 Lloyd's Rep 485

Car & Universal Finance v Caldwell [1965] 1 QB 525

Competition and Consumer act 2010

Sale of Goods Act 1954

Commonwealth Bank of Australia v Barker [2013] FCAFC 83

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur (Australia) Ltd (1986) 160 CLR 226

Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158