Contract law

  • Category:
    Law
  • Document type:
    Essay
  • Level:
    Undergraduate
  • Page:
    2
  • Words:
    1168

LAW OF CONTRACT ASSIGNMENT {vitiating factors- misrepresentation- fraudulent misrepresentation}

BOB WHEELIE AND MR. SPOKES

Introduction

This essay seeks to establish first that there was a contract between Bob Wheelie and Mr. Spokes. Secondly, that the contact was vitiated by misrepresentation by Mr Spokes to Bob Wheelie. Also that the misrepresentation was fraudulent. Finally, that Bob wheelie has a remedy available to him under common law.

According to 1, a contract is an agreement, upon sufficient consideration, to do or not to do a particular thing. It can also be defined as deliberate engagement between competent parties, upon a legal consideration All the above definitions fit perfectly into the agreement between Bob Wheelie and Mr. Spokes seeing that for the consideration of the price paid by Bob Wheelie, Bob got the ownership of the store from Mr. Spokes. Furthermore, other elements that are required to be present in order for a contract to be considered valid under contract law were present or can be inferred without any potential opposition or contradiction. These elements are:
, to do or abstain from doing, some act. A contract can also be defined as an agreement where a promise is made on one side and assented to on the other; or where two or more persons enter into engagement with each other by a promise on either side.

1. Intention to create legal relationship

2. Capacity to enter into contract.

3. The contract being entered into must be for a legal purpose.

4. There must be a lawful offer

5. There must be a lawful acceptance of the lawful offer.

The element of Capacity in this case is important to be elaborated further considering there is a narration as regards various things that Bob Wheelie did when he was a certain age. Both Bob Wheelie and Mr. Spokes can be seen to have the capacity to contract. This is so considering that they are both past the age of 18 years at the time of entering into the contract and also that there is no mention of them being insane (Which if otherwise would have proved them to lack capacity to contract.)

Note however that even when all the elements of a contract have been complied with, there can be human aspects that can cause errors and mistakes. They can also cause one party to the contract to act unethically towards the other party or to unfairly use an advantage or knowledge against another. To safeguard against these undesirable situations, there is a formulation of rules that counteract these failings. The rules relate to the failings of:

  1. Misrepresentation

  2. Unfairness

  3. Undue influence

An understanding of the relevant facts in this case shows the failing of –Misrepresentation to be the main subject whose relevant facts are as follows:

Not long after his 30th birthday, he saw an advertisement that caught his eye. Mr Spoke, the owner of a bicycle store was retiring and needed to sell his store. Bob made enquiries with Mr Spoke regarding the sale. Mr Spoke made representations regarding the past and future profitability of the store. Bob purchased the bicycle store on the basis of the historical figures presented by Mr Spoke in the form of historical accounts. These accounts were not an accurate representation, but were inflated by 55%. The figures were designed to induce Bob Wheelie to purchase the store, so that Mr Spoke could retire and travel overseas. This meant that Bob’s new venture might cost him considerably more than he anticipated in order to make it work. He planned to not only sell bikes, but provide bike service, advice and some basic lessons. It is safe at this point to conclude that had Bob known the actual figures of the accounts and looking at them in the light of the plans he had for the store, he would not have purchased the store from Mr. Spokes.

The law on misrepresentations

A misrepresentation is a false statement of fact that is intended to induce a party to get into a contract 2. Misrepresentations are of few types. These include:

1. Fraudulent Misrepresentation

2. Negligent Misrepresentation

3. Innocent Misrepresentation

These are explained as follows:

Fraudulent misrepresentation occurs when a representation has been made knowing it is not true, or made with reckless disregard to its truth. Negligent misrepresentation occurs when there is a duty owed by the representor to the other party to take due care and ensure the representation is true and reliable and the representor fails to take such due care which ultimately results in loss or damage caused by the falsity of the representation. Innocent representation is a residual category where the representation is neither fraudulent nor negligent. From the above explanations, it is safe to conclude that the misrepresentation in the case of Bob Wheelie and Mr. Spokes is of the fraudulent type. This is so since it was made intentionally.

The following cases support this conclusion.

In Lockhart v. Osman [1981] VR 57, an agent had advertised some cattle as being “well-suited for breeding purposes”. Later on it was discovered that the stock had been exposed to a contagious disease which affected the reproductive system. It was held that the agent had a duty to take remedial action and correct the representation. The failure by the agent to take such measures resulted in the contract being set aside 3.

In With v Flanagan [1936] Ch. 575, the plaintiff entered into a contract to purchase Flanagan’s medical practice. During negotiations it was said that the practice produced an income of £2000 per year. Before the contract was signed, the practice took a downward turn and lost a significant amount of value. After the contract had been entered into the true nature of the practice was discovered and the plaintiff took action in misrepresentation. In his decision, Lord Wright said «…a representation made as a matter of inducement to enter into a contract is to be treated as a continuing representation.» This means that the representation must be true till the contract is made; creating the obligation mentioned above and accordingly the plaintiff’s petition was successful 3.

Conclusion

The impact of a misrepresentation in a contract is that if a contract is found to be induced on the basis of a misrepresentation it is not automatically void. The innocent party has the choice of rescinding the contract from its beginning or affirming it and continuing to be bound by it. The contract remains valid until the innocent party rescinds it. The innocent party may also be able to recover damages through tort actions except for innocent misrepresentations.

Bibliography

Bower, George Spencer and A commentary, The Law of Actionable Misrepresentation, Stated in the Form of a Code, Followed by a Commentary and Appendices (Butterworths Law, 3rd Ed, 2000)

Stone, Richard and James Devenney, The Modern Law of Contract (Taylor & Francis, 10th ed, 2013)

1Stone, Richard and James Devenney, The Modern Law of Contract (Taylor & Francis, 10th ed, 2013)

Richard Stone and James Devenney, The Modern Law of Contract (Taylor & Francis, 10th ed, 2013).