Misrep Essay - May 2018 Question 6 PDF

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Contract Law - May 2018 – Question 6Hamad is fed up of working as a busy and successful male model. He decides to open a coffee shop. He has heard that Imogen is interested in selling her coffee shop located in a trendy part of town. On 1st January Hamad and Imogen meet to discuss the terms of a sal...

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Contract Law - May 2018 – Question 6

Hamad is fed up of working as a busy and successful male model. He decides to open a coffee shop. He has heard that Imogen is interested in selling her coffee shop located in a trendy part of town. On 1st January Hamad and Imogen meet to discuss the terms of a sale. Imogen tells Hamad that the coffee shop is making a profit of £5,000 per month. She produces a set of accounts which Hamad inspects and which supports her statement. Hamad is confident that his reputation will enable him to increase profits by 50%. On 1st March Hamad agrees to buy the coffee shop for £500,000 and opens for business two months later after he has spent £100,000 refurbishing the coffee shop. Hamad operates the coffee shop for three months but the profits never exceed £2,000 per month because Starbursts, a national coffee shop chain, opened a coffee shop a few streets away on 1 st February. Imogen met a friend for a coffee in the new Starbursts on its opening day. Hamad is especially annoyed as if he had not bought the coffee shop he would have invested the money in his sister’s internet company which is now making large profits. Advise Hamad as to whether on the above facts Imogen is liable to him under the law of misrepresentation. ANSWER:

A misrepresentation is where one party makes a false statement of fact to another party to a contract which is clear, and that party relied on the statement and suffered detriment. An analysis of the statements must now be made in order to determine whether or not they form actionable misrepresentation. The first issue to consider in determining liability for misrepresentation, is whether the statement Imogen made to Hamad on January 01st could be a mere puff, opinion, or a statement of fact. Mere puffs cannot amount to actionable misrepresentation as they attach no weight ( Carbolic Smoke). Further, where the statement is an opinion, it cannot amount to misrepresentation since it is not a statement of fact (Bisset v Wilkinson). Given that Imogene was the owner of the coffee shop and had direct knowledge of the business and it’s operations, the albeit clear statement made that “the coffee shop is making a profit of $5000 per month” would not appear to be mere puff or sales talk, as Imogen was in the position to potentially have knowledge of the financial state of the business. The statement could be characterized merely as a statement of opinion, depending on the extent of Imogene’s knowledge of the financial state of the business, as her finances could be organized by another party. However, on the facts presented it seems most likely a statement of fact, as Imogene is presenting the business for sale, and as owner of the business it would be a statement which Imogene could reasonably have held to be true. This assumption is further supported by the set of accounts which she produces and allows Hamad to inspect. The next thing to consider is whether the statement made to Hamad was a false statement. As established in the case of (With v Flanagan), once a representation is made it is considered ‘continuing’ so if the material fact changes, then if not corrected it then becomes misrepresentation

(Shankland & Co v Robinson). There is a general duty for both sides to disclose all material facts they know (Keates v Cadogan), but no general duty of disclosure subject to exceptions. The exception is where there is a representation changed by later events. In this case when Imogen met with Hamad on January 01st, the statement she made to him regarding the income became a material fact which she represented. Later on February 01st, when Imogen met friend for coffee at Starbursts on the opening day, she became aware of the potential change in financial circumstances, and by the precedent of continuing material fact, the fact became false as she had knowledge of it prior to the formation of a contract. The next issue to consider is whether the statement induced Hamad into the contract. It is clear from the meeting between Hamad and Imogene, that after reviewing the statements presented to him that they were at least a reason (if not the sole reason) that Hamad entered into the contract. It was after he had reviewed these financial documents that Hamad became confident that he could increase the profits of the business by 50%. Thus it is reasonable to presume that after reading the documents and making potential projections in his mind for the business, that this information induced Hamad into the contract. It is clear that Hamad relied on the facts presented by Imogene and entered into the contract, and suffered losses almost Immediately after entering into the contract. Having made only $2000 per month versus $5000 per month as expected, and also the $100,000 he invested into the business, which he may not have made had he known about the new Starbursts being opened in the area. It is clearly established that Imogen had knowledge of the change of circumstances and misrepresented the facts prior to entry of the contract, and would be liable to Hamad in the law of misrepresentation. Imogene could be liable to Hamad under the strict Derry and Peek definition of Fraudulent misrepresentation, in that there must be proof of fraud and nothing less. Imogene misrepresented the facts to Hamad both knowingly and recklessly, as she had coffee at the competitor coffee shop before the contract was signed. She also could be said to be guilty of negligent misrepresentation in that due to the business nature of the relationship, and that Imogene was an owner of the business and had knowledge of it’s inner workings, that there was a Hedley Byrne type relationship present upon which Hamad relied on the information presented. Imogene may also by liable to Hamad under section 2(1) of the misrepresentation act. It would be prudent next to consider the various remedies for available to Hamad in this scenario. Firstly Hamad may want to exercise his right to rescind the contract, however there are bars to recission namely is the main subject matter of the contract used up or exhausted (Vigers v Pike), length of time expired (Leaf v international galleries), whether the recission would be partial (De Molestina v Ponton), or if a third party obtained rights under the contract. In this case there could be bars to recission as due to the renovations made, and the essence of the subject matter has changed, return to the pre-contractual position may not be partial. Next Hamad could seek damages given the large financial investments made in the initial purchase and the renovation, and it would be prudent for Hamad to pursue the case through fraudulent misrepresentation; as the statement was made knowingly and recklessly. It would be best pursued through the Tort of deceit for Fraudulent misrepresentation, or under section 2(1) of the MA Act

1967. Pursuit of the case through the act would be the best recourse to recover all losses flowing from the misrepresentation, as a successful case under the act would allow for all losses to be recovered, and the onus would be upon Imogene to prove that she believed the statements she made were true up until the time when Hamad entered the contract. (Royscot trust v Rogerson)...