Misrepresentation in Business Law

Topics: Contract, Tort, Misrepresentation Pages: 5 (1685 words) Published: November 11, 2008
Introduction to Business Law- Assignment 1B

Advise TLC Ltd. as to any possible action they may have for misrepresentation against answer Ltd.


Treitel in The Law of Contract (2003) defines a contract as:

“An agreement giving rise to obligations which are enforced or recognised by law. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties.”

This quote illustrates the basic criteria for a contract. A contract is a legally binding agreement between two or more parties, it can be written or oral. There is no mention of a written contract between TLC and Answer, therefore we must assume there is an oral contract. The classical approach to determining whether a contact has been created involves agreement, consideration and intention.

In order for an agreement to exist between parties there must be an offer that contains the terms of the contract. If the offeree accepts, they accept these terms. In this case, Answer offers the supply and installation of a new computer system and TLC accept this offer and have the system installed for the sum of £100,000.

Consideration is the price for which a promise is brought. It’s the giving of consideration for a promise that makes breaking the promise unjust. Defined in Currie v Misa (1875) as- “Some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by another”.

There must also be intension to create a contract. In commercial situations such as this the intent to create a contract is presumed. In Edwards v Skyways Ltd (1964)- the defendant was promised on being made redundant, and withdrawing his pension contributions, the company would give him an ex gratia (given out of grace- accepting no liability) payment of the same again. He withdrew his pension but did not receive the extra payment. It was held by the court that the presumption to create a legally binding contract prevailed, and all the term ex gratia means is there is no previous legally binding contract.

A representation is a statement made regarding the contract that induces the other party to enter the contract. A false representation is not a breach of contract but may lead to court action for misrepresentation under the Tort of deceit or the Misrepresentation Act 1967. In an oral contract it is difficult to discern whether a statement is a term of the contract or a representation. A misrepresentation must be a representation of fact not of law (as you are expected to know the law), opinion or intention.

In the case of Answer, Valentino categorically states that the computer system is ‘number one for reliability’ a statement of fact. Also it’s ‘proving a success and about to be installed in a number of similar businesses’. Valentino is not expressing opinions; the statements he made will be regarded fact. Where the representor has expert knowledge it’s reasonable for the representee to rely on the statement and not take action to verify it. Answer has special knowledge that TLC does not, therefore TLC have every right to believe Answers representations. Esso Petroleum Co. Ltd v Mardon (1976). The second statement is an intention to install the system at similar businesses. The representor, when making statements of intent has a right to change their mind unless these intentions are terms of the contract. Although this action was never carried out, it must be proved Answer had no intention of carrying this out at the time the statement was made. Edgington v Fitzmayrice (1885), directors of a company issued a prospectus inviting debentures saying the money raised would be used for expansion of the company. Money was advanced but was in fact used to pay off debts. This was held as misrepresentation as...

Bibliography: Slapper, G. and Kelly, D., 2006. English Law. 2nd ed.
London: Cavendish Publishing Ltd.
Richards, P., 2006. Law of Contract. 7th ed.
Harlow: Pearson Education Ltd.
Mortimer, T., 2007. introduction to Business Law.
Harlow: Pearson Education Ltd.
Word Count = 1512 - excluding quotations and bibliography.
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