Misrepresentation of Ogie Car Sales

Question:

Answer:

1. The issue in this case is if a misrepresentation has been made by the salesman of Ogie Car Sales Pty Ltd regarding the BMW that Lara has purchased from the company. Ogie claimed that the car was in excellent condition and the odometer of the car showed that it had done only 11,000 km. The salesman of the company also recommends the car. However, after three months, Lara finds out that the car had done 175,000 km in reality as it was a fleet of a company. Under the circumstances, it has to be decided if a legally enforceable contract is present between Ogie Car Sales Pty Ltd and Lara.

In order to decide the issue in this case, the rules of common law related misrepresentation have to be applied. In this context, misrepresentation is a false statement related to the fact or law and due to this false statement, the other party should have been induced to make the contract. Where the statement made by the other party during the negotiations has been termed as a representation instead of a term of the contract, the blameless party may take an action under misrepresentation in case the statement turns out to be false later on. In this regard there are three types of misrepresentations; innocent representation, negligent misrepresentation and fraudulent misrepresentation. When it is found that a misrepresentation has been made by a party and the other party has been induced by such misrepresentation to enter the contract, the contract between the parties is voidable. Therefore in such a case, although a contract is present between the parties but such a contract can be set aside by the innocent party. The remedy that may be available to the innocent party depends on the type of misrepresentation how are generally in such a case, the court allows the rescission of the contract or damages. There are certain circumstances when it the innocent party may not be allowed to rescind the contract may. The law related with misrepresentation is mainly present under the common law.

In order to satisfy the requirements of actionable misrepresentation, there should be a false statement made by the party. The false statement should be related with fact or law and not an opinion on an estimate of future events. Generally the law provided in this regard that silence does not amount to a misrepresentation. On the other hand, when the contract is of utmost good faith like an insurance contract or where the representor has been placed in a fiduciary position, silence may amount to a misrepresentation. In case of such contracts, there is a duty to disclose all the material facts and if all facts are not disclosed, it may result in a right to take action under misrepresentation. Another requirement is that due to the false statement, the other party is induced to make the contract. On the other hand if the representee was not aware of the statement, there can be no inducement.

In the present case, Lara had entered the contract by relying on the misrepresentation of Ogie regarding the condition of the car. Therefore, although the contract has been created between Lara and Ogie but it is a voidable contract. Therefore, Lara can rescind the contract.

2. The issue in this case is related with the rights that may be available to Lara under the common law. At the same time, the remedies available to Lara for the misrepresentation made by Ogie also need to be considered.

After it has been established that a misrepresentation was made by one party, it needs to be considered by type of misrepresentation the party has made. In this regard there are different types of misrepresentations, fraudulent, innocent and negligent misrepresentation. The significance of the distinction between these three types of misrepresentation is very important because the remedies that may be available to the other party depend on the nature of the misrepresentation.

Fraudulent misrepresentation was described by the court in Derry v Peek when the court stated that it is a false statement that is made by a party knowingly, recklessly or without believing that it is true. Again, when the statement has been made by a party when it believes in the truth of such a statement, it cannot be considered as fraudulent.  However, the burden is on the plaintiff to establish that the statement was fraudulent.

The remedy that is available in such a case is that of a recession of the contract and at the same time, the party may also claim damages under the tort of deceit.

The second category is of negligent misrepresentation under the common law. In Hedley Byrne v Heller, it was mentioned by the House of Lords that under some circumstances, the other party may recover damages under the law of tort for the negligent misstatement that has resulted in a financial loss. The success of such an action depends on establishing a special relationship seems the parties. This type of duty arises in the commercial relationship where the party making the statement has certain special skill or knowledge and is also aware of the fact that the other party will rely on the representation.

The remedies that may be available in this case are the rescission of the contract (although there are certain exceptions) and damages under the tort of negligence.

In the present case, the remedies available to Lara include the decision of the contract and damages. The remedy of recession of contract can be granted in case of a misrepresentation. The purpose behind this remedy is to put the parties back to the place in which they were even contract was not made at all.  At the same time, there are certain bars to the remedy of decision. In this regard can be mentioned that the remedy of recession of contract is an equitable remedy and it is granted at the discretion of the court. Therefore, the right to rescind the contract will not be available to the injured party in the below mentioned four circumstances. These include the information of the contract, Lapse of time, when restitution in integrum is impossible, or when a third party has acquired rights under the contract. Along with an order of recession, the court may also order an indemnity. Other remedy that may be available in case of a misrepresentation is that of damages. Therefore, damages can be claimed by the injured party when a fraudulent misrepresentation has been made. Damages are awarded for the purpose of restoring the victim to the same position in which it was before the representation was made. Therefore, these are the rights that are available to Lara under the contract, regarding the misrepresentation and also the remedies that are available to her.

Bibliography

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

Derry v Peek (1889) LR 14 App Cas 337

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

Esso Petroleum v Mardon [1976] QB 801

Hedley Byrne v Heller [1964] AC 465

HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6

Horsfall v Thomas [1862] 1 H&C 90

Leaf v International Galleries [1950] 2 KB 86

Long v Lloyd [1958] 1 WLR 753

Phillips v Brooks [1919] 2 KB 243

Smith v Hughes (1871) LR 6 QB 597

Vigers v Pike (1842) 8 CI&F 562

Whittington v Seale-Hayne (1900) 82 LT 49

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