Bo1Blaw204 Business Law | Issue Assessment Answer


Angela trusts Jessica and only checks the accounts for 2007, which do show profits of $10,000. Relying on what she has told them, Angela decides to purchase the business. However, after a few months, when business is very slow, she has another look at the accounts and realises that the business has only been making $2,000 per year for the last 5 years (since 2008).
Advise Angela of her common law rights
2.Sandra Smith purchased a carton of cola from her local corner store. The following week, on a very hot day her husband, Andy, took a can from the refrigerator and drank it. He became violently ill and was rushed to hospital where he remained for three days. On closer inspection of the contents of the can it was found to contain the remains of a cockroach. The family faced large medical expenses, a problem exacerbated because neither parent could work in their casual jobs for a week. 
The corner store has gone out of business due to bankruptcy and the family wishes to sue the Australian manufacturer, Acme Cola Company Ltd. Advise the Smiths as to their chances if they were to sue Acme for negligence.
Answer:

Introduction

A contract is a significant agreement which binds its parties into a contractual relationship. It can be in written or oral format. Parties have to fulfil certain elements to form a contract. A contract cannot be formed in case a party misrepresent any fact for inducing another party into signing the contract. In case a party face damages due to the negligence of another, then such party has the right to claim for damages. This report will evaluate two case studies to advise its parties regarding available legal actions which they can take in the particular situation. Each case study will be evaluated based on issues, relevant rules, application and conclusion.

1.Issue

Whether Angela can file a claim for misrepresentation against Jessica?

Rule

Fulfilment of essential elements is necessary to form a valid contract. Firstly, there must be an offer between the parties to perform or not perform a specific act. A valid offer has the intention to bind the offeror, the person giving the offer, into a legal relationship (Harvey v Facey [1893] UKPC 1). Acceptance is another essential element which requires that the offeree, person to whom the offer is made, must give his/her acceptance within the given time of a contract (Entores v Miles Far East Corp [1955] 2 QB 327) (McKendrick, 2014). Presence of consideration which has a value in the eyes of the law is another key element in a contract (Thomas v Thomas [1842] 2 QB 851). The consideration must be present because past consideration cannot form a valid contract (Re McArdle [1951] Ch 669) (Angus, 2012). The parties must have the capacity to form a legal contract which means that they must not be insolvent, unsound mind and minor. Free and mutual intention of parties is another key requirement of a valid contract based on which domestic contracts cannot create a legal relationship (Jones v Padavatton [1969] 1 WLR 328).

Misrepresentation is a vitiating factor which resulted in terminating the contractual relationship between parties. It is referred to false representation of facts based on which a party signs a contract. A contract is voidable in case of misrepresentation, and it can be set aside based on the discretion of parties. As per the Competition and Consumer Act 2010 (Cth), a person must not engage in any trading or commerce related activity which is misleading or deceptive or likely to do so (section 18). In order to establish misrepresentation, there must be a false statement, and the party must enter into a contract based on reliance on such statement (Horsfall v Thomas [1862] 1 H&C 90) (Yeung & Huang, 2016). The statement must be a false representation of the facts rather than a personal opinion of the party regarding estimations of the future events (Esso Petroleum v Mardon [1976] QB 801). In case the party checks the validity of the fact, then a suit for misrepresentation cannot be formed (Attwood v Small [1838] UKHL J60) (Turner, 2013). In case an opportunity for representation is made which is declined by the party, it is still determined as reliance on the statement (Redgrave v Hurd [1881] 20 Ch D 1).

Application

In order to induce Angela into purchasing her restaurant, Jessica told her that the annual profits of the business are $10,000 per year. Angela trusted the statement of Jessica, and she only checked the accounts of 2007 which does show profit of $10,000. After purchasing the business, Angela found out that Jessica misrepresented the facts to induce her into the contract. As discussed above, both Angela and Jessica fulfilled the elements of a contract based on which a valid contract has formed between the parties. However, Angela can file a suit against Jessica for misrepresentation of the facts which resulted in causing her damages. However, Jessica can rely on the defence given in Attwood v Small case, in which it was held that if the party checks the validity of the statement, then it is not considered as a misrepresentation. But, Angele can argue based on the judgement of Redgrave v Hurd case, in which it was held that if an opportunity to check the statement is given to the parties, however, if they still did not check the facts, then it is considered that the party has demonstrated reliance on the statement. Angela shows reliance on the statement of Jessica, and she only checked the accounts for 2007 based on which she can claim for damages.

Conclusion

To conclude, a claim for misrepresentation can be filed by Angela against Jessica because she entered into the contract based on reliance on the statement of Jessica, and she can claim for damages.

2.Issue

Whether the family of Sandra Smith can file a suit for negligence against Acme Cola Company Ltd?

Rule

A suit for negligence can be filed if a party failed to take reasonable care which caused loss or injury to another party. In case a party did not fulfil his/her duty of care which is imposed by the law, and it caused damage or loss to another party, it will be constituted as negligence (Barker et al., 2012). In Donoghue v Stevenson [1932] AC 562 case, the principles of negligence were given by the court. In this case, Donoghue purchased a drink from a café in which remains of a decomposed snail were present. After having the drink, Mrs Donoghue becomes very ill, and she suffered personal injury as a result. She filed a claim of negligence against the manufacturer, and the court accepted the claim (Genn, 2012). The judgement of this case provided that there are four key elements of a successful negligence suit which include the presence of a duty of care, breach of such duty, damages suffered by the party and the remoteness of the damages. It was held that a duty of care is present in case of a manufacturer and customer relationship. In this case, the ‘neighbour test’ was established by the court which assists in identifying a duty of a party.

There are several examples in which the court held that a manufacturer owes a duty of care towards customers regarding negligence production or packaging of goods (O’Dwyer v Leo Buring Pty Ltd [1966] WAR 67 and MacPherson v Buick Motor Co 217 NY 382, 111 NE 1050 [1916]) (Bernstein, 2016). Some negligence situations are prohibited by the Australian Consumer Law (ACL), for example, the Competition and Consumer Act 2010 (Cth) prohibit people from engaging in misleading or deceptive conduct (section 18). Furthermore, section 54 and 62 provide liability regarding consumer contracts regarding supply and guarantees of quality of goods respectively. Causation is another key element which is necessary to be present in the case of negligence. It means that the claimant can only claim damages for the loss or injury which is suffered by him which are caused due to the defendant. In order to evaluate causation, the court uses ‘but for’ test which was given in the case of Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428 (Jerjes, Mahil and Upile, 2011). The test provides that the claimant would not have faced any loss or injury ‘, but for’ the actions of the defendant he suffered from losses.

In Chester v Afshar [2004] 3 WLR 927 case, the court used the but for the test to determine whether the loss of the claimant is caused due to the actions of the defendant (D’cruz, 2010). Another key element of negligence is remoteness of the damages. It means that the damages caused due to a breach of a duty of care must be the foreseeable type. After the establishment of a duty of care, the claimant is required to provide that the damages suffered by him are not too remote. A claim for negligence cannot be established in case the damages are too remote. Generally, the remoteness is considered as an additional mechanism because not every loss is recoverable in the tortious law and the claimant can only claim for damages which are occurred directly as a consequence of defendant’s breach of duty (Re Polemis & Furness Withy & Company Ltd [1921] 3 KB 560). In Wagon Mound no 1 [1961] AC 388 case, the court provided that damages must be foreseeable kind in order to establish a claim for damages (Singer, 2011). A similar judgement was given in Hughes v Lord Advocate [1963] AC 837 and Doughty v Turner Manufacturing Company [1964] 1 QB 518 case. Ones it is established by the parties that damage is foreseeable, then the defendant is liable for the full extent of the loss or injury occurred due to such damage.

Application

Sandra Smith purchased a carton of cola for her nearby store and after drinking from one of the bottles, her husband, Andy, become violently ill. It was found out that the drink contained remains of a cockroach due to which Andy become ill. The family had to pay a lot of money for medical bills, and due to their bad economic condition, they faced serious financial situation. The family decided to sue Acme Cola Company Ltd which is the manufacturer of the drink. The family can sue the company to claim for negligence because a manufacturer has a duty of care towards its customers regarding the manufacturing of the production and packaging of goods as given in the judgement of O’Dwyer v Leo Buring Pty Ltd and MacPherson v Buick Motor Co cases respectively. Furthermore, as given in the case of Donoghue v Stevenson, the liability for negligence raise if the parties pass the neighbour test. Both the parties have a proximity relationship and the loss suffered by the Smith family is directly caused as a consequence of the action of the cola manufacturing company. Based on the neighbour test, the Smith family can claim for damages from Acme Cola Company Ltd.

Conclusion

To conclude, Acme Cola Company Ltd is liable to pay damages to the family of Sandra Smith because the company breached its duty of care towards its customers.

Conclusion

From the above observations, it can be concluded that in case parties of a contract misrepresented any fact or statement and other party suffered loss, then a claim for misrepresentation can be filed by the parties of a contract. In order to demand damages for loss suffered due to misrepresentation, it is necessary that the aggrieved party must have relied on the false information given by the defendant. In the first case, Angela can file a claim for misrepresentation against Jessica because she entered into a contract based on the wrong information provided by Jessica. Although Jessica told her to check the accounts, however, Angela only checked the accounts of 2007, and she trusted the statement of Jessica. Based on which, Angela can claim for damages from Jessica for misrepresentation made by her regarding the annual profits of the business. On the other hand, a claim for negligence can be formed in case parties of a contract can breach their duty of care. While performing any action, it is necessary that parties must ensure appropriate care to avoid injury to another party or else the parties can file a claim for negligence. In the second case, a suit can be filed by Smith family against Acme Cola Company Ltd because a duty of care exists between the parties which were breached by the company due to negligence.

References

Angus, T. (2012) Curtis and others v Pulbrook and others. Trusts & Trustees, 18(9), pp.870-875.

Attwood v Small [1838] UKHL J60

Barker, K., Cane, P., Lunney, M. and Trindade, F. (2012) The law of torts in Australia. England: Oxford University Press.

Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428

Bernstein, A. (2016) The Reciprocal of MacPherson v. Buick Motor Company. Journal of Tort Law, 9(1-2), pp.5-42.

Chester v Afshar [2004] 3 WLR 927

Competition and Consumer Act 2010 (Cth)

D'cruz, L. (2010) Risk management in clinical practice. Part 2. Getting to 'yes'–the matter of consent. British dental journal, 209(2), p.71.

Donoghue v Stevenson [1932] AC 562

Doughty v Turner Manufacturing Company [1964] 1 QB 518

Entores v Miles Far East Corp [1955] 2 QB 327

Esso Petroleum v Mardon [1976] QB 801

Genn, H. (2012) What is Civil Justice for-Reform, ADR, and Access to Justice. Yale JL & Human., 24, p.397.

Harvey v Facey [1893] UKPC 1

Horsfall v Thomas [1862] 1 H&C 90

Hughes v Lord Advocate [1963] AC 837

Jerjes, W., Mahil, J. and Upile, T. (2011) English law for the surgeon II: Clinical negligence. Head & neck oncology, 3(1), p.52.

Jones v Padavatton [1969] 1 WLR 328

MacPherson v Buick Motor Co 217 NY 382, 111 NE 1050 [1916]

McKendrick, E. (2014) Contract law: text, cases, and materials. England: Oxford University Press (UK).

O’Dwyer v Leo Buring Pty Ltd [1966] WAR 67

Re McArdle [1951] Ch 669

Re Polemis & Furness Withy & Company Ltd [1921] 3 KB 560

Redgrave v Hurd [1881] 20 Ch D 1

Singer, J.M. (2011) The Mind of the Judicial Voter. Mich. St. L. Rev., p.1443.

The Wagon Mound no 1 [1961] AC 388

Thomas v Thomas [1842] 2 QB 851

Turner, C. (2013) Contract law. Abingdon-on-Thames: Routledge.

Yeung, H. and Huang, F. (2016) Certainty Over Clemency: English Contract Law in the Face of Financial Crisis. Binding Force of Contracts-Renegotiation, Rescission or Revision, pp. 285-305.

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