Shahida is a
fashion designer and decided to purchase some rare designer paintings to
display in her recently purchased shop to impress cliental. She subsequently
purchased a painting from a local art gallery, which is owned by Benjamin.
However Benjamin had placed the wrong label on the painting, unknown to
assistant Reegan, who assumes the painting is by the designer Shahida
specifically asks for.

Due to
Reegan’s statement Shahida purchases the painting at a cost of £20,000. However
a number of years later, due to damage to the painting, Shahida take the
painting to an art specialist. Consequently she discovers the painting is not
by the designer, but by the designer’s assistant and only worth £2500 if not
damaged.

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The issue is
to determine whether Shahida could pursue legal action against Benjamin and if
any remedy that may be available to settle the breach of contract, there is
also a slight issue for time lapse since it has been five years since the
purchase of the painting.  It is
important to explore factors relating to the contract formed by both parties
and if there was a breach in this commercial contract as both parties are
traders.

Contracts
can be in writing, made orally and created through actions of parties. Most
commercial contracts are in writing, this allows both parties to maintain a
proper record of agreement, on the other hand oral contracts can create a
potential for dispute.

Statements
made between parties during negotiations can amount to contractual terms or
representations. It is important to establish whether the statement is a
contractual term or representation as this will allow the innocent party to
reach a remedy. If it is a term, which is not fulfilled, the party may sue for
a breach of contract. On the other hand if the statement is a representation
which turns out to be untrue, the innocent party may bring a legal action for
misrepresentation. The general rule is that the expressed terms of a contract
are classified as conditions and warranties, conditions of a contract are
essential terms and of breached are considered as serious and which will give
the aggrieved party a right to repudiate the contract and the right to claim
damages. Warranties on the other hand have a lesser importance than that of
conditions, can be breached with lesser consequences. The innocent party is not
able to terminate the contract however can sue for damages. There are also
innominate terms, which can either be conditions or warranties, depending on
particular fact situations. If the effects of breach are serious they are
considered conditions and if they are lesser serious then they are warranties.

As a rule
terms of a contract set out duties to all parties, there are two types of
terms. Expressed terms these are those that are laid out by the party itself,
this can be included in the contract either by writing, orally or in cooperated
by conduct. A contract may be made completely orally or completely written. Or partially
by oral agreement and partly written. If the contract is completely word of
mouth, what it contains is evidence which is submitted to a judge who is
sitting as a jury. For it is necessary to find out exactly what the parties may
had said.

However if a
contract wholly written, which allows it to be much clearer and easier to
interpret and tends to appear to behold. The general rule is where parties have
made their agreements to written contracts, parties are then not entitled to
incorporate expressed terms outside the written contract or document they may
have signed, known as the parol evidence rule. It prohibits parties from
amending the meaning of a written document, through the use of oral
declarations that are not stated in the documents. Its existence is to safe
guard terms in a contract.

The other
terms are known as implied terms, although terms may have been expressly
agreed, these are read into the contract by courts, based on the nature of the
agreements and parties apparent intentions, or on the bases of law on certain
types of contracts.

Implied terms
consist of three general categories, terms implied by statute, terms implied by
customs and uses and terms implied by court. Certain questions must be
considered in connection to each of the categories.  Firstly to what extent are the terms under
each categories implied into the contract, in order to give effect to the
presumed attention of the parties? Then if a term cannot be applied on this
bases, on what other bases may a term be implied into the contract?

When looking
into terms implied by statute, the terms have been given statutory forced by
parliament. Commercial contracts are non-consumer contracts and looking at
Shahida’s scenario, it is a commercial contract and the legislation that deals
with commercial contracts is known as the Sale of Goods Act 1979 (SGA 1979) and
the Supply of Goods and Services Act 1982 (SGSA 1982). These have subsequently been
amended by the Sale and Supply of Goods 1994.

Since October
2015 the Consumer Rights Act 2015 governs the consumer, making the SGA 1979 and
SGSA 1982 non applicable to consumer contracts, however they are still used
when dealing with commercial contracts.

Under
section 13 (1) Sale by description and (2) The Goods will correspond with the
description,

If sale is “by
sample as well as by description”

The Bulk of
the goods must correspond with the sample and correspond with the description.

Also under
Section 14 (3), goods to be fit for a particular purpose, this is “where goods
are sold in the course of a business and the buyer makes known to the seller
any particular purpose for which the good are being bought.

The goods
are reasonably fit for that purpose.

Except if it
is unreasonable for the buyer to rely on the skill of the seller.

 

 

 

 

 

Before
applying the relevant legal rules to the scenario, it is important to explain
the legal rules with misrepresentation, a contract may be invalid if it is
proved misrepresentation is present. Misrepresentation is defined by Mckendrick
(2014)

“an unambiguous false statement of fact which
is addressed to the party misled and induces the party to enter into a
contract”

                                                                     
Mckendrick p.576

 

Representation
may be in writing, oral, or by conduct. It is generally considered that opinion
or intention are not deemed statements of fact.

To establish
whether Shahida can take legal action and reach a remedy, it is important to
explore further that if there has been any misrepresentation, if so which type
of misrepresentation has taken place.

Fraudulent
misrepresentation, innocent representation, negligent misrepresentation and
negligent misstatement at common law are types of representation. The remedy to
address any misrepresentation depends on type of misrepresentation, but usually
consists of rescission or damages. Recession can be defined as the unmaking of
a contract, to bring back the parties into the position they would have been in
prior to entering a contract.

To determine
if a misrepresentation has taken place in Shahida’s case certain criteria’s
must be met to satisfy misrepresentation.

Fraudulent
misrepresentation as defined by Lord Herschel in Derry v Peek (1889) 14 APP cas
337, in this particular case, the defendant stated the company had rights to
use steam powered trams. However the Board of Trade refused, the claimant had purchased
shares in reliance of the statement and subsequently alleged fraudulent representation
by the defendant.

The decision
reached was, that the statement was not fraudulent but made in honest belief.

“First in order to sustain an action
of deceit, there must be prove of fraud, and nothing short of that will suffice.
Secondly, fraud is proved when it is shown that a false representation   has been (1) knowingly, or (2) without
belief in its truth, or (3) recklessly, careless whether it be true or false.”

    
(Derry v Peek (1889) 14 App Cas 337, p.374)

Shahida can
also refer to the law relating to misrepresentation, which is mainly found in
Misrepresentation Act 1967. Negligent misrepresentation under the MA 1967 s21,
is a

 

 

statement
made without reasonable grounds for belief in its truth. The burden of proof
being on the representor to demonstrate they had reasonable grounds for
believing the statement to be true.

This can be
seen in the Howard Marine and Dredging Co Ltd v A Ogden and Sons (Excavations)
Ltd (1978), where this case confirms that statutory action has an advantage,
also the representor may not escape liability by simply objecting negligence but
must positively prove reasonable grounds of belief.

Another
misrepresentation is innocent misrepresentation, prior to 1963, innocent
misrepresentation was used to describe misrepresentations that were not fraudulent.
However the phrase “wholly innocent” should only be found to be applicable to
those misrepresentations which are made without fault.

A further
misrepresentation is negligent misstatement at common law, this is an action
taken when a party has made a statement carelessly to another party. Where also
the party has such a relationship to the other, that they owes a duty of care
towards the other party.

This negligent
misstatement and negligent misrepresentation are often confused, however the
general rule is an action in negligent misrepresentation is between contracting
parties. Whereas negligent misstatement maybe invoked whether or not a
contractual relationship exists.

Looking at Shahida’s
scenario it is clear that the two parties have entered into a contract, as both
are regarded as traders, it would be deemed that there is a commercial contract
between them, a non-consumer contract.

However the
terms of the contract must be applied to Shahida’s scenario to reach the
appropriate remedy if any and to give the necessary right to the parties of
this contract.

In this scenario
and the express terms used, the contract was made orally, the contract of sale.
Shahada specifically expresses an interest to purchase a painting by Hilda des
Ste Crois and informs this to the sales assistant. Reegan the sales assistant subsequently
explains that in his opinion that there is a painting by the designer she
requires. Unknown to him the owner of the art gallery, Benjamin has placed the
wrong label.

Consequently
Shahida is impressed with Reegans statement, that she purchases the painting
for a price of £20,000. With this contract has now been established, however
five years later she discovers that the painting is not by Hilda des Ste Crois,
this could be considered a breach as she had specifically asked for the
designer. As the contract is wholly word of mouth which in some situations may
become difficult to determine what the parties have said, its contents are
evidence and will normally be submitted to a judge, who is sitting as a jury.
As it is important to find out what exactly the parties have said, in Shahida’s
case Shahida did voice her preference and requirement clearly.

 

 

 Shahida may have to look into the implied terms
that may support her to bring legal action against Benjamin. The implied term
that Shahida may rely on are the Sales of Goods Act 1979, Sec 12-15. Under
section 13 (1) Sale by description, the goods will correspond with the
description. As she had asked for a painting by the designer Hilda, and Reegan
was also in the opinion that the painting was by the designer she asked for,
therefore the goods should have corresponded with the description. Ideally she
should have been able to purchase what she had asked for, therefore this breach
would be considered a condition which the remedy for a condition is rescission,
to put back the party in the position they would have been in prior to the
contract. Furthermore she may also be able to apply section 14(3) Goods to be
fit for a particular purpose. This is where goods are sold in the course of a
business and the buyer makes known to the seller any particular purpose for
which the goods are being bought. Shahida’s scenario states that she decides to
purchase rare paintings to impress cliental for her business purposes and she
speaks to the sales assistant. On this note it can be argued that it would be
reasonable for Shahida to rely on the skill of the sales assistant.

Also under
section 14(2) satisfactory quality; where goods are sold in the course of
business: the goods supplied under the contract are of ‘satisfactory quality’.
This takes into account description of goods, the price or other relevant
circumstances. Fro in Shahida’s situation the painting she has bought is only
worth £2000 due to its damage and if it had not been damaged £2500, whereas she
has paid £20,000 for goods that also do not fit the description.

Furthermore
it can be argued that fraudulent misrepresentation may not be applied in this
scenario has Reegan was unaware that Benjamin had placed the wrong label, and
therefore Shahida will not be able to rely on this particular misrepresentation.
However it could be argued to Shahida may use the negligent misrepresentation
under the MA 1967 S2 (1).

Section 2(1)
provides that:

When a
person has entered into a contract after a misrepresentation has been made to
him by another party thereto and as a result thereof he has suffered a loss, if
the person making the misrepresentation would be liable to damages in respect
thereof had the misrepresentation been made fraudulently, that person shall so
be liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable
ground to believe and did believe up to the time the contract was made the
facts were true.

Another
course of action could be innocent misrepresentation, for if it is argued that
Reegan was unaware that the label placed by Benjamin was wrong, therefore
Benjamin would as the seller be only liable for innocent misrepresentation. Under
innocent representation, the remedy maybe rescission, or no right to damages
but damages maybe awarded at the discretion of the court that is in lieu of rescission
under the MRA 1967,s2 (2). However the

 

 

issue of
time lapse may prevent rescission and this was the case in Leaf v International
Galleries (1950) 2 KB 86, where the Court of Appeal held that rescission was
barred due to time lapse.

On the other
hand Shahida could rely on the case Salt v Stratstone Specialist Ltd (2015),
where it was held by the Court of Appeal that is was possible to rescind the
contract and put the parties to their pre-contractual positions, as the party
had only discovered Stratstones misrepresentation in the first instance
proceedings.

Concluding
Shahida could use the fact the express and implied terms were breached and that
as implied terms are considered a conditions and when conditions are breached
she may be able to rescind the contract and be put back into pre contractual
position. Furthermore if she applies misrepresentation, she may rely on the
Salt v Stratstone case, that she only discovered the true identity of the
painting when it was damaged, therefore using to reach her remedy of rescission.

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