Shahida is afashion designer and decided to purchase some rare designer paintings todisplay in her recently purchased shop to impress cliental. She subsequentlypurchased a painting from a local art gallery, which is owned by Benjamin.However Benjamin had placed the wrong label on the painting, unknown toassistant Reegan, who assumes the painting is by the designer Shahidaspecifically asks for.
Due toReegan’s statement Shahida purchases the painting at a cost of £20,000. Howevera number of years later, due to damage to the painting, Shahida take thepainting to an art specialist. Consequently she discovers the painting is notby the designer, but by the designer’s assistant and only worth £2500 if notdamaged.
The issue isto determine whether Shahida could pursue legal action against Benjamin and ifany remedy that may be available to settle the breach of contract, there isalso a slight issue for time lapse since it has been five years since thepurchase of the painting. It isimportant to explore factors relating to the contract formed by both partiesand if there was a breach in this commercial contract as both parties aretraders.Contractscan be in writing, made orally and created through actions of parties. Mostcommercial contracts are in writing, this allows both parties to maintain aproper record of agreement, on the other hand oral contracts can create apotential for dispute.Statementsmade between parties during negotiations can amount to contractual terms orrepresentations. It is important to establish whether the statement is acontractual term or representation as this will allow the innocent party toreach a remedy. If it is a term, which is not fulfilled, the party may sue fora breach of contract. On the other hand if the statement is a representationwhich turns out to be untrue, the innocent party may bring a legal action formisrepresentation.
The general rule is that the expressed terms of a contractare classified as conditions and warranties, conditions of a contract areessential terms and of breached are considered as serious and which will givethe aggrieved party a right to repudiate the contract and the right to claimdamages. Warranties on the other hand have a lesser importance than that ofconditions, can be breached with lesser consequences. The innocent party is notable to terminate the contract however can sue for damages. There are alsoinnominate terms, which can either be conditions or warranties, depending onparticular fact situations. If the effects of breach are serious they areconsidered conditions and if they are lesser serious then they are warranties. As a ruleterms of a contract set out duties to all parties, there are two types ofterms. 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 cooperatedby conduct. A contract may be made completely orally or completely written.
Or partiallyby oral agreement and partly written. If the contract is completely word ofmouth, what it contains is evidence which is submitted to a judge who issitting as a jury. For it is necessary to find out exactly what the parties mayhad said.However if acontract wholly written, which allows it to be much clearer and easier tointerpret and tends to appear to behold.
The general rule is where parties havemade their agreements to written contracts, parties are then not entitled toincorporate expressed terms outside the written contract or document they mayhave signed, known as the parol evidence rule. It prohibits parties fromamending the meaning of a written document, through the use of oraldeclarations that are not stated in the documents. Its existence is to safeguard terms in a contract. The otherterms are known as implied terms, although terms may have been expresslyagreed, these are read into the contract by courts, based on the nature of theagreements and parties apparent intentions, or on the bases of law on certaintypes of contracts.
Implied termsconsist of three general categories, terms implied by statute, terms implied bycustoms and uses and terms implied by court. Certain questions must beconsidered in connection to each of the categories. Firstly to what extent are the terms undereach categories implied into the contract, in order to give effect to thepresumed attention of the parties? Then if a term cannot be applied on thisbases, on what other bases may a term be implied into the contract?When lookinginto terms implied by statute, the terms have been given statutory forced byparliament.
Commercial contracts are non-consumer contracts and looking atShahida’s scenario, it is a commercial contract and the legislation that dealswith commercial contracts is known as the Sale of Goods Act 1979 (SGA 1979) andthe Supply of Goods and Services Act 1982 (SGSA 1982). These have subsequently beenamended by the Sale and Supply of Goods 1994.Since October2015 the Consumer Rights Act 2015 governs the consumer, making the SGA 1979 andSGSA 1982 non applicable to consumer contracts, however they are still usedwhen dealing with commercial contracts.
Undersection 13 (1) Sale by description and (2) The Goods will correspond with thedescription, If sale is “bysample as well as by description”The Bulk ofthe goods must correspond with the sample and correspond with the description.Also underSection 14 (3), goods to be fit for a particular purpose, this is “where goodsare sold in the course of a business and the buyer makes known to the sellerany particular purpose for which the good are being bought.The goodsare reasonably fit for that purpose.Except if itis unreasonable for the buyer to rely on the skill of the seller.
Beforeapplying the relevant legal rules to the scenario, it is important to explainthe legal rules with misrepresentation, a contract may be invalid if it isproved misrepresentation is present. Misrepresentation is defined by Mckendrick(2014)”an unambiguous false statement of fact whichis addressed to the party misled and induces the party to enter into acontract” Mckendrick p.576 Representationmay be in writing, oral, or by conduct.
It is generally considered that opinionor intention are not deemed statements of fact.To establishwhether Shahida can take legal action and reach a remedy, it is important toexplore further that if there has been any misrepresentation, if so which typeof misrepresentation has taken place.Fraudulentmisrepresentation, innocent representation, negligent misrepresentation andnegligent misstatement at common law are types of representation. The remedy toaddress any misrepresentation depends on type of misrepresentation, but usuallyconsists of rescission or damages. Recession can be defined as the unmaking ofa contract, to bring back the parties into the position they would have been inprior to entering a contract.To determineif a misrepresentation has taken place in Shahida’s case certain criteria’smust be met to satisfy misrepresentation.
Fraudulentmisrepresentation as defined by Lord Herschel in Derry v Peek (1889) 14 APP cas337, in this particular case, the defendant stated the company had rights touse steam powered trams. However the Board of Trade refused, the claimant had purchasedshares in reliance of the statement and subsequently alleged fraudulent representationby the defendant.The decisionreached was, that the statement was not fraudulent but made in honest belief.”First in order to sustain an actionof 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) withoutbelief in its truth, or (3) recklessly, careless whether it be true or false.” (Derry v Peek (1889) 14 App Cas 337, p.374)Shahida canalso refer to the law relating to misrepresentation, which is mainly found inMisrepresentation Act 1967. Negligent misrepresentation under the MA 1967 s21,is a statementmade without reasonable grounds for belief in its truth.
The burden of proofbeing on the representor to demonstrate they had reasonable grounds forbelieving the statement to be true.This can beseen 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 butmust positively prove reasonable grounds of belief.Anothermisrepresentation is innocent misrepresentation, prior to 1963, innocentmisrepresentation was used to describe misrepresentations that were not fraudulent.However the phrase “wholly innocent” should only be found to be applicable tothose misrepresentations which are made without fault. A furthermisrepresentation is negligent misstatement at common law, this is an actiontaken when a party has made a statement carelessly to another party.
Where alsothe party has such a relationship to the other, that they owes a duty of caretowards the other party.This negligentmisstatement and negligent misrepresentation are often confused, however thegeneral rule is an action in negligent misrepresentation is between contractingparties. Whereas negligent misstatement maybe invoked whether or not acontractual relationship exists.Looking at Shahida’sscenario it is clear that the two parties have entered into a contract, as bothare regarded as traders, it would be deemed that there is a commercial contractbetween them, a non-consumer contract.
However theterms of the contract must be applied to Shahida’s scenario to reach theappropriate remedy if any and to give the necessary right to the parties ofthis contract.In this scenarioand the express terms used, the contract was made orally, the contract of sale.Shahada specifically expresses an interest to purchase a painting by Hilda desSte Crois and informs this to the sales assistant. Reegan the sales assistant subsequentlyexplains that in his opinion that there is a painting by the designer sherequires. Unknown to him the owner of the art gallery, Benjamin has placed thewrong label. ConsequentlyShahida is impressed with Reegans statement, that she purchases the paintingfor a price of £20,000. With this contract has now been established, howeverfive 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 thedesigner.
As the contract is wholly word of mouth which in some situations maybecome difficult to determine what the parties have said, its contents areevidence 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’scase Shahida did voice her preference and requirement clearly. Shahida may have to look into the implied termsthat may support her to bring legal action against Benjamin. The implied termthat Shahida may rely on are the Sales of Goods Act 1979, Sec 12-15.
Undersection 13 (1) Sale by description, the goods will correspond with thedescription. As she had asked for a painting by the designer Hilda, and Reeganwas also in the opinion that the painting was by the designer she asked for,therefore the goods should have corresponded with the description. Ideally sheshould have been able to purchase what she had asked for, therefore this breachwould 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 thecontract. Furthermore she may also be able to apply section 14(3) Goods to befit for a particular purpose.
This is where goods are sold in the course of abusiness and the buyer makes known to the seller any particular purpose forwhich the goods are being bought. Shahida’s scenario states that she decides topurchase rare paintings to impress cliental for her business purposes and shespeaks to the sales assistant. On this note it can be argued that it would bereasonable for Shahida to rely on the skill of the sales assistant.Also undersection 14(2) satisfactory quality; where goods are sold in the course ofbusiness: the goods supplied under the contract are of ‘satisfactory quality’.
This takes into account description of goods, the price or other relevantcircumstances. Fro in Shahida’s situation the painting she has bought is onlyworth £2000 due to its damage and if it had not been damaged £2500, whereas shehas paid £20,000 for goods that also do not fit the description.Furthermoreit can be argued that fraudulent misrepresentation may not be applied in thisscenario has Reegan was unaware that Benjamin had placed the wrong label, andtherefore Shahida will not be able to rely on this particular misrepresentation.However it could be argued to Shahida may use the negligent misrepresentationunder the MA 1967 S2 (1).
Section 2(1)provides that:When aperson has entered into a contract after a misrepresentation has been made tohim by another party thereto and as a result thereof he has suffered a loss, ifthe person making the misrepresentation would be liable to damages in respectthereof had the misrepresentation been made fraudulently, that person shall sobe liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonableground to believe and did believe up to the time the contract was made thefacts were true.Anothercourse of action could be innocent misrepresentation, for if it is argued thatReegan was unaware that the label placed by Benjamin was wrong, thereforeBenjamin would as the seller be only liable for innocent misrepresentation. Underinnocent representation, the remedy maybe rescission, or no right to damagesbut damages maybe awarded at the discretion of the court that is in lieu of rescissionunder the MRA 1967,s2 (2). However the issue oftime lapse may prevent rescission and this was the case in Leaf v InternationalGalleries (1950) 2 KB 86, where the Court of Appeal held that rescission wasbarred due to time lapse.On the otherhand 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 thecontract and put the parties to their pre-contractual positions, as the partyhad only discovered Stratstones misrepresentation in the first instanceproceedings.
ConcludingShahida could use the fact the express and implied terms were breached and thatas implied terms are considered a conditions and when conditions are breachedshe may be able to rescind the contract and be put back into pre contractualposition. Furthermore if she applies misrepresentation, she may rely on theSalt v Stratstone case, that she only discovered the true identity of thepainting when it was damaged, therefore using to reach her remedy of rescission.