Business Law
Business Law
The subject of the essay is the rescission of the contract due to misrepresentation of Elvis Eggplant to induce Mr. Manfredi to buy the café from Happy Hippie Pty Ltd. The fraudulent scheme employed by Elvis led Mr. Manfredi to believe that the café was a profitable business to induce him to buy it.
Issue in the case:
The issue in this particular case is whether or not Mr. Manfredi can rescind the contract that was obtained by material false representation by Mr. Elvis Eggplant. Elvis misrepresented the past and future profitability of the vegetarian café by inflated at least 60 percent of the supposed profit of the café, which turned out to be false. In this given case, it was shown that Elvis fabricated the previous financial reports of the café in order to induce Mr. Manfredi to buy it. Elvis led Mr. Manfredi to believe that Happy Hippie Pty Ltd earned a substantial amount of profit for the past years. Both the past and present financial statements were invented and falsified to trick Mr. Manfredi to buy the café. It is apparent that Elvis employed fraudulent schemes and machinations to make Mr. Manfredi think that the café is a profitable business investment, when in fact, it was not.
Law/rule related to the question
The applicable law/rule is the rescission of a contract. All types of misrepresentation, whether fraudulent, negligent or innocent will render a contract voidable. The party misled is given the option to have the contract set aside, or in the alternative, affirm it. If such party shall elect to rescind the contract, the same shall be set aside, and the parties shall be restored to their pre-contractual positions. Misrepresentation consists of the following elements, wherein the representation may be in words or by conduct; the statement should be a matter of concern of a past or present fact or law; the statement does not involve an assertion of a mere matter of fact or opinion; the statement should be made before the main contract was entered into; it must be made by the representor, who becomes a party to the contract; the statement should be addressed to the representee, directly or indirectly to the representee who shall become a party to such contract; and that the alleged misleading statement should not be false in a trivial sense.
In this given case, the rescission of the contract should be allowed since it is done through material false misrepresentation to induce another to enter a contract, where another person relied on the representation. If it is a material representation calculated to induce him to enter into the contract, it is an inference of law that he was induced by the representation to enter into it.
In rescission of contracts, the representee is not required to seek the assistance of the court in order for rescission to take effect. In the event that the contract shall remain to be binding and executor, the representee is allowed to effect rescission by merely informing the other party that he or she intends to rescind the contract. In case that the performance of the contract has already commenced, the representee shall require the order of the court to ensure the co-operation of the other party. To be able to rescind the contract, the innocent party shall be required to give notice to the other party of his or her intention to rescind the contract. There had been settled jurisprudence that held that when the misrepresentation is fraudulent, and the maker of the false statement can no longer located, a clear intention to rescind will already be sufficient.
One of the common instances during these modern times is where men issue a prospectus in which they make false statements of the contracts in the formation of a company, and they claim that these contracts may be inspected at the office of the solicitors. It has been held that those who accepted such false statements to be true should not be deprived of their remedy merely because they neglected to read the contracts. Those who accepted such false statements as true should not be deprived on remedy merely on the ground that they neglected to go over and study the contract.
Application of law
Applying the law on rescission of contracts, Mr. Manfredi should be allowed to rescind the contract due to the false misrepresentation that was employed by Elvis upon him. While it may be a defense when a man had been careless and inefficient to a certain extent that if he used reasonable diligence, he would have discovered fraud, the law does not leave without recourse.
In the case of Redgrave v Hurd , the High Court ruled that Hurd was entitled to rescind the contract. The mere opportunity to discover the truth does not preclude rescission, provided that the plaintiff relied upon the misrepresentation. According to Lord Jessel MR, “when a man is induced to enter a contract due to false representation, it is not sufficient defense that if he had used due diligence, he would have discovered that such statement was untrue since he had the opportunity to know such falsity, and chose not to avail of the means to discover it. However, no one should be left without any remedy or recourse on the ground of negligence when he merely relied on the false representations of another.
In the case of Redgrave, the Court of Appeal ruled that he was entitled to rescind the contract but the mere opportunity to discover the truth does not preclude rescission provided that the plaintiff had relied on such representation.
The essence of misrepresentation is that a false statement made by one person, even if such person does not know that it is false, or if he is not negligent in having made the statement. The statement is fraudulent when there is inducement, and such statement must be influential to the extent that the person shall decide, as a result of being misled, to enter the contract. In effect, his decision to enter the agreement is made in reliance to such false statement.
In the given case, all the elements of misrepresentation are present. It was clearly shown that the misleading statements of Mr. Elvis are matters of concern of a past or present fact, based on the false historical accounts of the café. Such statements do not involve an assertion of a mere matter of fact or opinion since he inflated at least 60 percent of the supposed profit of the café, which turned out to be false. The misleading statements were made before the main contract was entered into between the two parties. Such statements of Elvis, as the representor, were directly addressed to the representee, Mr. Manfredi to induce him to enter the contract based on such misleading statements of Elvis to make it appear that the café was a thriving business.
In this case, Mr. Manfredi is allowed under the law to rescind the contract because he reiled on the false representations of Elvis, causing him losses. As a result of the deception employed by Elvis, Mr. Manfredi entered the contract believing that the café was a good investment, which turned out to be sham or bogus. The act of Elvis in inflating the financial reports is a clear indication that he had the intention to mislead Mr. Manfredi. Elvis had known that the financial reports were invented, but he still presented them to Mr. Manfredi.
Conclusion
I will advice Mr. Manfredi to rescind the contract of sale to set aside a contract that was obtained through false representation when. It was later on discovered by Mr. Manfredi that the historical figures that were presented by Elvis were fabricated to induce him to purchase the café. As Mr. Manfredi started to set up his new café, he discovered some of the previous official receipts and cash register tapes that had proven to be fictitious. Such conclusion of Mr. Manfredi was further bolstered by the sham old tax documents that he discovered. Due to the deception employed by Elvis, Mr. Manfredi is allowed by law to rescind the contract of sale. It can be clearly shown that Mr. Manfredi suffered damages and losses by relying on the false representations of Elvis.
There was evident bad faith on the part of Elvis to induce Mr. Manfredi to believe that the café was earning well for the previous years to make it appear that the café was a good investment. Mr. Manfredi should be allowed to rescind the contract since he suffered losses due to the fraudulent scheme that was employed by Elvis in order to convince him to buy the café. The fact that he presented bogus or sham financial statements of the past and present reports of the café is a clear indication that he had the intention to deceive Mr. Manfredi.
Therefore, Mr. Manfredi was misled to buy the café on the basis of false financial statements in order to unjustly enrich Elvis and his company, Happy Hippie Pty Ltd. He employed fraudulent schemes and machinations to make Mr. Manfredi believe that the café is a profitable business investment, which turned out to be a sham. Hence, I will advice Mr. Manfredi to rescind the contract.
Bibliography:
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Redgrave v Hurd (1881) 20 ChD 1
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