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Contract Law

Jemima, an artist and graphic designer, has recently bought a small printing
business. She does not know much about printing technology. So she asks her friend
Chris, who has worked in printing all his life, to help her find a suitable printing press.
Chris takes Jemima to see David who deals in all kinds of reconditioned factory
machinery.

Jemima explains to David that she needs a printing press that can turn out
15,000 sheets per hour, and produce good quality copy to a maximum print size of 40
mills. David shows Jemima a three-cylinder printing press, costing 30,000. He
assures her that, this press will be just right for the job. Chris adds, 'I think you're
getting a real bargain here. It's going to be very efficient.

Jemima immediately decides to purchase the machine at a price of 30,000.
However following the health and safety site inspection, she discovers that there is
insufficient space around the machine to meet current safety regulations. She
decides to pay 10,000 for necessary alterations to the factory space. However,
when the machine is finally operating, she discovers that: (i) the maximum print size
is 20 mills; (ii) the press cannot produce more than 5,000 sheets per hour; and (iii)
the market value of the press is only 20,000. In the first three months, the volume
of print produced is half what Jemima had expected.

Advise Jemima as to any remedies she may have against David or Chris in the
law relating to liability for false statements in English law

Note: (i)

Answers will benefit from a practical approach to advising Jemima in

the circumstances of her case.

(ii)

You should not consider the law relating to implied terms under the
Sale of Goods Act

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In English contract law, a duty is imposed to the party not to make any false statements
to the other contracting party to induce him to enter into the contract. In this case, Jemima has
been the victim of false statements from both David and Chris.
The first issue that arises is: Has there been a misrepresentation from David, as far as
the machine is concerned? If so, what remedies can Jemima claim?
A misrepresentation may be defined as an unambiguous, false statement of fact or law
which is addressed to the party misled, which is material (although this requirement is now
debatable) and which induces the contract.1
-This statement can be made by words. In this case, Jemima explicitly told David she needed
a printing press that could turn out 15,000 sheets per hour, and produce good quality copy to
a maximum print of 40 mills, and David assured her that this press [would] be just right for
the job. However, the press can only turn out 5,000 sheet per hour, and the maximum print
size is 20 mills. Davids statement is clearly unambiguous and false.
-The statement must be addressed to the party misled. In this case, David directly told Jemima
that the press would be right for the job.
-The statement must have induced the contract. If the misrepresentation was enough of an
inducement to have a reasonable person to enter the contract, the onus of proof is placed on
the representor to show that the representee did not in fact rely on the representation2, as seen
in Museprime Properties Ltd v Adhill Propertes Ltd (1991)3. In this case, Jemima
immediately decide[d] to purchase the machine. She relied both on Davids and on Chriss
statement to make her purchase; however Davids statement does not have to be the only one
she relied on. Davids statement clearly induced Jemima to entry into the contract.
So Davids claim that his press will be just right for the job is a misrepresentation.

Ewan McKendrick, Contract Law (9th ed. Palgrave MacMillan, 2011) p. 218.
McKendrick, ibid, p. 221.
3
Museprime Properties Ltd v Adhill Propertes Ltd (1991) 61 P & C R 111, 124, cited in McKendrick, ibid, p.
221.
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The remedies Jemima may have depend on what type of misrepresentation it is.
Fraudulent representation was analysed by Lord Herschell in Derry v Peek (1889)4: there
must be proof of fraud; fraud is proven when it is shown that a false misrepresentation has
been made knowingly; and if fraud is proved the motive of the person guilty is immaterial.
Thus it is only needed to show that David knew he made a misrepresentation.
In this case, David is a person who deals in all kinds of reconditioned factory machinery, so
arguably he knew the machine he was trying to sell, and knew it was not conform to what she
wanted. Jemima had also made very clear the specifications of the machine she needed, so
David cannot argue he did not know exactly what she wanted.
David knew his statement was false; therefore he has made a fraudulent misrepresentation and
is liable in the tort of deceit. Misrepresentation also allows Jemima to ask for a rescission of
the contract.
The Misrepresentation Act 1967, section 1, reads that misrepresentation renders a
contract voidable if the contract has been performed. So Jemima may decide to rescind it.
Rescission for misrepresentation has both a retrospective and a prospective effect. Jemima
would then be entitled to recover the value of the enrichment which the defendant has
received under the contract prior to it being set aside5. The parties have to be restored to their
pre-contractual positions.
In this case, David he would give Jemima back the 30,000 she paid for the machine; in turn
she would give the machine back to David. Following the decision in Erlanger v New
Sombrero Phosphate Co (1878)6, Jemima would also need to give David an account of any
profit made through the use of the product together with an allowance for any deterioration of

Derry v Peek (1889) 14 App Cas 337.

McKendrick, ibid, p. 227.
6
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218.
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the product7. In the facts, Jemima has used the machine for three months, and as such she
would have to give David a monetary compensation for the use of the machine.
If Jemima decides to rescind the contract, it is set aside for all purposes, so she cannot
claim any contractual damages. However, as long as there is no element of double recovery,
fraudulent misrepresentation allows the claimant to claim for damages in the tort of deceit.
Tort of deceit which will put the claimant in the position in which he would have been had the
tort not been committed. According to Doyle v Olby [1969]8, the defendant will also be liable
for all the damages created by the misrepresentation.
In this case, Jemima has paid 10,000 for necessary alterations to the factory space because,
following the health and safety site inspection, she discovers that there is insufficient space
around the machine to meet current safety regulations. Hadnt Jemima relied on Davids
misrepresentation, she would not have bought the machine, and consequently would not have
had to make the necessary alterations. These alterations therefore flow directly from
Davids inducement; he will have to compensate for her 10,000 loss.
In addition, Jemima has been affected by a loss of money from her business. The volume of
print is half what Jemima had expected, so the profit she made is probably halved too. She
may claim damages against David for the loss of profit.

The next issue that arises is whether there has been a misrepresentation from David as
far as the price of the machine is concerned.
It has been established in Keates v Cadogan (1851)9 that there is no general duty to
disclose material facts known to one contracting party but not to the other. There is no
obligation of good faith from the seller, who does not have to sell his good for the market
price. In this case, David told Jemima the machine cost 30,000 but at no point did he tell her
7

McKendrick, ibid, p. 229.

Doyle v Olby [1969] 2 QB 158.
9
Keates v Cadogan (1851) 10 CB 591.
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that it was the market value of the press. Therefore Jemima cannot claim to have bought the
machine for 30,000 because David implied it was the market price. She cannot claim any
remedy against him for selling her the press for a higher price.

As far as Chris is concerned, the case that applies is Chaudhry v Prabhakar (1989)10.
The claimant had asked her friend to help her a second-hand car because he knew more about
cars than her. When asked if the car had been involved in a traffic accident, the defendant had
stated it hadnt; it was later discovered that this statement was not true. The claimant decided
to sue him for breach of the duty of care arising from his accepting to help her choose the car.
It was held that the defendant could recover form the gratuitous agent[, as] he owed a duty of
care and his skill was to be measure objectively. He fell below the standard expected.11
In Jemimas case, she asked her friend Chris, who has worked in printing all his life, for
help in finding a suitable press. When David made his representation about the machine being
just right for the job, Chris confirmed it by telling her it was going to be very efficient.
Having worked in printing all his life, Chris should have known that this was a misstatement.
In addition, when David told Jemima he would sell her the press for 30,000, Chris told her:
I think youre getting a real bargain here. He must have known it to be false, as he was a
professional in the printing business. As in Chaudhry v Prabhakar (1989), Chris owed
Jemima a duty of care and has breached his duty to exercise skill and care; and it was
reasonable for Jemima to rely on Chriss claims.
Therefore, she can claim damages from him.

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Chaudhry v Prabhakar (1989) 1 WLR 29 (CA).

Michael Connolly, Briefcase on Commercial Law (2nd Edition, Cavendish Publishing Limited, 1998) p. 34.