Jim is considering buying his uncle David’s house as an investment. During the negotiations, David states, “This house is worth $200,000 and I’ve had two separate valuations from estate agents verifying that, but since I love you so much I’ll sell it to you for $180,000.” David has not received any valuations from estate agents and the house is worth only $120,000. Jim buys the house for $180,000.

Two weeks after Jim has completed the sale and moved into the house, he discovers that David did not receive any valuations from estate agents. The same week, Jim discovers that the value of the house has been reduced to $80,000 due to serious damage caused by the collapse of a supporting wall. At this point, a buyer offers $80,000 for the house. Jim does not sell the house until three months later, when Jim only receives $75,000 for the house because of a general fall of the property market.

Discussion

In this case, Karen committed fraudulent misrepresentation as she gave Jesse a reason to believe that the property value was initially £200,000 according to the valuations she got from the estate agents verifying that, therefore, she committed an intentional behaviour as she made a false statement which induced Jesse into a contract and had been reckless with the statement made so the misrepresentation is material to the transaction. Whereas with negligent misrepresentation, the behaviour is careless and the person making the statement did not directly lie, but made a representation where there is no reason to believe that it is true. The presumption is that inducement into a contract cannot happen unless the representee was unaware of the false statement. A reasonable person would assume that Jesse would have had a look at the house prior to completing the contract.

The first case I will apply is Harrison v Amcor Trading (NZ) Ltd (1999) HC Auckland,
Hrrisons were interested in acquiring one of Amcor Tender Care laundry franchises. At one of many meeting Harrisons given a bound booklet of information, including a typed single page financial record with heading: Sample Balance Sheet” (SBS)
Harrisons paid $184,922 plus GST (in instalments) as purchase price for business. Business failed. Amcor sued for balance owing ($23k); Harrisons counterclaimed for 200,000 damages for misrepresentation. Harrisons lost in Dist Ct, appealed to High Court. In relation to this case,

the statement held by Fisher J in High Court is that Onus was on Harrisons. Harrisons had to show one of two possibilities: One, that Amcor in fact intended that Harrisons rely on SBS, the single page financial statement as an inducement; or, secondly, Court would take an objective approach, and interpret the SBS as a reasonable person placed in Harrison’s position. The SBS was not a balance sheet; there were total omissions from some of the categories and some of the figures were patently nominal or rounded up. Judge held that taken in full context, a reasonable person/reader would not have thought that the SBS was a reliable estimate of the actual figures the business would produce; ie, no sensible person could have regarded the document as a comprehensive and reliable projection, as it contained obvious omissions and approximations.

In other side, this case illustrates how easy it is to allege misrepresentation, but then how difficult it is to prove it and shows us the principle inducement generally looked at from objective viewpoint, not personal subjective viewpoint of person claiming to have been induced and allegedly misled. The application of legislation which deal with this case is The position of the CONTRACTUAL REMEDIES ACT 1979. In relation to this statutory, it set the rules that if a party to a contract has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made to him by or on behalf of another party to that contract; he shall be entitled to damages from that other party in the same manner and to the same extent as if the representation were a term of the contract that has been broken; and in other side, he shall not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made negligently, be entitled to damages from that other party for deceit or negligence in respect of that misrepresentation.