Business Law at Happy Hippie Pty Ltd - Case Study Example

Running Head: Business Law Name Course Instructor Date Case Mr. Manfredi recently purchased a vegetarian café from Happy Hippie Pty Ltd on the faith of representations made to him by Happy Hippie director, Elvis Eggplant regarding the past and future profitability of the café.  The historical figures, in the form of a historical account, presented to Mr. Manfredi were inflated by 60%, and amounted to nothing more than a series of numbers “made up” by Elvis Eggplant. These were designed to induce Mr. Manfredi to purchase the café.  When setting up his new café, Mr. Manfredi discovered some old receipts and cash register tapes. He also discovered some old tax documents. On inspection, Mr. Manfredi discovers that the figures put to him by Mr. Eggplant were false.  Legal Advice Mr. Manfredi has a legal recourse on Happy Hippie Pty Ltd on the basis of false representation of material as well as the doctrine of good faith. When buying a business, one of the main determinants as far as the decision is concerned is the health of the business as well as the industry. Upon scrutiny Mr. Manfredi found that the vegetarian café was doing good and has been performing well in the past, the future prospects were also bright ,given the figures that were presented to him as well as outlook of the hospitality industry and more so the kind of business he was to engage in. Unknown to him was the fact that the figures he was relying on were inflated by 60 percent. The inflated figures were solely to influence Mr. Manfredi decision. This signifies that Happy Hippie Pty Ltd is criminally liable for false misrepresentation and fraud and at the same time Mr. Manfredi can sue them for the damages suffered. Misrepresentation of the factual material is prosecutable criminally, or might be the basis from common law claims or even suable under specific statutes (Spencer 2008). Lord Herschell in the case of Derek vs. Peek in 1889 defined false misrepresentation as that made knowingly, without belief in its truth, done recklessly or carelessly, making the other party believe it’s true and goes ahead and takes an action and as a result suffers some loss. The burden of proof here will lie with Mr. Manfredi . (Spencer 2008) The general idea of false misrepresentation is the deliberate presentation of information or statements which are not true with intent of influencing the other party to release or part with property or money. (Eggers 2009) In this case Happy Hippie Pty Ltd knew very well that the business was not doing well went ahead and made new documents which inflated the historical accounts figures by 60 %. The business intention was solely to misrepresent the accounts to make the buying party believe that the business past, future and present were sound. Given that this is one of the key factors that any buyer will depend on in making decision, Mr. Manfredi had few options when it came to knowing whether the figures which were presented were true. Prosecuting the case Mr. Manifred has two options when it comes to prosecuting the case, he can have it prosecuted as a criminal case or civil case. In the case of civil action, it will be between the two parties, Mr. Manifred and Happy Hippie Pty Ltd. For Mr. Manifred to quote the Tort of deceit or false representation, or fraud, it is provided that to get a civil remedy he has to prove that he relied on the false representation to make the decision to buy. Four elements must come into play for civil remedy to be instituted. It has to be proven that Happy Hippie Pty Ltd made a representation to Mr. Manifredi which was false. Mr. Manifredi discovery of old receipts and tax documents is prove enough that the figures which were presented to him at the time of negotiations were false, therefore he can prove that Happy Hippie presented cooked figures. Another element that must be presented is that Happy Hippie Pty Ltd knew that what they were presenting to the buyer was false. (Cartwright 2012)This can be easily proved by the fact that he did not provide another set of account and the fact that there were original documents which were not presented to the buyer. His intention was to make the buyer believe that the business was doing well. His intent from the word goes was to influence the buyer to make a decision on the basis of false accounts. This brings us to the third element which must be proven by the Mr. Manifredi and that is there was an intention to deceive and he actually acted upon the false statement that was presented. On the faith of representation, Mr. Manifredi went ahead and bought the vegetarian café, it is upon his discovery of old receipts and tax records that he discovered that all was not well. This is a clear indication that he bought the business and went ahead to open the premises to start operation. The fourth element that Mr. Manifredi must prove is that loss was suffered as a result of false misrepresentation of matter. Mr. Manifredi paid to acquire the business and more likely the price was also inflated given the fact that the figures which were used to arrive at the final price were cooked. He suffered loss in terms of the amount of money that he was charged for the business, the time he spent negotiating for a false contract the shock he got when he discovered that the business he had bought was not what was presented. (Gillies 2004) In a civil case, when it comes to determination of whether the representation was made fraudulently the principle which will apply is the standard of proof through balance of probability. The amount of evidence which is required to establish the proof will normally vary according to the weight of the allegations which are to be proved. More serious allegations will require a higher degree of probability, the issue of whether there is proof to support the allegation that the representation was fraud will be a question of law and a question whether false representation was fraudulent which be a matter of fact. In normal circumstances, material false statements serve as the basis for fraud case. Materiality here refers to the statements which are adequately relevant to defendant influence decision. Here the claimants have to prove that the false statement was intentional and was a deliberate scheme to defraud. Happy Hippie Pty Ltd sole intention was to defraud Mr. Manifredi his money, if the accounts were presented in their true state, perhaps he would not have made the decision to buy or the price would have been lower. Therefore it can be proven that Happy Hippie Pty Ltd intention was to influence his decision to buy and also get a higher price for the property than it was rightfully valued. Conducting due diligence is an important part of a negotiated transaction. Undertaking it is a commonplace practice and the results helps both parties in identifying what is being acquired or sold, what should be done to acquire or sell and the associated risks as well as other factors affecting the transaction. For Mr. Manifredi, by going through the historical and current accounts, it can amount to due diligence, he was carrying out this exercise to establish the true nature of the business and from what was available he found that the business was promising and was worth buying. On the other hand, Happy Hippe Pty Ltd hid some information from his with an intention of creating a different picture from what was actual truth. The seller was obliged by the law to provide to the buyer complete and true state of all material respects. He should also establish that the materials given do not contain any misleading information, in this case Happy Hippie failed to deliver, something which was intentional. When it comes to Proof of damage as a result of acting on the information presented is required. Here Mr. Manifredi has to prove that he suffered some loss as a result of believing and acting on misrepresented accounts, the loss does not have to be of financial nature , it can be pecuniary loss, loss of property, injuries real inconvenience or even discomfort, or mental distress. In the law of tort the purpose of seeking remedy for the damages suffered is to put the claimant back into the position he was before the representation was made or put him in a position that he would be if the false statement were not made. (Latimer 2012) For Mr. Manifredi, he would not have bought the property or if he would have bought it he would have negotiated the price, such that it would have been lower than what he paid. In an event that he would not have bought the property given its poor profitability status, he can claim full refund for the amount paid. In an event that he would have bought the property based on the true status of its profitability, he would demand valuation of the business and get a refund of the amount he paid over and above the real price of the property. He can also seek aggravated damages to compensate him for any injuries suffering to feelings. The period that he discovered that the accounts which were presented were fraudulent he was mentally disturbed, he was not comfortable knowing that he had lost some money. This kind of compensation was directly as a result of misrepresentation. In the case of Archer vs. Brown in 1984, the judge held that the plaintiff was entitled to aggravated damages in deceit for the mental distress that he suffered. According to this judgment, Mr. Manifredi can only claim damages up to the point that he discovered that there was deceit in the transaction, any other loss incurred after this might not be claimed as it might be argued that he had an opportunity to prevent further loss. (Latimer 2012) Bibliography Eggers, Peter Macdonald (2009). Deceit: The Lie of the Law London: Informal Law.   Spencer Elizabeth (2008) Lies and Deception, National Legal Eagle ,Vol 14 Issue 1 Latimer Paul (2012) Australian Business Law, CCH Australia Limited pg 79- 123 Gillies Peter (2004) Business Law, Federation Press p 254 Cartwright John (2012) Misrepresentation Mistake and Disclosure, Sweet and Maxwell pg 12 Read More