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187882 Structure: Issues, Legal rules and application Jack has signed an agreement with the bank after seeking legal advice that the contract makes him personally liable for the full amount of the company’s debt and that his house is at risk if the company defaults. However, he could avoid the liability if he can demonstrate that his signature on the document was obtained by fraud or misrepresentation, or non est factum. On the other hand if he fails to establish any such claim then it would be immaterial whether or not he had knowledge of the fact that his house is at risk and that he would be personally liable for the company’s debts. Misrepresentation “The terms of the contract are not the statements of fact but promises.” These may be about the past, present or future facts. Karen, in this case has not explained the full facts or extent of the Company’s financial situation and its dire need for further funding to pay off the liabilities it has built up to Jack. This has clearly resulted in Jack believing that she can turn the company around. The rules on misrepresentation are drawn partly from the law of tort and partly from equity and supplemented by the Misrepresentation Act 1967. In Headley Byrne & Co Ltd v Heller & Partners Ltd (1) (2) it was held that Plaintiffs Heller & Partners could not recover any damages from the bank although the bank gave a credit reference for Easipower Ltd, one of their customers. A claim for tortuous action for negligent statement was possible in principle. This was then proved in Esso Petroleum Co Ltd v Mardon (1976) (3) (4) when it was held that if one party to the contract is induced to enter into the contract by making negligent statements by the other party to the contract and that the other party has reasonably relied on it, then an action for liability in tort could be brought. Mr Mardon relied on the sales forecasts produced by Esso executives which did not materialise. The Court of Appeal held that Mr Mardon entered in to the transaction believing the sales forecasts produced by Esso and as a consequence incurred a loss therefore, he was entitled to damages. On the other hand, in the Grogan v Robin Meredith Plant Hire Ltd, (5) (6) it was held that a signature on a document which serves an administrative purpose cannot be taken as a contractual document. Similarly, in Thoroughgood (1582) (7) (8) an illiterate Landlord was owed a rent by a tenant. The tenant prepared a deed which was incorrectly read over to him by a bystander. The document he believed he signed was to waive the rent arrears by the tenant however the document actually signed his rights away to that property. Subsequently the tenant sold the land to an innocent buyer which had to be recovered by a legal action for trespass. Thoroughgood succeeded in his action as the document he signed was misrepresented to him.

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