Question

LTE Services provides maintenance work on LTE Craftworks products and on machinery produced by others. It is a lucrative business that provides 40% of LTE’s revenue (via dividends and distributions).

LTE Services has the following issues:

1. Willy’s Woodworking Workshop (“W3”) sued LTE Services, alleging that LTE Services’ salesperson who sold W3 a three-year service contract, lied about the terms of the service contract, and that LTE Services provided poor service. W3 paid for the first year, but refused to pay for years two and three of the contract. LTE Services counterclaimed for the unpaid sum due on the contract, and denied W3’s allegations.

Define:

Issue

Ruling

Application

Answer 1

Issue: Who has breached the contract and what are the possible remedies if the service contract is established by misrepresenting the facts regarding service provided?

Ruling: According to contract law, a contract is valid only when all the parties involved in the contract agrees to the terms and conditions and if a party makes false statements and induces the other party to enter into the contract, it comes under fraudulent misrepresentation. One remedy for fraudulent misrepresentation is rescission where the court will cancel the contract and both the parties are brought back to the position they have occupied before forming the contract. Other remedy is damages. Rescission cannot be applied if the party has already sued for damages.

Application: In this case LTE Services’ sales person has misrepresented the facts regarding the service provided by LTE Service which made W3 to enter the contract for three years. W3 needs to prove that misrepresentation has occurred and W3 relied on the representation which led to injury for the them. Hence the case involves fraudulent misrepresentation by LTE Services and the remedy for the same is rescission or damages. Under rescission, court will cancel the contract between W3 and LTE Services and both the parties would come to the position like contract has never existed. W3 need not pay for the rest of the years. But if W3 has already filed for damages rescission cannot be applied. Only the damages for misrepresentation can be availed and the contract would still exist which would entitle LTE Services to avail rest of the payment.