Chapter 4: Genuine Consent - Mistake, Misprepresentation and Unconscionable Contracts Flashcards
What is the cornerstone of the law of contract?
Consent.
However, consent must be freely given, it must be genuine.
If the consent of one of the parties has been affected, during the ore-contractual negotiations, by:
. A mistake or
. A misrepresentation or
. It has been extracted under duress or
. By the use of undue influence or
. Unconscionable conduct
The court may not enforce the (apparent) agreement.
What happens when there has been a mistake?
As a general rule, a person is bound by an agreement in which there exists an element of mistake unless he or she can show that the mistake is a common mistake or unilateral mistake.
What are the types of mistake?
Mistakes of fact:
. Common mistake
. Mutual mistake
. Unilateral mistake
What is a common, mutual and unilateral mistake?
Common - parties make the same mistake
Mutual - parties are both mistake, but mistake is not the same
Unilateral - one party is mistaken about the terms of the contract or identity of the other party, this mistake is known to the other party
What is misrepresentation?
A representation is a statement of fact intended to induce a party to make a contract.
If representation is untrue, that is, where it is a misrepresentation, there are remedies available to a party, however they vary according to the nature of the misrepresentation.
What is the difference between a mistake and misrepresentation?
A mistake is regarded as invalidating a contract, the notion that the parties have not really agreed.
With Misrepresentation, the parties have agreed but one of them has been motivated to agree by a statement as to some existing fact or past event that is not true.
What are the different types of misrepresentation?
. Innocent
. Fraudulent
. Negligent
With regard to representations, what is vital to distinguish?
It is vital to distinguish simple representations from representations which are terms of the contract.
What are simple representations?
They merely induce or persuade a person to enter into a contract, they are not terms.
However, of the party making the statement promises the truth of that statement in the sense of making it part of the contractual bargain, then it is a term of the contract and action can be taken for a breach.
In such case, the innocent party has the right of suing damages.
What happens if a representation term is a condition?
It is a term of importance which goes to the basis of the contract.
An innocent party can repudiate the contract and hold themselves discharged from further performance.
What happens if a representation term is a warranty?
Warranty - a term of lesser significance.
The innocent part is limited to suing for damages.
When does fraudulent representation exist?
“When it is shown that a false representation has been made
. Knowingly or
. Without belief in its truth or
. Recklessly, careless whether it be true or false”.
What are the 6 elements which needs to be established in order for an action for fraud to succeed and to seeks remedies?
- The representation must be one of fact (not just opinion)
- The representation must be untrue
- The party who makes such representation must know that what they are stating is false, or have no belief in its truth, or not care whether it is true or false
- The party who makes the representation must intend for the other party to act upon such representation
- The representation must, in fact, have been acted upon by the other party
- The person claiming must have suffered damage
Explain the following element for an act of fraud to succeed: 1. statement of fact
Must not be a mere expression of opinion.
However, a statement of opinion can be held to involve misrepresentation when the person making it really did not hold that opinion or a reasonable person could have held that opinion.
Explain the following element for an act of fraud to succeed: 2. Falsity
The representation has to be false to their knowledge.
Even if the representation is true but becomes false to the knowledge of the representer before the contract is concluded, they must tell the other party. If the contract is concluded with disclosing the falsity of the representation to the other party, they are just as liable as if the representation had been false from the beginning.
Explain the following element for an act of fraud to succeed: 3. Known to be false, or without belief in its truth, or recklessly careless whether it be true or false
The representer is liable if they make a false statement when they have no knowledge whether it is true or false, and also when they do not trouble to verify the truth of what is said.
If they genuinely believed the statement to be true, there is no fraud.
Explain the following element for an act of fraud to succeed: 4. Intended to be acted upon
This means, for example, intending that the other party enter into the contract of do any other act in reliance on the statement.
Explain the following element for an act of fraud to succeed: 5. In fact acted upon
The misrepresentation must have induced the other party to enter into the contract.
Where the representation is believed to be true but is not relied upon by the person to whom it is made, there is not liability since the representation would not have induced them to enter into the contract.
Explain the following element for an act of fraud to succeed: 6. Resulting in damage
There is no action if the false representation causes no loss or damage.
What are the remedies for fraudulent misrepresentation?
A person who has been induced to enter into a contract due to fraudulent misrepresentation is in the following position:
- They may refuse to be bound by the contract and bring an action for its rescission where such course is necessary, eg. In the case of contracts under which the defrauded party has given some benefit before the fraud was discovered.
- They may take advantage of the contract to the extent of retaining what benefits they may have received and sue for fraud, claiming such damages or loss as they have sustained.
- They may successfully defend any attempts to enforce the contract against them.
What is innocent misrepresentation?
This is an incorrect statement of fact made without an intention to mislead or deceive, or made without realisation of its untruth.
It can also arise from a non-disclosure of facts (where such non-disclosure occurs without the intention of deceiving.
What are the remedies for innocent misrepresentation?
The remedies of a person who has been deceived by an innocent misrepresentation are of an equitable character only. The injured party to a contract entered into through innocent misrepresentation has in equity the right:
(a) to rescind the contract
(b) to resist an action for specific performance of the contract (seen is Redgrave V Hurd)
There are also remedies available under the ACL for misleading conduct
Explain the remedy of rescission.
This equitable remedy is available in the case of both fraudulent and innocent misrepresentation. It amounts to seeing the contract aside and restoring the parties to the position they occupied before the contract was made.
The following points are relevant to this remedy:
- The right to rescind is lost if the party entitled to rescind affirms the contract after becoming aware of the falsity of the representation
- The right is lost if third parties acting in good faith acquire rights in the subject matter of the contract before the right to rescind is exercised
- It does not exist if, by realms of the changes that have occurred, it is not longer possible to restore the parties to their former position or where too much time has elapsed after the contract was made.
What is negligent misrepresentation?
Providing negligent information/advice
There was a special relationship between the parties
The information sought was for a serious purpose
There was a reasonable reliance
Remedy - damage in tort of negligence, rescission possible
