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SQE 1 FLK 1 (B.K) > Contract 4: Vitiating factors > Flashcards

Contract 4: Vitiating factors Flashcards

1
Q

What is the difference between a condition and a warranty?

A

Condition: important term going to root of the contract
Warranty: less important term not going to root

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2
Q

What’s the difference in remedy between a condition and a warranty?

A
  • Condition = termination + damages
  • Warranty = damages only
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3
Q

What is the starting point for determining the classification of a term?

A
  1. Has term been classified by
    (i) statue 🇬🇧
    (ii) the parties or 🥳
    (iii) previous judicial decision 🧑‍⚖️
  2. does it go to root 🌳
  3. If can’t determine, apply test for innonimate term ⚛️
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4
Q

What is the test for an innominate term?

A

Does breach deprive the innocent party of substantially the whole benefit from the contract?

  • yes = condition ⛓️
  • no = warranty👍
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5
Q

What vitiating factors are there?

A
  • Mistake 😳
  • Misrepresentation🤥
  • Unfair Contract Terms 📝
  • Duress & Undue Influence 🔨😈
  • Illegality 👮
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6
Q

What is a representation? What is misrepresentation?

A
  • Rep: statement made by one party to contract which induced other to enter.
  • Misrep: untrue statement of fact made by one party to a contract, by words or conduct, to other contracting party, which induced other to enter into contract (party who alleges misrep occurred burden of proving definition satisfied)
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7
Q

What conditions must be met for a false pre-contractual statement to be actionable?

A

It must be either:
- A term of the contract or
- A misrepresentation (exclusion clauses that attempt to exclude liability for FPS must be reasonable and valid)

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8
Q

What is the significance of exclusion clauses in relation to misrepresentation?

A

Clauses excluding liability for misrepresentation are upheld only if they meet reasonableness test (s11 UCTA).
- In B2B contracts, excluding liability for breach of an express term is also valid only if reasonable (UCTA 1977, s3).
- Without an exclusion clause, the focus is on classifying FPS to determine available remedies for IP.

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9
Q

How can one differentiate between a term and a representation?

A
  1. Primary Test: Common intention of the parties when entering the contract (term or
    misrepresentation?).
  2. Guidelines to consider if intention is unclear:
    (a) Knowledge disparity (greater skill = term, lesser skill = representation)
    (b) Verbal statements repeated in writing = term.
    (c) Vital importance indicated by the recipient = term.
    (d) No invitation to verify the statement = term.
    (e) Lapse of time between statement and contract (longer lapse = representation)
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10
Q

What are the outcomes if a pre-contractual statement is deemed a term?

A
  • If a PS is deemed a term and is broken, it results in a breach of contract, allowing the IP to pursue appropriate remedies.
  • If it is not a term, it may still be actionable as a misrepresentation.
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11
Q

What are the key elements of misrepresentation?

A
  1. Untrue Statement of Fact: Can be oral, written, or by conduct; no obligation to disclose unless:
    - Fiduciary relationship exists
    - Contract of utmost good faith
    - A half-truth is presented.
    - Statement true at the time but circumstances change before contract formation.
  2. Nature of Statement: Must be a fact, not opinion or future intention; exceptions apply if based on false intentions or special knowledge.
  3. Must be made by one contracting party to the other
  4. Must induce the other party to enter the contract (not the sole inducement but a reason. A claim can still arise from false statements, even with a chance to verify, unless the true position is in a signed contract)
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12
Q

What is a statement of fact NOT?
👇

A
  • Statement of opinion (unless unbalanced parties)
  • Statements of intention
  • Silence (unless previous statement becomes un true)
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13
Q

How does one determine if a misrepresentation ‘induced C to enter contract’?

A
  • Objective: would’ve influenced a reasonable person then inducement inferred & burden shifts to D to rebut
    OR
  • subjective: representee shows it was personally was induced by statement 🗣️
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14
Q

When can a statement not be an inducement for misrepresentation?

A

Statement:
- not communicated to representee
- known to be untrue to representee
- did not affect representee’s decision

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15
Q

What is the position on inducement where representee made their own investigations?

A

If they relied on their own investigations, not the misrepresentation, cannot bring a claim

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16
Q

Is there a duty to check a misrepresentor’s statement?

A

No

  • but if unreasonable, CN may be possible.
  • The more commercial they are, the likelier court will consider it reasonable
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17
Q

When may statements of opinion form a claim for misrepresentation?

A

If representor considered to have a greater knowledge than representee

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18
Q

When can statements of future intention form a claim for misrepresentation?

A

misrepresented their existing intention

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19
Q

What is the effect of misrepresentation on a contract?

A

Makes contract voidable - must take action to rescind

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20
Q

What are the different behaviour categories of misrepresentation and their definitions?

A
  1. Fraudulent: made knowingly or w/o belief in truth, or recklessly (flagrant disregard for truth) - failure to disclose must be deliberate/dishonest
  2. Negligent: representor fails to show reasonable grounds to believe, or did believe up to time contract was made, that statement was true - an easier claim but treated liked fradulent
  3. Innocent: Representor proves they had reasonable grounds to believe in truth and did so until time of contract
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21
Q

What remedies are there for misrepresentation for fraud?

A
  • Damages in tort of deceit (all consequential losses, no remoteness, must mitigate)
  • No CN
  • Recession (if not barred)
22
Q

What remedies are there for misrepresentation for negligent?

A
  • Damages in tort of deceit (all consequential losses, no remoteness, must mitigate)
  • Recession (if not barred)
  • Damages in lieu of recession (in addition to normal damages. Only where C not lost right to recession. minor issue)
  • Indemnity (contract rescinded, IP can be reimbursed for necessary costs incurred due to entering contract)
23
Q

What remedies are there for Innocent misrepresentation?

A
  • Recession (if not barred)
  • Damages in lieu of recession (in addition to normal damages. Only where C not lost right to recession. minor issue)
  • Indemnity (contract rescinded, IP can be reimbursed for necessary costs incurred due to entering contract)
24
Q

Are exemption clauses allowed for misrepresentation?

A

Only if it is reasonable

25
Q

Can a misrepresentation be carried out by actions alone?

A

Yes, concealment of dry rot was found to be a misstatement.

26
Q

Is rescission an equitable remedy awarded at courts disrection in misrepresentation?

A

Yes

27
Q

What is the aim and effect of rescission in a contract?

A
  • Aim: Restore both parties to their pre-contract positions as much as possible.
  • Effect: Upon rescission, each party must return money or property transferred under the contract, and neither party has future obligations.
  • Indemnity Claim: IP can be reimbursed for necessary and directly related costs incurred due to the contract
28
Q

What are bars to rescission?

A
  1. Innocent Purchaser: If an innocent purchaser acquires an interest in property before rescission (e.g., if a rogue sold a car).
  2. Affirmation: If the contract is affirmed (implied or express).
  3. Undue Delay:
    - For all misrepresentations, courts consider when the misrepresentation should have been discovered.
    - For fraudulent misrepresentation, the time runs from when the misrepresentation was actually discovered.
  4. Impossibility of Restoration: If it’s impossible to substantially restore goods/property (e.g., if a car is destroyed, rescission is barred; if damaged, substantial restoration may be possible, but value reflects damage extent).
29
Q

What is the effect of mistake?

A

Prevents a contract from taking legal effect - contract void from outset

30
Q

What is an operative mistake in contract law?

A

An operative mistake is a mistake of fact that:
A. Prevents the formation of a contract (parties did not reach an agreement due to the mistake), or
B. Makes the contract something other than intended.

It is so fundamental that it renders the contract void, meaning it is considered null from the start (never existed), and no damages are available since there is no contract.

31
Q

What are the 3 categories of mistake?

A
  1. Common Mistake (both parties reach agreement based on same fundamental mistake)
  2. Cross- purpose Mistake (both parties appear to agree but agreeing on diff things)
  3. Unilateral Mistake (1 party mistaken- other party knows and takes advantage)
32
Q

What are the requirements for common mistake?

A

Operative Mistake:
- The mistake is fundamental, rendering performance impossible or radically different from expectations.
- The subject matter does not exist (both parties believe it does).
- Mistakes regarding ownership (both parties contract for something owned by someone else)

Not an Operative Mistake:
- Only one party is at fault.
- The contract explicitly addresses the matter or one party accepts responsibility for mistaken subject matter.
- Mistakes as to quality (e.g., believing a painting is a Picasso when it is actually a Warhol).

33
Q

What is the test for mutual mistake?

A

Objective: What a reasonable TP would believe the agreement to be, based on words and conduct of themselves. Only if TP would think there was no discernible meaning will mistake apply .

34
Q

What are the rules regarding unilateral mistake?

A
  1. Mistake as to Terms: One party misunderstands the terms, and other knows and exploits this = operative mistake.
  2. Mistake as to Nature of Document: There is a fundamental difference between what was believed to be signed and what was actually signed, involving trickery or fraud, and signatory took reasonable steps to check = Operative mistake
  3. Mistake as to Identity:
    - Face-to-Face Transactions: There is a presumption of no operative mistake unless the mistaken party would not have entered the contract had they known the true identity.
    - Long-Distance Transactions: No presumption exists, making it easier to establish an operative mistake.
35
Q

How do you determine if a contract is voidable (for misrepresentation) or void (for mistake)?

A

(a) Face-to-Face Deals: Strong presumption IP intends to deal with the person in front of them (rogue), favoring misrepresentation

(b) Written Agreements: Must determine who the IP intended to contract with; if it’s not the rogue, it may be void for mistake.

(c) Nature of Transaction: If it’s vital for the rogue to possess a specific attribute and they do not, the offer is not addressed to them, making it void for mistake.

(d) Existence of Impersonated Entity: If the impersonated entity exists and is known to the mistaken party, the contract is likely void for mistake.

36
Q

What can Party A do if Party B lies about their identity, sells the item to Party C, and Party A wants the item back?

A

If Mistake: The contract is void due to the fundamental mistake about Party B’s identity. Party A can reclaim the item from Party C, who must sue Party B for breach of contract (s. 12 SoGA - implied ownership term) to seek damages.

If Misrepresentation: Party A can seek rescission to reclaim the item. However, if Party C is a bona fide purchaser, rescission is barred. Instead, Party A can sue Party B for damages based on fraudulent misrepresentation or for breach of contract under s. 12 SoGA.

37
Q

What is presumed where parties contract face to face?

A

Seller intended to deal with person in front of them - difficult to rebut

38
Q

What are the types of illegality that can render a contract void?

A
  1. At Formation: Contracts involving illegal acts (e.g., contracts to commit a crime).
  2. During Performance: Contracts formed legally but executed illegally (e.g., performing a legal contract through illegal means)
    - If illegal act is incidental (e.g., speeding while delivering goods), the contract may not be void, and the wrongdoer may be punished.
39
Q

How are illegal contracts and restraints of trade treated under the law?

A
  1. Contract Illegal Under Statute: Easily identifiable (e.g., contracts that restrict trade under the Competition Act 1998).
  2. Contracts Illegal at Common Law: Courts refuse to enforce contracts against public policy or morality (e.g., contracts affecting marriage sanctity).
  3. Restraint of Trade: Generally void but may be enforceable if:
    - Legit business interest (e.g., protecting customers, trade secrets).
    - Reasonable in terms of geography, duration, scope.
    - If reasonable, the imposing party can seek injunctive relief or claim damages for breaches.
40
Q

What constitutes duress in contract law?

A

A form of violence or illegitimate pressure that coerces a party into entering or varying a contract, making it voidable.

Burden of Proof lies with the party alleging duress.

41
Q

What are the different types of duress:

A

A. Physical threats to a person.

B. Threats to a person’s property.

C. Economic/business interests:
- Pressure resulting in lack of choice for V
- Illegitimate pressure: Unlawful threat (e.g., crime), or threatened breach of contract (not entitled to make), or pressure applied in bad faith
- Sig cause of entry into contract: Apply ‘but for’ test.

42
Q

What are the effects of duress on contracts?

A

The original or renegotiated contract is voidable; the party can choose to rescind or affirm the contract.

No damages are available

Variation Contracts: Only the variation affected by duress is rescinded, not the whole contract.

43
Q

What is undue influence?

A

An equitable remedy that makes a contract voidable due to abuse of power or exploitation of a vulnerable party.

44
Q

What are the two types of undue influence?

A

Actual UI: Direct influence where a party lacks free will.

Presumed UI: Occurs in relationships of trust, requiring proof of undue influence in financial matters.

45
Q

What must be proven for presumed undue influence?

A
  1. A relationship of trust exists.
  2. The transaction calls for an explanation (unfavorable or risky).
  3. The presumption must be rebutted by the other party.
46
Q

How can a party rescind a contract due to undue influence?

A

IP must notify the other party or may apply to the court for rescission.

47
Q

How does undue influence affect third parties?

A

If a lender has actual or constructive notice of undue influence, the security agreement can be voidable.

48
Q

What is the difference between actual and constructive notice regarding undue influence?

A

Actual Notice: Clear evidence of undue influence.

Constructive Notice: Should have known of the undue influence due to circumstances.

49
Q

What steps can a bank take to avoid constructive notice of undue influence?

A
  1. Ensure the victim has a private meeting with a bank representative to discuss risks and provide financial information.
  2. Obtain written confirmation from a solicitor that they provided independent, impartial advice to the victim about the mortgage’s nature and consequences, given in the absence of the partner.
50
Q

What damages is a buyer entitled to for non-fraudulent misrepresentation of a desk bought for £10,000, acc valued at £500?

A

£9,500

SQE 1 FLK 1 (B.K) (16 decks)

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