Contract 7 Flashcards
Misrepresentation
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Pre-contract statements
Sales puff (extravagant sales talk not meant to be believed and not actionable)
Contract term (give rise to action if untrue)
Representation (may be actionable as misrepresentation)
Actionable?
Amount to a term or be a misrepresentation
Test?
Common intention - if unclear;
-One party has greater knowledge or skill (will be deemed as a term)
- statement made verbally was repeated in a written contract (if not just representation)
-recepient made clear it was of vital importance (if so term)
-invited other party to verify it (if so may be a representation)
-lapse of time between statement being made and contract formed (longer more likely to be representation)
Effect?
Some given greater weight than others.
- If statement deemed to be a term and then broken claim for breach of contract.
Definition of misrepresentation
An untrue statement of fact made by one party to a contract, by words or conduct, to the other contracting party, which induced the other to enter into the contract.
Untrue statement
Words or conduct (Spice Girls v Aprilia World Service BV 2000)
Silence - no obligation. ‘Caveat emptor’.
However may amount to misrepresentation;
-fiduciary relationship
-one of utmost good faith (insurance contract)
-half-truth (where was not said distorts)
-change of circumstances
Party
Must be parties
If not negligent mistatement or deceit in tort.
Must induce that party into entering the contract.
East v Maurer (1991)
- Fraudalent misrepresentation would stop competing with hairdresser.
- Damages awarded using tort (position they would have been). Difference in profit he would have made.
Fraudulent misrepresentation
-with knowledge that it is false
-without belief in its truth
-recklessly not caring whether it is true or false
Nothing short of fraud.
Damages in tort of deceit available. How much ‘out of pocket’ from the misrepresentation. No remoteness of loss.
Negligent misrepresentation
S2(1) Misrepresentations Act 1967
-Statements that were made carelessly.
- Honest but not held on reasonable grounds.
-Reverses burden of proof to misrepresentor to prove reasonably held.
Damages assessed same way as fraudulent misrepresentation (all consequential losses putting party back in position they would have been.
Innocent misrepresentation
-Establish reasonable grounds (not negligent)
No damages but still able to rescind
Rescission
Any misrepresentation makes voidable.
Affirm or rescind contract.
Rescission - mutual restoration of all benefits received.
Rescission is an equitable remedy
Discretion of court-
Can be lost when;
-affirmation
-undue delay
-acquired an interest in subject matter before rescission of contract
-impossible substantially to restore goods or property.
Undue delay
-When misrepresentation should have been discovered (Leaf v International Galleries)
Does not apply to fraudulent (where it runs from discovery).
Impossible for a party to substantially restore goods or property to the other
Crystal Palace FC 2000 Ltd v Ian Dowie 2007
- Impossible to have rescind, damages still available.
Business likely to have entered into third-party contracts making recscision unavailable.
Duress and Undue Influence
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Duress
Violence or illegitimate threats or pressure that coerce a party into entering into a contract (burden on the claimant).
If threat made at time that was a reason for entering into the contract. Must have induced the contract in some way.
Illegatimate and legitimate threats
- usual legitimate commercial pressure allowed
- economic duress - improper or illegitimate threat (breach contract or commit a tort).
Carillon Construction Ltd v Felix (UK) Ltd 2001
-whose practical effect is that there is a compulsion on or lack of practical choice to the victim.
-which is illegitimate
-significant cause inducing the claimant to enter into the contract
Court takes into account
-actual or threatened breach of contract
-good or bad faith
-victim protested at the time.
Effect
Makes contract voidable (valid until rescinded).
Same principles of affirmation and rescission.
Innocent must notify of rescission (can also apply to court).
Bars to rescission-
Affirmation
Undue delay
Bona fide purchaser
Impossible to restore goods or property
Consideration?
- If paying extra in economic duress may amount to affirmation.
However
Performance of an existing contractual duty owed to the other party is not consideration for a promise of extra money.
UNLESS
Person providing money obtains a practical benefit in return (Williams v Roffey).
UNLESS
Duress.
Undue influence
Remedy is rescission with same bars.
No damages the same as duress.
-influence that goes beyond the scope of what is regarded as acceptable
-one party is in a position to influence another and takes advantage of that position.
Actual and presumed undue influence
Undue influence presumed where fiduciary relationship (or relationship of trust and confidence) between the parties and a transaction occurs that calls for an explanation.
Daniel v Drew (2005) - Court action against old lay. Deemed undue influence.
Actual - proved on the facts
Presumed- above.
Relationship of trust and confidence
- Not husband and wife.
Innocent party will have to prove if it is not presumed.
Transaction must call for explanation.
Rebuttable e.g. taken independent advice
Third parties?
E.g. Husband and wife (husband forces wife into loan of house)
If creditor had actual or constructive knowledge of the influence
Royal Bank of Scotland v Etridge (no 2) -
Will have constructive knowledge if-
-ought to have put an inquiry
-did not take reaosnable steps to ensure surety was aware of the implications of what they were signing
Put on inquiry
Non-commercial and loan not for joint benefit.
Reasonable steps
Private meeting with surety.
Surety takes independent advice from solicitor.
Creditor stopped will have action only against the debtor.
Mistake and Illegality
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Mistake
-Common mistake - both parties have made the same fundamental mistake
-Cross-purpose mistake - where the parties are literally at cross-purposes about some crucial aspect of the conduct
-Unilateral mistake - where only one party is mistaken
Must precede the contract and have induced it.
Common mistake
Will not operate if one party is at fault
Contract must not make express provisions on the matter
Mistake must be fundamental (render performance of the contract impossible or radically different from what parties anticipated.
Normally around subject matter.
Cross-purpose mistake
Impossible to resolve ambiguity over what was agreed.
Raffles v Wickelhaus (1864) - same ship name
Unilateral mistake
Often where mistake as to identity of other contracting party.
Cundy v Lindsay (1878) - ‘Blenkarn instead of Blenkan and Co’
If bona fide purcharser acquired the goods recission will be barred and will own unless argue contract was a mistake.
Lewis v Averay (1972) - mistake based on creditworthiness not identity. Not upheld.
Mistake or misrepresentation
- if face-to-face strong presumption that the innocent party intends to deal with the person in front of them.
-when written, the agreement must be construed to determine with whom the innocent party intended to contract. If someone other than rogue may be void for mistake
-nature of transaction may indicate to the rogue that it is vital they possess a particular attribute, if they do not do so offer is not addressed to them.
-if the person/entity the rogue is pretending to be actually exists and is known to the mistaken party. Suggests offer is not addressed to the rogue.
Illegal contracts
Formation, purpose or performance involves the commission of a legal wrong.
Void - not allow benefits conferred in the performance.
St Johns Shipping Corp v Joseph Rank Ltd (1957) -
made offence to load ship certain way. Fine was enough, contract not voidable.
-If both aware of illegality neither party entitled to enforce contract.
Ashmore, Benson, Pease & Co Ltd (1973) - aware of illegal loading, both participated in illegality.
Competition Act 1998
Renders contract that have effect of restricting, preventing or distorting trade within the UK illegal.
Illegal at common law
- Contrary to public policy or morality. Challenge sanctity of marriage, jurisdiction of courts, and are sexually immoral.
Prima facie void e.g. employment contracts restricting senior employees from working for a competitor.
May be enforceable if -
legitimate business interest to protect (customers, trade secrets)
restraint is reasonable in terms of geographical area, duration and scope of prohibited activities.
Covenants in restraint of trade
- If reasonable party who imposed may apply for injunctive relief or otherwise apply for damages to compensate for loss suffered as a result of the breach.
