Contract Law: Vitiating factors

Question 1

Enforceability of contract

Contracts can either be: (3)

Answer 1

1. Valid = legally binding contract
2. Void = never a contract in the first place
3. Voidable = a contract comes into existence. The innocent party can choose whether or not to end the contract

Question 2

The effects of vitiating factors to a contract: (4)

Answer 2

• Misrepresentation: renders the contract voidable
• Mistake: renders the contract void
• Duress & Undue Influence: renders the contract voidable
• Illegality: renders the contract void

Question 3

What is misrepresentation?

Answer 3

A misrepresentation is an untrue statement of fact by one party which has induced the other party to enter into the contract.

Question 4

Which 3 elements must be fulfilled to be actionable misrepresentation?

Answer 4

1. There must be an untrue statement

• The statement can be in any form, spoken, written or by conduct
• The statement must be false
• Keeping silent about the change of circumstances can amount to misrepresentation
• If one party makes a statement which is itself true, but which misrepresents the whole situation because of what is left unsaid, the statement may amount to misrepresentation.

2. It must be statement of fact, not mere opinion
3. It must have induced the innocent party to enter the contract

Question 5

Types of misrepresentation

Answer 5

1. Fraudulent misrepresentation: a false statement that is made ‘(i) knowingly, or (ii) without belief in its truth, or (iii) recklessly as to whether it be true or false’;
2. Negligent misrepresentation: defined by s2(1) Misrepresentation Act 1967 as a false statement made by a person who believes that the statement is true but has no reasonable ground for such a belief;
3. Wholly innocent misrepresentation: a false statement made honestly believing it to be true. It covers misrepresentations that are made entirely without fault.

Question 6

Remedies for misrepresentation

What does misrepresentation do?
What are damages?
What are the different effects of different types of misrepresentation

Answer 6

A misrepresentation renders the contract voidable (by means of rescission) and it may also give rise to a right of damages depending on the type of misrepresentation that has occurred.

Damages = aim to compensate the innocent party by putting it back in the position that it would have been had the misrepresentation not taken place.

Fraudulent misrepresentation = damages for the tort of deceit (burden of proof lies with the claimant)

Negligent misstatement = damages in tort (burden of proof lies with the claimant)

Negligent misrepresentation under statute = amages under s.2(1) of Misrepresentation Act 1967 (burden of proof reversed to the defendant)

Innocent misrepresentation = s2(2) of Misrepresentation Act 1967 in lieu of rescission.

Question 7

What is rescission and what are the bars to rescission?

Answer 7

Rescission = equitable remedy designed to restore parties to pre-contractual position. Available for all 3 types of misrepresentation.

Bars to rescission:

• Affirmation
• Lapse of time
• Impossible to return to pre-contractual position
• Third party has acquired rights.

Question 8

Duress

Answer 8

• Used to only include violence or threats of violence, which rarely came to court;
• BUT can now include economic duress too:

Question 9

Economic Duress and the William v Roffrey rule

Answer 9

• If a promise to pay extra for performing an existing contractual duty, results in a practical benefit to the promisor (or the avoidance of a disbenefit), then that benefit is capable of being consideration for that promise provided that the promise was not obtained by economic duress
• A condition for this rule to apply is that there was no economic duress involved which compelled the promisor to agree on an additional payment