📑Contract: misrep, duress, undue influence, mistake, illegality Flashcards
Misrep: What are the Categories of preliminary statement (made during contractual negotiations)
○ Sales puff-extravagant in obvious way/ad gimick (no right of action)
○ Contract term -if untrue, maker in breach (consider remedies for breach)
○ A representation a pre-contractual statement made by party which induced other party to enter contract but doesn’t form part of it=may be actionable as misrepresentation and make contract voidable
Misrep: How to figure out if a statement is a term or a representation
Primary test: Partis’ common intention ?
If unclear, court will consider…
1. Relative skill and knowledge of parties
2. Whether verbal statement was repeated in written contract (YES=ev of term)
3. Did recipient made clear it was of vital importance (YES=ev of term)
4. Did maker invite other party to verify it ?(YES=ev of rep, If maker told other party not to bother checking=term)
5. Lapse of time between the statement being made and contract being formed? (longer lapse, more likely a rep)
Misrep: How does the relative skill and knowledge of the parties effect whether something is a term or a representation?
- If expert makes false preliminary statement to non expert, more likely to be deemed term of the contract.
Non-expert makes false preliminary statement to expert, more likely to be deemed a simple representation.
Misrep: Which question carries more weight in the test for if a prelim statement is a term or a representation?
Relative skill and knowledge of the parties
Misrep: If a statement t is a representation, what must be proved for it to be actionable?
That its a misrepresentation
Misrep: Misrepresentation definition
An untrue statement made by one contracting party which was one of the factors which induced the other party to enter into the contract.
Misrep: what form may the false statement be in
□ oral
□ in writing
By conduct
Misrep, can silence amount to a misrepresentation?
Generally no, EXCEPT:
a. fiduciary relationship between parties (eg. Sol/client)
b. Contract is one of the upmost good faith (eg. Insurance)
c.There’s been a half-truth distorting what was said (eg. one lady owner)
d. Statement of fact true when made (and failure to disclose change of circumstances)
Misrep: can a misep be an opinion or intention?
No, must be fact, EXCEPT:
a. Party lies about intention (misrepresenting state of their mind)
b. Party states an opinion where theres no facts on which it can be reasonably based (misrepresenting that they are in possession of facts on which opinion can be reasonably formulated)
Misrep: will a statement be one of the factors inducing the party to enter the contract where the party has it checked by their own experts?
No
Misrep: must the statement be the only factor inducing the party to enter the contract?
No
Misrep: what is the positon if a party is offered a chance to verify a statement and dont take it up?
Still misrepresentation UNLESS true position set out in contract signed by C
Misrep: What are the types of miserp and why do they matter?
Effects the remedies available:
Fraudulent misrep=damages in tort of deceit AND recession
Negligent misrep=damages in tort of deceit AND recession
Innocent misrepresentation=recission only
Misrep: fraudulent misrep definition
If misrep is made:
□ with knowledge that it is false
□ OR without belief in its truth
□ OR recklessly, not caring whether it is true or false.
Need proof of fraud
Misrep: negligent misrep definition and burden of proof
Statements made carelessly: Liable if although belief in truth was honestly held, it wasn’t held on reasonable grounds
Burden on misrepresentor to prove they made the statement on reasonable grounds
C only has to est misrep and loss
Misrep: innocent misrep definition
Maker had reasonable grounds to believe statement was true
Misrep: what are damages in the tort of deceit?
- Can claim for all consequential losses- innocent party should be put into the position they would have been in, had the misrepresentation not been made.
Remoteness of loss n/a
What is the effect of recession?
aims to restore both parties, so far as possible, to their pre contract positions
=neither party need perform future obligations and both should return money or property transferred under the contract.
What type of remedy is recession?
Equitable remedy=at courts discretion and will be barred in some cases
If a contract is voidable what are theoptions?
- Affirm (treat as ongoing)
- Rescind
How does a party rescind a contract?
Innocent party must notify other party of intention to rescind OR apply to court (ie where other party wont return prop)
What are the 4 bars to rescission?
1.Affirmation: express/implied act in way leading other party to believe contract ongoing
2. Undue delay (lapse of time): look at when misrepresentation should have been discovered (EXCEPT when actually discovered for fraudulent misrepresentation
3.Innocent purchaser has acquired rights in the property
4. Restitution is impossible
When is does the restitution is impossible bar to recession often apply?
contract for sale of business rarely rescind as business will have changed position by entering new 3rd party contract
When can damages in lieu of recession be awarded?
If C doesn’t have right to damages, can award if:
- misrepresentation is non- fraudulent.
- No bars to recission apply
- (probably) representation was about a minor matter and recission is unjust
Duress: where is the burden of proof
on party alleging duress
Duress: What are the elements of economic duress
i. Illegitimate pressure
ii. whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim;
iii. which is a significant cause inducing the claimant to enter into the contract.
Duress: what will the court consider to decide ‘illegitimate pressure’?
- has there been an actual or a threatened breach of contract
- was the threat was made in good or bad faith
- Did the victim protest at the time
Duress: what is not ‘illegitimate pressure’?
Legitimate commercial pressure/hard bargaining
Duress: Does the illegitimate pressure need to be the only reason inducing the C to enter the contract?
No
Duress: what is the effect?
Original/renegotiated contract voidable (=its valid until rescinded)
Undue influence: definition
Influence that goes beyond what is regarded as acceptable; or
OR where one party is in a position to influence another and takes unfair advantage of that position
Undue influence: types
a. Actual undue influence: C must prove (evidence of innocent party preferred)
b. Presumed undue influence:
i. Relationship is one of trust and confidence (fiduciary)
ii. AND the transaction is one that calls for an explanation
iii. rebuttable on facts (Ie. If innocent party taken independent advice)
Undue influence: can the threat be entirely legal
Yes
Undue influence: when will there be a relationship of trust and confidence (presumed undue influence)
Irrebuttably presumed sometimes eg.
-Solicitor/client
-dr/patient
-parent/children
-religious advisors/followers
-NOT husband/wife
Where not presumed, innocent party must prove
Undue influence: when will the transaction be one that calls for an explanation (presumed undue influence)
Transaction is not readily explicable by the relationship between the parties
Undue influence: what is an example of when a third party may be involved?
Where surety influenced by borrower (ie. to use house in joint names as security), there are 2 innocent parties, the surety and the lender (not fair on lender if rescinded)
Undue influence: how is the situation dealt with where a surety may be influenced by a borrower (=2 innocent parties)
Etridge guidelines:
If the creditor had actual/constructive notice of the undue influence, the contract is voidable
Creditor will have constructive notice if:
i. It ought to have been put ‘on inquiry’ (ie all cases where the relationship between a surety and debtor is non-commercial and not for their joint benefit)
ii. AND once put on inquiry, did not take reasonable steps to ensure the surety (wife) was aware of the implications of what they were signing.
Undue influence: what counts as ‘reasonable steps’ for the etridge guidelines
a. Private meeting with surety at which they’re told:
◊ extent of liability/risk as surety
◊ to take independent legal advice
b. Get written conformation from solicitor that surety had independent advice and made aware of risk
Undue influence: effect
Recission subject to bars
Mistake: effect
If mistake is so fundamental it negates agreement and existence of contract (=contract void as apposed to voidable)
Often last resort
Mistake: types
- Common (Aka. Identical mistake/shared mistake)
- Cross purpose
- Unilateral
Mistake: what is common mistake
Where both parties have made same fundamental mistake (eg. The existence of the subject matter NOT quality of subject matter)
Mistake: limitations on the operation of common mistake
- Wont operate if one party is at fault
- Contract mustn’t make express provision on the matter
The mistake must be fundamental (render performance impossible/radically different from what the parties anticipated)
Mistake: what is a cross purpose mistake
Where parties at cross purposes about some crucial aspect of the contract.
eg. One party asserts that a contract exists, each on terms favourable to that party, its objectively impossible to resolve ambiguity over what was agreed=only possible conclusion is that there was no contract.
Mistake: what is a unilateral mistake
- Where only one party is mistaken (often to the identity of the other party)
- Must be a genuine mistake where the identity of the other party is of vital importance to render contract void (not their credentials)
Mistake: effect of unilateral mistake as to a parties identity where a bona fide purchaser acquired goods
- Recission barred and they own goods
If initial contract void for mistake, mistaken party owns goods
Mistake: effect of unilateral mistake as to a parties identity where mistaken party sells to rouge who sells to innocent buyer
One will be entitled to goods, other can sue rouge for breach of implied term they had title to sell goods
How to tell if there is a mistake (making contract void) or misrepresentation (making contract voidable)
- Parties dealing face-to-face=Strong presumption innocent party intends to deal with person in front of them= unlikely void mistake (=try misrepresentation)
- Dealings conducted exclusively in writing= Written agreement must be construed to determine with whom the innocent party intended to contract. If someone other than the rogue then the contract might be void for mistake.
- Nature of transaction may indicate to the rogue that it is vital they possess a particular attribute and, if they don’t , offer is not addressed to rogue=no contract .
- If the entity whom the rogue is pretending to be actually exists and is known to the mistaken party (eg a registered company), it suggests that the offer is not addressed to the rogue=no contract with them
How may a contract be illegal?
When its:
-Formation
-Purpose
-Performance
Involves the performance of an legal wrong such as a:
-Crime
-Breach of statutory duty
-Violation of public policy/immoral (common law)
Effect of a legal contract
Generally, illegal contracts void, unenforceable and recovery for performance not allowed.
Especially where both parties had participated in illegality
When is illegality unlikely to effect the validity of a contract
Where:
-one party didn’t know of the illegal performance-only innocent party can enforce
- illegal act purely incidental to performance of the contact (eg. Delivery driver speeding)
Illegality: rules for contracts in restraint of trade
Are prima facie void as being contrary to public policy. HOWEVER restraints of trade may be enforceable if:
* There’s a legit business interest to protect (ie. Customers, employees and trade secrets
* AND the restraint is reasonable in terms of geographical area, duration and scope of the prohibited activities.
What counts as ‘illegitimate pressure’ for duress?
- Unlawful threats
- Actual/threatened breach of contract
For innocent misrepresentation, where does the burden of proof lie?
Misrepresentor has to show they honestly and reasonably believed what they said to be true
When will undue influence be presumed?
- Relationship of trust and confidence
- AND transaction calls for explanation (not easily explained by relationship between parties)
When is it irrebuttably presumed theres a relationship of trust and confidence for undue influence?
Solicitor/client
Dr/patient
Parent/child
Religious advisers and followers
NOT husband and wife (rebuttable not irrebuttable)
primary test and 5 others
What are the guidelines for determining if something is a term of the contract or a representation?
Primary test: What’s the common intention of the parties?
If unclear:
1. Relative skill and knowledge
2. Verbal statement repeated before it was agreed?
3. Recipient made clear it was of vital importance?
4. Maker invited other party to verify?
5. Lapse of time between statement and contract formation?
Can promissory estoppel be used to sue?
No it is only a defence, ‘Shield not a sword’
When does mistaken identity (unilateral mistake) rarely work
When dealing face to face
