Contract - Mistake & Misrepresentation Flashcards
What is the law on mistake?
If the mistake is an “OPERATIVE MISTAKE”, the contract is void ab initio.
What are the 3 types/methods of mistake that contract law recognises?
There are 3 types of mistake that can be “operative”:
- Common mistake
- both parties under same misapprehension. - Mutual mistake
- both parties are mistaken but about different things. - Unilateral mistake
- one party is mistaken and the other party knows (or is deemed to know).
When will a common mistake be “operative”?
When the mistake causes the subject matter to be “essentially/radically different” from what was intended, or where performance of the contract is rendered “impossible”.
The courts take a restrictive approach, e.g. where both Buyer and Seller mistakenly believed a painting to be a Constable original, the claim would fail, as both parties knew it was a PAINTING! (this would not preclude the Buyer from launching a misrepresentation claim).
Where common mistake claims will fail:
1. Mistake is not sufficiently fundamental;
- One party is at fault;
- Contract makes provisions for this issue.
When will a mutual mistake be “operative”?
Courts use an objective test (what reasonable bystander would have thought), e.g. A wants to sell his gray horse but B wants to sell his brown horse - they are both accepting different things which are fundamental terms - there was never any valid contract!
When will a unilateral mistake be “operative”?
- Where the parties knew or are deemed to know of C’s mistake - Ds cannot “snap-up” an offer where they know there is a mistake.
Example: Someone sells salmon at £5 per fish (0.5kg) but meant to sell it £5 per kilo (a highly reduced price!).
What is a “non est factum” claim in relation to mistaken belief?
This is a very narrowly construed claim that one’s signature is not valid due to a mistaken belief based on:
- Blindness, illiteracy or senility of the party, OR
- C was “duped” into signing the contract/deed based on fraudulent misrepresentation or a trick, provided C took all reasonable precautions before signing.
Example: Illiterate old woman tricked into signing deed which she thought dealt with rent arrears but actually released the woman’s claim against D.
This is an exception to strict contract law where, even if you do not read or understand its contents, you are STILL BOUND - L’Estrange v Graucob case.
Is unilateral mistake as to a party’s identity accepted as a ground for a void ab initio contract?
What are the legal consequences if successful / the claim fails?
The innocent party (often the Seller) must show that the buyer’s identity was of VITAL IMPORTANCE to the contract. This is a very difficult presumption to rebut as it cannot go to the D’s attributes / creditworthiness, e.g. if D posed as a famous actor (Lewis v Avery - but this case succeeded in misrep).
This is easier to prove when the parties do not sell face-to-face, and are tunder the impression they are selling ONLY to Mr. X (Cundy v Lindsay).
If successful, the contract is void and title remains with the Seller.
If unsuccessful, e.g. C’s claim was based on D’s creditworthiness / attributes, then the fraudster gets good title to the asset and the contract is VOIDABLE, or if D sells the asset, a bona fide purchaser without notice will get the title to the goods (assuming the TP had no suspicions of the fraud).
What are the elements for an actional misrep. claim?
- Unambiguous / Clear
- False
- Statement of Fact
- Addressed to the Claimant.
- Must induce C to enter into the contract with D (the misrep must play a “real and substantial” part in inducing C to enter into the contract).
- “Did the statement relate to an issue that would have influenced a reasonable person?” (Pan Atlantic Co.)
What is a “statement of fact” with regards to a misrep. claim?
A statement of fact relates to the facts of the case / sale; it is distinguishable from “mere puff” or an undertaking to (not) do something.
A statement of fact can be implied by conduct, e.g. the deliberate concealment of dry rot.
What sort of statements do NOT constitute a “statement of fact” re. misrep?
- Statements of FUTURE INTENTION;
(You cannot make future promises if you have NO INTENTION of ever carrying them out, OR you know that you CANNOT PERFORM the future promise (Edgington v Fitzmaurice).
Contrast with the honest statement that “I have no intention to remarry because I find remarriage objectionable”, which was upheld when it was later broken (Wales v Wadham). - SILENCE;
(a) unless it is a HALF-TRUTH, e.g. “The house is fully let [knowing that the tenants have handed in their notice / exercised a break clause]”.
(b) unless it is a continuing representation (e.g. your salary has gone down but you do not mention this to a creditor / prospective buyer of your business).
- Statements of OPINION
EG: “it’s my idea that this field could hold 2,000 sheep” - when C knows that neither the D, nor the previous owner, used the land for sheep farming (Bisset v Wilkinson).
vs.
EG: The petrol station had been guaranteed by the Esso representative as having 200,000 gallons passing through it each year. This was not accurate and as a result, the petrol station was uneconomical. This was NOT a mere statement of opinion BECAUSE THE STATEMENT MAKER DID NOT BELIEVE IT, as in fact, the petrol assessment had never been carried out.
EG: We are selling this property to an “incredibly desirable tenant”, when the seller knew of facts directly contradictory to this - this amounts to a FALSE STATEMENT.
When will a false statement of fact made to a party, NOT have “induced” the party?
Where the recipient KNOWS the statement to be FALSE (he cannot claim misrep. if he knows!)
The statement was not actually communicated to the recipient.
The recipient was not sufficiently - or at all - influenced by the false statement of fact.
If C enters into a misrep. contract for multiple reasons - one of which being the false statement of fact - can he claim misrep?
Yes, he can.
NOTE that misrep does not need to be the ONLY reason someone enters into the contract (e.g. C had a mistaken belief that he would have a charge/security interest against a company if he lent money to the company; despite this decisive and mistaken belief, C successfully claimed misrep against a statement contained in the company prospectus); (Edgington v Fitzmaurice).
Can someone claim in misrep, despite having tested the seller’s claim?
Potentially - the seller will try and argue that the buyer entered into the contract ON THE BASIS OF HIS INVESTIGATIONS, not on the false statement.
EG: The seller wildly and knowingly overestimates the earning capacity of his shop to a potential investor - and the investor carries out investigations and still invests. He cannot claim misrep. if he entered into a contract based on his own investigations - not the fraudulent statement (Attwood v Small).
What are the 3 types of misrepresentation under UK law? Why does it matter?
Fraudulent Misrepresentation
- claimed under TORT of DECEIT.
Negligent Misrepresentation &
Innocent Misrepresentation
- both claims under s.2(1) Misrep Act 1967
What is the main difference between fraudulent misrepresentation and negligent misrepresentation?
Fraudulent Misrep. is done by C showing that D:
1. Knew the rep. to be untrue/false,
2. Had no belief in the truth of the rep, or
3. D was reckless / not caring as to whether the rep. is true.
Negligent Misrep. is deemed to exist (statute reverses burden of proof) UNLESS D can show that:
(a) he had REASONABLE GROUNDS for believing in the truth of their, AND
(b) this belief in the truth of their statement was held up until the time the contract was made.
N.B.: The burden of proof on C is very difficult to discharge. The courts take fraud very seriously and a finding of negligent misrepresentation is treated effectively the same as fraudulent misrepresentation (Royscot Trust Ltd v Rogerson).
