Misrepresentation, mistake and illegality Flashcards
Misrepresentation - Definition
A misrepresentation is a false statement of fact made by one party to the other before the contract was formed which induces the other party to enter into the contract
Misrepresentations - Requirements - A statement of material fact
The statements must be statements of fact and not opinion. Mere ‘sales talk’ or ‘puff’ are not a statement of fact.
Misrepresentations - Requirements - Silence
Silence cannot amount to a misrepresentation
Misrepresentations - Requirements - Silence - Exceptions - Half truths
Telling a half-truth giving only half the story can amount to a misrepresentation
Misrepresentations - Requirements - Silence - Exceptions - Change in circumstances
If a statement has been made which is true at the time but which during the course of negotiations becomes untrue then the person who knows that it has become untrue is under an obligation to disclose to the other the change in circumstances
Misrepresentation - Requirements - Misrepresentation by conduct
Doesn’t need to be written or oral. Spice Girls - contract was based on the representation that all 5 members of the band would be present. Geri left the band - the court held that there had been misrepresentation by conduct since the participation of all 5 band members had induced Aprilia to enter into the contract
Misrepresentation - Requirements - Made prior to contract
A statement made after formation of the contract cannot be actionable
Misrepresentation - Requirements - Inducement into the contract
The claimant must have relied on or been induced to enter the contract by the false statement of fact. The claimant must have known of the existence of the statement and the statement must have materially affected the claimant’s judgement such that the claimant was induced by it or acted in reliance upon it. Must be made to the party that was misled, unless the claimant can establish that the party that made the statement knew it would be passed to them
Misrepresentation - Requirements - Relying on an expert report
If it seems that you didn’t rely on the seller’s statement at all but relied solely on your expert’s report you will not be able to claim
Misrepresentation - Requirements - Opportunity to discover the truth
A person does not lose the right to claim that a misrepresentation has been made just because he is given the opportunity to discover the truth but fails to do so
Misrepresentation - Remedies - Key Point
Depend on whether the misrepresentation is fraudulent or non-fraudulent.
Misrepresentation - Remedies - Fraudulent
Fraud is proved when it’s shown that a misrepresentation has been made, knowingly, without belief in its truth or recklessly, carelessly whether it be true or false. Can get damages and rescission
Misrepresentation - Remedies - Non-fraudulent
Non-fraudulent = one made in the belief that it is true and that there are reasonable grounds for that belief. The court has a discretion to award damages in lieu of rescission
Misrepresentation - Remedies - Rescission
Applies to both. The effect of any misrepresentation is to make the contract voidable - contract is valid until innocent party rescinds it. Have to notify other party in order to rescind.
Misrepresentation - Remedies - Rescission - Bars to rescission
- If goods are obtained by misrepresentation and sold in good faith to a 3rd party the contract cannot then be rescinded
- Will not be available if the claimant has affirmed the contract either by expressly stating they intended to continue with it or by their conduct
- Lapse of time/undue delay
- Where it is impossible for a party to restore goods/property
Misrepresentation - Remedies - Rescission - indemnity
Indemnity - if a contract is rescinded then the innocent party can claim an indemnity for expenses incurred as a result.
Misrepresentation - Remedies - Damages
Must prove fraudulent misrep The intention is to return the claimant to the position they would have been in if the misrepresentation had not been made and not entered into contract- calculates how much the claimant is out of pocket. Claimant can recover all loss directly resulting from the misrepresentation ‘opportunity cost’ - loss of profits that resulted from reliance on misrepresentation
Misrepresentation - Remedies - Damages in lieu of recission
Only for non-fraudulent. Court has a discretion to award damages instead of rescission and the contract will continue. Won’t award it if one of the bars to rescission applies.
Misrepresentation - Negligent Misstatements
If a false statement has been made by a person who is not a party to the contract. A duty of care can extend to careless statement where a special relationship exists between the parties. The statement was relied on the maker knew it was being relied on and it was reasonable to rely on. Must prove maker of statement owed duty and breached duty causing loss. Loss must be foreseeable
Misrepresentation - Attempts to exclude false preliminary statements - Non-consumer contract
Only be upheld if it satisfies reasonableness test
Misrepresentation - Exclusion of false preliminary statement - Non-reliance Clause
Acknowledges that the parties have not relied on any representations statements or claims in entering into the contract. Must satisfy test for reasonableness - S. 11 UCTA
Misrepresentation - Exclusion of false preliminary statement - Entire Agreement Clauses
Attempt to limit what has been agreed to just the contract
Misrepresentation - Defence
Defence that they believed and had reasonable grounds for believing that statement is true
Illegality - Definition
Vitating factor which concerns itself with the character of the contract
Illegality - Effect
If the formation, purpose or performance of a contract involves conduct that is illegal or contrary to public policy the contract is unenforceable.
Illegality - Guidelines
1) how seriously illegal or contrary to public policy the conduct was 2) whether the party seeking enforcement knew of or intended the conduct 3) how central to the contract or its perfomance was. CANNOT BE TERMINATED ON ILLEGALITY IF IT’S NOT CENTRAL TO PERFORMANCE OF THE CONTRACT
Mistake - Common mistake - Res Extincta
Mistake as to the existence of the subject matter of the contract. Contract = void. S. 6 SGA. Principle may also apply where the parties contract on the basis of a mistaken assumption
Mistake - Common mistake - Res Sua
Shared mistake as to the ownership of the subject matter of the contract
Mistake - Common mistake - Mistake as to quality
Common mistake as to the quality of the subject matter of the contract is not sufficiently fundamental to be an operative mistake at common law
Mistake - Common mistake - Definition
Both parties have made the same fundamental mistake at the moment the contract is made. It must not be the fault of either party. The mistake must be fundamental e.g a mistake that renders the contract fundamentally different. 3 types of common mistakes:
- Res Extincta
- Res Sua
- Mistake as to quality
Mistake - Mutual mistake - Definition
The contracting parties are at cross-purposes but each believes that the other party is in agreement. They do not realise that there is a misunderstanding as to:
- The terms of the contract
- The subject matter of the contract
Mistake - Mutual mistake - Terms of the contract
The court will consider whether a reasonable 3rd party would interpret the contract in line with the understanding of one or the other of the parties. If the court can find a common intention the contract will be upheld if not it will be void
Mistake - Mutual Mistake - Subject matter of the contract
Where this is mutual misunderstanding as to the subject matter the contract may also be void. The contract is not void where only one party is mistaken as to the quality of the goods
Mistake - Unilateral mistake - Definition
With unilateral mistake one party is mistaken as to the contract and the other party is aware of the mistake. Normally a result of a mistake as to one of the following:
- Identity of one of the contracting parties
- Terms of the contract
- Nature of a signed document
Mistake - Unilateral Mistake - Identity of one of the contracting parties
Contract will only be void for mistake where:
- The identity of the contracting person is of fundamental importance to the contract
- This is made clear by the party who is mistaken before or at the time of the contract
Mistake - Unilateral Mistake - Terms of the contract
Where there is a mistaken statement of intent by one party and the other party knows of it then the mistake is operative and contract = void.
Operative if:
- One party is mistaken on a material term of the contract without fault
- The other party knew or should reasonably have known of the mistake
Mistake - Unilateral mistake - Nature of a signed document
Must be a fundamental difference between the legal effect of the document signed and that which the contracting party thought they had signed. Must not result from the carelessness of the claimant
Mistake - Mistake and Equity
If a mistake is not operative then equity may be used in 3 possible ways: 1) Rescission 2) Rectification 3) Refusal to make order of specific performance. Recission is available where it is unconscionable to allow one party to take advantage of the mistake. Not available for common mistake.
Mistaken identity and damages
Damages are NOT available for mistaken identity. They only remedy is for a court to declare the contract void.
Restraint of trade clauses
A restraint of trade clause may be enforceable if there is a legitimate business interest to protect e.g customers. The restraint must be reasonable in terms of the geographical area, duration and scope of prohibited activities
Attributes and creditworthy differences - Mistaken identity
If a mistake is made to attribute rather than identity it’s insufficient
How are damages assessed for misrepresentation?
Damages are assessed on a tortious basis - all consequential losses are available
