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Vitating Factors Flashcards

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1
Q

What are the four vitiating factors?

A

Misrepresentation
Mistake
Duress and Undue Influence
Illegal Contracts

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2
Q

What are the two ways in which an invalidating (vitiating) factor can affect a contract?

A

It can make it either void or voidable.

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3
Q

What is a void contract?

A

A void contract has never existed. Steps may be taken to undo the contract back to the start.

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4
Q

What is a voidable contract?

A

A voidable contract does exist and will exist until one of the parties decide to bring it to an end (rescinded).

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5
Q

What is a misrepresentation?

A

A misrepresentation is a false statement of fact (or law), which induces the other party to enter into a contract by their reliance on the statement.

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6
Q

Will a misrepresentation result in a void or voidable contract?

A

A misrepresentation will result in a voidable contract.

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7
Q

What are the 3 types of misrepresentation?

A

Innocent misrep
Negligent misrep
Fraudulent misrep

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8
Q

Which piece of legislation covers misrepresentation?

A

The Misrepresentation Act 1967

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9
Q

Can a misrepresentation only be communicated through words?

A

It can come from words or conduct.

In Walters v Morgan [1861] Lord Campbell said that “a nod or a wink or a shake of the head or a smile will suffice”.

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10
Q

Which 3 types of statements aren’t normally classed as misrepresentations?

A
  1. Statements of opinion (e.g. I’ve never had sheep, but this field should hold 2,000 sheep)
  2. Statements of intention (e.g. unless you don’t intend to do it)
  3. Extravagant advertisements (mere puffs)
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11
Q

Does silence amount to misrepresentation?

A

No, there is no obligation to disclose relevant facts unless a party specifically enquires.

There are exceptions.

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12
Q

What does caveat emptor mean?

A

Let the buyer beware

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13
Q

What are the 6 exceptions to silence not being a misrepresentation?

A

1) half-truths (e.g. no restrictions on this land - but I haven’t actually checked)

2) If a statement made during pre-contractual negotiations is accurate when it is made but circumstances change before the contract is agreed, this must be disclosed.

3) Contracts of utmost good faith need to reveal all relevant facts, even if they aren’t asked. Otherwise voidable. (e.g. insurance contracts)

4) Where the parties have a fiduciary relationship, there is a duty of full disclosure (e.g. lawyer and client)

5) Voluntary assumption of responsibility by the business party that remains silent on which the other party relies.

6) Business must not omit or hide material information from consumer.

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14
Q

What is the ‘but for’ requirement and when is it relevant?

A

In some negligent or innocent misrepresentations, the representee will have to show that “but for” the misrepresentation they would not have entered into the contract.

However, there is not inducement if:

1) The representee was unaware of the existence of false statements at the time

2) The representee knew the statement was false before entering into the contract

3) It would not be reasonable to rely on the statement, e.g. by engaging a third party to check.

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15
Q

Will the representee be able to sue even if they make no effort to check the truth of the statement?

A

Yes, because such behaviour shows reliance on the statement - it will be clear evidence of inducement

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16
Q

In fraudulent misrepresentation cases, does the representee need to meet the ‘but for’ test?

A

No, they can claim if they can show that the representation was induced in any way by the fraudulent statement (material inducement).

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17
Q

What is presumed inducement?

A

A rebuttable presumption in fraudulent misrepresentation, that the fraud was a material inducement that persuaded the representee to enter the contract.

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18
Q

What is a fraudulent misrepresentation?

A

A knowingly false statement is made

The statement is made without belief in its truth

The statement is made with reckless carelessness as to whether it is true or false

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19
Q

What are the remedies for fraudulent misrepresentation?

A

Damages and/or seek rescission of the contract (putting parties back in position before contract was made)

Damages awarded in the tort of deceit on a tortious basis, rather than breach of contract.

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20
Q

What are the bars to rescission?

A
  1. Affirmation (party entitled to rescind continues with contract)
  2. Lapse of time (e.g. Leaf v International Galleries)
  3. Parties cannot be restored to their original positions
  4. Third party acquisition of rights
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21
Q

What is negligent misrepresentation?

A

A representation made carelessly and in breach of duty owed by Party A to Party B to take reasonable care that the representation is accurate.

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22
Q

Where does the burden of proof lie in negligent misrepresentation?

A

Once the representee proved that there was a negligent misrepresentation which indued them inot the contract, the representor will be liable in damages unless he proves he had reasonable grounds to believe and did believe that the facts represented were true.

To bring a claim for relief under s2(1), the representor must show, “on the balance of probabilities, that their statement was not negligent”.

The representor will defend the claim if they can show that they had reasonable grounds to believe and did believe that the statement was true up to the time the contract was made.

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23
Q

What are the remedies for negligent misrepresentation?

A

Damages and/or seek rescission of the contract (putting parties back in position before contract was made)

Damages awarded in the tort of deceit on a tortious basis, rather than breach of contract.

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24
Q

What is innocent misrepresentation?

A

A misrepresentation which is neither fraudulent or negligent.

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25
Q

What are the remedies for innocent misrepresentation?

A

Either damages or rescission, not both.

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26
Q

Can consumers be compensated twice for the same thing?

A

No.

S2(4) MA 1967 provides that a person is not entitled to be paid damages in respect of misrepresentation if the person has a right to compensation under Part 4A Consumer Protection from Unfair Trading Regulations 2008 in respect of the conduct constituting the misrepresentation.

Part 4A provides that certain “prohibited practices” by businesses concerning contracts with consumers will entitle consumers to compensation. These “prohibited practices” include offering just a few items at the advertised price with no hope of meeting large demand.

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27
Q

Will a mistake result in a void or voidable contract?

A

A void contract.

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28
Q

What happens in a void contract when the goods have transferred to a third party?

A

If the original contract is void, there has been no title passed on to the third party. The third party will be obliged to return the goods to the original owner.

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29
Q

What happens in a voidable contract when the goods have transferred to a third party?

A

If the original contract is voidable, the third party can obtain the title, as long as the original contract has not been rescinded before the third party’s contract has been completed.

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30
Q

What are the three types of mistake?

A

Common mistake
Unilateral mistake
Mutual mistake

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31
Q

What is a common mistake?

A

A common mistake will arise where both parties have made the same mistake and are mistaken about a primary fact which is central to the contract.

This could be about the subject matter of the contract, the quality of the subject matter or of the title to the goods.

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32
Q

Give an example of a common mistake as to the existence of the subject matter?

A

Josie hired the village hall on a Monday for a birthday party to take place in two weeks time. The Council Official confirmed the booking, but unbeknown to both parties when the booking was taken, the village hall had burned down the day before (the Sunday evening).

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33
Q

When is a contract frustrated and when is a contract void due to a common mistake as to the subject matter?

A

Depends on the timing.

Frustration will occur when an event occurs after a contract has been agreed.

Mistake will occur when the subject matter does not exist (unbeknownst to the parties) before the contract is made.

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34
Q

When does mistake as to title occur?

A

When unbeknownst to both the parties, the buyer already owns the item the seller is trying to sell.

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35
Q

When does mistake as to the quality of the subject matter occur?

A

If the mistake is made by both parties as such to render the contract essentially and radically different from the subject matter which the parties believe to exist. Must be FUNDAMENTAL to the contract.

E.g. painting by famous painter would not be a mistake if it turned out to be a modern copy, as it doesn’t go to the root of the contract. The buyer bought a painting and they got a painting. Unless a guarantee was given, it is not a mistake as to quality.

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36
Q

What are the 4 stages of the test for common mistake as to the quality of the subject matter?

A
  1. No warranty by either party that the state of affairs exists.
  2. Non-existence must not be attributable to the fault of either party.
  3. Non-existence of the state of affairs must render performance of the contract impossible.
  4. State of affairs = existence or vital attribute of the consideration OR circumstances which must carry on if performance of the contractual adventure is to be possible

See Great Peace Shipping Ltd v Tsavliris Salvage [2002]

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37
Q

What is the difference between mistake as to the quality of the subject matter and satisfactory quality in the CRA/SGA?

A

A comparison between the two would be a contract for an amount of ‘Granny Smith’ apples. If the apples were rotting and full of worms, this would be a breach of the ‘satisfactory quality’ term under Section 14(2), whereas if the goods were a different type of apples, this would be a claim for mistake as to the quality of the goods. It should be noted that just because there is a mistake as to the quality of the goods this does not mean that this will amount to a claim for mistake.

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38
Q

What is it sensible to conclude about mistake as to the quality of the subject matter?

A

The under most circumstances, mistake as to the quality of the subject matter will not result in an actionable claim for mistake.

39
Q

What is a mutual mistake?

A

When it can be shown that the parties to an agreement are at cross-purposes.

40
Q

Give an example of a mutual mistake?

A

For example, Alan thinks he is selling his Vauxhall Astra to Bal, whereas Bal thinks he is buying Alan’s Ford Fiesta. The two are mistaken as to which car is being sold/purchased.

Or if the claimants intended to sell tow and the defendants intended to buy hemp. Due to ambiguity of circumstances, the contract was held void for mistake.

41
Q

What is a unilateral mistake?

A

A unilateral mistake will arise when a person makes a contract with another party believing the party to be someone else/about something else and the other person is aware of that mistake.

42
Q

What are the two types of unilateral mistakes?

A

1) Mistake as to identity

2) Mistake concerning the nature of the document

43
Q

Give an example of a mistake as to someone’s identity?

A

For example, Tim agrees to sell Bryan his car, believing him to be Ajay (due to the deception of Bryan who is a fraudster). Bryan then passes the car to David and disappears. When Tim seeks to recover his property from David, this is accepted as the contract is void for mistake as to the identity of the original buyer.

44
Q

What are the two possible outcomes for the third party buyer depending on whether the contract is void for mistake as to identity or the contract is voidable due to misrepresentation?

A

If the contract is void for mistake as to the identity of the original buyer, the third party holds no title of the goods, so rescission is possible.

If the contract is voidable for misrepresentation and the goods have already been given to the third party, rescission will not be available.

45
Q

When will a contract definitely be void for mistake to identity and not just voidable for misrepresentation?

A

When the contract has an operative mistake, meaning the identity of the fraudster was of fundamental importance to the innocent party and reasonable steps were taken to verify the identity of the fraudster.

If this can’t be proven, the contract can’t be avoided.

46
Q

Give examples of when face-to-face contracts are and aren’t void for unilateral mistake?

A

NOT VOID: Seller is face-to-face with fraudster (famous actor) and sees Pinewood studio pass. Fraudster gives cheque, which bounces. Was not the identity which was checked, but his crediworthiness and the presumption that the parties intended to deal with the person in front of them was not displaced.

VOID: Car seller sold car to fraudster. Claimant (finance company) provided credit search and agreed to sell the car. Later, defendant reneged on finance agreement. In this instance, contract was between fraudster and the finance company, who sold the car relying on the identity that the fraudster had stolen. Identity was key to contract, so the contract was void for mistake.

47
Q

Is it easier to establish an identity mistake in face-to-face contracts or at a distance contracts?

A

It is generally acknowledged that it is easier to establish an identity mistake where parties negotiate at a distance.

48
Q

Give an example of when there is a mistake as to identity in an at a distance contract?

A

A hankerchief company received correspondence from a person named Blenkarn (a rogue) who had rented premises at 37 Wood Street but purported to be ‘Blenkiron & Co’, whom Lindsay & Co knew to be a reputable business located at 123 Wood Street.

Believing the correspondence to be from this company, Lindsay & Co delivered a consignment of handkerchiefs. Blenkarn then sold the handkerchiefs on to Cundy, who was an innocent third party. When Blenkarn failed to pay, Lindsay & Co sued Cundy for the return or value of the goods.

The court declared the contract void, so the goods or their value could be recovered from Cundy.

49
Q

Give an example of when there is NOT a mistake as to identity in an at a distance contract?

A

In this case, a rogue submitted an order pretending to be Hallam & Co, who were a non-existent company. King’s Norton delivered the goods knowingly to Hallam & Co who sold them on to Edridge, Merrett and Co. When the fraud was discovered, King’s Norton tried to claim the goods back from Edridge, Merrett and Co. The Court of Appeal held there to be a valid contract between King’s Norton and the rogue. The difference between this case and Cundy v Lindsay was that King’s Norton had intended to sell the goods to Hallam and Co, which was the rogue using this name as an alias. There was not a choice here between the rogue and a respectable company in this case, whereas in Cundy v Lindsay there was a respectable company with whom Lindsay had wished to do business.

50
Q

What must the offeror consider to be fundamental in a mistake to the identity contract?

A

The offeror must consider the identity of the offeree to be fundamental to the agreement and be able to show that they intended to deal with no one other than the real offeree.

51
Q

What is the presumption in face-to-face contracts?

A

In face-to-face contracts, the law must presume that a person intends to deal with the person who is in front of them and making the deal. The mistake must be proven to be connected to the identity of the other party and not their creditworthiness.

52
Q

What is a mistake concerning the nature of the document?

A

When a party doesn’t believe the contract they signed doesn’t accurately reflect the deal they thought they made.

53
Q

What are the two type of mistake concerning the nature of the document?

A
  1. Rectification
  2. Non est factum (it is not my deed)
54
Q

When will rectification be the remedy with a mistake concerning the nature of the document?

A

When a contract fails to reflect the agreement of both parties.

Rectification is an equitable remedy and allows a document to be amended.

55
Q

What is an example of when rectification will be the remedy with a mistake concerning the nature of the document?

A

Mrs Nissen and her husband shared a house with her father Mr Joscelyne and his wife. Mr Joscelyne agreed to transfer his business to Mrs Nissen on the agreement that she would pay him a weekly pension and his and his wife’s expenses for the household costs such as gas, electricity and home help. At a later date, they committed the agreement into writing. One clause of the agreement stated that Mrs Nissen would discharge all costs in connection with the whole property. A further clause stated that Mr Joscelyne had the right to live in the ground floor flat free from all rent and outgoings of every kind. There was a breakdown in relations and Mr Joscelyne took court action against Mrs Nissen who then stopped paying the utility bills on the basis that these were neither rent nor outgoings. The court ordered rectification on the basis that convincing proof of intention had been provided.

56
Q

What are the 4 items on the checklist of requirements to be proven by a party seeking rectification?

A
  1. Common continuing intention
  2. By mistake, the instrument doesn’t reflect common intention
  3. Intention continued at time of execution
  4. Outward expression of accord
57
Q

When will non est factum be the remedy with a mistake concerning the nature of the document?

A

‘It is not my deed’.

Where someone has relied upon another person to explain and accurately describe the contents of a document and their statements have been false or inaccurate, or deliberate misrepresentation to trick a person into signing a document.

58
Q

How often is the ‘non est factum’ defence successful?

A

The defence is rarely successful as can be seen in Saunders v Anglia Building Society [1970].

The case involved an elderly lady, Mrs Gal-lie who wished to give the title deeds of her property to her nephew so that he could use the property as security for a business loan. She had stipulated that the agreement was on the condition that she would be permitted to live in the house for the rest of her life. Mrs Gallie was presented with a document compiled by her nephew and his business partner, which she signed without reading, as she had lost her spectacles. She believed that the document correctly recorded her wishes.

It later transpired that the true extent of the agreement permitted her nephew’s business partner to grant a mortgage over the property in favour of Anglia Building Society and when the business partner defaulted on the mortgage, the Building Society sought to repossess the House. Mrs Gallie’s executrix sought a declaration that the assignment to her nephew was void because of non est factum.

However, the House of Lords confirmed the decision of the Court of Appeal that the plea of non est factum could not be raised. The transaction the widow had entered was found not to be fundamentally different from what she intended at the time and, additionally, it was also found that she had been careless in signing the document; at the very least she should have made sure that the transfer was to the person intended by her.

The case is useful, in that it sets out the modern test for non est factum and requires proof that there is a fundamental or radical difference between the document signed and that which the signer believed it to be.

59
Q

What is duress and undue influence?

A

When pressure must be improper or illegitimate.

A mere allegation of unequal bargaining power or unfairness in the terms of the contract will not generally activate the intervention of the law.

60
Q

What are the three recognised categories of duress?

A
  1. Violence to a person
  2. Threats against property
  3. Economic duress
61
Q

Is duress grounds for a void or voidable contract?

A

Duress = a voidable contract

62
Q

When will the right to rescind be lost in a contract entered into via duress?

A

The right to rescind will be lost by:

  • affirmation of the contract after the duress has been lifted
  • undue delay in bringing the claim
    -or if the rights of a third party would be affected.
63
Q

With whom does the burden on proof lie with on a contract via duress?

A

With the defendant to prove that the threats did not influence the claimant’s choice to enter the contract.

64
Q

What is economic duress?

A

Where there is illegitimate commercial pressure on the party to agree.

Usually in the form of an existing party demanding a variation in their favour, using a threat to break the existing contract unless the other party agrees to their demand.

65
Q

What is the two-level approach for economic duress?

A
  1. Did the victim protest at the time of the demand?
  2. Did the victim regard the transaction as closed or did they intend to repudiate the new agreement?

Additional steps later:

  1. Was there an alternative course open to the victim?
  2. Was the victim independently advised?
66
Q

What is undue influence?

A

Where there is a relationship between the parties which has been exploited to gain an unfair contractual advantage.

It may, for example, apply where one party has been subject to domination by the other or where trust and confidence have been placed in another person and that trust and confidence have been abused.

67
Q

What are the 4 types of undue influence?

A

Class 1: Actual undue influence

Class 2: Presumed undue influence

Class 2A: Fiduciary relationship, e.g. lawyer + client, doctor + patient.

Class 2B: In the absence of evidence disproving undue influence, the complainant will succeed in setting aside the transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned.

68
Q

What is actual undue influence?

A

When the other party to the transaction had the capacity to influence the compainant.

Influence was exercised.

The exercise was undue and brought about the transaction.

69
Q

What is presumed undue influence?

A

When the complainant has to only show that there was a relationship of trust and confidence between them and it is fair to presume that the wrongdoer abused that relationship. The burden then shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely.

70
Q

When can the presumed undue influence be rebutted?

A

If the wrongdoer proves that the claimant entered into the contract freely, e.g. by getting independent advice.

71
Q

Which kinds of relationships are where a presumption of influence automatically exist?

A

Trustee and Beneficiary
Doctor and Patient
Lawyer and Client
Parent and Child
Confessor and Penitent

These are irrebuttable.

72
Q

What is undue influence exercised by a third party?

A

When a third party exercises undue influence on one of the two parties to the contract. E.g. where a wife gives guarantee and charge over their home to a bank and wishes to have that contract with the bank set aside on the basis that she entered into the contract only because of the husband’s influence

73
Q

In undue influence exercised by a third party, what happens if a creditor is aware of an emotional tie between the debtor and the guarantor?

A

If a creditor has constructive notice that this is the case, they must take reasonable steps once put on enquiry. E.g. provide independent advice and make sure they understand it.

74
Q

What are the 4 steps the duty of a lawyer must undertake when advising a surety?

A

1: Explain the nature of the documents and practical consequences for the wife.

2: Point out the gravity of the risks involved and the wife’s liability.

3: After discussion, the lawyer should make sure the wife is happy to proceed and the lawyer must be satisfied everything has been explained.

4: The lawyer must make sure the wife knows that she has a choice and the decision is hers alone.

75
Q

What is the statutory protection afforded to consumers?

A

Note ss140A–140C Consumer Credit Act 1974 which gives the courts wide powers to amend credit agreements with consumers where there is an unfair relationship between the creditor and debtor.

There is also protection against aggressive selling under the Unfair Trading Regulations (CPUTR) 2008.

76
Q

Are illegal and unenforceable contracts grounds for a void or voidable contract?

A

Void - the contract will be treated as though it has never existed.

77
Q

What two areas can you you break illegal contracts into?

A
  1. contracts illegal by statute
  2. contracts illegal at common law
78
Q

What kind of contracts will be seen as illegal (name 4 scenarios)?

A
  1. Declare the contract illegal.
  2. Statute may prohibit an act, but declare that it won’t affect the validity of contract.
  3. Statute may prohibit an act, but not stipulate its effect on the contract. Then it is due for interpretation by the court.
  4. Courts are reluctant to imply a prohibition when it isn’t clearly indicated in statute.
79
Q

What happens if the innocent party is unaware of the illegality in the contract?

A

The court will usually try to distinguish between innocent and non-innocent. Innocent parties can usually recover damages for breach of contract if a contract is illegal. Archbolds v Spanglett (whiskey van)

However, if they knew about the breach, they are unlikely to be treated as innocent.

80
Q

If an illegal clause is taken out of the contract, will the contract stand?

A

In common law, a court may allow a contract to stand if it is still viable once the illegal clause has been removed. Depends on the parties’ positions and making sure the claimant doesn’t benefit from the wrong.

81
Q

What kinds of contracts are regarded illegal at common law?

A
  1. Agreement to commit a crime.
  2. Agreement to defraud HMRC.
  3. Contracts damaging to public safety or foreign relations.
  4. Contracts against justice, e.g. contracts to give false evidence
  5. Contracts that are sexually immoral.
  6. Contracts leading to corruption in public life.
82
Q

Is a restraint of trade clause illegal?

A

Yes, it is. It is a matter of public interest and prevents livelihood of the individual.

83
Q

What is a restraint of trade clause?

A

An example of a restraint of trade clause is a term within a contract or a separate agreement that prevents a seller or an employee from engaging in a similar business to their employer within a specified geographical area and a specified period. Its purpose is to protect trade secrets or proprietary information but is enforceable only if it is reasonable regarding the party against whom it is made and if it is not contrary to public policy.

84
Q

What is the initial presumption to whether a contract is void or voidable for contracts in restraint of trade?

A

The contract is void. The burden on proof is on the party seeking to enforce the contract and prove the restraint is reasonable.

85
Q

In restraint of trade cases, what is the Nordenfelt criteria?

A

Nordenfelt case: ban on specialist gun maker for 25 years work for rival company, held to be reasonable because fo trade secrets.

  1. Initial statement is that contracts in restraint of trade are void.
  2. Is it reasonable? Any special circumstances?
  3. Does restraint meet test of reasonability?

3A: legitimate interest?

3B: interests of the parties involved?

3C: public interest?

86
Q

What is goodwill?

A

Goodwill is an asset of a business that may be bought and sold in conjunction with the business. Goodwill is a marketplace advantage of customer loyalty developed with a continuous business that has extended over some time. It may be bought and sold in connection with a business, and the valuation is a subjective one.

87
Q

What are the two types of interest that can legitimately be protected by a restraint of trade clause?

A
  1. Restraints on employees (trade secrets, stealing clients)
  2. Restraints on the Vendor of a Business (prevents competition against the one they’ve sold, goodwill)
88
Q

What are the main areas subject to a reasonableness test in relations to restriction of trade clauses?

A
  • Nature of work
  • Geographical span
  • Duration

Fitch v Dewes [1921]. The issue arose regarding a restrictive clause in the contract of a manager at a solicitors’ practice in Tamworth. The clause restricted the defendant from working in a solicitor’s office within seven miles of Tamworth for a period that could be extended to cover the rest of his life. After he left the company, the defendant committed a breach of the covenant and the House of Lords held the clause to be reasonable. The clause was deemed necessary to protect the claimant’s business, because the business was one where clients returned over a long period of time.

89
Q

What is the three step test on whether a restraint of trade clause can be held to be reasonable?

A
  1. There must be valid interest
  2. The restraint must be reasonable
  3. The restraint must be within the public interest
90
Q

What is severence?

A

When a contract has a void clause, so the courts separate it so that the contract can still be enforced (as long as it makes sense).

91
Q

When is severance possible?

A

When the lawful part of the agreement is more important than the unlawful part.

92
Q

What is the Blue Pencil Test?

A

A method used by the courts to figure out whether the whole contract should be invalidated, or if by running a blue pencil through them (as opposed to changing words), the contract still makes sense and works.

93
Q

Will courts redraft contracts?

A

No, they will not get involved in redrafting the contract. E.g. won’t replace ‘In Islington’ with ‘within 25 miles of London’.

They will delete a few words though, but only if it doesn’t affect the nature of the agreement as a whole.

Wrapped: Contract Law (8 decks)

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