Vitiating Factors

Question 1

Difference between innocent and negligent misrep? Who bears the burden of proving negligence?

Answer 1

For innocent misrep, the representor must have reasonable grounds for believing that the statement is true.

The representor bears the burden of proving that his representation was NOT negligent, i.e., that he had reasonable grounds for believing his statement was true.

Question 2

When are damages available for (i) negligent misrep and (ii) innocent misrep?

Answer 2

1. As of right (apparently same measure as tort of deceit - Royscot Trust; albeit this is criticised - see Yam Seng)
2. Damages can only be awarded in lieu of rescission, if equitable to do so

Question 3

4 bars to rescission?

Answer 3

1. Affirmation
2. Lapse of time
3. Restitutio in integrum impossible
4. Intervention of 3P rights

Question 4

When is contributory negligence a defence to a misrep claim, and what is its effect where it is available?

Answer 4

Definitely available for innocent misrep and negligent misstatement (not clear if available for negligent misrep), but definitely not available for fraudulent misrep.

Effect is to reduce damaes.

Question 5

Distinguish between common, mutual and unilateral mistake

Answer 5

1. Common mistake - offer and acceptance creating a genuine agreement, vitiated by the parties’ common mistake (e.g. as to whether contract’s subject matter EXISTS; or whether POSSIBLE to perform contract)
2. Mutual mistake - never any genuine agreement as parties were mistaken over what they actually agreed to (e.g. over the IDENTITY of the subject-matter)
3. Unilateral mistake - one party is mistaken and the other party ought reasonably to have realised this

Question 6

When is a contract entered into subject to a mutual mistake void ab initio?

Answer 6

Where (i) the nature of the mistake prevents any recognisable meaning being given to the agreement AND (ii) objectively judged, the reasonable man would not have concluded that one party was contracting on the basis of the other’s mistake

Question 7

When is a contract entered into by unilateral mistake void ab initio?

Answer 7

1. Snapping up - offeror makes a different offer from that intended and offeree realises this
2. Mistake over nature of document - entered into due to fraudulent misrep; or non est factum
3. Mistake as to counterparty’s identity - voids contract if identity was a material factor inducing the mistaken party to enter into the contract

Question 8

3-step analysis for undue influence? Effect of undue influence?

Answer 8

1. Was there a relationship of TRUST and confidence?
2. Was the relationship abused by one party, i.e.
   2a. Is there evidence of ACTUAL undue influence?
   2b. Is there (i) a presumption of INFLUENCE due to the nature of the r/s; and (ii) a presumption that the influence was UNDUE because the transaction was so manifestly disadvantageous it called for an explanation, (iii) neither of which is REBUTTED?
3. (3P contracts only) - 3P was put on NOTICE as to the risk of abuse

Effect is to render contract voidable, but remedy is equitable and so discretionary. Can rescind the contract unless bars to rescission apply.

Question 9

When is a bank on constructive notice? How to avoid liability?

Answer 9

Bank is put on enquiry in all non-commercial relationships where one party undertakes liability for another’s benefit

Bank avoids liability by taking steps to ensure that wife’s consent properly obtained - (i) advising independent advice; (ii) correcting misconceptions if bank is aware or ought reasonable to be aware of them

Question 10

What is the effect if a bank loan is rescinded for UI?

Answer 10

Parties are to be returned to their pre-contract positions - so bank can only claim the loan amount, without interest.

Question 11

3 requirements for an enforceable restraint of trade clause? Who bears the burden of proving enforceability?

Answer 11

Such clauses are prima facie void and unenforceable, unless for

1. Protection of a legitimate business interest (potential to damage trade connections, trade secrets or confidential info)
2. Which goes no further than is reasonably necessary to protect that interest
3. And does not offend public interest (e.g. deprives community of valuable skill or service)

The proferens bears the BOP of proving enforceability.

Question 12

Two kinds of restraint of trade clauses? Main consequence of distinction?

Answer 12

1. Employer-employee
2. B2B

B2B more likely to be enforced due to equality of bargaining positions and legal advice

Question 13

Test of severability of restraint of trade clauses?

Answer 13

Blue pencil test - whether the contract or the particular clause can still work if the offending provisions are struck out

Question 14

Definition of economic duress (4 elements)

Answer 14

1. Pressure
2. Resulting in a lack of practical choice for V (no realistic alternative)
3. Which is illegitimate and
4. Is a significant but-for cause inducing C to enter into the contract

Question 15

3 relevant factors when illegitimacy of pressure is alleged for purposes of economic duress?

Answer 15

1. Threatened breach of contract - likely to be illegitimate
2. Bad faith - whether the promisee believes he is entitled to the variation
3. Protest

Question 16

When is duress no longer available?

Answer 16

If V affirms the contract by failing to take action.

Question 17

Test for duress to person or property (just 2 elements)

Answer 17

1. Illegitimate threat

2. Causation (but-for for property; “a” reason sufficient for persons)

Question 18

Effect of duress as a vitiating factor?

Answer 18

The contract is voidable - valid until set aside.

Question 19

When can a representor exclude liability for his own misrepresentation?

Answer 19

NEVER, if the misrep is fraudulent.

For non-fraudulent misrep, must satisfy the reasonableness test in UCTA - S.3 Misrep Act.

Question 20

When is a common mistake as to quality sufficient to avoid the contract?

Answer 20

Generally insufficient. There has to be a complete and fundamental difference which undermines the contract - see Bell v Lever Bros.

Question 21

3 situations where bank will (i) always; (ii) usually; and (iii) seldom be put on inquiry of possible UI?

Answer 21

1. ALWAYS - Where wife offers to stand surety for husband’s debts
2. USUALLY - Wife offers to stand surety for debts of Coy in which she and her husband both hold shares
3. SELDOM - Where money advanced JOINTLY to husband and wife, UNLESS the bank is aware the loan is for the husband’s purposes as distinct from their joint purposes

Question 22

New test in Patel v Mirza for when ex turpi causa will provide a valid defence to a claim in contract?

Answer 22

1. Whether the underlying purpose of the law broken is enhanced by denying the claim
2. Whether any other public policy is affected by denying the claim
3. Whether denying the claim is a proportionate response to the illegality

Question 23

Test for enforceability of restraint of trade clauses for sales of a business?

Answer 23

Void unless

1. Necessary to protect business sold, taking into account the size and the reach of the business
2. Not for purpose of hindering competition