VITIATING FACTORS Objectives: Misrepresentation Mistake Duress and Undue Influence

1. VITIATING FACTORS Objectives: Misrepresentation Mistake Duress and Undue Influence Illegal and Void Contracts

2. Misrepresentation A term is part of the contract. A representation is not. An untrue representation may amount to an actionable misrepresentation - if so party to whom misrepresentation was made will have legal remedies. An untrue representation which does amount to an actionable misrepresentation will not give rise to any legal remedy.

3. Definition of an actionable misrepresentation An untrue statement of fact made by one party to a contract which induced the other party to enter into the contract. Two requirements: The untrue statement was factual. The statement induced the other party to enter into the contract.

4. When is a statement factual? A statement of mere opinion, given that it is not capable of being objectively proved true or false cannot amount to a misrepresentation. Bisset v Wilkinson [1927] AC 177. NB. What sounds like a mere statement of opinion may impliedly contain a statement of fact which is capable of objectively being proved either true or false. Esso Petroleum v Marden [1976] QB 801

5. Generally a statement of intention cannot amount to a misrepresentation because it cannot amount to a statement of fact. NB. When a person makes a statement of intention knowing that it is false, then the statement may be regarded as one of fact. Edgington v Fitzmaurice [1885] 29 ChD 476. Statements of law cannot be actionable misrepresentations.

6. Generally remaining silent will not amount to a misrepresentation, even when the party who remains silent knows that the other party would not have made the contract if aware of all the facts. Fletcher v Krell [1873] 42 QB 55. Exceptions when silence may constitute a misrepresentation: There was a change of circumstances; or The silence concerned a material fact in a contract of insurance; or A fiduciary relationship existed between the parties; or The silence made statement misleading.

7. The statement induced the other party to enter into the contract. The statement does not need to be the sole reason why the claimant made the contract, but it must at least be one of the reasons. If a person makes a contract without checking the truth of the statement made to him, this suggests that the statement did induce him to make the contract. Redgrave v Hurd [1881] 20 ChD1.

8. If a person does check the truth of a statement made to him he cannot later then say that the statement induced him to make a contract. The fact of his checking the statement will prove that he did not rely on it. Attwood v Small [1838] 6 CI & Fin 232. Different Types of Misrepresentation An actionable misrepresentation can be classified as either: Fraudulent Negligent Innocent

9. Fraudulent Misrepresentation Made either knowing that the statement was false, or without belief in its truth, or being recklessly careless as to whether it was true or false. Derry v Peek [1889] 14 App Cas 337. Must have acted dishonestly, mere carelessness not sufficient.

10. Negligent Misrepresentation Following must be established: Injured party must prove that : He has suffered loss because an actionable misrepresentation was made to him; and that This misrepresentation would have entitled him to damages if it had been made fraudulently. Maker of misrepresentation must prove that statement was not made negligently, i.e. had reasonable grounds to believe statement was true up until time contract was made.

11. Innocent Misrepresentation Misrepresentation will be deemed innocent if person who made statement can prove that he believed the misrepresentation was true (with reasonable grounds for such a belief) up until the time the contract was made. Remedies for Misrepresentation A contract which has been made because of an actionable misrepresentation is deemed voidable.

12. Rescission All three types of misrepresentation allow for rescission of the contract, i.e. the person to whom the misrepresentation was made has the OPTION to avoid the contract (rescind it) within a reasonable time and parties are restored to their pre-contract position. Right to rescind lost if: Person to whom misrepresentation was made has affirmed the contract;or if

13. It has become impossible to restore the parties to their pre-contract position; or if A third party has acquired rights to the subject matter of the contract before rescission. Damages Available for: Fraudulent misrepresentation; and Negligent misrepresentation (S.2(1) Misrepresentation Act 1967); and Innocent Misrepresentation but only if in lieu of rescission (S.2(2) Misrepresentation Act 1967).

14. Mistake Generally, parties to a contract will not be able to set aside their agreement simply because they have made a mistake. But in some instances the law deems a mistake as so serious that it will render the contract VOID. Courts will classify a mistake into one of the following categories: Common Mistake. Mutual Mistake. Unilateral Mistake. Mistake in respect of Documents.

15. Common Mistake All parties to contract share same mistake about for instance: Existence of subject matter. Ownership of subject matter. Quality of subject matter. Mutual Mistake Occurs when all parties to contract are at cross purposes, i.e. offer relates to one thing and it is accepted in the belief that it relates to a quite different thing.

16. Contract will not be void for mutual mistake if reasonable man could infer that the view of either party was what was objectively intended by both parties. Unilateral Mistake Occurs where only one of the parties makes a mistake about for instance: The identity of the other contracting party. The terms of the contract.

17. Mistake in respect of Documents A mistake in a written contract can be dealt with by employing one of the following mechanisms. Rectification – Where the written contract fails to state the actual intention of the parties, it may be altered. Non est factum – Where one of the parties signs a contract whilst under a complete misapprehension as to its effect, the party may claim non est factum, i.e. the contract is not their deed.

18. Duress and Undue Influence The following is an outline only you must refer to your textbook and case law for further detail Duress Some element of force, either physical or economic which is used to override one party’s freedom to choose whether or not to enter into contract in question. In such instances, the contract is VOIDABLE at the instance of the innocent party.

19. Undue Influence Contract may be set aside where it has been entered into as a consequence of the undue influence of the person benefiting from contract. In such instances, the contract is VOIDABLE at the instance of the innocent party. Where there is a special relationship between the parties, the presumption is is that the contract was subject to undue influence. Burden of proof on person who received benefit under contract to rebut presumption.

20. Where there is no special relationship between the parties, burden of proof on party claiming protection of undue influence doctrine, i.e innocent party. Illegal and Void Contracts A contract may be illegal either at common law or because a statute makes it illegal. UNENFORCEABLE. Certain other contracts whilst not illegal are void because they contravene public policy.