CONTRACT LAW II

Vitiating Factors
By
Abraham MITI
LLM (International Business Law – Leeds, UK), MA (Politics and International Relations – Queen Mary London, UK), BA (Business Law – Brighton UK), Dip. (Nuclear Law, Montepelier, France)
Introduction….
RECAP….

▀ A contract is an agreement between two or more parties which is

binding and enforceable in the courts of law.
▀ For a contract to be binding and enforceable in the courts of law it
requires certain essential elements which are:
▀ Offer,
▀ Acceptance,
▀ Consideration,
▀ Intention to Create Legal Relations,
▀ Capacity and
▀ Legality.
Vitiating Factors….
What will this course cover….
▀ Vitiating factors are circumstances which have the potential to invalidate or make a
contract (unstable) voidable.
▀ Vitiating factors can affect the validity and enforceability of a contract, and may provide
an innocent party with grounds for rescission. This Course will focus on the following Five
(5) Vitiating Factors:
1. Misrepresentation
2. Duress
3. Undue Influence
4. Mistake and
5. Illegality
▀ The Doctrine of Privity of Contract will also be discussed. Finally, Course will explore how a
contract comes to an end by way of Discharge and the Remedies available in the event
of breach.
1. Misrepresentation….
“Misrepresentation is a FALSE STATEMENT
of fact made by one party to another,
which induces the other party to enter
into a contract”.
Please NOTE:
▀ A term is a provision or clause within a contract which
forms part of the agreement. It is a promise or undertaking
that is enforceable by law. The cause of action for breach
of a Term is in BREACH OF CONTRACT.
▀ A representation, on the other hand, is a statement made
by one party to the other before or at the time of
contracting. It is a statement of fact or opinion that
induces the other party to enter into the contract. The
cause of action in the case of a false representation is in
MISREPRESENTATION.
Key Elements of
Misrepresentation…
▀ False statement of fact: The statement must be false
asserted as a past or present FACT.
▀ Made before or at the time of contracting: The
misrepresentation must occur before or at the time the
contract is made.
▀ Intended to induce the other party: The party making the
statement must intend for it to influence the other party's
decision to enter into the contract.
▀ Induces the other party to enter into the contract: The
misrepresentation must ACTUALLY influence the other
party's decision to enter into the contract.
What is a Statement…
▀ The word ‘statement’ has been broadly interpreted.
‘Statement’ does not just refer to a verbal statement; it has
been held that CONDUCT can amount to a statement for
the purpose of misrepresentation.
▀ The case of Curtis v Chemical Cleaning & Dyeing co Ltd
[1951] 1 KB 805 outlined this fact. An example of this can
be found in Gordon v Selico (1986) 278 EG 53, where the
concealment of some defects during an inspection of a
property was held to be a statement which misrepresented
the fact that the property in good condition.
What is a Statement???…
▀ Silence and Half-truths
▀ Silence or non-disclosure will not amount to a statement. There must
be some kind of positive conduct to constitute a statement.
Therefore, although in Gordon v Selico the party was silent as to the
existence of dry rot, the conduct went beyond merely remaining
silent; there were active steps to conceal this fact.
▀ A misleading half-truth will amount to a misrepresentation. In
Nottingham Patent Brick & Tile Co v Butler(1885) LR 16 QBD, a solicitor
was asked whether any restrictive covenants burdened some land.
The solicitor answered that he was not aware of any, which was
technically true, as he had not yet checked. Of course, when he
checked, there was some restrictive covenants. Therefore, the
statement was technically true, but only half-true and misleading,
meaning it would be construed as a misrepresentation.
What is a Statement???…
▀ Change of circumstances
▀ If a statement made is true at the time of making it, but
subsequently becomes untrue, there is a positive duty on the
statement maker to ensure to inform the relevant party of this.
▀ In With v O’Flanagan [1936] Ch 575, the defendant was
contracting for the sale of his medical practice. A question was
asked of the income of the practice. At the time, business was
excellent, so he truthfully disclosed this. The sale was made a
few months later, in which time the business’ income had
dropped drastically. Therefore, due to the change of
circumstances, the defendant had a positive duty to notify the
plaintiff of this. The fact he didn’t was held to be a false
statement of fact and therefore a misrepresentation.
What are the Considerations?
▀ Is the statement of fact regarded a Term or a mere
Representation?
▀ The courts will attempt to give effect to the parties’
intention insofar as this is possible. This will be an objectively
applied standard.
▀ There are a number of presumptions related to when or
how a statement is made to help the courts ascertain
whether a statement is a term or a representation (Heilbut,
Symons & Co v Buckleton [1913] AC 30).
What are the Considerations?
▀Is the Statement is reduced to writing?
▀If a statement has been reduced to writing, there
will be a strong presumption that this will form a
term of the contract, as opposed to a
representation.
▀The presumption is stronger if the document in
which the statement is included has been signed
(L’Estrange v F Graucob Ltd [1934] 2 KB 394.
What are the Considerations? Contd
▀ Is one of the parties with Specialist skill or knowledge?
▀ If the statement is made by a party who has, or claims to
have, specialist skill or knowledge, there will be a
presumption that this statement is a term. The cases of Dick
Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1
WLR 623 and Oscar Chess v Williams [1957] 1 WLR 370 are
good authorities for this. In Dick Bentley, the statement was
held to be a term because it was made by a car dealer
who would claim to have specialist skill or knowledge.
However, in Oscar Chess, the statement was made by a
private seller who had no real specialist skill or knowledge.
What are the Considerations? Contd
▀How much time has Lapsed?
▀As a general rule, if there is a longer lapse
of time between the statement and the
formation of the contract, the greater the
presumption will be that the statement is a
representation.
What are the Considerations? Contd
▀ Contracts of utmost good faith
▀ Certain types of contracts will impose a higher duty of
disclosure than under normal circumstances. This is due to
the nature of the relationships between the parties. The most
common example of such a relationship is that between an
insurer and the insured. It is the insured’s duty to disclose all
material facts at the time of the formation of the contract for
insurance and failure to do so will result in any form of claim
under that insurance contract failing.
▀ This differs from the usual duties of contracting parties,
whereby there is no positive duty to disclose any facts
(Keates v The Earl of Cadogan (1851) 10 CB 591).
What Misrepresentation
Actionable?
▀In order for a representation to become a
misrepresentation, it must be first proven
that it was an unambiguous, false
statement of fact.
▀In order to prove misrepresentation as
actionable, it must be shown that this
representation induced the claimant to
enter the contract.
What Misrepresentation is
Actionable?
▀Is it a False statement of fact?
▀Ascertaining whether a statement is false in the
context of misrepresentation is not as
straightforward. The degree of falsity is a relevant
consideration. The case of Avon Insurance plc v
Swire Fraser Ltd [2000] 1 All ER (Comm) 573 ruled
that the test to apply is whether or not the
statement is “substantially correct”. This involves a
consideration of the inducement of the individual
to the contract.
What Misrepresentation is
Actionable?
▀ Is it unambigious?
▀ Whether or not the false statement is unambiguous (clear)
refers to how the claimant interpreted the statement. If, on a
reasonable construction, the statement was clear, however,
the claimant interpreted the statement in a different way
which rendered the statement false, the statement would
not be a misrepresentation, and the claim would fail.
▀ The case of McInerny v Lloyds Bank Ltd [1974] 1 Lloyd’s Rep
246 is an example of this, where the unreasonable
interpretation of the statement by the claimant meant the
claim failed.
What Misrepresentation is
Actionable?
▀ Is it a False statement of fact?
▀ This is a key component of misrepresentation, as a claim for misrepresentation will not be
actionable if the statement made was merely an opinion or a suggestion. This is
exemplified in the case of Bisset v Wilkinson [1927] AC 177. In this case, a farmer stated
that “it was his opinion” that the land could hold 2,000 sheep. The plaintiff claimed for
misrepresentation, but it was held not to be a statement of fact. This was due to two
factors
▀ 1. He expressly stated it was only his opinion
▀ 2. He never held himself out to have expertise. The plaintiff was also aware of this fact.
▀ It is irrelevant whether the statement of opinion made is unreasonable, or whether the
statement maker could subsequently check the validity of the opinion and update the
other party as to whether the statement was true or not (Hummingbird Motors Ltd v Hobbs
[1986] RTR 276).
▀ In Hummingbird, an insurance company contracted the insured’s son to enquire about
the value of their contents. He incorrectly stated the value of the contents. This was held
to not be a representation, as he was in no better position than the insurance company to
know the value of his parent’s contents.
What Misrepresentation is
Actionable?
▀Is it a False statement of fact or an opinion?
▀The case of Smith v Land & House Property
Corporation (1884) 28 Ch D 7 is an example of an
opinion amounting to a fact. The landlord sold a
property and described the tenant as ‘a most
desirable tenant’, and this was not true. Although
this may have been expressed as an opinion, the
fact the defendant was in the best position to
know the true facts means this statement was held
to be a statement of fact.
What Misrepresentation is
Actionable?
▀ Statements of intention
▀ A misrepresentation as to future intention is usually not actionable
for misrepresentation, as it will not amount to a statement of fact.
The statement of future intent will not be held to be a fact even if
the defendant intentionally changes their mind as to their intentions
(Inntrepreneur Pub Co v Sweeney [2002] EWHC 1060 (Ch)).
▀ Statements of law
▀ A statement of law which is incorrect will amount to a false
statement of fact for the purpose of misrepresentation. Pankhania
v Hackney London Borough [2002] NPC 123 concerned the
purchase of a property to be used as a car park. There was a
statement that the occupier of the car park could be evicted
within three months under law. This was incorrect, and therefore
classified as a false statement of fact.
What Misrepresentation is
Actionable?
▀ Statements of intention
▀ A misrepresentation as to future intention is usually not actionable
for misrepresentation, as it will not amount to a statement of fact.
The statement of future intent will not be held to be a fact even if
the defendant intentionally changes their mind as to their intentions
(Inntrepreneur Pub Co v Sweeney [2002] EWHC 1060 (Ch)).
▀ Statements of law
▀ A statement of law which is incorrect will amount to a false
statement of fact for the purpose of misrepresentation. Pankhania
v Hackney London Borough [2002] NPC 123 concerned the
purchase of a property to be used as a car park. There was a
statement that the occupier of the car park could be evicted
within three months under law. This was incorrect, and therefore
classified as a false statement of fact.
What Misrepresentation is
Actionable?
▀The Claimant must be Induced to Contract
▀Once it has been proven that a false statement is
of fact and NOT an opinion, the next step is to
prove that this statement of fact induced the
claimant to enter the contract. There are three
requirements of inducement:
I. The representation made must be material,
II. The representation must be known to the representee,
and
III. The representation must be acted upon.
What Misrepresentation is
Actionable?
▀ The representation must be material
▀ The representation must be a consequential statement which is of
relevance to the plaintiff. (Smith v Chadwick (1884) 9 App Cas 187 and
JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 583)
▀ The representation must be known to the representee
▀ A representation will not be actionable and will not have induced the
representee unless the representee was aware of the representation.
(Horsfall v Thomas (1862) 1 H & C 90).
▀ The representation must be acted upon
▀ The final requirement of proving inducement is that the representation
was actually acted upon. (Peekay Intermark Ltd v Australia and New
Zealand Banking Group Ltd [2006] EWCA Civ 386 and Edgington v
Fitzmaurice(1885) 24 Ch D 459)
END….
▀Next Lecture
▀Types of misrepresentation…
▀Fraudulent Misrepresentation
▀Negligent Misstatement
▀Negligent Misrepresentation
▀Innocent Misrepresentation