Contract Law Flashcards
A Representation that is
untrue
If a representation (of fact or law) is untrue
and the other party relies on it and is
induced into the contract as a result.
Statement must be false
Misleading statement
Statement must be fact
Bisset v Wilkinson [1927] AC 177 Privy Council
The claimant purchased a piece of farm land to use as a sheep farm. He asked the seller
how many sheep the land would hold. The seller had not used it as a sheep farm but
estimated that it would carry 2,000 sheep. In reliance of this statement the claimant
purchased the land. The estimate turned out to be wrong and the claimant brought an
action for misrepresentation.
The Privy Council held that the statement was only a statement of opinion and not a
statement of fact and therefore not an actionable misrepresentation. The claimant’s
action was therefore unsuccessful
A Representation that is
untrue
Breach of Contract (Term) or
Misrepresentation (Representation)
A breach of contract action is different to a
claim for misrepresentation.
Some statements made prior to a contract may
become terms of the contract (often if they are
stronger statements, see last weeks slides)
An actionable misrepresentation is an untrue
statement which induced the other party to make the
contract.
Some statements made prior to a contract are
representations ( often if they are weaker statements)
Breach of Contract (Term) or
Misrepresentation (Representation)
Silence can amount to
Misrepresentation
Normally silence does not amount to misrepresentation
Smith v Hughes (1871) LR 6 QB 597
The claimant had purchased a quantity of what he thought was old oats
having been shown a sample. In fact the oats were new oats. The claimant
wanted the oats for horse feed and new oats were of no use to him. The seller
was aware of the mistake of the claimant but said nothing. The claimant
brought an action against the seller based on mistake and misrepresentation.
Held: both actions failed. The action based on misrepresentation failed as you
cannot have silence as a misrepresentation. The defendant had not mislead
the claimant to believe they were old oats.
Silence can amount to misrepresentation:
- If there is a fiduciary relationship
- In contracts of insurance where all facts must be
disclosed
◦ HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6
Silence can amount to
Misrepresentation
3 types of misrepresentation-
Fraudulent Misrepresentation
where the party who made it knew that it was untrue or
was careless as to whether or not it was true
Derry v Peek (1889) 5 T.L.R. 625
◦ In a company prospectus the defendant stated the company had the
right to use steam powered trams as oppose to horse powered trams.
However, at the time the right to use steam powered trams was subject
of approval of the Board of Trade, which was later refused. The claimant
purchased shares in the company in reliance of the statement made
and brought a claim based on the alleged fraudulent representation of
the defendant.
Lord Herschell defined fraudulent misrepresentation as a
statement which is made either:i) knowing it to be false, ii)
without belief in its truth, or
iii) recklessly, careless as to whether it be true or false.
3 types of misrepresentation-
Fraudulent Misrepresentation
3 types of misrepresentation –
negligent misrepresentation
A Negligent misrepresentation (Under s2(1) of the
Misrepresentation Act 1967
Under s.2(1) Misrepresentation Act 1967, a
negligent misrepresentation is a statement made
without reasonable grounds for belief in its truth.
The burden of proof being on the representor to
demonstrate they had reasonable grounds for
believing the statement to be true.
Howard Marine v Ogden [1978] QB 574
3 types of misrepresentation –
negligent misrepresentation
3 types of misrepresentation –
innocent misrepresentation
Belief or reasonable ground to believe that
the representation is true
Redgrave v Hurd (1881) 20 Ch D
Remedies for misrepresentation
Fraudulent misrepresentation: damages for all losses
suffered and rescission (set the contract aside, and
puts the parties in the position they would have been if
the contract had never been entered into) (alternative:
continue with contract and only claim damages)
◦ Negligent misrepresentation: Section 2(1)
Misrepresentation Act 1967, same as for fraudulent
misrepresentation, section 2(2) rescission (however,
court can award damages rather then rescission)
◦ Innocent misrepresentation: section 2(2) Misrep Act:
rescission, however, court can award damages instead
if that is more equitable)
Remedies for misrepresentation
The Right to be Rescind a
Contract can be lost
The right to rescind a contract can be lost by:
1. If the contract is affirmed.
2. If a third party has acquired rights in the subject matter
of the contract.
3. If it is not possible to restore the parties to their pre-
contract positions.
Car & Universal Credit v Caldwell [1964] 2 WLR 600
Mr Caldwell sold his Jaguar car on 12th Jan to a rogue, Norris, who had paid £10 cash deposit and left
another car as security and gave a cheque for £965. The following day Mr Caldwell went to cash the
cheque and discovered it was fraudulent and the car left as deposit turned out to be stolen. Mr
Caldwell reported the incident to the police and used his best endeavours to co-operate with the
police to find Norris in order to rescind the contract of sale. He also contacted the Automobile
Association to try to locate the car. Norris had acquired a voidable title to the car as the contract was
induced by fraudulent misrepresentation. Norris sold the car on to a third party on 15th Jan. The
question for the court was whether the actions taken by Mr Caldwell were sufficient to avoid the
contract.
Decision: Mr Caldwell had successfully rescinded the contract. He had taken all steps possible to
demonstrate that he no longer wished to be bound by the contract. He should not be prejudiced by
the fact that his endeavours failed to locate Norris.
The Right to be Rescind a
Contract can be lost
Duress
Voidable contract
If a person is placed under duress (threats) or
undue influence eg in a doctor patient
relationship the contract may be void or
voidable.
Barton v Armstrong (1976):
Armstrong was the chairman and held the largest sharing holding in
a public company. Barton was the managing director and also had a
substantial shareholding in. A threatened to have B killed if he did
not buy out A’s interest in the company on favourable terms.
Decision: The contract could be set aside. Where there is duress to
the person there was no obligation to show that he would not have
entered the agreement but for the threat, it simply being sufficient
that the death threats were a cause.
Duress
Economic Duress
Atlas Express v Kafco (1989)
The claimants had a contract with the defendants to
deliver baskets to Woolworth’s which the defendants
manufactured
The claimants underestimated the size of the baskets and
subsequently ordered the defendants to pay more
The defendants would have gone bankrupt if they had not
delivered to Woolworth’s, therefore agreed the higher price
Could Atlas Express enforce the agreement to pay a higher
prize? No: Atlas had provided no consideration for Kafco’s
promise to pay extra
Kafco had agreed under the presence of duress; they had
no time to find another supplier so had no alternative
options and had protested by refusing to pay
Undue Influence
Undue influence covers situations where some form of
improper pressure has been put on a person to enter into the
contract
Victim is often emotionally or physically vulnerable
Actual undue influence: genuine intimidation: dominance
over victim: unable to act independently (subjective test)
Bank of Credit and Commerce International SA v Aboody (1990):
A husband exerted actual undue influence over his wife in order to get her to sign a
charge securing the family home on the debts owed by the company in which the
husband and wife owned shares. The couple were unable to repay the mortgage and
the bank sought to repossess the home. The wife sought to have the mortgage set
aside on the grounds that it was procured by actual undue influence of the husband.
Decision : The husband had exerted actual undue influence on the wife. However, the
transaction was not to the manifest disadvantage of the wife since she owned shares in
the company. In considering whether a transaction was to the manifest disadvantage
the court was to have regard to any benefits received in addition to the risks
undertaken. Therefore the bank were granted possession
Presumed undue influence: relationship of trust
and confidence with the party against whom the UI
is alleged: prove relationship existed, contract
disadvantageous
Dominant party has to proof that he as not exerted
undue influence
Barclays Bank PLC v O’Brian (1994):
Facts: Mr O’Brian persuaded his wife to sign a guarantee for an overdraft for his
company using the jointly owned matrimonial home as security. He told the
overdraft was limited to £60,000 and would only last for three weeks, when in fact
the overdraft was for £120,000. The bank had not ensured that Mrs O’Brian was
fully aware of the nature of the transaction and had received independent advice.
Mr O’Brian’s business collapsed and Mrs O’Brian sought to have the guarantee she
had set aside.
Decision: The defence based on undue influence failed because the wife was held to
exercise independence of thought on financial matters and was used to dealing with
the family finances whilst her husband was working away. The wife was successful
with regards to misrepresentation.
Undue Influence
Discharge of contractual
obligations and remedies
In other words how do contractual
obligations come to an end.
Most contracts come to an end when the
parties have performed their obligations
under the contract
Discharge of contractual
obligations and remedies
Discharge by Agreement
It is possible however that the parties make
another agreement to discharge each other
from the original agreement.
As this would be another contract, both
parties would be required to provide some
consideration.
Discharge by Agreement
