Contract: Vitiating Factors

Question 1

What is an ‘operative mistake’ in contract law and its effect?

Answer 1

A mistake recognized by law as preventing a contract from taking effect; the contract is void ab initio (null from the start)

Question 2

What distinguishes a void contract from a voidable contract in the context of mistake?

Answer 2

Void means no legal effect from inception; voidable means the contract remains valid until rescinded by the affected party

Question 3

What are the three categories of mistake in contract law?

Answer 3

Common mistake, mutual mistake, and unilateral mistake

Question 4

When does a common mistake void a contract?

Answer 4

When both parties share the same fundamental misapprehension about a fact or quality essential to the contract (e.g., subject matter destroyed before contract)

Question 5

Why did Bell v Lever Brothers and Leaf v International Galleries reject most common-mistake claims?

Answer 5

Because mistake as to quality or value is not sufficiently fundamental unless the subject matter is essentially different from what was contracted

Question 6

What is a mutual mistake and why does it void a contract?

Answer 6

Occurs when each party is mistaken about different aspects and no true consensus exists—no meeting of minds, so the contract is void

Question 7

How does the court decide in mutual-mistake cases?

Answer 7

By applying an objective test: If a reasonable person finds no common agreement based on parties’ words and conduct, no binding contract

Question 8

What is a unilateral mistake?

Answer 8

When only one party is mistaken and the other knows or should know of the mistake; if the non-mistaken party exploits it, the contract is void

Question 9

In Hartog v Colin & Shields, why was the contract void for unilateral mistake?

Answer 9

Seller’s price-quoted per pound was a clear error (should have been per piece); buyer knew the true intention, so no true agreement

Question 10

What is the defence of non est factum and when does it apply?

Answer 10

“Not my deed”: available when a party signs under a fundamental mistaken belief about the document’s nature due to illiteracy, blindness, or fraudulent misrepresentation

Question 11

What must a claimant prove to succeed with non est factum?

Answer 11

That they signed under a mistaken belief about the document’s nature, lacking reasonable opportunity to understand it, and that the mistake was not their fault

Question 12

In Lewis v Averay, why was the contract voidable for misrepresentation but not void for mistake?

Answer 12

Seller intended to deal with the person physically present (identity assumed correct); the buyer lied about attributes, so it was voidable rather than void

Question 13

How does a face-to-face contract affect unilateral-mistake claims about identity?

Answer 13

Presumption that seller intended to contract with the person present makes it very difficult to show a void mistake of identity in face-to-face transactions

Question 14

In Cundy v Lindsay, why was the contract void for mistake of identity?

Answer 14

The seller intended to deal with the specific firm (Blenkiron & Co.); the fraudster impersonated them in writing, so identity was vital and the contract was void

Question 15

What principle emerges from Shogun Finance v Hudson regarding written versus face-to-face contracts?

Answer 15

Written (distance) contracts more readily allow voiding for mistaken identity since parties rely on documents, while face-to-face contracts presume intent to deal with the person present

Question 16

When does mistake of identity lead to void title under sale of goods?

Answer 16

If void for mistake, the fraudulent buyer never acquires title and cannot pass good title to a third party, so original owner can recover the goods

Question 17

What is the modern test for illegality after Patel v Mirza?

Answer 17

Discretionary approach: court asks if allowing recovery would harm legal integrity by inconsistency with the underlying prohibition, considering purpose of prohibition, other public policies, and proportionality

Question 18

What trio of considerations did Patel v Mirza establish for illegality?

Answer 18

(1) Purpose of the transgressed prohibition and whether denying recovery serves that purpose; (2) Any other public policy impacted by denial; (3) Whether denial is a proportionate response given that punishment should lie with criminal law

Question 19

When is a contract deemed illegal under the traditional rule before Patel?

Answer 19

If its subject matter or performance involves committing a crime, tort, or act against public policy, making it automatically void and unenforceable

Question 20

How does economic duress differ from duress to the person or property?

Answer 20

Economic duress involves illegitimate pressure on business interests causing a party to contract without practical choice, whereas duress to the person involves violence/threats to life and duress to goods involves threats of seizure/damage

Question 21

What are the three elements of actionable economic duress?

Answer 21

(a) Pressure creating lack of practical choice; (b) Illegitimate pressure (e.g., threatened breach in bad faith); (c) Pressure was a significant cause of entering the contract

Question 22

How does DSND Subsea v PGS define economic duress?

Answer 22

“Pressure whose practical effect is compulsion or lack of practical choice, which is illegitimate, and is a significant cause inducing the claimant to contract”

Question 23

What constitutes a lack of practical choice in economic duress?

Answer 23

No viable alternative but to agree to the demand (e.g., impossible to find a substitute supplier in time to meet critical deadlines)

Question 24

Why is a threat to breach a contract usually illegitimate pressure?

Answer 24

Because it is an unlawful threat to withhold contracted performance in order to extort additional benefits that were not originally due

Question 25

How did Carillion Construction v Felix exemplify economic duress?

Answer 25

Felix refused to complete cladding on time unless paid extra; Carillion had no practical choice if it wanted to avoid heavy delay penalties, so payments extracted under illegitimate pressure

Question 26

What distinguishes illegitimate pressure from good-faith renegotiation under economic duress?

Answer 26

Pressure is illegitimate if the threat lacks genuine justification and is used to extort advantages; if parties renegotiate fairly to address changed circumstances, it is permissible

Question 27

How does CTN Cash & Carry v Gallaher illustrate lawful act duress?

Answer 27

Gallaher threatened to withdraw credit facilities (a lawful act) to secure payment for stolen goods; because they genuinely believed the debt due, pressure was lawful and not duress

Question 28

What factors suggest illegitimacy of pressure in economic duress?

Answer 28

Threatened breach of contract, bad faith motivation, lack of legitimate commercial reason, victim’s protest, and absence of reasonable alternatives

Question 29

Why is victim protest important in economic duress claims?

Answer 29

It demonstrates objection to the pressure; failure to protest may suggest acquiescence and weaken the duress claim

Question 30

How does affirmation defeat a claim of economic duress?

Answer 30

If the victim waits too long after duress has ceased or acts on the new contract terms, they affirm the contract and lose the right to rescind

Question 31

What is the relationship between economic duress and consideration in contract variations?

Answer 31

A variation extracted under duress, even if supported by practical benefit, is not enforceable because consent was not free; duress vitiates the contract variation

Question 32

What is duress to the person and how is it proved?

Answer 32

Use of actual or threatened violence to coerce agreement; once it is shown such threats were a factor in inducing the contract, the contract is voidable

Question 33

In Barton v Armstrong, why was threatened violence sufficient to establish duress?

Answer 33

The threat of violence was one factor inducing a director to sell shares; burden shifted to show threat contributed nothing, which was not met

Question 34

What is duress to goods and when does it arise?

Answer 34

Threat to seize or damage the other party’s property to coerce them; if the contract would not have been made but for that threat, it is voidable

Question 35

How does economic duress overlap with duress to goods?

Answer 35

Both involve threats to withhold or damage resources critical to the victim’s business, but economic duress focuses on broader business pressure beyond property threats

Question 36

What is the remedy for duress?

Answer 36

Rescission of the contract (voidable), returning parties to pre-contract position if rescission is sought promptly before affirmation or laches

Question 37

When does a claim for duress become barred?

Answer 37

If the victim affirms the contract by delay or conduct after duress ceases, they lose the right to rescind

Question 38

What is undue influence and its equitable basis?

Answer 38

When one party’s free will is overborne by another’s improper influence or pressure, often due to a relationship of trust or position of dominance; contract is voidable in equity

Question 39

What are the two types of undue influence recognized in RBS v Etridge?

Answer 39

(1) Actual undue influence (overt improper pressure or coercion); (2) Presumed undue influence (relationship of trust and confidence or special relationship where one party took unfair advantage)

Question 40

In RBS v Etridge, when will a third party (e.g., bank) be fixed with constructive notice of undue influence?

Answer 40

When the transaction is not to the surety’s financial advantage and there is a substantial risk the principal applied undue influence; the creditor must then take reasonable steps to ensure the surety has independent advice

Question 41

What reasonable steps must a bank take under Etridge to avoid constructive notice of undue influence?

Answer 41

(a) Require the surety’s solicitor to confirm independent advice was given; (b) Provide the solicitor with sufficient transaction details to explain risks; (c) Alert solicitor to any known suspicious circumstances

Question 42

When does a relationship give rise to an irrebuttable presumption of undue influence?

Answer 42

Parent-child, guardian-ward, trustee-beneficiary, solicitor-client, and doctor-patient; influence is presumed without further proof that the stronger party took unfair advantage

Question 43

How is presumed undue influence proved when no irrebuttable relationship exists (e.g., spouses)?

Answer 43

Claimant must show (a) relationship of trust and confidence; (b) a transaction requiring explanation; then the burden shifts to the weaker party to prove free consent

Question 44

What does ‘transaction requiring explanation’ mean in undue influence cases?

Answer 44

A transaction so disadvantageous or unusual that it cannot be reasonably accounted for by ordinary motives, suggesting the stronger party may have exercised undue influence

Question 45

In O’Brien, why was the bank’s security charge set aside?

Answer 45

Bank failed to ensure Mrs. O’Brien received independent advice and was put on inquiry because the transaction (secondary charge for husband’s debt) was not to her advantage and posed a risk of undue influence

Question 46

How did Etridge expand the O’Brien rule beyond spouses?

Answer 46

Any non-commercial surety relationship puts a bank on inquiry; if put on inquiry, bank must take reasonable steps (independent advice) or be fixed with constructive notice of undue influence

Question 47

When can a third party’s contract be voidable for undue influence exercised by a non-contracting party?

Answer 47

If the innocent party proves undue influence by the non-contracting party and the contracting party had actual or constructive notice, the contract is voidable

Question 48

What equitable defences might bar rescission for undue influence?

Answer 48

Delay (laches), affirmation of the contract, or unclean hands by the claimant

Question 49

What is an actionable misrepresentation?

Answer 49

An unambiguous false statement of fact made to the claimant that induces them to enter the contract with the statement maker

Question 50

What four elements must be present for a claim in misrepresentation?

Answer 50

An unambiguous statement, falsity, a statement of fact (not opinion/intention/silence), addressed to the claimant, and inducement to contract

Question 51

Why must a representation be unambiguous?

Answer 51

To ensure the claimant’s understanding aligns with the representor’s intent; ambiguous statements interpreted against the representor

Question 52

When is a statement considered false in misrepresentation?

Answer 52

When it is not substantially correct; minor inaccuracies that would not influence a reasonable person do not qualify as false

Question 53

How is a statement of fact distinguished from other statements?

Answer 53

It asserts a state of affairs; unlike opinions, future intentions, or silence, it can be objectively true or false

Question 54

Can conduct amount to a statement of fact?

Answer 54

Yes; deliberate concealment of a defect (e.g., hiding dry rot) can constitute a misrepresentation by conduct

Question 55

Can a statement of law give rise to misrepresentation?

Answer 55

Yes; the traditional distinction has been abolished, so a false statement of law can be actionable

Question 56

When does a statement of opinion become a misrepresentation of fact?

Answer 56

If the representor has superior knowledge or expertise and implies that they have reasonable grounds for their opinion, and those grounds do not exist

Question 57

What was the significance of Bisset v Wilkinson regarding opinion?

Answer 57

Held that an honest statement of opinion without special knowledge is not a misrepresentation, as both parties were equally able to judge

Question 58

How did Smith v Land and House Property Corporation refine the opinion exception?

Answer 58

A vendor’s statement about a tenant’s desirability was actionable because the vendor had superior knowledge and implied factual grounds for the opinion

Question 59

When does a statement of future intention become an actionable misrepresentation?

Answer 59

If, at the time it is made, the representor has no intention of carrying out the promised action, it misrepresents their existing intention

Question 60

What case illustrated misrepresentation of intention?

Answer 60

Edgington v Fitzmaurice, where directors falsely stated how loan funds would be used, showing no real intention to follow through

Question 61

Why does silence ordinarily not amount to misrepresentation?

Answer 61

There is no general duty to disclose all facts; a party’s silence does not imply a false statement unless an exception applies

Question 62

What is a 'half-truth' in misrepresentation law?

Answer 62

A technically true statement that is misleading because it omits material facts, inducing a false belief

Question 63

Which case demonstrates the half-truth exception?

Answer 63

Dimmock v Hallett: describing land as 'fully let' without disclosing tenants had given notice to quit was a misleading half-truth

Question 64

What is a 'continuing representation' and when is it actionable?

Answer 64

A statement true when made but rendered false by changed circumstances; failure to update the claimant before contract leads to misrepresentation

Question 65

What case established the duty to correct continuing representations?

Answer 65

With v O’Flanagan: failure to disclose a fall in medical practice income during negotiations was actionable

Question 66

What are contracts uberrimae fidei and why are they an exception to silence?

Answer 66

Contracts of utmost good faith (e.g., insurance) impose a duty to disclose all material facts, so silence can be misrepresentation

Question 67

What are the three categories of misrepresentation?

Answer 67

Fraudulent, negligent (statutory under the Misrepresentation Act 1967), and innocent

Question 68

How is fraudulent misrepresentation defined?

Answer 68

A false statement made knowingly, without belief in its truth, or recklessly as to its truth, intending to induce the claimant to contract

Question 69

Which case established the test for fraudulent misrepresentation?

Answer 69

Derry v Peek: defined liability where a false statement is made knowingly, without belief, or recklessly

Question 70

What must a claimant prove for fraudulent misrepresentation?

Answer 70

That the representor knew the statement was false, lacked belief in its truth, or was reckless as to its truth, and that the claimant was induced to contract

Question 71

How does the court view failure to disclose changed circumstances in fraud?

Answer 71

Generally reluctant to label it fraud absent deliberate or dishonest concealment, acknowledging some silence may be inadvertent

Question 72

What is negligent misrepresentation under the Misrepresentation Act 1967?

Answer 72

A false statement that would give rise to liability as fraudulent had it been made fraudulently, unless the representor proves they had reasonable grounds to believe and did believe the statement true

Question 73

How does Royscot Trust v Rogerson affect negligence claims?

Answer 73

It treats damages for negligent misrepresentation as if the misrepresentation were fraudulent, potentially allowing full tortious damages

Question 74

What burden does s 2(1) MA 1967 place on the representor?

Answer 74

To prove reasonable grounds for believing their statement was true and that they did believe it up to contract formation

Question 75

What is an innocent misrepresentation?

Answer 75

A false statement made where the representor proves they had reasonable grounds to believe and did believe the truth of the statement when contracting

Question 76

What remedies are available for each category of misrepresentation?

Answer 76

Fraudulent: rescission and tortious damages; Negligent: rescission and damages (in lieu of rescission or tortious); Innocent: rescission and possibly indemnity or damages in lieu of rescission

Question 77

When is rescission unavailable even if misrepresentation is established?

Answer 77

If the contract has been affirmed, there has been undue delay, restitution is impossible, or third-party rights have intervened

Question 78

What is an indemnity in misrepresentation cases?

Answer 78

An equitable payment to cover expenses or obligations incurred under contract (e.g., council tax on a purchased lease) when rescission is granted

Question 79

What measure of damages applies to fraudulent misrepresentation?

Answer 79

Tort of deceit damages to restore the claimant to the position they would have been in absent the misrepresentation, without reduction for contributory negligence

Question 80

How are damages for negligent misrepresentation calculated?

Answer 80

As for fraud, subject to possible reduction for contributory negligence, reversing normal burden so representor must prove reasonable belief

Question 81

Can a claimant receive damages for innocent misrepresentation?

Answer 81

Not automatically; damages in lieu of rescission may be awarded at court’s discretion under s 2(2) MA 1967

Question 82

What factors does the court consider when awarding damages in lieu of rescission?

Answer 82

Nature and seriousness of the misrepresentation, loss if contract is upheld, and loss to the other party if rescission is granted

Question 83

What limitation does s 3 MA 1967 impose on exemption clauses?

Answer 83

Any clause excluding or restricting liability for misrepresentation (or remedies) is void unless it satisfies the reasonableness test under UCTA 1977

Question 84

What is a non-reliance clause, and is it effective to exclude misrepresentation?

Answer 84

A clause stating no party has relied on representations; it may be subject to UCTA’s reasonableness test and cannot exclude fraudulent misrepresentation

Question 85

If a representation is incorporated into the contract as a term, what claim options exist?

Answer 85

The claimant may pursue breach of contract and, if actionable, also pursue misrepresentation for false statements

Question 86

What alternative tort claim may arise from false statements?

Answer 86

Negligent misstatement: where a duty of care exists outside contract negotiations, requiring proof of proximity, breach, causation, and loss