The Impact of Misrepresentation - Lab Report Example

Business Law Report Table of Contents Overview 3 A) The Impact of Misrepresentation, Mistake, Duress and Undue Influence on the Validity of a Contract 4 Misinterpretation or Mistake in Contract 4 Impact of Misrepresentation or Mistake on the Validity of a Contract 5 Duress 6 Impact of Duress on Validity of Contract 7 Undue Influence 7 Impact of Undue Influence on Validity of Contract 8 B) The Circumstances in Which the Protection Afforded To Members by Separate Legal Personality and the ‘Veil of Incorporation’ Will Be Removed By the Courts 8 Separate Legal Entity 8 Corporate Veil 9 Circumstances in Which the Protection Afforded to Members by Separate Legal Personality and Corporate Veil by Courts Will be removed by the Courts 10 10 References 13 Overview A contract is a particular legal concept wherein two parties enter into an agreement on mutual understanding. Each of the parties intends to create certain legal obligations between them. Basically, there are two elements in any particular contract comprising offer and acceptance. However, formation or the validation of any contract gets hindered from the aspect of misrepresentation, duress and undue influence. This will be described in detail in first section of the report. The later section of the report will deal with analysing the aspect of corporate veil and separate legal entity or personality. Observably, the concept of separate legal entity enables a corporate to be seen as a different individual completely detached from an individual or owner of the same. On the other hand, corporate veil, which is developed in accordance with the concept of separate legal entity, enables or protects the shareholders of a business from having direct liability of debts or taxes of the corporate unit, rather the respective organisation will be entirely responsible for the same. The second section of the paper will mainly highlight the circumstances on the basis of which corporate veil and separate legal entity will be removed by the courts. A) The Impact of Misrepresentation, Mistake, Duress and Undue Influence on the Validity of a Contract Misinterpretation or Mistake in Contract Misrepresentation is basically regarded as a false declaration made by one party to the other with regard to enter into a particular contract. It is often considered as the aspect of misunderstanding regarding any particular scenario. However, in legal terms, misrepresentation is quite a different concept and it impose certain considerable impacts altogether. In law, misrepresentation is also regarded as a fraud wherein certain legal punitive measures are applicable. This can be viewed as in the case of [Avon Insurance plc. v. Swire Fraser Ltd. (2000)]. Contextually, the impact of misinterpretation on contract will be vital to consider. Misrepresentation can be of several types comprising unwarranted statements, breach of duty and mistake regarding subject matter among others. In unwarranted statements, one person positively declares another that a particular aspect or information is true in nature in-spite of the presence of any evidence. This type of misrepresentation can be seen in the case of [Sheffied nickel co Vs UNVIN 1867 LR 2 HL 149] (Johnston & Zimmermann, n.d.). A breach of duty can also be considered as misrepresentation in the court of law. A person who is involved in breach of duty by misleading the other person for his own advantage will fall under the regulation of misrepresentation. Additionally, mistake with regard to the subject matter of any particular agreement is also considered as one sort of misrepresentation. It is believed that the subject matter for any particular agreement between two parties is the value or the quality that needs to be maintained (vBulletin Solutions, 2013). However, if one of the parties is involved in a specific agreement, execute any mistake with regard to the quality to be maintained, misrepresentation will be deemed to take place. Impact of Misrepresentation or Mistake on the Validity of a Contract According to English law, misrepresentation is an untrue declaration, which is usually made by one party to the other. As depicted earlier, the aspect of misrepresentation can be duly considered as a fraud owing to the fact that with such approach, one party encourage other to enter into a contract without disclosing true facts associated with their conduct or intention. It will be crucial to note that misrepresentation impose considerable impact especially on the validity of a contract entered between two or more parties. Contracts that involve the aspect of misrepresentation are generally considered to be void as per legal norms. In case of misrepresentation conducted by one of the parties in the contract, the other party can believe that the party is no longer willing to continue with the contract and hence the contract becomes invalid. This sort of scenario can be seen in the case of [Long v Lloyd [1958] 1 WLR 753] (Law Teacher, 2012). Furthermore, when a misrepresentation takes place within a particular contract, the victim party will have the right to declare the contract to be void. It is evident as per the English Law that a misrepresented contract will be a voidable one in most of the scenarios. Observably, when a person is entering into a contract with the other after a misrepresentation, the victim party will be liable to withdraw from the contract and can ignore all the promises that are made in the contract. Furthermore, the victim party can also ask for compensation because of the damages caused from the withdrawal of the contract. This scenario was also visible in the case of [Government of Zanzibar v. British Aerospace (Lancaster House) Ltd. (2000)]. It will be vital to mention that when innocent misrepresentation (misinterpretation unknowingly) is caused in a contract, the victim will not have the liability to declare the contract void, but he/she can claim compensation as per legal norms. This aspect is evident in relation to the case of [Whittington v. Seale-Hayne (1900)] (Weitzenbock, 2012). Duress Duress, in any contractual term occurs when one party in a contract pressurise the other to conduct a particular activity. In most of the cases, the pressure confers by one party to the other remains no alternative to the victim other than following the same voluntarily. This can also be seen in the case of [Seear v Cohen (1881) 45 LT 589]. Duress is mainly of three types comprising duress to person, duress to goods and economic duress. Duress of person in any particular contract is the pressure of one party to another through threatening the same on personal grounds [Barton v Armstrong [1976] AC 104.]. Duress to goods in a particular contract involves damaging or destructing the goods of others to pressurise the victim to move in any sort of contract [Skeate v Beale (1840) 11 Ad&El 983.]. Economic duress is the aspect, which involves pressurising the victim to move into a contract by threatening him or her on financial grounds [The Sibeon and The Sibotre [1976] 1 Lloyd's Rep 293] (LexisNexis, 2013). Impact of Duress on Validity of Contract The most common effect of duress on any contract is the fact that it becomes voidable. The injured party in this case will be liable to claim for voiding the contract on the basis of operative duress against him/her. However, the victim will only be getting a specific time period to make his/her claim to cancel the validity of the contract. This period will start from the time when he/she was being pressurised to enter into a contract or agreeing on any inappropriate aspect included in a contract. Furthermore, the victimised party will not only have the liability to claim for cancellation of the contract but will also be eligible to claim compensation from the other party of the contract as per the tort regulations. This scenario is visible in the case of [Rookes v Barnard [1964] AC 1129] (Law Teacher, 2012). Moreover, as an effect of duress, the victim party will also have the liability in certain cases to simply confer a notice to the other involved in the contract and declare the contract to be void without the consent of the court of law. This is evident in relation to the case of [Universe Tankships Inc of Monrovia v International Transport Workers’ Federation (The Universe Sentinel) [1983] (LexisNexis, 2013). Undue Influence Undue influence is often regarded as an act of persuasion executed by one party towards overcoming the will and the judgement of the other party. These approach include annoy, insinuation, flattery and deception of the other party in order to form an undue influence on the same. It is important to note that the aspect of undue influence is quite different from that of duress, which tends to pressurise any individual intentionally to enter into a particular contract. This can be seen in the case of [Johnson v Buttress (1936) 56 CLR 113 at 134–5; [1936] ALR 390; (1936) 10 ALJR 203] (LexisNexis, 2013). Impact of Undue Influence on Validity of Contract Similar to the case of misrepresentation and duress, the validity of a contract is affected in case of undue influence on one of the parties involved in a particular contract. In this scenario too, contract is deemed to get void. Observably, when a particular party gets unduly influenced from the other party while entering the contract, the victim party has the right to withdraw the contract and eliminate all the promises that were being made owing to undue influence. This can be seen in the case of [TBS Bank v Camfield [1995]. However, this right of the party remains for a particular duration of time after the undue influence is made and get lapsed after the completion of the mentioned time period. It will also be crucial to depict that the cancellation of the contract can only take place when the undue influence is recognised (Tufal, n.d.). B) The Circumstances in Which the Protection Afforded To Members by Separate Legal Personality and the ‘Veil of Incorporation’ Will Be Removed By the Courts Separate Legal Entity Legal entity is a particular business, which is detached or differentiated from other business or individual on the basis of accountability. Contextually, separate legal entity refers to the corporation or any other company wherein their conducts are differentiated from those of other companies or individuals. It has been apparently observed that the companies falling under separate legal entity have specific accountability towards the stakeholders that are not similar to other business units. In simple terms, it can be stated that companies are separated from their owners and remain as an independent unit as per the legal concept of separate legal entity. These companies tend to generate its own revenue, incur its own loss and hire its own employees in a separated manner. This concept is quite beneficial for the business, as it allows business units to enhance its operational longevity. Its management and ownership might undergo change over the period of time but its existence will be assured for a longer time period (Lal, 2005). Corporate Veil Corporate veil is a business concept, which creates a distinction between the accountability of the shareholders and the company itself. In general, the concept of corporate veil protects the shareholders of any business to be liable or accountable for paying any sort of debt relating to business. The notion of corporate veil instructs or makes the corporations directly liable to pay debts without involving their shareholders or the Directors in the same. It is quite beneficial for the members and the shareholders of the businesses, as they will not be personally liable to pay debts or taxes of the corporate units that they are associated with (Law Teacher, 2012). Circumstances in Which the Protection Afforded to Members by Separate Legal Personality and Corporate Veil by Courts Will be removed by the Courts It is quite apparent from the above analysis that the aspects of separate legal entity and corporate veil are quite beneficial for business. However, there are circumstances in which the protection afforded to members by separate legal personality along with the ‘veil of incorporation’ will be removed by the courts. It is worth mentioning in this context that separate legal entity and corporate veil are considered similar up to a certain extent and removal of the one will certainly impose extensive impact on the other. When court lifts the corporate veil, the benefits that are being enjoyed by the shareholders and other members of corporate units will consequently get eliminated. This can be seen in the cases of [Jones v Lipman [1962] 1 WLR 832] and [Creasey v Breachwood Motors Ltd [1993] BCLC 480] (Ohrenstein, 2013). There are certain grounds on the basis of which corporate veil and separate legal entity are removed by the court of law. When a company fails to acquire a trading certificate along with certificate of incorporation prior to the beginning of trading, in such circumstances members of the company are made liable to the creditors or the other parties for the loss or the damage incurred due to the failure of the company. Furthermore, according to the section 349(4) of the Company Act 1985, if any person of the company or acting on behalf of the company signs any instrument like bill of exchange or cheque in which the name of the corporation is not stated or mentioned, then the person is liable to pay any amount to the holder of the instrument (Ohrenstein, & Chambers, n.d.). Apart from this, Section 15 of the Company Directors Act 1986 advocates that if an individual who has been disqualified to act as the Director of a company continues to render the task of a Director in contravention, in such circumstances, the individual will be liable to pay the entire claims or the loss incurred while acting as Director. Specially mentioning, Section 214 of the Company Act 1986 deals with the aspect of wrongful trading. This section allows the court to pass order at the time when a company becomes insolvent due to the conduct of any wrongful trading. Accordingly, the court might make the former Director liable for the loss or the claims owed by the creditors of a company. In such circumstances the former Director is liable to contribute towards the settlement of claims from his/her personal assets. Additionally, section 213 of the Insolvency Act 1986 relates with fraudulent business operations. This section advocates that the court can issue orders against any individual member of a company, if its business performs with the sole intention of deceiving the creditors. Under this section, any individual who is knowingly involved in the activities that ultimately lead towards the generation of claims against a company, in such circumstances, the court can declare orders in favour of the creditors to obtain claims from the defaulting members of the company (Ohrenstein, & Chambers, n.d.). These are certain circumstances on the basis of which the protection afforded to members by separate legal entity and the ‘veil of incorporation’ will be removed by the courts. References Johnston, D. & Zimmermann, R., No Date. The Comparative Law of Unjustified Enrichment. Home. [Online] Available at: http://upecen.edu.pe/ebooks/Derecho/Civil/Unjustified%20Enrichment.%20Key%20Issues%20in%20Comparative%20Perspective.%20David%20Johnston%20and%20Reinhard%20Zimmermann%20(Ed.).pdf [Accessed December 11, 2013]. Law Teacher, 2012. Misrepresentation. Home. [Online] Available at: http://www.lawteacher.net/contract-law/lecture-notes/misrepresentation-lecture.php [Accessed December 11, 2013]. Law Teacher, 2012. Duress Law. Home. [Online] Available at: http://www.lawteacher.net/contract-law/lecture-notes/duress-lecture.php [Accessed December 11, 2013]. Law Teacher, 2012. Lifting the Corporate Veil: An Overview. Home. [Online] Available at: http://www.lawteacher.net/business-law/essays/lifting-the-corporate-veil-section-law-essays.php [Accessed December 11, 2013]. Lal, K., 2005. Separate Legal Entity. Home. [Online] Available at: http://accountant4me.com/sep_entity.htm [Accessed December 11, 2013]. LexisNexis, 2013. Duress, Undue Influence, Breach of Fiduciary Obligation and Unconscionable Conduct. Home. [Online] Available at: http://www.lexisnexis.com.au/pdf/bla-2-8-duress.pdf [Accessed December 11, 2013]. Ohrenstein, D., 2013. Lifting the Corporate Veil. Articles. [Online] Available at: http://www.radcliffechambers.com/media/Misc_Articles/Corporate_Veil_-_2013.pdf [Accessed December 11, 2013]. Ohrenstein, D. & Chambers R., No Date. Lifting the Corporate Veil. Statutory Exceptions. [Online] Available at: http://www.docstoc.com/docs/24538342/LIFTING-THE-CORPORATE-VEIL [Accessed December 11, 2013]. Tufal, A., No Date. Undue Influence in Equity. Law Teacher. [Online] Available at: http://www.lawteacher.net/PDF/Undue%20Influence%20Lecture.pdf [Accessed December 11, 2013]. vBulletin Solutions, 2013. Misrepresentation. Home. [Online] Available at: http://www.vuhelp.net/contract-act-1872/17039-what-misrepresentation-what-its-effect-contract.html [Accessed December 11, 2013]. Weitzenbock, E. M., 2012. English Law OF Contract: Misrepresentation. Home. [Online] Available at: http://www.uio.no/studier/emner/jus/jus/JUS5260/v12/undervisningsmateriale/Misrepresentation.pdf [Accessed December 11, 2013]. Read More