Vitiating Factors of Contract - Assignment Example

Vitiating Factors of Contract Vitiating Factors of Contract Explain the Elements of Misrepresentation In contract law, an assertion that is not in accordance with the truth and induces a party into a contract is refered to as a misrepresentation. Such a contract entered into by relying justifiably on the misrepresentation of vital facts is voidable. The elements of misrepresentation include untrue assertions of facts; fraudulent assertions intentionally made with intent to deceive and knowledge of falsity; innocent misrepresentation; and negligent misrepresentation. One of the contracting parties must make an untrue assertion regarding a fact or engage in equivalent conduct in order to have a misrepresentation. The fact has to be existing or past and distinct from a promise or opinion relating to a future happening. Concealment or nondisclosure of facts is considered equivalent to assertion of fact as seen in Krakowski v Eurolynx Properties (1995) 183 CLR 563 (McKendrick 2005, p. 83). The parties entered a contract in which Krakowski was to buy a business premises from Eurolynx on condition that they (Eurolynx) would also arrange a tenant. However, Eurolynx got into a further contract with the tenant to pay three month’s rent without informing Krakowski, who only knew of the additional contract after the tenant defaulted on rent and moved out. The contract was voided because of lack of disclosure of material facts. Such contracts can also be rescinded on grounds of fraud even if the facts are not material, because one party entered the contract relying on such facts. A misrepresentation suit will be successful if the plaintiff can prove that the defendant falsely represented fact either negligently or intentionally (Barnett 2005, p. 14). The plaintiff will also need to demonstrate that the defendant’s intention was for him to rely on the misrepresented facts. Evaluate Critically the Effect of Misrepresentation on the Validity of a Contract Although a misrepresentation is not a term of a contract, its effect is to make contracts voidable, allowing innocent parties to a contract the right to rescind and claim damages (O’Sullivan & Elliot 2008, p. 21). Actionable misrepresentations, which entail falsely stated facts in pre-contractual negotiations, will render a contract voidable, which means it remains valid until the innocent party rescinds it. In order to be actionable, the false statement must relate to a specific past or existing event that induces a party into a contract. On the other hand, opinion statements, statements of law and future intentions or conduct are generally not actionable but are considered as misrepresentation of facts and will render contracts invalid. For example, in Edgington v Fitzmaurice (1885) 29 Ch D 459, money was raised from the public by claiming that it would be used to expand the business when in fact it was used to pay off debts (Westen & Mangiafco 2005, p. 838). The directors were found to be guilty of fraudulent misrepresentation in their alleged future intentions. Essentially, such a contract becomes void and the party that rescinds it is entitled to a refund of whatever they gave to the other party. When the contract becomes invalid, the rescinding party must also return whatever he had received from the other party. Explain the Different Types of Mistake There are three types of mistake as recognised by English contract law, which are common mistake, mutual mistake and unilateral mistake. For a common mistake to exist, it means both contracting parties will have made the same mistake (Phillips 2014, p. 1). Cause of action for common mistake can arise from various categories. They include res extincta, in which the contract’s subject matter no longer exists; res sua in which a buyer already owns the goods in question; and mistake as to quality, in which a mistake to the existence of certain qualities render the contract’s subject matter different from what is asserted. In the event of a mutual mistake, the parties are usually at cross purposes. As in Raffles v Wichelhaus (1864) 2 H & C906, when a reasonable person examines the correspondence between contracting parties can perceive the contract as having a single meaning, then it is a valid contract. However, if the reasonable person cannot establish the contract’s meaning, then it will be considered as void for mistake. In the third mistake, unilateral mistakes, only one party to the contract is mistaken, either relating to the contract’s terms or mistakes related to identity. Identity mistakes are usually the result of fraud, where one party claims to be someone they are not, and this aspect essentially overlaps with misrepresentation (Koffman & MacDonald, p. 94). One party will get into contract with the second party, whom he wrongly believes to be a third party. Evaluate Critically the Effect of Mistake on a Contract When a court finds any of the mistakes in a contract, it will render it void from the beginning in its entirety (McLauchlan 2008, p. 102). This assumes a manner that implies the contract did not ever exist. For the validity of a contract to be affected by a mistake, the mistake must qualify as an operative mistake. Mistakes distinguish voidable contracts from void contracts. Whereas voidable contracts exist and remain valid as long as the innocent party has not taken action to rescind them, void contracts are considered nonexistent. When a contract is rendered void because of a mistake, the title of any property involved cannot be passed to another party, such as one purchasing the property, and no obligations will arise under it. However, a contract that is considered valid at common law will be voidable in equity contract on the basis of mistake. Under such circumstances, property can still pass and obligations arise if the contract is not avoided, although the right to rescission can be lost. However, as shown by Cooper v Phibbs (1867) LR 2 HL 149, a contract will be made void by a mistake in which a buyer was buying property that already belonged to him. A court can rescind contractual documents between contracting parties in case a contract is voided for identical mistake. Terms can also be imposed on the contracting parties for the purpose of delivering justice, and failure to fulfil the terms will invalidate the contract. Explain the Meaning of Duress Duress can be defined as illegitimate pressure, threatened or actual, directed at a person with the intention of coercing them to perform acts they would not perform under ordinary circumstances (Fruehwald 2009, p. 491). In contract law, it can be categorised into physical and economic duress. Duress negates an individual’s consent to certain acts, such as getting into contract, depriving them of their volition. In this sense, duress is not to be confused with undue influence as applicable in wills, because undue influence entails a fiduciary wrongdoer occupying a position of confidence in relation to the will’s creator. In duress, a victim is coerced by the wrongdoer’s unlawful conduct or threats to be party to a contract characterised by circumstances that do not allow them their free will. In terms of civil action, when duress is used as a defense, civil procedures dictate that it be pleaded with assent (Furmston 2007, p. 19). With the exception of homicide, people forced to commit crime by duress will usually not be considered responsible for the commission of the crimes. Generally, for duress to be used as a defense, the threat has to unpreventable and immediate. It must also be shown to be of death or grave bodily harm. Further, the harm threatened needs to be greater than that which can result from the crime and the defendant must have been involved through faults other than their own. Evaluate the Effect of Duress and Undue Influence on the Validity of a Contract In criminal prosecutions, defendants can raise the defense that duress was used to force them into illegal contracts. If the court finds that duress was indeed used to compel a party to sign a contract, the contract will be declared null and void. If it can be proved by the innocent party that they did not have any other practical alternative, as distinguished from a legal alternative, the contract becomes voidable. As seen in Barton v Armstrong (1976) AC 104, Barton was threatened with death if he failed to sign a contract, prompting the court to set the contract aside as voidable (Gaines & Miller 2006, p. 69). In such a case, which constituted duress to the person under physical duress, the court only needed Barton to prove that a threat had actually been made and was the sole reason for getting into the contract. However, if the threats used are only in the form of, for example, legal constraint or come from a party legally mandated to issue them, the resultant contract will remain valid. On the other hand, if the forms of law are used to camouflage coercive proceedings for unlawful purposes, or if they are used to threaten one party to force them to assent to a contract, it will be invalidated (Martin 2006, p. 41). Some forms of social influence can also constitute duress and courts often invalidate the resultant contracts because there was no mutual meeting of minds between the involved parties. Courts uphold that a contract cannot come into existence when minds do not meet. References Barnett, R 2005, Contracts, Aspen, New York. Gaines, L & Miller, L 2006, Criminal justice in action: the core, New Jersey, Thomson. Fruehwald, S 2009, ‘Reciprocal altruism as the basis for contract’, University of Louisville Law Review, vol. 47, no. 4, pp. 489-492. Furmston, M 2007, Cheshire, Fifoot & Furmstons Law of Contract, Oxford University Press, Oxford. Koffman, L & MacDonald, D 2007, The law of contract, Oxford University Press, London. Martin, E 2006, Oxford dictionary of law, Oxford University Press, London. McKendrick, E 2005, Contract law - text, cases and materials, Oxford University Press, Oxford. McLauchlan, D 2008, The drastic remedy of rectification for unilateral mistake, Oxford University Press, Oxford. O’Sullivan, D & Elliot, S 2008, The law of rescission, Oxford University Press, New York. Phillips, L 2014, Mistake, http://www.insitelawmagazine.com/ch12mistake.htm Westen, P & Mangiafco, J 2005, ‘The criminal defense of duress: a justification, not an excuse’, Buffalo Criminal Law Review vol. 6, no. 2, pp. 833-950. Read More