In the coming months we will be publishing a series of 'module reviews', providing a brief outline of our first-year modules at Newcastle University to help students get a basic understanding of each topic. In the month of October, we will be looking at contract law, which is one of the seven required modules to obtain a qualifying law degree.
In this penultimate module review for contract law, we will be looking at vitiating factors; specifically misrepresentation, mistake, duress, undue influence and illegality. Within this there is a strong focus on case law so some cases will also be explained to help describe some more complicated principles, if not explained there will be links to an explanation from another source.
DISCLAIMER: all information in these module reviews are taken from our own notes and research so please do not cite this in your work.
Specifically, vitiating factors are factors that impair the quality of a contract, therefore making it void, voidable or discharged, depending on the issue within. If a contract is made void, it is treated as if it never existed in the first place, whereas if a contract is discharged, the contract merely comes to an end. Voidable contracts are a halfway house between this as the contract will exist, however it is up to the innocent party whether they continue or end the contract. These are generally dependent on the fault in the contract, which is what we will explore below.
Misrepresentation
A misrepresentation may be defined as an untrue statement of fact by one party which has led to the other party to enter the contract. This definition may be split up into three requirements for a misrepresentation to be actionable: an untrue statement, a statement of fact, induced the party into the contract.
Firstly, the statement may be made in any form however it must have been made by other contracting party or with their knowledge. A key case for this is Spice Girls v Aprilia (2002), in which the Spice Girls agreed to promote Aprilia but failed to informed them one of the group was leaving so when she left this amounted to misrepresentation. Silence generally will not amount to misrepresentation other than in contracts requiring good faith, where the law imposes a duty to disclose information, for example in International Management Group UK v Simmonds (2003). Silence may also amount to misrepresentation if there is a change in something related to the contract that is not communicated or if something is only partially revealed so the situation is distorted as a result of silence.
Secondly, the statement made must be factual which can be difficult to differentiate from an opinion but there is significant case law to help guide this. For instance, in Bisset v Wilkinson (1927), B was selling land to W to use for sheep farming and stated the land could support 2000 sheep. This was ruled a statement of opinion as the land had never been used for sheep farming so there was no factual evidence to support the claim.
Finally, the misrepresentation must have been one of the reasons that the claimant entered the contract. For instance in Redgrave v Hurd (1881), a solicitor told a prospective buyer the income figures of the practice which the buyer relied upon. These were later found to be incorrect so the buyer successfully claimed misrepresentation.
There are four different types of misrepresentation:
Fraudulent - a false statement is made knowingly, recklessly or without belief in its truth
Negligent at common law - on the normal principles of tort, where there is a special relationship between parties
Negligent under statute - statement made honestly believing it to be true but with no grounds for the belief (s2(1) Misrepresentation Act 1967)
Wholly innocent - statement made honestly believing it to be true, with reasonable grounds for belief
Generally, misrepresentation renders a contract voidable, through the means of rescission, and may give rise to damages, dependent on the type of misrepresentation (they are available to all types but innocent under the Misrepresentation Act 1967). Rescission places parties back into the position they were in before the contract was made and is available for all types of misrepresentation provided there are no bars. Potential bars to this include: affirmation of the innocent party, an unreasonable amount of time passing, impossibility of returning to pre-contractual position and the acquisition of third party rights. Damages, if relevant, will put the claimant back in the position they held before the wrong was committed by matching any losses caused.
Mistake
There are three types of mistake: common, mutual and unilateral, all of which must precede the contract and induce the contract, and will render a contract void when found. Overall, mistake is based on the objective principle, meaning the facts are looked at objectively and consideration is given to what a reasonable onlooker would think.
Common mistakes occur when both parties make the same mistake, however this will only render a contract void if this is a fundamental mistake (i.e. it makes the performance of the contract very different from what was intended). This could include: mistaking the existence of the subject matter, as noted in the Sale of Goods Act 1979 (s6) or mistaking the possibility of performance, such as in Sheikh Brothers v Ochsner (1957), in which land was contracted to be farmed for a certain amount of crops that weren't able to grow. Generally, mistake as to the quality of subject matter won't affect the contract unless, as stated by Lord Atkins in Bell v Lever Brothers (1932), "the new facts destroy the identity of the subject matter as it was originally" or "the existence of a certain quality makes the thing essentially different from what it was believed to be"; effectively unless it is a fundamental mistake.
Mutual mistakes occur when each party to the contract are at cross-purposes and, similarly to common mistakes, is viewed objectively based on whether a reasonable person could say what the agreement is. For instance, in Raffles v Wichelhaus (1864), R sold an amount of cotton to W and promised to send it on a ship named Peerless, however there were two ships with the same name leaving months apart. W thought it was on the first ship and R thought it was on the second so the contract was rendered void for mutual mistake after W complained about the cotton arriving months late.
Unilateral mistakes occur when one party is mistaken and the other knows (or ought to know) of the mistake. In cases of mistaken identity, if there is a genuine mistake as to the identity of the other party in the contract then the contract will be rendered void, as in Shogun v Hudson (2003), however a mistake merely of the attributes of the other party will render the contract valid. The face to face principle is also important here as if there is face to face contact then it is much harder to mistake identity as it is assumed you intended to enter into a contract with the person in front of you. In cases of mistaken contract terms, the contract will always be void if three requirements are met: one party must believe the terms are different to what was written/offered, the mistake must relate to a term in the contract and the other party must know the mistake.
Duress
Duress leads to a contract being rendered voidable and requires illegitimate pressure to be exerted on the contracting party to induce them into entering a contract. The claimant must also have had no choice about entering the contract and must have protested at the time or shortly after formation.
Pressure could previously only include violence or threats, as in Barton v Armstrong (1976), however it can now also include economic duress, such as in The Atlantic Baron (1979). For this pressure to be illegitimate, it must be a threat to do an unlawful act of any kind; resorting to law, for instance suing someone, would generally not constitute duress unless it is used for an improper reason.
The requirement for duress to induce the claimant into the contract is tested using the 'but for' test of causation. This states that if the duress is physical then the pressure must have been the cause for the claimant entering the contract, whereas if it is only economic then it must have just had a significant influence on the decision to enter the contract.
Undue influence
Undue influence occurs where one party uses their influence over the other to persuade them to make a contract, following which the courts may set aside the contract or modify the terms to mitigate any disadvantages. There are two types of undue influence: actual undue influence and presumed undue influence. Actual undue influence arises when a claimant can prove they entered into a transaction as a result of undue influence, however this doesn't arise in practice very often. In contrast, in presumed undue influence, the burden is on the defendant to disprove the existence of undue influence as it may be presumed if there is a pre-existing relationship of confidence between the parties (a fiduciary relationship). Automatic presumption will occur in relationships between parents and children, religious advisors and disciples, solicitors and clients, trustees and beneficiaries, and doctors and patients, however a relationship outside of these categories may be found to be fiduciary on the facts of the case. Generally however, judicial exposition of undue influence occurs in the context of three-party cases, such as in Barclays Bank v O'Brien (1993).
Illegality
Illegality will render an agreement void and can occur at the time of formation of contract or as a result of the way it has been performed. It occurs when a contract violates a legal rule, encompassing both statute and common law. Some types of contract may be expressly declared void by statute, for instance contracts which discriminate will be declared void under the Equality Act 2010. Other contracts may also be deemed illegal purely on their content, such as contracts against public policy, promoting sexual immorality, restricting personal liberty and restraining marriage, evidence for which can be found in case law. Contracts may also become unenforceable due to illegality after formation as a result of how they are performed. For example in Anderson Ltd v Daniel (1924), the sellers failed to provide an invoice stating the amount of chemicals in the fertiliser which was required by statute so the contract was illegal.
Overall there are five different types of vitiating factors that will either render a contract void, voidable or discharged: misrepresentation, mistake, duress, undue influence and illegality.
If you any further questions about any of this please feel free to get in contact with us either through the website or on our socials!
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