Vitiating factors

Vitiating factors Impair the validity of a contract Render a contract void or voidable 2. What is a vitiating factor? Vitiating factors = elements which impair the validity of a contract Render a contract void (it has no legal effect, a nullity) Voidable (one of the parties may avoid the contract / have the contract set aside) – until that point it remains valid 1. What is the difference between a contract which is void and a voidable contract? Contract law is based on the “freedom of contract” – the idea that people are free to voluntarily enter into contracts. However, if someone enters into a contract because they are forced to, or on the basis of false information, then the freedom of contract has been undermined.

Mistake Common mistake: both parties are mistaken about a fundamental aspect of the contract a separation agreement of a divorcing couple who discover they were never actually married a contract for sale of goods which don’t exist or which the buyer already owns Can make a contract void. 3.What is a common mistake? When will it affect the validity of the contract? Must precede the agreement have induced the mistaken party to enter the contract

1. Mistake A common mistake about a quality of goods will only be operative only if it renders them “essentially different” to what was supposed. A gallery sells Ernest a picture which they both believe is painted by Constable. Five years later, Ernest discovers that it is not a Constable. Can he rescind the contract? No – still a contract for a specific painting Salisbury Cathedral Could have had a claim for breach of contract, but was too late. Area of law which is complex. Leaf v International Galleries (1950)

Cross-purposes mistake The parties are at cross-purposes e.g. Anna and Bob agree to buy and sell a painting, Anna intending to sell the Picasso, Bob intending to buy the Constable If the contract is so ambiguous that a reasonable observer could not say what was agreed to, the contract may be declared void. 4. What is a cross-purposes mistake? When will it affect the validity of the contract? Parties are at cross-purposes – they fail to understand each other, offer and acceptance do not correspond

Unilateral mistake One party has misunderstood an element of the contract This may be operative if one party takes advantage of the other's fundamental mistake if the mistake involves the identity of the other party and there was an intention to deal with a specific person. 5. What is a unilateral mistake? When will it affect the validity of the contract? Rare for contracts to be declared void on these grounds This may be operative if one party takes advantage of the other's fundamental mistake > one party know that other has made a mistake about the terms of the contract (believes selling oats, thinks old oats, versus believes selling old oats)

2. Misrepresentation A false assertion of material fact made through words or acts, which acts to induce the other party to sign the contract. In general there is no duty of disclosure > misrepresentation > if representation is proved, it renders a contract voidable What is a misrepresentation? Induce = persuade Must induce them to sign the contract - if a defect was concealed but the buyer did not inspect the object this cannot be grounds for misrepresentation, In general there is no duty of disclosure :Silence – failure to disclose important information – will not usually constitute misrepresentation, but it can in some limited circumstances (e.g. in insurance contracts or relations between trustess and beneficiaries of a trust),

Opinion or fact? If D is an expert or professional, the court is more likely to consider that a statement was an assertion of fact

Sales talk” or “advertising puff” does not constitute misrepresentation Sales talk / puff Promotional speech >no reasonable person would take literally

Misrepresentation Misrepresentation under Section 2(1) of the Misrepresentation Act (1967) The defendant must show that he believed the statement to be true at the time it was made, and there were reasonable grounds for that belief There are different types of misrepresentation. The easiest to for a claimant to claim under is the MRA What is the effect of the Misrepresentation Act 1967? This puts the onus on the defendnat > its the def who has to prove something

Misrepresentation Fraudulent misrepresentation making a false statement, while knowing it to be true, or reckless about whether it was true Fraudulent: makes a false statement, knowing it to be true, or reckless about whether it was true Mis Act: The onus is on the defendant to show that he believed the statement to be true at the time it was made, and there were reasonable grounds for that belief Don’t firget that in tort, there is also Negligent misstatement > seen on correction Negligence, duty of care made by those with expert knowledge or skill, making statement to those with whom they have a “special relationship” such as a customer or client – must use reasonable care to ensure the accuracy of their representations

Misrepresentation Remedies Rescission (to rescind): an equitable remedy allowing courts to set aside a voidable contract Damages Rescission (to rescind): an equitable remedy allowing courts to set aside a voidable contract ((for misrep, respectively and prospectively, avoid unjust enrichment)

3. Illegality A contract may be illegal at the time of its formation. such contracts are generally void ab initio lawful at the time of its formation, but performed in an illegal way such contracts may be void or voidable Today illegality A contract may be illegal at the time of its formation (inherently illegal) Examples of inherently illegal contracts are: Contracts to commit or benefit from a crime whichpublic corruption = in public life for example contracts based on bribery of a public official (corruption de fonctionnaire) – charity donation v knighthood whose purpose is tax fraud = fraude fiscale These are all illegal under common law. Some contracts are also illegal according to specific statutes Which restrict free commercial competition e.g. price-fixing entente illicite (sur les prix), la fixation des prix. (in US English antitrust law) Such contracts are VOID ab initio. (means no legal power, legally it never existed) –. A contract may also be lawful at the time of its formation, but performed in an illegal way. Eg a lorry driver contracts to carry goods for someone else but is only insured to carry his own property Can be void or voidable (If both parties are aware of the illegal mode of performance, the contract is void. If one of the parties unaware that the contract was being performed in an illegal way, the innocent party can avoid or enforce the contract.

Unfair terms A court may avoid enforcing a term of a contract if it is unfair. The Unfair Contract Terms Act (1977) limits the use of exemption clauses by businesses in contracts with consumers: Liability for death or serious injury due to negligence cannot be excluded Finally in this section we should look at unfair terms. This is not a vitiating factor (doesn’t lead to the contract becoming void) but affects the enforceability of particular terms. This is when a particular term in the contract is not illegal, but is seriously unfair. This particularly concerns exemption clauses - which restrict or exclude the liability of one of the parties. A court may avoid enforcing a term of a contract if it is unfair, and so enforcing it would create an injustice, for example by interpreting any ambiguity in the term order to restrict or nullify it. (There are also stringent tests) Furthermore, The Unfair Contract Terms Act (1977) limits the use of exemption clauses by businesses in contracts with consumers: Liability for death or serious injury due to negligence cannot be excluded Other restrictions on liability may require the business to show that the term was fair an reasonable.

DON’T SAY So if property or money has been given by one party to the other, what happens? It cannot be recovered, it is lost. HOWEVER, occasionally the court will allow a party to recover (e.g. if the contract was never actually performed) Patel (Respondent) v Mirza (Appellant) UKSC – heard in Feb (In certain cases the court may be prepared to strike out the illegal elements of a contract, provided that they are relatively unimportant). (Some contracts include a severability clause to indicate the intentions of the parties if the court finds parts of the contract to be illegal or invalid)