Business Law- Law of Contract
One contract party may escape fulfilling its contractual duties by contending that the assent to the projected bargain was induced by misrepresentation, mistake, undue influence or duress (Gillies 168). A party pursuing an escape in litigation may attain it by asserting the misrepresentation, mistake, undue influence or duress as a defense to any action of breach instigated by the second party or may result in the rescission of the contract. In order to enter a contract, elements of free will and effective understanding of the contractual obligations of each party must be involved. That is, the each party’s consent must be genuine. It is only when a genuine consent has been given, that a binding contract exists. Otherwise, the contract may be vitiated by these factors which are conceptually distinct.
Some mistakes may result in a contract being non-binding on the parties. Mistake refers to a section of law in which the contract may be rendered void if it is basic to the contract, as the parties to contract did not have a genuine consent. However, mistake is distinct from situation where the parties have entered into a contract erroneously; bad bargain, or where the other party develops second thoughts later on. Additionally, mistake is not concerned with the features of a specific item, unless the feature was falsely represented to one party by the other party; therefore, this party has no claim under her or his mistaken belief.
In order for mistake to vitiate a contract, it must be operative and fundamental, which inhibits consensus ad idem which is needed to establish a binding contract. A mistake may be a common mistake; both parties commit the same mistake, or mutual; all parties are at cross-purposes or unilateral; only one party is mistaken. An example is the case of Scott v Coulson, where both parties enter a contract for life insurance believing that the individual to be insured was alive. Contrary, he was dead. Therefore, the contract was void as the subject was in existent.Another example is the case of Cooper v Phibbs (1867) presents a good illustration as cooper took a three year lease for the fishery from his uncle. Upon the death of his uncle, he sought to renew the contract from his aunt, however the contract was nullified. Since, he already had a right of beneficial ownership to the fishery through the will left by his uncle (Furmston, Cheshire, and Fifoot 178).
Misrepresentation is defined as a false declaration of fact which one party makes and is among the reasons the other party enters into contract. It is a false declaration of facts concerning the past or present which induces a party to enter into a contract. Contrary, representation is just an inducement with its effect resulting in a party entering into a contract. Though, it should be a declaration of some particular verifiable and existing facts or past activities.
The concept of misrepresentation is used to give a description of a situation where there is no genuine consent in making the contract in the side of one party. Misrepresentation may be negligent, innocent or fraudulent. Misrepresentation has less serious effects as compared to that of mistake since the contract is rendered voidable and not void. This means that the contract can be rescinded; putting the parties to the positions they were before entering contract. For example, in the case of Smith v Land and House Property Corp (1884), Smith contacted Land and House Property Corp to purchase a hotel. Smith gave a description of one tenant; Mr. Fleck, as being the most desirable. While in the real sense, Fleck had arrears and was close to running bankrupt. This misrepresentation of the tenant induced Land and House Property Corp, to enter into contract. It was held that Mr. Smith was not eligible to specific performance of the contract as Land and House Property Corp was in a pole position to learn the facts (Bar, Ulrich and Guido 281).
Duress affects all gifts and contracts secured by it usage. Duress is the pressure subjected to an individual as one of the parties to contract to induce him or her to agree to contract. Duress being a concept in common law is defined as a threat of violence or actual violence to an individual party to contract or the people to close to him or his or her dear ones. The threat should be computed to produce fear of bodily harm or loss of life. The threat should also be illegal; it should be a threat to commit a tort or crime. Duress repudiates a contract; however, the threats should be established as a reason to enter a contract. For example, in the case of Masker v Horner, where money was taken from Maskell under the threat that his market stall would be closed down and his goods seized unless he paid. The court held that there was a broader restitutionary rule that money was paid to prevent the seizure of goods. Thus the money could be recovered (Burrows, James and Ewan 406).
Another factor is the concept of undue influence which was coined by equity. It was designed to handle contracts entered without a free consent; by the influence of an individual’s mind over another’s. Undue influence refers to any wrongful or improper machination, constraint, machination, persuasion or urgency in which an individual’s will is overpowered and he or she is induced to forebear or to act in a way which he or she would not have. It is the influence which denies an individual being influenced, free agency or freedom of will and gives more of the influencing party’s will. It implies a misuse of a confidence position or exploiting an individual’s weaknesses, distress infirmity or alters the actions and decisions of that individual in an improper way. Undue influence is utilized in cases where influence is obtained and abused and the confidence of an individual is reclined and betrayed.
Undue influence has effects to a contract in that it gives the feebler party an opportunity to rescind the contract immediately after the overbearing influence is withdrawn, else it would be treated as consent. However, it has fewer effects on a contract as it renders it voidable and not void. Consequently, for a party to hold on to the plea of undue influence, one should apply for it in a timely manner to escape contractual obligations. For example, in the case of Lloyds Bank v Bundy (1975) in which Bundy secured the debts of the business of his son. The plaintiff, Lloyd’s bank had allowed Bundy’s son to process an overdraft exceeding the given security; the farm. Bundy was asked to guarantee the loan which he did without thinking. It was held that relations between the bank manager and the father gave rise to undue influence (Chitty on Contracts 900).
As a general imperative, a contract which is contrary to the public principles or illegal will not be enforced. Illegal contracts are contracts proscribed by common law or statute. Their making in most cases may be visited through sanctions instead of just declaring the contract unenforceable or void. Illegal contracts encompasses to a contract to commit a tort, crime, fraud; commit a sexually immoral contract, or which is detrimental to public safety, or defrauding public funds. Any contract adjudged to be illegal would not be enforced and will be absolutely void; with no effect on any grounds. The case of David Taylor & Son v Barnett Trading Co (1953) presents an illustration. In this case the defendant agreed to sell to the plaintiff Irish steak between April and July for a certain price. However at the date the parties entered into the contract, there was a directive in force preventing the sale of meat beyond a certain price; the contract had exceeded. Consequently, the defendant failed to deliver the meat leading to the plaintiff claiming for damages. The court of appeal held that the contract was illegal as the price had exceeded the legal limits. Therefore, could not be enforced (Chitty on Contracts1249).