Since equitable remedies (such as specific performance) are at the discretion of the court, the court may refuse to grant such remedies. Therefore, specific performance may be refused in the case of a mistake made by one party if:
T it would be inequitable to compel that party to perform their contractual obligations; or
T the other party knew and took advantage of that mistake (Webster v. Cecil (1861) 54 ER 812); or
T the mistake resulted from misrepresentation by the other party.
However, the court will not withhold an order of specific performance to save the mistaken party from a bad bargain (Tamplin v. James [1916] 2 AC 397).
Illegality
Illegality is a vitiating factor which concerns itself with the character of the contract, unlike misrepresentation or mistake which are more concerned with whether it was entered into voluntarily.
ILLEGALITY
The extent to which illegality is covered as a vitiating factor varies between courses. Therefore, some courses will consider illegality in greater depth than is possible within this revision guide. You should therefore check your course syllabus carefully to see if you need to do some further revision in this area.
REVISION NOTE
Considerations of public policy are a major factor. Contracts may be void or illegal at common law or by statute:
6 MISREPRESENTATION, MISTAKE AND ILLEGALITY
Common law Statute
Illegal In general those which are harmful on grounds of public policy as impinging upon freedom of contract, such as:
Contracts declared illegal upon formation by statute for public policy reasons (Re Mahmood and
Ispahani [1921] 2 KB 716)
Contracts to commit crime or benefit from crime (Allen v.
Rescous (1676) 2 Lev 174)
Void ab initio – therefore, unenforceable.
Contracts to defraud Inland Revenue (now HM Revenue & Customs) (Napier v. National
Business Agency [1951] 2 All ER
264)
Contracts formed legally but performed illegally (Hughes v.
Asset Managers plc [1995] 3 All ER
669)
Contracts concerning corruption in public life (Parkinson v. College of
Ambulance Ltd [1925] 2 KB 1)
Where one party is unaware of illegality, some remedies may be available, particularly where the illegality is a peripheral issue. Contracts to promote immorality
(Pearce v. Brooks (1866) LR 1 Ex 213) Void Contracts ousting the jurisdiction of
the courts
Restrictive trading agreements (‘solus’ agreements)
Contracts undermining marriage (Restrictive Trade Practices Act 1976; Competition Act 1998; Articles 81 EC and 82 EC) Contracts in restraint of trade (Esso
Petroleum Co. Ltd v. Harper’s Garage (Stourport) Ltd [1968] AC
269)
Consequences depend on wording of statute; if silent, common law rules apply
Offending clause may be removed if possible without altering the meaning of the contract, provided the outcome is not abhorrent to public policy
CHAPTER SUMMARY
Chapter summary:
Putting it all together
Can you tick all the points from the revision checklist at the beginning of this chapter?
Take the end-of-chapter quiz on the Companion Website.
Test your knowledge of the cases below with the revision flashcards on the website.
Attempt the problem question from the beginning of the chapter using the guidelines below.
Go to the Companion Website to try out other questions.
TEST YOURSELF
Answer guidelines
See the problem question at the start of the chapter. Points to remember when answering this question:
T This question concerns misrepresentation.
T You could start by briefly explaining the difference between pre-contractual and contractual statements.
T Contractual statements are terms of the contract.
T Representations are pre-contractual statements: if false these are misrepresentations.
T Actionable misrepresentation must be proved.
T Define ‘actionable’ misrepresentation: false statement of material fact by one contracting party to the other before the contract was made which induced the claimant to enter into the contract.
T You should then consider the factual situation and decide whether any of the statements made were ‘actionable’ or merely statements of opinion, considering (for instance) Dimmock v. Hallet, Bisset v. Wilkinson, Smith v. Land and House
Property Corp.
T Does Thomas have a duty to verify Rebecca’s statement? No (Redgrave v. Hurd,
Atwood v. Small ).
T Does it matter that the misrepresentation was not the only inducement? Consider
Edgington v. Fitzmaurice.
T You should distinguish between fraudulent (Derry v. Peek), negligent (Hedley Byrne v. Heller; Esso Petroleum v. Marden) and innocent misrepresentation.
6 MISREPRESENTATION, MISTAKE AND ILLEGALITY
T Consider the remedies available at common law and statute: – common law: burden of proof on Thomas:
– fraudulent: damages and/or rescission, consequential damages recoverable if not too remote (Doyle v. Olby, Smith New Court Securities Ltd v. Scrimgeour
Vickers); possible to recover for loss of profit (East v. Maurer);
– negligent: damages and/or rescission (Hedley Byrne v. Heller), special relationship needed (Esso Petroleum);
– innocent: no remedy at common law, only in equity; – Misrepresentation Act 1967, section 2(1):
– negligent: burden of proof shifts onto defendant (Howard Marine v. Ogden); – damages and/or rescission; measure of damages same as for fraudulent
misrepresentation (Royscot Trust Ltd v. Rogerson); – Misrepresentation Act 1967, section 2(2):
– negligent or wholly innocent: damages (in the form of indemnity) in lieu of rescission if rescission is barred (state the bars) or is too harsh a remedy (William Sindall v. Cambridgeshire County Council ).
T Preferred action falls under Misrepresentation Act, section 2(1); damages assessed on tort basis to put Thomas into the position he was in before the contract was made. Make your answer stand out:
T There are many propositions of law to consider in answering this problem. It is important to break your answer down into as many small pieces as possible. For each proposition of law you should provide suitable case authority.
T Ensure that you consider all the pertinent facts given to you in the question. Examiners seldom introduce facts as ‘red herrings’. Your ability to apply the law to the facts effectively shows good depth of understanding and analysis.
T You might also consider the possibility of Rebecca’s statement being a term of the contract, in which case Thomas could claim for all foreseeable losses to put him into the position he would have been in had the contract been properly performed.
Atiyah, P. and Treitel, G., ‘Misrepresentation Act 1967’ (1967) 30 Modern Law
Review 369.
Beale, H., ‘Damages in Lieu of Recission for Misrepresentation’ (1995) 111 Law
Quarterly Review 60.
Smith, J.C., ‘Contract – Mistake, Frustration and Implied Terms’ (1994) 110 Law
Quarterly Review 400.
Buckley, R., ‘Illegal Transactions: Chaos or Discretion?’ (2000) 20 Legal Studies 155. Slade, C., ‘Myth of Mistake in the English Law of Contract’ (1954) 70 Law
Quarterly Review 385.
O’Sullivan, J., ‘Remedies for Misrepresentation: Up in the Air Again’ (2001) 60
Cambridge Law Journal 231.