Vitiating factors. Discharge of contract. Remedies

Elena Mocanca
Feb 3, 2021
4 min read

Updated: Apr 19, 2021

Lexicon

Legal representation: a statement of fact concerning a contract.

Representor: a person who makes a legal representation.

Representee: a person to whom a legal representation is made.

Rescission: cancellation of a contract that aims to bring the parties back to the position in which they were before they entered into a contract (to restore the status quo ante).

Void: of no legal effect.

Voidable: not absolutely void, but may be avoided.

Ab initio: from the outset.

A. Vitiating factors

These doctrines prevent an apparently valid contract from being enforced. The main vitiating factors in the law of contract are misrepresentation, mistake, undue influence, duress, incapacity, illegality, frustration and unconscionability. These factors affect the validity of the contract. We will discuss the most common ones.

I. Misrepresentation

Representation is used during negotiation to encourage the establishment of a contractual relationship. Misrepresentation is an unambiguous false statement made by a representor that induces the representee into the contract. It cannot be just a mere puffery or statement of opinion or belief.

*Case study. Papa John's famous slogan 'Better Ingredients. Better Pizza' didn't sit well with rival chain, Pizza Hut, which sued Papa John's for false advertising. A federal appeals court overturned the initial verdict and ruled in favour of Papa John's, calling the slogan 'puffery' and not false advertising since the claim of 'better' wasn't a verifiable fact.1

There are three categories of misrepresentation:

As the representor doesn’t believe in the truth of their statement, fraud is a false statement

‘made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false’.2

Negligent misrepresentation is made by a representor that believes it to be true, but fails to check it. The difference between negligent misrepresentation and fraud is that it’s characterised by mere lack of care (negligence).
Innocent misrepresentation is made by a representor that believes in the truth of their statement and has no reason not to do it.

The remedies for misrepresentation are rescission and/or damages. For innocent misrepresentation, the court has discretion to award damages instead of rescission.3

II. Mistake

A mistake is an incorrect belief that certain facts are true. It can render the contract void ab initio or voidable.

There are three categories of mistake:

Common mistake is a mistake made by both parties and affects the core of the contract. To be central to the agreement, common mistake has to be sufficiently wrong to render the performance radically different from belief at time of agreement, or impossible. More to that, the parties relying on it would not have contracted if known there is a mistake.4
Mutual mistake describes a situation when the parties make different mistakes.
Unilateral mistake is made just by one party.

The available remedies for mistake are rescission and/or rectification of the written agreement.

III. Duress

Duress describes improper pressure which is sufficiently powerful or persuasive to force one party to enter a contract.

Economic duress amounts to pressure for increased activity from one party without further consideration which must be sufficient and adequate to support a promise that alters an existing contract. If the alternation is not supported by consideration, the promise is enforceable according to the doctrine of promissory estoppel.

A claimant who can succeed in establishing duress is able to rescind the contract.

*Case study. Consider North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979].5 Hyundai agreed to build a ship for North Ocean. During the build, the dollar devalued by ~10%, and Hyundai demanded the extra 10%. Hyundai, in turn, increased their line of credit and North Ocean paid up as they needed the ship to be finished to win a valuable charter agreement. 8 months later, North Ocean sought to recover the extra 10% payment. The contract was voidable for duress, however, since the claimants had left it so long in bringing their claim they had affirmed the contract and lost their right to rescind.

IV. Undue influence

Undue influence is an equitable doctrine that provides relief from contracts entered into under improper pressure that led to parties being exploited and abused to gain an unfair advantage.6

The contract becomes voidable and restitutions may be available.

B. Discharge of a contract

Discharge defines the circumstances in which the parties are freed from their continuing obligations under the contract.

I. Discharge by agreement

If the parties agree to terminate the contract and they can show their accord and consideration, the contract can be discharged.

II. Discharge by performance

If the parties had fully performed their contractual obligations, the contract is discharged.

III. Discharge by breach

If there is a breach of condition, the innocent party has the right to bring the contract to an end and claim damages. The breach must refer to a condition, which unlike warranties, is a core term of the contract.

IV. Discharge by frustration

If the circumstances have changed after the formation of the contract and rendered the contract either impossible to perform or deprived it of its main commercial purpose, the contract is discharged. The main requirement for frustration is that neither party is at fault.

*Case study. In Taylor v Caldwell (1863) 7, the claimant hired out a music hall in Surrey for the purpose of holding four grand concerts. However, a week before the first concert, the music hall was destroyed by an accidental fire. The contract had been frustrated as the fire meant the contract was impossible to perform.

C. Remedies

Damages can be either compensatory or punitive.
Specific performance compels the performance of a contract. It will not be awarded in lieu of damages.
Injunctions ask the guilty party to act (mandatory) or stop acting (prohibitory) in a certain way.

http://198.23.153.33/academy/lesson/puffery-in-advertising-definition-examples.html.
Derry v Peek (1889) 14 App Cas 337, 374.
Misrepresentation Act 1967, s. 2(2).
Triple Seven Msn 27251 Ltd & another v Azman Air Services Ltd [2018] EWHC 1348 Comm.
QB 705.
Robert Merkin and Severine Saintier, Poole’s Textbook on Contract Law (14th edn, Oxford university Press) 597.
3 B & S 826.