Contract Law: Misrepresentation & Mistakes
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Questions and Answers

What is the primary challenge when dealing with information asymmetry in contract law?

  • Determining when information asymmetry is relevant to a contract. (correct)
  • Ensuring all parties have identical information.
  • Forcing parties to disclose every single detail of a contract.
  • Eliminating all information gaps before contract agreement.

In situations where information asymmetry exists, what is the role of the law according to the text?

  • To ensure all parties have complete information before contracting.
  • To avoid any disclosure of relevant information by either party.
  • To make a contract valid by any means necessary.
  • To deal with the contractual problem when the parties fail to include a term. (correct)

In a typical everyday transaction, how is the relevance of information asymmetry generally viewed?

  • It is only relevant when there is a large power imbalance.
  • It is always a cause for legal intervention.
  • It is highly relevant and always affects decision making.
  • It is often irrelevant and does not affect decisions. (correct)

What is the third problem the text identifies in dealing with information asymmetry in contract law?

<p>Determining the scope of the legal duty to disclose information. (C)</p> Signup and view all the answers

Which of the following best describes what the 'do not conceal' approach means in the context of information asymmetry?

<p>Parties must proactively disclose all relevant facts to each other. (D)</p> Signup and view all the answers

What is the primary way that the law addresses untrue pre-contractual statements?

<p>Through the concept of misrepresentation. (D)</p> Signup and view all the answers

The train company example in the text regarding the cleanliness of train toilets is used to illustrate what point?

<p>That a superior knowledge of one party is often irrelevant to the other’s decisions. (C)</p> Signup and view all the answers

What must a misrepresentation do to give rise to legal remedies?

<p>It must induce the contract. (D)</p> Signup and view all the answers

Aside from establishing when information asymmetries matter, what is one other primary problem that the law must solve?

<p>Figuring out remedies that parties should have when it occurs, (C)</p> Signup and view all the answers

If a court adopted a ‘do not conceal’ approach, what would likely be the outcome for a seller?

<p>The seller would be required to make a full disclosure of the facts, whether asked for or not. (B)</p> Signup and view all the answers

Which of the following is NOT a remedy available to a party induced by misrepresentation?

<p>Specific performance. (B)</p> Signup and view all the answers

What is the legal status of a contract if the misrepresentation did not induce the contract?

<p>The contract remains fully valid. (C)</p> Signup and view all the answers

Which sources does the law of misrepresentation in English contract law draw from?

<p>A combination of common law, equity, and statute. (C)</p> Signup and view all the answers

What specific area of law do some aspects of remedies for misrepresentation derive from?

<p>Tort law. (C)</p> Signup and view all the answers

Why does dealing with information asymmetries involve a ‘balancing act’?

<p>Because the cost of verifying information needs to be weighed against the need to ensure fair contracts. (C)</p> Signup and view all the answers

In the example of a seller representing that a phone is in full working order, what does the text suggest regarding the seller's position?

<p>The seller faces difficulties in verifying that the phone is perfect. (A)</p> Signup and view all the answers

What is the primary challenge faced by a consumer when purchasing a used smartphone, as described in the text?

<p>The consumers reliance upon information from the retailer, with no true way to check. (C)</p> Signup and view all the answers

What term do economists use to describe the situation where one party has more information than the other in a transaction?

<p>Imperfect knowledge (D)</p> Signup and view all the answers

What is one way information asymmetry can lead to problems, described in the text?

<p>A party may fail to reveal important information that could sway the other party’s decision (B)</p> Signup and view all the answers

What action by a seller would be a clear example of failing to disclose important information?

<p>Showing a smartphone without mentioning that it had a had a cracked screen, repaired with a non-original part (C)</p> Signup and view all the answers

Besides failing to disclose important information, what other way does the text mention that a party may give incorrect information?

<p>By stating something that is not true (D)</p> Signup and view all the answers

What is one way parties can address the issue of incorrect information in purchase contracts?

<p>By imposing an obligation on one party to ensure the information's truth. (A)</p> Signup and view all the answers

If a contract contains a clause ensuring that the information provided is true, what is the consequence if this stated information is found to be false?

<p>The party who took on that obligation is liable for breach of contract. (B)</p> Signup and view all the answers

What aspect of purchasing a second-hand smartphone makes the situation described in the text 'not exceptional'?

<p>The commonality of imperfect knowledge or information asymmetry in most transactions (C)</p> Signup and view all the answers

What triggered the defendants to shift from sheep farming to cropping and dairy farming in 1921?

<p>A collapse in sheep prices due to market fluctuations (B)</p> Signup and view all the answers

What was the main argument used by the defendants to rescind the contract?

<p>Misrepresentation regarding the capacity of the farm (B)</p> Signup and view all the answers

What did Sim J conclude about the statement concerning the capacity of the farm?

<p>It was a statement of opinion rather than fact (A)</p> Signup and view all the answers

What evidence did the purchasers have regarding the farm's capacity?

<p>An inspection of the farm prior to purchase (C)</p> Signup and view all the answers

What did the Court of Appeal of New Zealand determine about the misrepresentation claim?

<p>The seller's opinion was implicitly a factual statement (A)</p> Signup and view all the answers

What was necessary for an opinion to qualify as misrepresentation in this case?

<p>The opinion must not have been honestly held (D)</p> Signup and view all the answers

What was one of the criticisms against Sim J's conclusion on the opinion about the farm's capacity?

<p>It contradicted common practices in farm sales (B)</p> Signup and view all the answers

What contributor to the misrepresentation claim did the Court of Appeal highlight?

<p>The specific question asked about the farm's capacity (C)</p> Signup and view all the answers

In Salt v Stratstone Specialist Ltd, what was the court's position on rescission after the car had depreciated due to use?

<p>Practical justice could be attained by compensating for use and depreciation. (B)</p> Signup and view all the answers

What must a buyer do if rescission is granted according to the court's ruling?

<p>Account to the seller for profits made from the item. (C)</p> Signup and view all the answers

Which type of misrepresentation does s 2(1) of the Misrepresentation Act 1967 exclude from damages?

<p>Innocent misrepresentation. (D)</p> Signup and view all the answers

What principle does restitutio ad integrum refer to in cases of misrepresentation?

<p>Complete restoration to the original position before the contract. (A)</p> Signup and view all the answers

What is often required of students if they seek rescission after using college facilities?

<p>Pay a fair compensation for the use of facilities. (C)</p> Signup and view all the answers

How could a representee who suffers loss from misrepresentation act before the Misrepresentation Act 1967?

<p>Sue in tort through deceit or negligence. (A)</p> Signup and view all the answers

What did the Court of Appeal imply about the principle of practical justice?

<p>It may allow for adjustments such as compensation after rescission. (B)</p> Signup and view all the answers

After discovering misrepresentation, what is the general position on a buyer's ability to rescind a contract?

<p>They can rescind, provided practical justice can be achieved. (B)</p> Signup and view all the answers

What was the main reason the court held the contract in Lake v Simmons to be void?

<p>Esmé Ellison was not legally married to Van der Borgh. (B)</p> Signup and view all the answers

In Ingram v Little, what was the main factor that led to the contract being declared void?

<p>The buyer claimed to be a different person. (C)</p> Signup and view all the answers

How did the cases of Lewis v Averay and Phillips v Brooks differ in their outcomes?

<p>Lewis v Averay validated the contract while Phillips v Brooks did not. (B), The buyer's documentation in Lewis v Averay was deemed sufficient for validation. (D)</p> Signup and view all the answers

What key element distinguishes Phillips v Brooks from Lake v Simmons?

<p>In Phillips v Brooks, the seller did not know the buyer personally. (C), Lake v Simmons involved a false claim of marriage. (D)</p> Signup and view all the answers

Which statement correctly reflects the reasoning of the courts in distinguishing the validity of contracts in these cases?

<p>A contract is valid if the seller intends to deal with the person present. (C)</p> Signup and view all the answers

What was a significant factor that influenced the jeweller's decision to seek recovery from the insurers in Lake v Simmons?

<p>Esmé Ellison's unauthorized possession of the necklace. (A)</p> Signup and view all the answers

Why was the contract in Lewis v Averay ultimately considered valid?

<p>The seller believed the buyer was a well-known actor. (D)</p> Signup and view all the answers

What legal principle primarily governs the validity of contracts when a mistake of identity occurs?

<p>Intent to deal with someone specific. (C)</p> Signup and view all the answers

Flashcards

Information Asymmetry

A situation where one party in a transaction has more information than the other party.

Misrepresentation

A statement made by one party to another that is not true, which influences the other party's decision to enter into a contract.

Contractual Obligation for Truthful Information

A contract clause that requires one party to provide accurate information to the other party.

Non-Disclosure of Information

When a party fails to disclose important information that would have affected the other party's decision.

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Unilateral Mistake

Occurs when a party makes a mistake about a key fact in the contract, without the knowledge of the other party.

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Breach of Contract

A legal remedy for breach of contract where a party is liable for providing false information.

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Obligated Party

The party who is responsible for providing accurate information in a contract.

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Voidable Contract

A circumstance where a party can avoid a contract if they were misled by a misrepresentation.

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Relevant Information Asymmetry

A situation where information asymmetry is important for a decision to contract.

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Irrelevant Information Asymmetry

A situation where information asymmetry is typically unimportant for a decision to contract.

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Do Not Conceal Approach

The legal duty to reveal all relevant facts in a contract, preventing the concealment of important information.

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Information Asymmetry Remedies

The legal problem of deciding which remedies to apply when information asymmetry exists.

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Significance of Information Asymmetry

When the law determines if information asymmetry is important enough to consider in a contract.

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Distinguishing Relevant and Irrelevant Asymmetry

The legal challenge of establishing clear boundaries for when information asymmetry matters in contracts.

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Disclosure Obligation

The legal obligation to disclose information that might impact a decision to contract, often determined based on the specific situation and potential harm.

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Rescission

A legal remedy where a party can cancel a contract because of a misrepresentation.

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Damages

Financial compensation that can be claimed for losses incurred as a result of a misrepresentation.

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Tort

A legal action where a party is held liable for the harm caused by misrepresentation.

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Balancing Act

The balance between protecting parties from being misled and ensuring that parties can make representations without undue burden.

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Information Verification

The process of checking the truthfulness of a statement made about a product or service.

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Good Faith

The principle in contract law that requires parties to act fairly and honestly during pre-contractual discussions.

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Statement of Carrying Capacity

A statement made by one party to another about the capacity of a farm to hold a specific number of sheep.

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Carrying Capacity

The ability of a farm to support a certain number of sheep.

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Honest Opinion

A statement that is made with the belief that it is true, even if it turns out to be false. It is not considered a misrepresentation because it is not intentionally deceptive.

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Misrepresentation Claim

An issue raised where one party claims that they were misled by a false statement, potentially allowing them to cancel the contract.

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Rescind the Contract

A formal request to cancel a contract due to a perceived misrepresentation.

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Judicial Holding

A legal determination made by a judge in a court of law.

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Caveat Emptor

A legal principle that a party to a contract cannot make a claim based on a misrepresentation if they had the opportunity to verify the truth of the statement before entering into the contract.

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Appeal

A legal process where a higher court reviews a decision made by a lower court.

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Restitutio ad Integrum

Involves returning both parties to the positions they occupied before entering into the contract. This can be complex, especially if one party has benefited (e.g., used a product).

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Practical Justice in Rescission

When practical justice can be achieved by granting rescission despite some benefits or changes one party has received, the court may still grant it while considering fair compensation for the benefit.

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Damages for Misrepresentation

Damages are available for most types of misrepresentation (with an exception for innocent misrepresentation).

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Misrepresentation Act 1967

The Misrepresentation Act 1967, covers damages for misrepresentation. It is the UK's primary legislation in this area.

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Liability for Innocent Misrepresentation

Even if a misrepresentation was not intentional (innocent), the Misrepresentation Act 1967 still often leads to the misrepresentor having to pay damages.

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Pre-Misrepresentation Act Remedies

Before the Misrepresentation Act, a person misled could sue for deceit (intentional deception) or negligence. This was more complex and less accessible.

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Representee

The person who is claiming to have been misled by a misrepresentation. They may seek remedies like rescission or damages.

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Contractual Mistake as to Identity

A contract is only void for mistake as to identity if the identity of the person is essential to the contract, not just their name or appearance. The party must have intended to deal with the specific person, not just anyone resembling them.

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Contractual Mistake as to Identity: Non-Essential Identity

When the identity of the person is not essential to the contract, only their willingness to perform the obligations, the contract is valid even if one party is mistaken about the other's identity.

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Lake v Simmons: Void Contract due to Identity Mistake

In Lake v Simmons, the contract was considered void because the jeweller intended to deal with a specific person (Van der Borgh), not just anyone who claimed to be him.

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Phillips v Brooks: Valid Contract despite Identity Mistake

In Phillips v Brooks, the contract was considered valid because the jeweller intended to deal with whoever was in front of him, even if mistaken about their identity.

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Ingram v Little: Void Contract due to Identity Verification

In Ingram v Little, the contract was held void for mistake as to identity because the seller intended to deal with the specific person, not just a person claiming to be him.

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Lewis v Averay: Valid Contract despite Identity Verification

In Lewis v Averay, the contract was held valid because the seller intended to deal with whoever was in front of him, even if mistaken about their identity. The fact that they showed a studio pass was not enough to prove intent to deal with a specific person.

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Inconsistent Outcomes in Identity Mistake Cases

The legal outcome of identity mistake cases can be inconsistent, depending on whether the court interprets the identity as essential to the contract.

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Importance of Identity Verification

It is important for businesses to have robust identity verification procedures to minimize the risk of mistaken identity and potential legal disputes.

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Study Notes

Untrue Statements

  • English law addresses untrue statements through misrepresentation and unilateral mistake
  • Contractual transactions often involve information asymmetry
  • Misrepresentation: absence of general duties to disclose, objective fact/opinion distinction, and remedies (rescission, damages)
  • Two types of unilateral mistake: mistake as to identity (and identity theft), and mistake as to terms
  • Misleading selling practices: covered under Consumer Protection from Unfair Trading Regulations 2008

Misrepresentation

  • False statements are the basis of misrepresentation
  • A false statement, inducing a contract, gives remedies to the representee.
  • Elements include: absence of general duties to disclose relevant facts, an objective approach to construing ambiguous statements, and a distinction between statements of fact and opinion.
  • Remedies: rescission and damages
  • Types: fraudulent, negligent, and innocent

Unilateral Mistakes

  • Mistake as to identity: A mistaken belief about the other party's identity.
  • Mistake as to identity affects contract validity if the fraudulent party was aware the other party was mistaken.
  • Mistake as to terms: A mistaken belief about a contractual term. This affects a contract's validity if the other party knew or should have known of the mistake, and if the mistake caused the party to enter the contract.
  • Examples: Bisset v Wilkinson, Esso Petroleum v Mardon, Shogun Finance v Hudson.

Consumer Protection from Unfair Trading Regulations 2008

  • This act gives consumers separate remedies in cases of misleading selling practices.
  • Three requirements for consumer remedies:
    • Transaction must fall under the Regulations.
    • Consumer's complaint must arise out of a prohibited practice.
    • The prohibited practice must have significantly influenced the transaction.
  • Remedies are alternative to common law misrepresentation/mistake
  • Remedies vary—including right to unwind a contract, discount, and damages
  • 20th-century English law shifted from focusing on representor conduct to protecting representees.
  • Current law blends protecting representees with a general reluctance to impose additional duties on parties

Key Points

  • English law generally doesn't require disclosure of material facts.
  • Misrepresentation: false statement, inducing contract, causing a problem (often with remedies like rescission, and damages).
  • Misrepresentation can be fraudulent, negligent, or innocent.
  • Unilateral mistake can render a contract void, affecting third-party rights.
  • Consumer protection regulations provide broader consumer remedies for instances of misleading sales practices.

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Explore the intricacies of misrepresentation and unilateral mistakes in contract law through this comprehensive quiz. It covers key concepts such as types of misrepresentation, remedies, and the nuances of contractual transactions. Test your understanding of misleading practices and the legal frameworks surrounding them.

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