Chapter 9 Misrepresentation, undue influence and duress.docx
Impeaching Contracts: Misrepresentation, Undue
Influence and Duress
1. Representation VS. Terms in a Contract
A term in a contract is a provision that both parties intend and agreed to bind as
part of the contract.
If a term is breached then the party can sue for Breach of Contract
A representation to a contract is a statement of fact made by a party during
negotiation prior to the time the contract was entered into – representations are not
part of the contract.
A party may sue for breach of representation but not a breach of contract.
Breach of representation and breach of term are different remedies.
Common law holds that you can sue for representation because the representation
was not part of the contract BUT equity holds Misrepresentation and may set aside.
To determine if Representation or Term
1) If the statement is made prior to the contract is most likely will be representation.
2) If the statement was made late in negotiations it is most likely a term.
3) If written in black and white it is a term or if not could be a representation.
4) The relevance of the statement to the contract- minor or big?
2. Requirements to find Misrepresentation ( 5 )
a) The statement must be Material
If the statement is minor it wont likely be misrepresentation but the more
material the statement is the more it may be misrepresentation.
b) The Misrepresentation must be a statement of Fact and Not Opinion
One exception of this is the opinion of an expert because the opinion of an expert
is equal to a statement of fact.
c) The statement has to be Intended to be Acted on
The person making the statement must have intention for the other party to act
upon to try and induce the party to enter into the contract But it is difficult to know someone’s intentions?
Courts will look at the stage of negotiations the statement was made – the closer
the statement was made to the entering of the contract the more it is
Or they will look at if they knew the parties intentions for entering the contract
d) The Statement must be False
e) The Aggrieved party must Renounce the Agreement Promptly
As soon as the aggrieved party suspects misrepresentation the party must take
action immediately – if they party waits to see what benefits may be gained this is
3. Types of Misrepresentation
a) Negligent Misrepresentation
Negligent misrepresentation is a false statement made
1) knowledge of false
2) reckless disregard
if a false statement is made with knowledge of being false then the
courts will not help parties.
If a false statement is made recklessly disregard then the courts will
rescind or set the contract aside
In certain cases the courts will allow aggrieved party to sue for
b) Innocent Misrepresentation
A false statement made by a party in honest belief that it was true.
In this case the courts will set the contract aside.
4. Misrepresentation by Omission
This means that if a party neglects to give any relevant information needed. a) Contracts Signed in Haste
When a party signs a contract in haste everything in the contract must be
reasonable and anything unreasonable must be brought to the person’s
It is misrepresentation if anything out of the ordinary is not brought to
b) When one party has Special knowledge
When one party to a contract has expert or special knowledge of the nature to the
contract and the relationship b/w the parties showed that party trusted in them –
the party with the special knowledge is obligated to put forward any relevant
information in relation to the contract
If the person omits any relevant information then this is misrepresentation and the
courts will set the contract aside
c) Insurance Contracts
A person seeking any kind of insurance must disclose all relevant information in
relation to the contract and must not omit any important information otherwise this
is misrepresentation through omission
d) Sales of Corporate Securities
When shares or bonds are publicly traded under the ‘Securities Act’ all information
about the corporation must be disclosed in a ‘Prospectus’ – if not this is
misrepresentation through omission
e) Sales of Goods and Sales of Land
The general rule is ‘ CAVEAT EMPTER’ ( buyer beware )
Sales of Land is more Caveat Empter
Sales of Goods has little exceptions.
Impeaching Contracts: Misrepresentation, Undue Influence
and Duress 1. Undue Influence: Definition and Burden of Proof
Undue influence is the domination of one party of over the mind of another to such
a degree as to deprive the victim of the ability or will to make an independent
A situation when one party influences another party to enter into to a contact that
they otherwise wouldn’t have
Contracts like this are voidable at the option of the victim
To get equity the party must repudiate the contract promptly
Undue influence usually arises out of the victim
Burden of Proof
So the burden of proof starts with the victim
Must prove in those circumstances that domination was possible
Easier to prove is a special relationship exist between parties such as lawyers and
Once victim has proven – then burden of proof moves to the defendant – must prove
undue influence did not occur
2. Situations where Undue Influence may Arise
a) Dire Circumstances
This is when one party is in a very desperate situation in such that they would do
anything to get out of it – the other party will take advantage of the desperate party
b) Treat of Prosecution
A kind of black mail – threatening a party to charge them
c) Family Relationships
With family relationships undue influence arises in cases where a family members
uses emotional bond to an agreement – a rich parents will – husband and wife
entering into a contract
d) Inequality of Bargaining Power
A case where one party clearly has a higher level of knowledge of contract law and
puts the party in situation in which they feel they must sign
3. Independent Legal Advice
Banks will require a party to get independent legal advice from a lawyer to explain
contract clearly – so the party can not claim ‘non est factum’ or ‘undue influence
The lawyer will give a certificate of independent legal advice
Duress is the actual or threatening of violence against a party to sign the contract Undue influence is more influence – Duress is more of open threat
When duress in contract – it is voidable at the option of the vi