Vitiating Factors, Discharge and Contract Remedies

D, selling a business, tells C its accounts are accurate when D has not checked and had no reasonable grounds to say so; C buys in reliance and suffers loss. Advise on misrepresentation and remedies.

1. 01Issue

   Whether D made an actionable misrepresentation and what remedy C has.

2. 02Rule / authority

   A misrepresentation is a false statement of fact inducing the contract; a negligent misrepresentation under s.2(1) Misrepresentation Act 1967 makes D liable in damages unless D proves reasonable grounds for belief; the misled party may also rescind.

3. 03Application

   D's statement of fact about the accounts was untrue and induced C to contract. As D had no reasonable grounds to believe it, it is a negligent misrepresentation under s.2(1); D bears the burden of proving reasonable belief and cannot. C may rescind and claim damages under s.2(1).

4. 04Conclusion

   C can rescind the contract and recover damages for negligent misrepresentation under s.2(1) of the Misrepresentation Act 1967.

Result: The answer establishes a false statement of fact inducing the contract and applies the s.2(1) negligent-misrepresentation regime and its remedies.

D, mid-contract, threatens to stop essential deliveries unless C agrees to pay substantially more; C, with no alternative supplier in time, agrees. Advise on whether C is bound.

1. 01Issue

   Whether the variation is voidable for economic duress.

2. 02Rule / authority

   Economic duress arises from illegitimate pressure (typically a threatened breach) that is a significant cause of agreement and leaves no practical alternative (Pao On v Lau Yiu Long (1980); Atlas Express v Kafco (1989)).

3. 03Application

   D's threat to break the existing contract is illegitimate pressure. C had no realistic alternative supplier in the time available, so the pressure left no practical choice and was a significant cause of C's agreement, as in Atlas Express v Kafco.

4. 04Conclusion

   The variation is voidable for economic duress, so C may set it aside and is not bound to pay the increased price.

Result: The answer identifies illegitimate pressure and the absence of a practical alternative and concludes the variation is voidable.

C hires D's hall for a concert; before the date, the hall is destroyed by an accidental fire. Advise on whether the contract is discharged.

1. 01Issue

   Whether the destruction of the hall discharges the contract by frustration.

2. 02Rule / authority

   A contract is frustrated where an unforeseen event beyond the parties' control makes performance impossible (Taylor v Caldwell (1863)); the Law Reform (Frustrated Contracts) Act 1943 then adjusts the parties' positions.

3. 03Application

   The accidental destruction of the hall makes performance impossible and is beyond the parties' control, so the contract is frustrated on the Taylor v Caldwell principle. Under the 1943 Act, money paid in advance is recoverable and future obligations are discharged, subject to allowances for expenses.

4. 04Conclusion

   The contract is discharged by frustration, and the parties' positions are adjusted under the Law Reform (Frustrated Contracts) Act 1943.

Result: The answer applies the doctrine of frustration and the statutory adjustment of the parties' positions.

D delivers essential equipment late; C loses its normal trading profits during the delay and also a specially lucrative contract of which D was unaware. Advise on the damages recoverable.

1. 01Issue

   Which of C's losses are recoverable under the rules on remoteness.

2. 02Rule / authority

   Damages protect the expectation interest and are limited by Hadley v Baxendale (1854): losses arising naturally (first limb) and losses within both parties' reasonable contemplation through special knowledge (second limb); Victoria Laundry v Newman Industries (1949).

3. 03Application

   The ordinary lost profits arise naturally from late delivery and are recoverable under the first limb. The profit on the exceptional contract was not within D's reasonable contemplation because D had no knowledge of it, so it is too remote under the second limb, as in Victoria Laundry.

4. 04Conclusion

   C can recover the ordinary lost profits but not the profit on the exceptional contract, which is too remote for want of special knowledge.

Result: The answer applies the two limbs of Hadley v Baxendale to separate recoverable from irrecoverable losses.