Discuss about the Chitty on Contracts for General Principles.
The facts of this case relates to the law of contract. Brief facts are that Wayne and Michelle were previously running a partnership business. The business however collapsed sometime in the year 2016. Their creditors instituted suits against them amounting to 250,000£ each, thereby bringing the total debt claimed against them to 500,000£. At the material time, only Michelle had assets that could be used in satisfying the debt.[1] Wayne promised Michelle that he will refund his portion of 250,000£ in five years after inheriting from his grandmother’s estate. Michelle then drafted a deed of acknowledgement of a debt and sent it to Wayne by mail for his consideration and suggested that they sign it in a week’s time. The deed however contained an erroneous figure of 25,000£ instead of the 250,000£ debt. Wayne has now refused to pay and insists that he will only pay the amount contained in the deed of acknowledgement of a debt that they signed.
A contract is an agreement between two or more persons entered into voluntarily and is enforceable as a legally binding agreement. A contract is only valid if it contains elements such as offer, acceptance, and consideration, intention to create legally binding relations, capacity and illegality.[2] Absence of any of the essential requirements would make a contract void and lack the force of the law.
The general rule in contract law does not require all contracts to be written.[3] However, there are certain types of contracts that have to be in writing for them to be binding. However, the enforcement of oral contract is difficult since it is difficult to prove whether the essential elements of a valid agreement exist in an oral contract. Contracts requiring payment of someone’s debts is also required to be in writing and would be considered as voidable if not reduced into writing.[4]
A written contract is always signed so that the parties are bound by the signature. The signature is an indication of being bound; that both parties have read and understood the terms of the contract and agree to be bound by it. A signature incorporates terms into the said agreement between parties. In L’Estrange v F Graucob Ltd[5], the rule that a signatory to an agreement is an indication that such person intended by his or her signature to enter into a binding and legally enforceable contract was established. However, there are exceptions to the rule on signature in contract law. A person will not be bound by the signature if it is proved that the contract was signed and entered into as a result of misrepresentation, fraud and non est factum.[6]
The validity of a contract is also determined by vitiating factors. A vitiating factor affects the validity of a contract if it is found to exist in a contract at the time of entering into the contract. Vitiating factors in a contract include the following; mistake, misrepresentation, duress, illegality and undue influence.[7]
A mistake is one of the vitiating factors in contract law. In circumstances where the court finds that a mistake occurred at the time of entering the contract, the contract is rendered void and cannot be therefore enforceable. There are three forms of mistake in contract law: common mistake, unilateral mistake and mutual mistake.[8] A common mistake is said to have occurred where the contracting parties have all made similar mistakes in their own account. A mutual mistake however occurs where the contracting parties happen to be at cross purposes. A unilateral mistake however exists where only one of the parties to the contract is mistaken. A unilateral mistake can be one that relate to the contractual terms or to the identity of the contracting parties.
For instance, in the case of Hartog v Colin & Shields[9], the defendants had by mistake made an offer to sell large quantities of skin (hare skin) at a particular price per pound while in real sense the offer was for the price stated but per piece of skin. The mistake was to the effect that the price that the plaintiffs accepted was a third of the real price. The court found mistake in the contract and held that it was void.
Similarly in Smith v Hughes[10], the plaintiff bought certain products he believed to be old oats after seeing samples. The oats turned to be new ones. The plaintiff wanted the old oats for feeding horses and the new oats would not be suitable in the circumstances. The defendant knew of the mistake but ignored. An action failed when the court held that although there was a mistake, it did not go to the root of the contract. It only related to the quality of the goods sold.[11]
The contract between Wayne and Michelle is for payment of a debt owed to Michelle. Wayne had no assets to offset the claim against him and promises to pay Michelle in five years upon inheriting from his grandmother’s estate. The consideration in this contract is a future consideration for payment of the loan amount to Michelle. This is classified as good consideration since the general rule in contract law is that consideration needs to in the present or future but not past consideration.
Michelle wanted the contract to be enforceable legally and decided to have the agreement reduced into writing and drafted a deed of acknowledgment of a debt owed and sent it to Wayne for consideration and subsequent execution after a certain period of time. However, the contract document has a mistake on the value of the loan. Wayne discovers the mistake but does not bring it to the attention of Michelle. Wayne goes ahead and insists that he is ready to sign the contract as it is.
A signature by parties to the contract is an indication that the parties are bound by the terms of the contract. Incorporation of terms of a contract by signature was formulated in L’Estrange v F Graucob Ltd [12]as discussed above. However, there are exceptions to the rule on signature in contract law. A person will not be bound by the signature if it is proved that the contract was signed and entered into as a result of misrepresentation, fraud and non est factum.[13]
There is a mistake on the value of the amount that Wayne owed Michelle. This is a unilateral mistake made by Michelle which in my opinion was discovered by Wayne but he did not disclose the same and proceeded to sign the contract as it was drafted by Michelle making the contract void. This can also amount to fraud in a contract that would vitiate the said contract. The fraud in this case is that Wayne in an attempt to defraud Michelle of up to 225,000£, insisted on executing the contract while being aware that the amount owing was not indicated properly in the contract document.[14]
Conclusion
Wayne and Michelle entered into a valid contract. The essentials of a valid contract including offer, acceptance, and consideration, intention to create legally binding relations, capacity and illegality existed at the time of negotiating the said contract.[15] However a mistake existed as a vitiating factor in the said contract; a unilateral mistake made by Michelle on the value of the loan owing and thereby making the already valid contract void in the circumstance.
Wayne is therefore liable to pay the loan owed of 250,000£ to Michelle and cannot rely on the contract that had a mistake which has rendered it void. There is no option for Wayne to avoid the liability and obligation towards Michelle.
Wayne has the option of instituting legal proceedings against Wayne for the loan owed. The only challenge that would exist in the said suit is that the contract entered into between the two parties has been voided because of the mistake in the contract document. However, if it is proved that Wayne was aware of his obligation and had acknowledged the debt owed to Michelle and had made an undertaking to pay the loan over a period of five years. He has no option but to honour the loan and cannot rely on the contract that has been voided as a result of the mistake.
References
Chitty, J. (2012) Chitty on contracts: General principles (Vol. 1). Sweet & Maxwell
Craig, P., & De Búrca, G. (2011) EU law: text, cases, and materials. Oxford University Press
Eisenberg, M. A. (2003). Mistake in Contract Law Cal. L. Rev., 91, 1573
Farrar, J. H. (2001). Corporate Governance in Australia and New Zealand Oxford University Press, USA
Lando, O., & Beale, H. G. (Eds.) (2000) Principles of European contract law: Parts I and II. Kluwer Law International
Latimer, P., & Latimer, P. (2011) Australian business law CCH Australia
McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press (UK)
Peden, E. (2001). Incorporating terms of good faith in contract law in Australia Sydney L. Rev., 23, 222
Sealy, L. S., & Hooley, R. J. (2009) Commercial law: Text, cases, and materials. Oxford University Press
Treitel, G. H. (2003). The law of contract Sweet & Maxwell
Vermeesch, R. B., & Lindgren, K. E. (2000) Business law of Australia Butterworths
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