Name of subject and class

Business Law [MCR009C]

Assessment 2

Topic of Assessment
Misrepresentation, Mistake, and Duress
Their Impact on Contract Validity

Student Name and ID number

Goswami Mayankgiri 1567723

Sunnypreet Singh 1630623
Nandu Soman 1586604
Alex Jacob Sony 1591346

Lecturer: John McSwiney

Introduction
This report analyzes the legal concepts of contract law, which plays crucial
role in defining the validity and pressure of agreements, such as
misrepresentation, mistake, and duress. Misinterpretation takes place when
one party sets terms and conditions based on false or misleading
information, with another party. In addition mistakes can occur due to
misunderstandings or wrong beliefs held by one or both parties about a
particular or multiple aspect of the agreement. On the other hand, duress
can be observed when a dominant party pressurizes the other party to agree
on its terms and conditions with unlawful acts, it basically unable the party to
give its genuine consent.
Moreover, through an in-depth analysis of legal case studies, this report
identifies how each concept can effect the contractual obligations and
outcomes. Cases such as Gould v Vaggelas signifies the consequences of
misrepresentation, whereas, McRae v Commonwealth Disposals Commission
demonstrates the role of mistakes in contract conflicts. In addition, ANZ
Banking Group v Karam undermines the impact of economic duress (Peari
2024).

Misrepresentation
Misrepresentation is when a party makes a statement which is untrue before
the contract is signed, to get the other party to enter into the contract. There
are various ways for misrepresentation to occur from verbally stating a false
fact in a meeting to not telling the party important information. This may
result in suffering of losses for the latter party.

Types of Misrepresentation
 Innocent misrepresentation: When the statement given was not
intentional and the person giving the statement genuinely did not
know about the fact given by them being false.
 Fraudulent misrepresentation: When someone gives a false
statement with the intention on which other party relied during
negotiations and signed contract, which made them suffer losses in the
transaction.
 Negligent misrepresentation: When a person who may or may not
be a professional advisor on the matter, gives advise, knowingly it may
be acted upon, does not check the information regarding the advise.
Consequences
 Contract void.
 Sue for damages.

Case Study
Gould v Vaggelas (1985) 157 CLR 215
Mr. Vaggelas was selling his motel in North Queensland and Mr. Gould
wanted to buy it. Mr Vaggelas made many statements during the
negotiations that the motel was profitable. He showed false financial
statements such as accommodation receipts, bar and gift shop recipts to
further his claim. Mr. Gould relied on these statements and purchased the
motel. He ran that motel and found that the profits Mr. Vaggelas said were
manipulated and increased and in reality, the profits were low. So, he sued
Mr. Vaggelas for damages due to fraudulent misrepresentation. The court, in
this case, found that Mr. Vaggelas did indeed make the false statements, on
which Mr. Gould did rely. Due to which he had to suffer a loss. The court then
ruled in favor of Mr. Gould and the contract of sale was rescinded. Along with
that Mr. Vaggelas was asked to pay for the damages that Mr. Gould had
suffered due to this transaction.

Strategies to mitigate risks of misrepresentation

 Businesses should ensure that they are honest in their dealings with
others.
 Businesses should not give advice or facts without fact checking them.
 Businesses should document all the meetings and communication in
writing.

Mistake
The field of mistake in contract law is complicated. In most cases, even if a
party makes a basic error, it does not provide them with the ability to avoid
their contractual duties due to that error. Under Australian contract law, an
error can significantly affect the legality and enforceability of a contract.
When one or both sides fail to notice something important regarding the
conditions of the contract, it is a common error. Two scenarios are identified
by Australian court decisions as typical error scenarios. When there was a
clear discrepancy between the quality of the thing the contract was founded
on and what both parties were depending on as an objective reality If one of
the contracting parties was negligent or dishonest, the error will not be
regarded as a common mistake.
Types Of Mistakes
Contract errors can take many different forms in addition to the usual ones.
All of them fall into one of three primary categories:
 Common mistake
 Unilateral mistake
 Mutual mistake

Common Mistake
When both parties have factual errors on the agreement's subject matter,
this is a typical mistake. The court may decide to nullify the entire
agreement if the error is substantial and pertains to a basic fact.

Unilateral Mistake
The most frequent type of error is unilateral; it happens when one side
believes they have a contract that is accurate while the other does not.
Although equity will step in more frequently in cases of unilateral mistake
than the common law, equity does necessitate certain unlawful behavior on
the side of the unmistaken party, whereby that person attempts to keep the
other party from learning of the mistake. When this occurs, there is
frequently deceptive behavior involved, for which there are better and
separate solutions. When an actionable error occurs, rectification or
rescission is the appropriate remedy.

Mutual Mistake
When two parties to a contract misunderstand one other and come to
differing opinions about the terms of the agreement, this is known as a
mutual mistake. This can be a mistake done in relation to a deal or proposal,
when the parties are frequently blind to each other's thoughts and have
different ideas about what they want to accomplish.

Case Study
McRae v Commonwealth Disposals Commission (1951)
The 1951 case of McRae v. Commonwealth Disposals Commission A
significant case pertaining to common error and contractual liability in
Australian contract law is HCA 79. Said to be on Jourmand Reef, the McRae
brothers were sold a nonexistent tanker by the Commonwealth Disposals
Commission (CDC). When McRae found there was no tanker or reef, he filed a
lawsuit for damages and breach of contract. The Australian High Court found
in favor of McRae, dismissing the CDC's argument that the contract was null
and void because the tanker never existed. The court determined that CDC
bore the risk and was accountable for it as it had guaranteed the tanker's
existence. The court emphasized that McRae depended on the CDC's
guarantee, setting this case apart from Courturier v. Hastie (1856). McRae
received compensation for his squandered expenses. According to this case,
there is a breach when one party promises the existence of a subject matter
when it doesn't, and the other party will be awarded damages for their
reliance on the promise. It is relevant to contract law in both Australia and
England.
Duress
In the context of contracts, duress is the term used to describe
circumstances in which an individual is coerced into signing a document they
otherwise would not have. Coercion is the most prevalent type of duress. In
other words, when someone threatens you with harm if you refuse to sign
the agreement. While an individual acts beyond his or her passions, although
remaining conscious of the choice, this situation generally indicates pressure.
The agreement will be declared invalid when the judge finds an "illegitimate
pressure" involved. It is possible to arrive at a contract in a forceful, rough,
and occasionally physically violent way. There is a chance that a contract
won't benefit everyone, and the law doesn't demand it. As a result, even
when unfavourable consequences for one party in a contract are cause for
concern, they do not always indicate improper pressure. The court evaluates
all the specific facts and actions of the parties both during and before the
contract's signature.

Types of Duress
 Physical Duress: Physical coercion can be applied to an individual
or an item. If someone claims they were under duress when signing a
contract, they must prove that they received threats from the
opponent and show that this intimidation is the cause of why they
accepted the agreement. After that, the opposite party is responsible
for convincing the judge that the victim was not coerced into signing
the contract by threats.
 Economic Duress: Occurs when one party attempts to force another
into signing a contract by using economic pressure or threats of
money. Another instance could be when one party threatens to
terminate an ongoing agreement until the other side consents to sign a
new one. If a plaintiff can demonstrate that they were left with no
choice but to sign the contract, the court may set aside the contract.

Legal Consequences
Duress-related contracts are voidable and the party who signed them has the
choice to follow through on them or not. A party may be entitled to recover
any losses they may have suffered if the court determines they were coerced
into a contract while under duress.

Case Study
ANZ Banking Group v. Karam (2005) 64 NSWLR 149
Records in ANZ v. Karam show that the Karam family entered several
financial agreements with ANZ Bank while experiencing extreme economic
distress. The family was persuaded to sign a "Letter of Support" for their
corporate debts, even though they were beginning to understand the
implications. Subsequently, they stated they were under economic duress
when they signed the agreement because ANZ threatened to foreclose on
their loans, putting them under intense pressure. Despite the Karams' severe
financial strain, the New South Wales Court of Appeal determined that there
was no duress because ANZ had behaved legally. Although ANZ's actions
were viewed as coercive, the court determined that duress must involve
unlawful threats or coercion, and in this instance, ANZ's actions were legal.

Strategies for Businesses to prevent the risk of duress

claims:
 Refrain from using undue pressure or forceful techniques on the
bargaining table.
 Before executing a contract, ensure that everyone involved has easy
accessibility to independent lawyers.
 Make thorough evaluations to ensure vulnerable individuals will not be
exploited or misled.
Establish transparent and equal negotiation methods, especially when
engaging with persons or organizations with lower negotiating strengths.

Conclusion
In conclusion, misrepresentation, mistake, and duress are three crucial
concepts of legal contract law, these concepts plays a vital role in the
enforceability and validity of contracts. In the case of misinterpretation, if
one party starts the contract through misleading information, the another
party whether innocent, negligent, or fraudulent, can terminate the contract
immediately. Mistakes, particularly mutual, can result in nullification of
agreements from both parties misunderstand, when they misunderstood the
key aspects of the contract. In terms of duress, whether its physical or
economic, highlights free consent, which allows the affected party to choose
the option to rescind the agreement.
The case studies such as Gould v Vaggelas, McRae v Commonwealth
Disposals Commission, and ANZ Banking Group v Karam, highlights that
businesses can implement various strategies according to the scenarios.
These examples demonstrates the significance of ensuring that all
contractual agreements are based on accurate information, mutual
understanding, and voluntary consent.
It is essential for businesses to adapt transparent practices, comprehensively
record negotiations, and avoid pressurizing parties, during the contracting
process, to reduce and mitigate the risks.
References
Peari, S., 2024. Should No Further Books Be Written on the Law of Unjust
Enrichment?. Canadian Journal of Law & Jurisprudence, pp.1-20.
Derry v Peek (1889) 14 App Cas 337 (HL). Available at:
www.bailii.org/uk/cases/UKHL/1889/1.html [Accessed 08 October 2024]
LawTeacher. November 2013. Derry v Peek - 1889. [online]. Available at:
https://www.lawteacher.net/cases/derry-v-peek.php?vref=1 [Accessed 12
October 2024].
Gould v Vaggelas (1985) 157 CLR 215. Available at:
https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1984/68.html?
context=1;query=gould%20v%20vaggelas;mask_path= [Accessed 10
October 2024]
Misrepresentation (2018). Available at:
https://www.lawhandbook.sa.gov.au/ch10s03s06.php [Accessed 08 October
2024]

McRae v Commonwealth Disposals Commission [1951] Available at:

https://uollb.com/blogs/uol/mcrae-v-commonwealth-disposals-commission-
1951?srsltid=AfmBOoooZJGZppNQdF_CyV8AnbfLkniLl-
9klucXwzQhZFdSfsiiKjWJ [Accessed: 09 October 2024]

Mistakes in Contract law Available at:

https://sprintlaw.com.au/articles/mistake-of-contract/
[Accessed:09 October 2024]

Tetzlaff, N. (2023) What is duress in contract law?, Smith and Partners.

Available at: https://smithpartners.co.nz/business-law/contract-law/contract-
law-duress/ [Accessed: 08 October 2024].
Duress (2023) Corporate Finance Institute. Available at:
https://corporatefinanceinstitute.com/resources/management/duress/
[Accessed: 09 October 2024].
Justisone. Available at: https://app.justis.com/case/australia-and-new-
zealand-banking-group-ltd-v-karam/overview/c5CtnWmdo1Wca [Accessed:
10 October 2024].
Unconscionable conduct. Available at:
https://www.michaelkirby.com.au/images/stories/speeches/2000s/2009%2B/
2352A.Foreword_-__Unconscionable_Conduct_2Nd_Edition.pdf [Accessed: 10
October 2024].
Law central legal. Available at:
https://www.lawcentrallegal.com.au/article.asp?ArticleID=1477 [Accessed: 12
October 2024].
ANZ Banking Group Ltd v Karam (2005) 64 NSWLR 149.