Contract Law: Misrepresentation, Duress, and Discharge

Posted on Oct 21, 2025 in Philosophy and ethics

What is Misrepresentation?

A misrepresentation is a false statement of fact. The key elements are:

  • It applies to statements that are inaccurate.
  • There is no requirement that the maker be dishonest.
  • The remedy may vary according to the nature of the misrepresentation.

Statement of Fact

Misrepresentation requires some form of words or actions (e.g., a nod of the head) that clearly convey a particular meaning. It must be a statement of existing fact (事實陳述). This can be contrasted with:

  • A statement relating to the future (e.g., speculation on the property market)
  • A statement of intention or a promise as to future conduct
  • A statement of opinion (意見陳述)

“…where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion… But if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts …involves very often a statement of a material fact…”

Silence as Misrepresentation

Generally, silence does not constitute a misrepresentation, but it can in the following circumstances:

  • If there is a partial non-disclosure of facts (e.g., stating a farm is let but failing to mention a notice of termination has been received).
  • If a person is under a duty to disclose and fails to do so (e.g., a contract of insurance requires utmost good faith).
  • Where it constitutes a failure to correct a statement that was previously true but has since become inaccurate.

Material Fact Requirement

To constitute a misrepresentation, the statement must relate to a material fact. It must be significant enough to affect a reasonable person’s judgment on whether to enter into the contract.

Inducement Requirement

The representation must have induced the representee to enter into the contract. If a false statement does not affect the decision to make a contract, it is not actionable. A misrepresentation will not be operative if the representee:

  • Knows that it is false and decides to contract anyway.
  • Is unaware of the statement and contracted in ignorance of it.
  • Ignores the statement.
  • Verifies the truth from other sources and does not rely on the representor’s statement.

Types of Misrepresentation

Depending on the intention of the representor, misrepresentation can be divided into three types:

  • Fraudulent misrepresentation (有欺詐成分的失實陳述)
  • Negligent misrepresentation (疏忽的失實陳述)
  • Innocent misrepresentation (無意的失實陳述)

Fraudulent Misrepresentation

A false statement is made:

  • With the knowledge that it is untrue;
  • Or without believing it to be true;
  • Or recklessly, not caring whether it is true or false.

The burden of proof (舉證責任) regarding the intention to deceive is on the representee.

Remedies for Fraudulent Misrepresentation

The remedies depend on whether the misrepresentation is a term of the contract.

  • If the fraudulent misrepresentation induced the contract but is not a term of the contract, the representee may:
    1. Rescind the contract; and/or
    2. Claim damages in the tort of deceit.
  • If the fraudulent misrepresentation becomes a term of the contract, the representee may:
    1. Sue for rescission; or
    2. Claim damages for breach of contract; or
    3. Claim damages in the tort of deceit (欺騙).

Negligent Misrepresentation

This is a false statement of fact made ‘carelessly,’ in the belief that it is true but without reasonable grounds for that belief.

Under the Misrepresentation Ordinance:

  • To establish a negligent misrepresentation, the representee only needs to prove that there was a misrepresentation.
  • The burden is then on the representor to prove that they had reasonable grounds to believe, and did believe up to the time the contract was made, that the facts represented were true.
  • If the representor cannot prove this, the representee’s claim for negligent misrepresentation will succeed.

Remedies: Rescission

Rescission involves returning the contracting parties to their original pre-contracting position.

Bars to Rescission

These are circumstances where rescission is not available as a remedy for misrepresentation, for example, when parties cannot be returned to their original pre-contracting position.

Four Kinds of ‘Bars’ to Rescission

  • Affirmation: The representee chooses to continue with the contract after discovering the misrepresentation.
  • Undue lapse of time: Taking too long to seek the remedy.
  • Unavailability of full restitution (原物歸還): It is impossible to restore both parties to their original positions.
  • Acquiring contrary rights by an innocent third party: If returning to the pre-contractual position will adversely affect an innocent third party.

Affirmation Explained

Misrepresentation makes a contract voidable rather than void. This means the representee may:

  • ‘Affirm’ (確認) and carry on with the contract when they are aware of the misrepresentation; OR
  • Rescind and cancel the contract.

Once the choice has been made, the representee may not change their mind.

Duress

Duress means illegitimate pressure put on a person to enter a contract. Types include:

  • Duress of person
  • Duress of goods
  • Economic duress (illegitimate economic pressure and coercion of the will)

Duress renders a contract voidable, not void. The party who suffered from duress can either affirm or avoid the contract.

Undue Influence

“A transaction can be set aside in equity if it has been procured by undue influence by one party A on the other party B, because it cannot fairly be treated as the expression of B’s free will.”

Undue Influence vs. Duress

  • Nature: Undue influence is an equity doctrine, whereas duress is a common law remedy.
  • Degree: The defendant’s conduct falls short of duress but still affects the exercise of the plaintiff’s free will.
  • Emphasis: Undue influence emphasizes an unfair disadvantage related to negotiation power.

Illegal Contracts

Illegal contracts have all the essential elements of a valid contract, but the courts will not enforce them because of their illegality. A contract may be illegal at common law or by ordinance.

Examples of Illegal Contracts

  • Contracts involving sexual immorality
  • Contracts to commit crimes
  • Contracts promoting corruption

Consequences of Illegal Contracts

  • No contractual rights arise from such a contract.
  • No action can be founded on such a contract, even by the innocent party.
  • Money paid or property transferred cannot be recovered.

Discharge of Contract

A contract comes to an end in four ways:

  • Performance
  • Agreement
  • Breach
  • Frustration

Discharge by Performance

This is the normal way in which contracts are discharged. The general rule is that both parties should perform their obligations precisely, completely, and exactly under the contract before it can be discharged.

Potential Unfairness of the General Rule

Scenario: If A contracted to sell 60 tons of rice to B for $10,000 cash upon delivery, but only 45 tons of rice were delivered, B is not liable to pay any amount of money under the general rule.

Four Exceptions to the General Rule

  • A divisible contract
  • Substantial performance of a contractual obligation
  • Acceptance of partial performance by the other party
  • Prevention of performance by the other party