6_-_defective_contracts

Report
Introduction
 A contract is defective if an aspect of the terms and
conditions fall under one of the following categories:
 Misrepresentation
 Mistake
 Duress
or undue influence
 Illegality
 Contractual Incapacity
 Defective contracts can result in either a void or a
voidable contract
Misrepresentation
 Conduct which amounts to an active attempt at
concealing a fact.
Types:
1. Innocent
2. Negligent
3. Fraudulent
 Makes a contract voidable with recession as a remedy

Walters v Morgan (1861) – Nod, wink, shake, smile

Gordon v Selico (1986) - Homeowners covered up dryrot in the house.

Compare: Horsfall v Thomas (1862) – The gun was not
examined before the purchase.
Opinion
 Bisset v Wilkinson (1927) – B purchased land to
raise sheep. W said it would hold about 2000 sheep,
but he had never raised sheep to know for sure.
When B tried, it was not close to 2000.
A person who gives an opinion about something will
not be liable unless he had special skill to cause them
to rely on that opinion – Esso v Mardon (1976)
“This washing powder washes whiter than white.”
Sales talk – Dimmock v Hallett (1866)
Future Intention
 Edgington v Fitzmaurice (1885) – Company claimed that
proceeds from the sale of debentures would go towards
improving the business, but they knew the money was
going to be used to pay off company debts
Will not be misrepresentation as long as the intention was
honest at that time, even if it changes.
Change in circumstances:
With v O’Flanagan [1936] Ch 575
Duty of Disclosure
Caveat emptor (buyer beware)
No general duty to disclose, so keeping silent is not
misrepresentation. – Turner v Green (1895)
Exception:
Latent defects, which a buyer could not reasonably
discover for himself by inspecting
See: Sykes v Taylor-Rose [2004] EWCA 299 – Murder
at house
Partial Revelation
Dimmock v Hallett (1866) LR 2 Ch App 21
Seller said the land was “fertile and improvable”, but
approximately ¼ of the land was useless.
Reliance
 Redgrave v Hurd (1881) – Offer to check books
 Doyle v Olby [1969] 2 QB 158 – No offer to check books
Sabrina went to buy a perfume shop in Aboutique Mall from David for
50k. David said, “This store brings in about 75k business a month.
You can check for yourself if you think I’m lying.” Sabrina, not
wanting David to feel bad about her not believing his numbers, she
said, “No I believe you.” and concluded the transaction.
After the first month, Sabrina barely made 10k and sued David. The
accounts clearly showed that the business was declining and if
Sabrina had checked, she would have noticed that before buying the
business. Is David liable for misrepresentation?
Fraudulent Misrepresentation
Once there is fraud, the fraudster will be liable for all
loss, whether foreseeable or not
Doyle v Olby (1969)
Honest Mistake:
Hedley Byrne v Heller (1963)
Maker of careless, honest mistake may be liable if
there is a special relationship
Negligent Misrepresentation
 Only when there is a breach of a fiduciary duty*
 Usually dishonest statement, but now careless
misstatement
Hedley Byrne v Heller [1964] AC 465
*Fiduciary: An individual in whom another has
placed the utmost trust and confidence
Remedies
 Rescission enables both parties to be restored to the original
positions.
 Will not be ordered by court where there is:
1.
Affirmation – Long v Lloyd (1958): Accepted repairs, but more
faults showed up
2.
Lapse of time – Leaf v International Galleries (1950): Fake
painting that was not noticed until 5 years later
3.
Impossibility of restitution – Clarke v Dickson (1858): Bought
shares right before the company was liquidated
4.
Third party rights affected – Car v Caldwell (1965): Car was
sold to a third party
Mistake
Jamille Broome
Introduction
•
A contract is defective if an aspect of the
terms and conditions fall under one of the
following categories:
•
•
•
•
•
•
Misrepresentation
Mistake
Duress or undue influence
Illegality
Contractual Incapacity
Defective contracts can result in either a void
or a voidable contract
Mistakes

An “erroneous belief”
Categories :
 Common Mistake – The parties make the same
mistake

Mutual Mistake – The parties are mistaken about the
same fact under different misapprehensions. “Offer
and acceptance” mistake


Raffles v Wichelhaus [1864] EWHC Exch J19
Unilateral Mistake – One party makes a mistake
 Hartog v. Collin [1939] 3 AER 566
Fundamental Common Mistakes

Mistake to title – cannot buy something you already
own: Cooper v Phibbs (1867)

Subject Matter does not exist
 Couturier v Hastie [1856] UKHL J3 – C was shipping
corn from Greece to UK and during the voyage, H
agreed to buy it when it arrived. The corn
decayed and H refused to pay.

Mistake by Identity –
 Mistake of identity makes the contract void ab
initio and therefore title was not passed to
fraudster, so it cannot pass from fraudster to third
party.
Mistake by identity: third party rights
Cundy v Lindsay (1877–78) LR 3 App Cas 459 – Man sent
letter imitating a reputable company to buy goods from
Lindsay. They knew the company well, so shipped goods.
He then sold goods to Cundy. Lindsay never received
payment.
Compare to:
Phillips v Brooks Ltd [1919] 2 KB 243 - Crook claimed to be
Sir Xxx at a jewellery store. They checked the phone book
to confirm his address and took £3000 cheque that
bounced. He then pawned jewellery for £350. Jewellery
store sued pawn shop
Ingram v. Little [1961] 1 QB 31 – Cheque payment for car
rejected by sisters until the man said who he was : Pearce
LJ “... an individual of apparent standing and
respectability”. Car later sold to Mr. Little
Frustration

Legal termination of a contract due to unforeseen
circumstances that
1.
Occurs after the contract has been formed;
render its performance illegal
2.


Is not due to the fault of either party; and
a.
e.g. Change in law or injury
When a frustrating event occurs the contract is
automatically discharged and the parties are
excused from their future obligations.
Frustration is not acceptable as an excuse where the
circumstance was foreseeable, and is not applicable
to certain types of contracts such as insurance
policies.
Impossibility of performance
McRae v Commonwealth Disposals
Commission [1951] HCA 79
Australian contract law case, relevant for
English contract law
Frustration not available when:

An alternative method of performance is
possible

The contract is merely more expensive to
perform

The event is brought about through one of
the parties' own conduct

The parties have made express provision for
the consequences of the particular event
which has occurred
Non Est Factum
“That is not my deed”
Can be relied upon if at the time of
entering the contract, the person was:
Tricked
Disabled
Not Careless
Non Est Factum
L’Estrange v Graucob [1934]
Not reading fine print was not an excuse
Saunders v Anglia Building Society [1970]
78 year-old lady was tricked into signing a
document without reading because she
had just broken a glasses

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