Copyright Guy Harley 2008 1 Revision. Copyright Guy Harley 2008 2 Void, Voidable & Unenforcable Void Where one or more of essential elements of contract

1Copyright Guy Harley 2008

Revision


Void, Voidable & Unenforcable

Void Where one or more of essential elements of

contract are missing There is no contract

Voidable Parties have option to avoid contract Equitable remedy of rescission Valid & enforceable until one party rescinds


Rescission

Effect Contract is terminated ab initio (i.e. it is as

though there never was a contract) cancels the contract from the point of

termination Procedure

Innocent party rescinds by giving notice to the other party

Notice can be implied from conduct


Bars to Rescission

Third Party rights adversely affected Substantial restitution not possible Innocent party affirms contract Party wishing to rescind does not have “clean

hands” Lapse of time


Duress A contract entered into due to coercion or

force can be rescinded Coercion can be:

To the person; To goods; or Economic duress


Economic duress An economic threat that is not “legitimate” No rule that that commercial parties have to

be fair to one another A threat to break a contract can be economic

duress A lawful threat may be illegitimate


Undue influence The unconscionable use by one person of

power possessed by him over another in order to induce the weaker party to enter into a contract

Presumed in pre-existing special relationships where one party is in a position of trust and confidence

Called a “fiduciary relationship”


Fiduciary Relationships Parent & Child Guardian & ward Principal & Agent Trustee & Beneficiary Doctor & Patient Lawyer & Client Religious advisor & Follower More


Where No Special Relationship Weaker party must show that there is a

relationship of dependence, trust & confidence

Stronger Party exerted undue influence to the extent that the weaker party could not exercise an independent judgment

There must be more than mere reliance or influence

Weaker party must show that the contract would not have been made without the undue influence


Where no Special Relationship Court will look at:

The equality of the bargain The weaker party’s ability to make free and

independent choices Domination by one party Dependency on another Need for guidance, advice and support Low intelligence, weak mindedness, illiteracy Age & Health

Lack of independent financial or legal advice


Unconscionable Conduct One party takes advantage of the other

parties special disability to the extent that the contract is unfair or unconscionable Blomley v Ryan (S&OR p219\261) Commercial Bank v Amadio (S&OR p61\86)

Elements Special disability Absence of any equality between the parties Disability evident to other party


Mistake A party cannot get out of a contract because they

made a mistake Exceptions:

Mistake due to other party’s misrepresentation, unconscionable conduct etc.

Common mistake Mutual mistake Unilateral mistake Mistake as to nature of document


Common Mistake – Equity A common misunderstanding An important but not fundamental mistake Mistake through no fault of either party Unconscionable for one party to benefit from

mistake No bar to rescission


Mutual Mistake

Parties are talking about different things Both are mistaken Difficult to work out what parties intended No “meeting of the minds”


Unilateral Mistake - Equity One party is mistaken as to a

fundamental term; and Other party is aware, or should be

aware, of the mistake Mistaken party will suffer detriment if not

allowed to rescind


Unilateral Mistake – Common Law Mistake as to Identity

If Third Party rights involved, identity must be important

Mistake as to nature of document Non est factum


Mistake as to nature of document Radical difference between what was signed

and what party believed they were signing Mistaken party relied on others for advice

because unable to read document Understand document

Mistaken party not careless


Misrepresentation


History 1880’s – Caveat Emptor – Let the buyer beware Court of Equity

Relief for fraudulent misrepresentation Rescission was only remedy

Common Law Courts Relief for innocent misrepresentation only if it

became a term of the contract Tort of negligent misrepresentation Only remedy was damages


History 1970’s – Statutory Reform

S52 Trade Practices Act & s11 Fair Trading Act

Removed distinction between fraudulent, negligent and innocent misrepresentation

Built upon previous law regarding misrepresentation


Action for misleading or deceptive conduct (breach of TPA s 52, Fair Trading Act or

ASIC Act)

Action for damages for tort

of deceit (fraud)

Action for damages for

tort of negligence

common law misrepresentations

statutory misrepresentations

Causes of action for misrepresentation

Action for breach of contract

contract law


Elements of Misrepresentation Statement of material fact Statement was false Statement was addressed to the representee

before or at the time that the contract was entered into

Statement induced the representee to enter into the contract

Statement caused loss


Statement was one of fact Statement of past or present fact Not

a mere puff A misstatement of the law Statement of future intention

Unless no real intention at time of representation

Edgington v Fitzmaurice Usually, not an opinion


Statement was one of fact An opinion can be a fact where:

No genuine or actual belief in its truth No reasonable person could hold opinion The representor has special knowledge

Smith v Land and House Property Corp (Graw 12.4.3)

The existence of an opinion can be a fact Sola Optical v Mills (1987) 168 CLR 628


Statement was false Silence will not normally suffice Except

Distortion of a positive representation (half truths) Re Hoffman; ex p Worrell v Scilling Krakowski v Eurolynx (graw 13.3.2)

Altered circumstances With v O’Flanagan (Graw 13.3.2) Lockhart v Osman (Graw 13.3.2)

Where there is a fiduciary relationship Where contract is of the utmost good faith (e.g.

insurance)


Addressed to the Representee A representee cannot sue on a representation

that was not directed to him and was not intended to induce him into making the contract Peek v Gurney (S&OR p41\61)

But is sufficient if communicated to a third party with the intention that it would be communicated to the representee


Statement Induced Representee to Act Not necessary that it was the only reason for

entering the contract But it must be one of the reasons Representee cannot be aware of truth before

entering into the contract Holmes v Jones (S&OR p40\60)

Representee is not required to investigate Redgrave v Hurd (S&OR p41\61)


Categories of Misrepresentation Fraudulent misrepresentation Negligent Misrepresentation Innocent Misrepresentation Misleading & Deceptive Conduct Term of Contract


Fraudulent Misrepresentation Representor made a false representation of

fact Knowingly Without believing its truth or was reckless as to whether it was true or

false Can sue for damages for tort of deceit

whether a term of the contract or not


Fraudulent misrepresentation (deceit)

Liability for fraud cannot be excludedRemedy for fraudulent misrepresentation is damages

Step 1 A false representation

of fact was made (beware of promises, opinions or a

mere puffery)

Step 2 The representation was

intended to (and did) induce the representee to

act ; (eg, by creating a contract)

Step 3 The false representation was fraudulent: the representor knew the statement was

untrue, or was reckless as to its truth


Negligent Misrepresentation There was a misrepresentation Representor owed a duty of care to

representee Representor failed to exercise the required

standard of care Loss, which was a reasonably foreseeable

consequence of the misrepresentation, was caused by misrepresentation


Negligent misrepresentation

Did the representor owe a duty of care to the representee?

Were the representee’s losses caused by the

negligence and were the losses reasonably

foreseeable?

Step 1

Has the representor failed to exercise the required standard of

care?

Step 2 Step 3

Liability for negligence can be excluded by an exemption clause

Remedy for negligence is damages


Duty of Care

Fiduciary relationships Special relationships

A person gives information or advice on a serious matter where he knows, or ought to know, that he is being trusted to give the information and knows that the other party relies and acts on the advice (Shaddock v City of Parramatta)

Applies to experts and non-experts


Innocent misrepresentation Representor did not know it was false and

owed no duty of care to the representee Will be voidable for mistake No damages claimable But see s7 Misrepresentations Act


Misrepresentations Act Damages available for all misrepresentations,

including innocent misrepresentation Defence to misrepresentation if representor

can prove: Had reasonable grounds for believing

representation was true; or They were n ot person who made statement and

did not know that it had been made or that it was untrue


Misleading & Deceptive Conduct Section 52 Trade Practices Act No need for fraud or negligence


Misleading or deceptive conduct (statutory misrepresentation)

Prominent and clear disclaimers may affect liability. Remedies:

Damages (if the misleading or deceptive conduct representation caused the loss);

Contract created in reliance on the misleading conduct may be varied or declared void;

Injunctions; Other remedies (eg corrective advertising); Criminal sanctions are available for misrepresentations under

s 75AZC TPA.

Is the representee covered by the TPA,

ASIC Act and/or state legislation (eg FTA (Vic))?

What remedies are appropriate under the

relevant Act(s)?

Has the representee committed ‘misleading

or deceptive conduct’and was this ‘in

trade or commerce’?


Remedies for Misrepresentation Recission

Contract is void ab initio Not the same as termination

Damages


Capacity to Contract


Contracts with Minors Anyone under 18 years of age Contracts with minors can be

Valid – legally enforceable Voidable – legally enforceable until

repudiated by the minor


Contracts with Minors (Cont) Valid contracts

Supply of necessaries Contract for the supply of goods and services

that are suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery

Onus is one person seeking to enforce contract against minor

Nash v Inman Reasonable price not contract price

Beneficial contracts of service


Contracts with Minors (Cont) Beneficial contracts of service

E.g. apprenticeships Must be for the benefit of the minor

Ratification by Minor after turning 18 Contract becomes valid and enforceable

Documents

Copyright Guy Harley 2008 1 Revision. Copyright Guy Harley 2008 2 Void, Voidable & Unenforcable Void Where one or more of essential elements of contract