Transcript Slide 1
Revision
Copyright Guy Harley 2008
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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
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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
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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
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Duress
A contract entered into due to coercion or
force can be rescinded
Coercion can be:
To the person;
To goods; or
Economic duress
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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
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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”
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Fiduciary Relationships
Parent & Child
Guardian & ward
Principal & Agent
Trustee & Beneficiary
Doctor & Patient
Lawyer & Client
Religious advisor & Follower
More
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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
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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
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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
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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
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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
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Mutual Mistake
Parties are talking about different things
Both are mistaken
Difficult to work out what parties intended
No “meeting of the minds”
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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
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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
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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
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Misrepresentation
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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
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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
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Causes of action for misrepresentation
Action for
damages for tort
of deceit
(fraud)
Action for
damages for
tort of
negligence
common law
misrepresentations
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Action for misleading or
deceptive conduct
(breach of TPA s 52,
Fair Trading Act or
ASIC Act)
statutory
misrepresentations
Action for breach of
contract
contract
law
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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
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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
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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
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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)
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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
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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)
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Categories of Misrepresentation
Fraudulent misrepresentation
Negligent Misrepresentation
Innocent Misrepresentation
Misleading & Deceptive Conduct
Term of Contract
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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
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Fraudulent misrepresentation (deceit)
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
Liability for fraud cannot be excluded
Remedy for fraudulent misrepresentation is
damages
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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
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Negligent misrepresentation
Step 1
Did the
representor owe
a duty of care to
the representee?
Step 2
Has the representor
failed to exercise the
required standard of
care?
Step 3
Were the representee’s
losses caused by the
negligence and were the
losses reasonably
foreseeable?
Liability for negligence can be excluded by an
exemption clause
Remedy for negligence is damages
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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
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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
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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
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Misleading & Deceptive Conduct
Section 52 Trade Practices Act
No need for fraud or negligence
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Misleading or deceptive conduct
(statutory misrepresentation)
Is the representee
covered by the TPA,
ASIC Act and/or
state legislation
(eg FTA (Vic))?
Has the representee
committed ‘misleading
or deceptive
conduct’and was this ‘in
trade or commerce’?
What remedies are
appropriate under the
relevant Act(s)?
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.
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Remedies for Misrepresentation
Recission
Contract is void ab initio
Not the same as termination
Damages
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Capacity to Contract
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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
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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
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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
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