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Copyright Guy Harley 2008 1 Revision
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Copyright Guy Harley 2008 2 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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Copyright Guy Harley 2008 3 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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Copyright Guy Harley 2008 4 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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Copyright Guy Harley 2008 5 Duress A contract entered into due to coercion or force can be rescinded Coercion can be: To the person; To goods; or Economic duress
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Copyright Guy Harley 2008 6 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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Copyright Guy Harley 2008 7 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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Copyright Guy Harley 2008 8 Fiduciary Relationships Parent & Child Guardian & ward Principal & Agent Trustee & Beneficiary Doctor & Patient Lawyer & Client Religious advisor & Follower More
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Copyright Guy Harley 2008 9 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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Copyright Guy Harley 2008 10 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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Copyright Guy Harley 2008 11 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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Copyright Guy Harley 2008 12 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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Copyright Guy Harley 2008 13 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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Copyright Guy Harley 2008 14 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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Copyright Guy Harley 2008 15 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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Copyright Guy Harley 2008 16 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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Copyright Guy Harley 2008 17 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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Copyright Guy Harley 2008 18 Misrepresentation
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Copyright Guy Harley 2008 19 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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Copyright Guy Harley 2008 20 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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Copyright Guy Harley 2008 21
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Copyright Guy Harley 2008 22 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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Copyright Guy Harley 2008 23 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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Copyright Guy Harley 2008 24 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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Copyright Guy Harley 2008 25 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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Copyright Guy Harley 2008 26 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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Copyright Guy Harley 2008 27 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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Copyright Guy Harley 2008 28 Categories of Misrepresentation Fraudulent misrepresentation Negligent Misrepresentation Innocent Misrepresentation Misleading & Deceptive Conduct Term of Contract
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Copyright Guy Harley 2008 29 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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Copyright Guy Harley 2008 30 Fraudulent misrepresentation (deceit) Liability for fraud cannot be excluded Remedy 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
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Copyright Guy Harley 2008 31 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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Copyright Guy Harley 2008 32 Negligent misrepresentation Liability for negligence can be excluded by an exemption clause Remedy for negligence is damages
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Copyright Guy Harley 2008 33 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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Copyright Guy Harley 2008 34 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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Copyright Guy Harley 2008 35 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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Copyright Guy Harley 2008 36 Misleading & Deceptive Conduct Section 52 Trade Practices Act No need for fraud or negligence
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Copyright Guy Harley 2008 37 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.
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Copyright Guy Harley 2008 38 Remedies for Misrepresentation Recission Contract is void ab initio Not the same as termination Damages
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Copyright Guy Harley 2008 39 Capacity to Contract
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Copyright Guy Harley 2008 40 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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Copyright Guy Harley 2008 41 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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Copyright Guy Harley 2008 42 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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