W5 Validity of Contracts
Thursday, 27 August 2020
13:43
Defences to claim a contract exists; party seeking to release obligation under it.
Mostly involve inappropriate way of obtaining contract
A. THE EFFECT OF A SUCCESSFUL CHALLENGE
General name for this branch of contract law; frustration
Consensus in idem tested objectively in scots law
Traditional view; successful challenge to apparently valid contract is to render it void or voidable
(null or annullable) or unenforceable or "illegal"
(1) Void; contract never existed; no contractual obligation usually void because lack
consent; features attached to void contract; no legal relationship under contract; void if no
consensus in idem or defective consent (no rational capacity)
1. No need for court decree contract is void
2. No one can acquire rights under such contract
May impose equitable solution between parties; e.g. unjustified enrichment that buyer enriched
(lucratus)
(2) Voidable; contract good + effective until avoided (action of reduction); once avoided,
treated as though never existed(renders contract retrospectively void). voidable where
party consents but consent tainted by way obtained by other party. Performances
rendered are contractual performances; contractual remedies available (usually goes to
court; contract set aside)
Avoidance can be effected under present law;
A. By intimation to other party to the contract ('recession ab initio") OR
B. By judicial decree of reduction; Available in sheriff court and court of session
Requirements for avoidance of a voidable contract:
A. Restitutio in integrum; must be possible for parties to be returned to original position
Key remedy, is not unjustified enrichment
B. The contract has not been affirmed by homologation: must not have been contact
where knowing about issue and taking no action to rectify it; personal bar
C. There has been no unnecessary delay in taking action to annul: don’t wait until contract
completed
"abstract" principle of property transfer - validity of transfer of ownership not dependant upon
validity of underlying contract
B. THE GROUNDS OF INVALIDITY
1. Force and Fear; vis ac metus; (threats and intimidation; duress in other systems);
coercion/ unfair pressure applied to secure one party's consent to contract; real consent
given. No consent where physically forced to give consent/ signed; vis compulsiva.
Threats must make reasonable person fear to be voidable. Force by third party can be
relevant. Degree of pressure/ force required for women + children less. Lawful threats/
pressure perfectly legitimate; threat of legal action; Voidable. Where weapon or actual
violence threatened; void. Economic pressure acceptable but illegitimate use voidable.
Intimidation can be delict for which damages can be recoverable. Not law that both
elements required.
2. Fraud (lies/ intentional deceit to obtain advantage) Fraudulent misrepresentation;
deliberately misleading statements to induce contract; Innocent party induced to enter
contract under error;delict, damages also recoverable. Scope since narrowed. Remedy
for fraud; reduction; contract voidable - restitutio in integrum must be possible. Mostly
criminal courts now.
3. Important because…
1. Error must be about past or present fact
2. Liability for fradulent conduct not exluded under exemption clause
3. Innocent party induced to enter contract under fraudulent misreoresentation can also
claim damages under delict
1. Facility and Circumvention (taking advantage of weakness). Facile person (weak-
minded; illness, elderly) imposed on unfairly and misleadingly liable to be influenced by
, persuasion and intimidation against own interests. No legal capacity. Contract/promise
void. Involves party taking unfair advantage of other by deception. 3 Elements present
before challenge, attempting to set aside contract, successful…
A. Weakness and facility (but not insanity which is a question of capacity)
B. Circumvention (falling short of fraud which involves intent to decieve)
C. Lesion (loss)
The greater the lesion and facility, the less circumvention required
Prevents "bad faith" in contracts
1. Undue Influence; (abusing trust); person fully capable is unduly influenced by person in
position of authority or trust (relationship of dependency); reducible. Any transaction
closely scrutinised to prevent abuse of position. Impacts both family + professional
relationships. Obligation of good faith doesn’t arise if debtor receives any benefit from
transaction.
2. Error; (mistakes) looks at victims error
Generally effects of grounds of invalidity make resultant contracts voidable. Where
perpetrator commits civil wrong, may be liable in damages to victim
Extreme cases of force and fear and some cases of error contract wholly void
Distinguish Errors (either facts or law; existing at time of contract or before) +
mispredictions about future
General unilateral error insufficient for reduction / avoidance of contract, must be "error
plus"- must show that wrong facts or law were held at time and how they induced trade
Error in substantials renders contract void
Bell's 5 categories of essential error (making error substantial):
(1) Subject matter
(2) identity of parties
(3) Price
(4) Quality
(5) Nature of contract
May be unable to avoid but can seek alternative remedy eg damages
Discussion falls into three parts:
Cases usually dealt with as examples of error but better explained as instances of
applying the objective approach to information of the contract;
Uninduced error (shared or unilateral) as a ground of avoidance; and
Error induced by an operative misrepresentation as a ground of avoidance.
Error in contract makes contract voidable; requires action of reduction
Error must be about fact or law and one of 5 essentials
A written contract cannot be avoided unless error was induced by misrepresentation of other
party or his agent.
A. Mutual error- both parties in error but different error; inability of court to tell whether
there is error at all; misapprehension as to each others intentions resulting in parties
being at cross purposes; dissensus (consensus in idem should be tested objectively);
no contract formed and purported contract void. remedy only when irresoluble latent
ambiguity in contract (not enough certainty about what contract means) result of
formation process must be sufficiently certain to make for an enforceable obligation.
B. common or shared error- both parties in same error (of fact/law); mistaken, shared
assumption about state of affairs on which contract is based, forming one of
substantial's (doesn’t include where one party misrepresents fact to other party) usually
about subject-matter of contract; uninduced so error has to be 'essential'. Error must
relate to past or present fact or law. Contract void. Error plus as both parties share
error.
C. Unilateral error- one party only mistaken to some element of contract, usually doesn’t
matter (plea of unilateral error disallowed). Exception to disallowed plea:
1. error caused by other parties misstatement of facts or law (either innocent or
fraudulent) which induced erring party to enter contract; misrepresentation
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