Defective Agreements - Past Paper PDF

Defective agreements How do I get out of this transaction?  Grounds of challenge Lack of capacity of one party negates consent Contract is unlawful (see W&B 12-01 – 12-23) Defects in consent Consent induced by force and fear Consent given while facile and through circumvention Consent giv...

Defective agreements How do I get out of this transaction?  Grounds of challenge Lack of capacity of one party negates consent Contract is unlawful (see W&B 12-01 – 12-23) Defects in consent Consent induced by force and fear Consent given while facile and through circumvention Consent given under undue influence Mistaken consent: error and misrepresentation  Effect of successful challenge Result depends Contract void or on ground of contract voidable challenge  Contract is void No No rights No protection Void ab contractual created or for third initio basis for parties transferred legal action  Contract is voidable Contract remains good until avoided. Conditions for avoiding a voidable contract: Restitutio in integrum must be possible. No unreasonable delay. Rights of third parties must not be affected. Contract must not have been ratified under s.4 ALCSA 1991 or affirmed under s.1 (3) RWSA 1995  Third party rights A sells thing to B under void contract. B sells thing to C. C does not acquire title (ownership) and A recovers thing from C. A sells thing to B under voidable contract. B sells thing to C before A avoids the original contract. C acquires title. A cannot recover thing from C. This assumes C has purchased thing for value and does not know of the defect in the original contract between A & B. See Morrison v Robertson & Macleod v Kerr (W&B 6-03)  Third party rights Morrison v Robertson Macleod v Kerr M thought he was contracting There was no error as to identity with Wilson not T. The contract between K and G The contract with T was void. was voidable not void. There was an error as to the The misrepresentation did not identity of the other party. induce essential error. M had been induced T by Since the contract was voidable not void, it could only be misrepresentation of T avoided if restitutio was (essential error). possible. As the car had been M entitled to get cows back resold, it was not, so the from R. contract had to stand. Capacity General rule: All Exceptions : Contracts entered persons, natural children, incapable into by persons and legal, have adults, the capacity to enter intoxicated; enemy lacking capacity contracts aliens are void Children Governing authority is Age of Legal Capacity (Scotland) Act 1991 Contractual capacity is attained at age 16 ALCSA s.1(1)(b) Children under the age of 16 have no contractual capacity except as provided for by s.2(1) Any purported contract is void ab initio s.2(5) The law affords some protection to persons aged 16-17 in respect of prejudicial transactions. See S.3 Prejudicial transaction is defined in s.3(2) Persons contracting with 16-17 year olds may obtain protection by ratification of transactions under s.4 Others Incapable adults lack capacity Their affairs are administered by others either exercising a power of attorney or as guardian under Adults with Incapacity (Scotland) Act 2000 Part 6. Persons intoxicated beyond ability to reason lack capacity Erskine, 1, 3,16 (W&B 5-05) See also X v BBC CSOH 80 (W&B 5-05) What if a benefit has passed? Any benefit passed under the void agreement may be recovered via unjustified enrichment See Morgan Guaranty Trust Co of New York v Lothian RC 1995 SC 151 Cantiere san Rocco SA v Clyde Shipbuilding & Engineering Co Ltd AC 226 Force and Fear Contract void when affected by force and fear. Sufficient to overcome the will of an ordinary person Threat of immediate violence: Earl of Orkney v Vinfra (1606) Mor 16481 (W&B 6-04) Threat of lawful action will not found a claim: Hunter v Bradford Property Trust Ltd 1977 SLT (Notes) 33 (W&B 6-05) Other threats: Hislop v Dickson Motors (Forres) Ltd 1978 SLT (Notes) 73 (W&B 6-06) Facility and McGilvary v Gilmartin 1986 SLT 89 circumventi on Necessary Elements: Facility Circumvention Lesion A person in a weakened state of mind, persuaded or pressured into entering the contract, and has suffered loss as a result. Contract voidable Undue Influence “Where there is a relationship between the grantor and grantee of a deed which creates a dominant and ascendant influence where confidence and trust arises from that relationship, where a material and gratuitous benefit is given to the prejudice of the grantor and where the grantor does not have independent advice or assistance, undue influence may be inferred.” Per Lord Shand: Gray v Binney (1879) 7 R 332, 347 (W&B 6-10) Contract voidable Elements: Advantage taken of relationship of trust other relationships? Position of influence (see: Smyth) dominant/ subordinate parties Material and gratuitous benefit to stronger party Lack of independent advice for weaker party Next …………….. Error and misrepresentation