4. Vitiating Factors - MCQ Flashcards
A client bought a business for £180,000 having been deliberately misled by the seller as to the gross profit made by the business. After running the business for a few months the client discovered the fraudulent misrepresentation. The client was advised to continue running the business (albeit at a loss) and to try to sell it. The sale of the business went through last week. It sold for £80,000.
If the client sues for misrepresentation, which of the following best explains how damages would be assessed?
A) On an expectation loss basis.
B) On a reliance loss basis for wasted expenditure that was not too remote.
C) On a tortious basis for all consequential losses.
D) On a tortious basis and so would not extend to any loss of profit.
E) For any loss that was not too remote the client would get damages to put him in the same position as if the misrepresentation had not been made.
C is correct. Damages under s 2(1) are awarded on the same basis as if the misrepresentation had been made fraudulently and so extend to all consequential losses and the measure is as if the misrepresentation had never been made.
A and B are wrong as they are ways of assessing damages for breach of contract.
D is wrong as damages for loss of profit may be assessed on a tortious basis (East v Maurer).
E is wrong as all consequential losses are recoverable – remoteness is not an issue.
In May a buyer entered into a contract to buy a beauty salon having been deliberately misled by the seller as to the gross profit made by the salon over the previous three years. The buyer made extensive alterations to the salon including the addition of a new treatment room. Then in August the buyer discovered the fraudulent misrepresentation and decided he no longer wanted the salon.
Could the buyer rescind the contract of sale?
A) No, because rescission would be barred by undue delay.
B) No, because rescission is an equitable remedy and damages would adequately compensate the buyer.
C) No, because restitution is impossible.
D) Yes, because rescission is potentially available for all forms of misrepresentation and the buyer has not affirmed the contract.
E) Yes, because rescission is always available for fraudulent misrepresentation.
C is correct. As the buyer made extensive alterations to the salon including the addition of a new treatment room restitution would be impossible.
A is wrong as rescission would not be barred by delay. With fraudulent misrepresentation time runs from discovering the misrepresentation.
B is wrong as rescission may be awarded in addition to damages.
D is wrong. Rescission is potentially available for all forms of misrepresentation but would be barred on the facts as restitution is impossible.
E is wrong as rescission is not available as of right for any misrepresentation.
A client saw a vase in an antique shop. The client thought it was very rare and worth far more than the price asked. The owner of the shop overheard the client telling someone this on the phone. The owner knew the vase was not rare and valuable but did not tell the client. The client bought the vase and has now discovered the vase is worth less than the price paid.
Does the client have a cause of action against the owner of the shop?
A) Yes, because the owner of the shop made a misrepresentation: the owner should have corrected the mistake.
B) Yes, because the owner of the shop would be in breach of an implied term that the sale price was a reasonable price for the vase.
C) Yes, because the owner of the shop made a fraudulent misrepresentation by positively deceiving the client.
D) No, because the general rule is ‘buyer beware’.
E) No, because the client acted unconscionably in trying to buy the vase for less than it was worth.
D is correct The general rule is ‘buyer beware’
A is wrong. The owner of the shop had not made a misrepresentation. Generally there is no obligation to say anything unless specifically asked.
B is wrong. The price was agreed. Consideration need not be adequate – see Chapter 3.1.1.
C is wrong as there was no positive deception; indeed there was no misrepresentation at all.
E is wrong. There is nothing wrong in trying to secure a good bargain.
A client manufactures precision parts for the motor industry. Six months ago it won a lucrative contract with a major car manufacturer. To fulfil this contract the client reached agreement with a tool making company (‘the Company’) to supply certain equipment by the end of last week. Two months ago the Company told the client that it had underestimated costs and would have to charge an extra £6,000 if it was to carry on. The client protested but reluctantly agreed as it could not find another manufacturer to do the job. The equipment was made on time and the client paid the Company £16,000 (ie the original contract price plus the extra £6,000) on delivery.
Which of the following statements best describes the legal position?
A) The client’s promise to pay more would not be binding as the Company had given no consideration for it.
B) The contract with the Company could be set aside and the client would be refunded £16,000 because the promise to pay extra was made under duress.
C) The contractual variation would be binding because the Company had conferred a practical benefit and exerted no duress, just hard commercial bargaining.
D) The Company had provided consideration for the extra £6,000 but the variation would be voidable because of duress.
E) The promise to pay more money would be voidable because of duress but rescission would be barred.
The correct statement is D.
A is wrong because performance of an existing duty owed to the other party may be consideration if it confers a practical benefit.
B is wrong because even if the promise to pay more was made under duress it is only the variation that could be set aside in which case our client would be entitled to have £6,000 refunded.
C is wrong because the Company most likely exerted duress, ie made an illegitimate threat that left our client with no practical choice and was a significant reason for promising to pay more.
Finally, E is wrong because on the facts there is nothing to suggest that rescission would be barred eg by delay. Affirmation would not apply as it appears the client had to pay the total price (including the extra) in order to take delivery of the goods.
A client, an elderly widow, consulted her bank manager (‘the Manager’) over plans to sell her house. The client had often sought advice from the Manager on financial matters. The Manager offered to buy the client’s house at the current market estimated price. The client accepted the offer and the sale was completed eight months ago. House prices have now risen by 25% and the client wants the sale to the Manager set aside.
Which of the following best explains the legal position of the client?
A) The sale would be set aside because there was actual undue influence.
B) The relationship between the client and the Manager was based on trust and confidence and as the sale calls for an explanation it might be set aside.
C) Your client would be able to raise a presumption of undue influence but rescission would be barred as the Manager was a bona fide purchaser.
D) The sale would be set aside because it would be irrebuttably presumed that there had been undue influence exerted by the Manager.
E) For the sale to be set aside the client would have to prove undue influence and that an award of damages would be inadequate.
The correct statement is B.
A is wrong because it is unlikely on the facts that your client could establish actual undue influence.
C is wrong because for rescission to be barred by a bona fide purchaser, the bona fide purchaser must be a third party who has subsequently acquired rights in the property.
D is wrong because undue influence is never irrebuttably presumed. Some relationships are irrebuttably presumed to be fiduciary in nature eg solicitor and client.
E is wrong for two reasons – firstly, undue influence does not necessarily have to be proved (it may be presumed) and, secondly, the only remedy for undue influence is rescission (not damages too).
A client and her husband jointly own the family house (‘the house’), which is mortgaged
to a bank (‘the bank’). The client is disabled and cannot work but manages the family finances. The husband owns a small business. To expand the business the husband approached the bank for a loan. The bank agreed on condition it had a second charge on the house. The client was loathe to re-mortgage the house but was eventually persuaded by her husband. The bank manager went to the house to see the couple. The client said she understood the risks and signed the necessary paperwork. The husband defaulted on the loan and the bank is seeking to repossess the house.
Would the client have any ground(s) for arguing that the re-mortgage should be set aside?
A) Yes, because undue influence by the husband would be presumed and the bank had actual notice of it.
B) Yes, because undue influence would be presumed and the bank did not insist the client took independent advice.
C) Yes, because the client may be able to establish actual undue influence by the husband and that the bank had constructive notice of it.
D) No, because the bank was not put on inquiry of any undue influence and the client understood the risks.
E) No, because the wife managed the couple’s finances and was aware of the risks involved in re-mortgaging the house.
C is correct. The client may be able to show actual undue influence (Daniel v Drew). The bank should have been put on inquiry as the relationship between the client and debtor was non- commercial and the loan was not for their joint benefit. The bank does not appear to have had a private meeting with the client to explain the risks and she did not take independent advice: so the bank would have constructive notice of the undue influence.
A and B are wrong. Undue influence would not be presumed as the relationship between client and husband was not by its nature or in fact one of trust and confidence. She managed the finances, had been loath to re-mortgage the house and said she understood the risks. Also there is no evidence the bank had actual notice of undue influence.
D is wrong. The bank should have been put on inquiry as the relationship between the client and debtor was non-commercial and the loan was not for their joint benefit.
E is wrong because there appears to have been undue influence of which the bank had constructive notice.
