Defective Contracts (L7)

Question 1

What are the two kinds of invalidity?

Answer 1

Formally invalid.
- Defective in relation to form.
- Requirements of Writing (Scot) Act 1995.

Essentially invalid.
- Defective in relation to consent.
- Consensus in idem.
- Objectively determined.
- Consent freely given.
- Contract can be set aside.

Question 2

What are the types of invalidity?

Answer 2

Void (null).
Voidable (annullable).
Unenforceable.

Question 3

What are the different terms for void contracts?

Answer 3

Null.
Null ab initio.
Still-born.

Question 4

What is the effect of a void contract?

Answer 4

As if the contract never existed.
No legal consequence arises from the contract.

Question 5

What are the consequences of a void contract?

Answer 5

No court action required if undisputed.

A party can rescind contract.
- Oral contracts.
- Notification to other party.

A party can reduce contract.
- Written contracts.

Question 6

What are some relevant cases surrounding void contracts?

Answer 6

Morrison v Robertson.
- Question of who owned the cows given that the contract was under false pretences?
- Initial contract held to be void. Telford therefore never owned the cows and could never sell them.
- So Morrison was entitled to have the cows returned to him.

Morgan Guaranty v Lothian Regional Council 1995.
- Council had no authority to enter into the type of contract. Ultra vires.

Question 7

What factors may lead to a void contract?

Answer 7

Dissensus.
Lack of capacity.
Force and fear.
Error (sometimes).

Question 8

What are the different terms for a voidable contract?

Answer 8

Voidable.
Annullable.

Question 9

What is the effect of a voidable contract?

Answer 9

Contract has been formed.
External factor known after formation.
Often improper negotiations.

Question 10

What are the consequences of a voidable contract?

Answer 10

Recission.
Reduction.
- Written document.
- Court decree.
- Contract is not null ab initio.
Voidable.

Question 11

What does it mean that a contract is voidable?

Answer 11

Some consequences may already have arisen.
Third parties may have acquired rights.
- Macleod v Kerr 1965.
-Fraudulent cheque signed for car.
- DIFFERENT TO MORRISON V ROBERTSON.
- Identity of buyer did not change whether seller was willing to sell.
- There was a contract of sale, but it was voidable.

Question 12

Voidable contracts and third parties.

Answer 12

Third party must be “in the good faith and have given value”.
- Good faith.
- No knowledge/notice that transaction is flawed.
- No constructive notice (should have known there was a flaw).
- Giving value.
- Onerous transaction (not gratuitous).

Question 13

What factors may lead to a voidable contract?

Answer 13

Fraud.
Misrepresentation.
Facility and circumvention.
Undue influence.
Error (sometimes).

Question 14

What amounts to recission?

Answer 14

Contacting the police was not enough cf England.
Other contracting party must be notified.
Possibly application to court is enough cf McBryde.

1. Rescinding party must not be personally barred.
   - No unnecessary delay.
   - No affirmation of the contract.
2. Restitutio in integrum must be possible.
   - Return parties to original position.
   - Boyd & Forrest v Glasgow & SW Rly Co 1915.