L6: Defects 1

Question 1

Explain Voidable vs Void

Answer 1

Voidable - A contract is regarded as valid until the innocent party chooses to rescind the contract or set aside the contract.

Void - the defect is so serious that the contract is invalid from the start.

Question 2

What is a misrepresentation?

Answer 2

It is a false statement of fact made by one party in the course of negotiations.

It is induces the other party to enter into a contract; and the statement of fact is material.

(which means the party relied on it to decide to enter into the contract)

Question 3

What is the effects of misrepresentation, and what may the innocent party entitled to do?

Answer 3

Contract is voidable and innocent party may choose to rescind the contract when he finds out the truth.

Question 4

To sue for misrepresentation, the innocent party must show that:

Answer 4

1. The other party made a false statement of fact
2. Statement was made material
3. They relied on the misrepresentation in deciding to make a contract

Question 5

State the 3 types of misrepresentation

Answer 5

1. Innocent Misrepresentation
2. Negligent Misrepresentation
3. Fraudulent Misrepresentation

Question 6

Can silence amount to misrepresentation and what are the two exceptions?

Answer 6

A person cannot be liable for not telling something unless:

1. There is a change in circumstances making an original statement untrue
2. Half-truths

Question 7

State the remedies avaliable for the 3 types of misrepresentation

Answer 7

Innocent - Rescission only

Negligent - Rescission or Damages

Fraudulent - Rescission, Damages and/or prosecution for crime of cheating

Question 8

State and explain the 4 limits to the rights of rescission:

Answer 8

1. Lapse of time
   - Must take steps to rescind the contract, if not lose the rights to rescind.
2. Party misled affirms the contract
   - If the party misled has full knowledge of the truth and chooses to go on with the contract, he cannot rescind.
3. Restitution is impossible
   - If goods are consumed/changed, buyer restitution is impossible.
4. Rights of 3rd party affected
   - If 3rd party acquired rights over item sold, rescission not available.

Question 9

Contract cannot be enforced on minors unless:

Answer 9

Contract for necessaries, education or for minor’s benefit.

Question 10

What is duress and the effects on the contract?

Answer 10

Duress is when parties is forced into a contract under a threat and does not give his free consent to the terms of contract.

Contract is voidable.

Question 11

State the 3 Types of Duress

Answer 11

1. To person
2. To goods
3. Economic duress

Question 12

State the 2 types of undue influence.

Answer 12

1. Actual Undue Influence

2. Presumed Undue Influence

Question 13

When will the bank be put on inquiry for undue influence?

Answer 13

When the relationship between the parties are non-commercial.

The bank must ensure that one had been advised by a lawyer regarding:

• Nature of transaction
• Risks involved
• Choice to proceed