lecture four Flashcards
validity of a contract - 5 grounds for challenge
Capacity (void)
Force and Fear (voidable)
Facility and Circumvention (voidable)
Undue Influence (voidable)
Error and Misrepresentation
void vs voidable contracts
Void Contract: A legal nullity – treated as if it never existed.
Key features:
No court decree required (though it may be obtained).
No rights can be acquired under it (no good title transfer).
Voidable Contract: Effective until annulled.
Annulment can occur by:
Intimation to the other party.
Judicial decree (e.g., reduction).
Effect of Annulment: Retrospective nullity (contract treated as if it never existed).
Protection of Third Parties: If a third party acquired rights in good faith and for value before annulment, their rights are protected (McLeod v Kerr 1965 SC 253).
requirements for annulment
Restitutio in integrum must be possible
If full restoration isn’t possible, annulment may be denied.
Example: A railway built under a contract cannot be undone (Boyd & Forrest v G&SW Railway Co 1915 SC (HL) 20).
Contract has not been affirmed
No unnecessary delay in seeking annulment
force and fear (duress)
“Gun to the head” situations: Where consent is simulated due to coercion.
If consent is entirely absent → Void
If will is merely pressured → Voidable
Classic case: Earl of Orkney v Vinfra (1606) Mor. 16481
“For just fear he being compelled to subscribe it, the [agreement] was null.”
What constitutes force and fear?
Threats of physical violence
Threats of defamatory action
NOT threats to enforce legal debts (Priestnell v Hutcheson (1857) 19 D. 495)
Test for Duress (Hislop v Dickson Motors (Forres) Ltd. 1978 S.L.T. (Notes) 73 at 75):
Pressure must be enough to overpower an ordinary person.
Special circumstances of the victim must be considered.
facility and circumvention
Where a weakened party is tricked into a bad deal.
Three requirements (Mackay v Campbell 1967 S.C. (H.L.) 53):
Weakness and facility (age, illness, distress, mental state).
Circumvention (manipulation or deceit).
Loss or disadvantage.
Key case: MacGilvary v Gilmartin 1986 S.L.T. 89 at 90
If facility and lesion (disadvantage) exist, fraud doesn’t need to be proven directly—can be inferred from circumstances.
Other cases:
Anderson v The Beacon Fellowship 1992 SLT 111
Edgar v Edgar [2014] CSOH 60
Smyth v Romanes’ Executors [2014] CSOH 150
undue influence
When one party exploits a position of trust to gain an unfair contract.
To challenge a contract, must show:
A relationship of trust and influence.
The dominant party benefited unfairly.
The subservient party did not receive independent legal advice.
Key case: Gray v Binny (1879) 7 R. 332
“If … the relation of the parties is such as to beget mutual trust and confidence, each owes to the other a duty … the party trusted … is bound … not to abuse the power.”
Examples of undue influence found in cases:
Professional adviser & client: Honeyman’s Exrs v Sharp 1978 S.C. 223
Parent & child: Matossian v Matossian [2016] CSOH 21
general principle of error in contracts
“Those who err in the substantials of what is done, contract not.”
(Stair, Institutions I, 10, 3 – from Justinian’s Digest)
Error is one of the least settled areas of Scots law:
“At no point in the history of the Scots law of error has it been easy to explain what the law is. After 500 years of development the law is in material parts uncertain and conflicting.” (W.M. McBryde, 2000)
“The effect of error on the validity of a contract is one of the most uncertain areas in our private law.” (Wills v Strategic Procurement (UK) Ltd [2013], Lord Malcolm at 1)
types of error
Error preventing contract formation (Dissensus) – VOID
Uninduced mutual/shared error – VOID
Uninduced unilateral error – Sometimes VOIDABLE
Induced error (Misrepresentation) – VOIDABLE
error preventing contract formation (dissensus) - void
Occurs when parties misunderstand an essential term, leading to no consensus in idem.
Key Cases:
Muirhead and Turnbull v Dickson (1905)
Mathieson Gee Ltd. v Quigley (1952)
Stuart & Co v Kennedy (1885)
Raffles v Wichelhaus (1864) (English case)
Morrison v Robertson (1908) – No contract; cows reclaimed.
(B) Uninduced Mutual/Shared Error – VOID if it goes to the root of the contract
Definition: Both parties share the same fundamental mistake.
Examples:
Sale of Goods Act 1979, s6: Sale void if goods perished before contract.
MacQueen & Thomson Example: Painting destroyed before contract.
Hamilton v Western Bank (1861)
Parviaz v Thresher Wine Acquisitions Ltd (2009)
Legal Reasoning: Courts assume an implied suspensive condition (e.g., the subject matter must exist).
Uninduced Unilateral Error – Generally Allowed but Can Be Void/Voidable
Definition: One party is mistaken, but the other is not.
General Rule: Does not invalidate the contract—no obligation to correct a bad bargain.
Exceptions:
If the other party knew of the error and took advantage:
Sword v Sinclair (1771) – Void
Steuart’s Trustees v Hart (1875) – Voidable
Angus v Bryden (1992) – Would have been voidable
Wills v Strategic Procurement (2013) – Possibly voidable
Gratuitous Obligations: Void if entered into under essential error.
Hunter v Bradford Property Trust Ltd (1970): “Gratuitous obligations stand in a quite special position.”
General Rule for Unilateral Error (Test for Voidability):
Uninduced unilateral error
Goes to the root of the contract
AND one of the following:
Other party knew and took advantage (‘snatching at a bargain’)
Contract was gratuitous
Chee Kin Keong v Digilandmail.com Pte Ltd (2004) (Singapore case) – Example of ‘snatching at a bargain’
induced error (misrepresentation) - voidable
Definition: A party is misled into a contract due to another’s misrepresentation.
Key Principle: Unlike uninduced error, it does not need to go to the root of the contract—only needs to have influenced the party’s decision.
What Constitutes an Operative Misrepresentation?
Must be an inaccurate statement (fact or law).
Flynn v Scott (1949): A mere opinion is not misrepresentation.
McGhie v Morrison (2010)
Barr v Dunbar Assets Pld (2016)
Trade puffs (e.g., “Best beer in the world”) do not count.
Must be made to the pursuer
Forth Marine Insurance Co v Burnes (1848): “It is essential that these alleged misrepresentations should have been made to the pursuer.”
Silence usually does not count, unless:
Fiduciary duty exists (e.g., solicitor-client).
Utmost good faith contracts (e.g., insurance).
One realizes a past statement was false.
Half-truths are told.
Must have induced the other party into the contract.
consequences of misrepresentation
innocent Misrepresentation Contract voidable & price restored (if restitutio in integrum is possible). No damages.
Fraudulent Misrepresentation Contract voidable & price restored. Can sue for damages in delict (must prove dishonesty).
Careless (Negligent) Misrepresentation Contract voidable & price restored. Can sue for damages in delict (must prove duty of care).
Boyd & Forrest v Glasgow SW Ry Co (1915): If restitutio in integrum is impossible, contract cannot be avoided.
Fraudulent/Careless misrepresentation victims can either avoid the contract or sue for damages while keeping the contract.
