Defective Contracts Flashcards
1
Q
What are the two different types of invalidity?
A
- Formally invalid – defective in relation to form
- A contract can be formally invalid if not in the correct form from the legislation.
- Requirements of Writing (Scot) Act 1995
- (recorded)
- Essentially invalid – defective in relation to consent
- Relates to the consent of the parties and the fundamentals of contract formation that the parties are agreed and in the same right of mind in regards to the contract.
- Consensus in idem
- Objectively determined
- Consent freely given and if there is a defect in that consent then the contract may be invalid.
2
Q
What are the different types of invalidity for essential invalidity?
A
Void (Null) -
Voidable (annullable) - Unenforceable - an unenforceable contract does not destroy the contract, it still exists but the law decides it can no longer be enforced.
3
Q
What happens when a contract is void?
A
As if the contract never existed
Matthieson Gee
4
Q
What are the consequences of a void contract?
A
No Court Action Required
If undisputed: Recission/rescind Oral contracts e.g sale Notification to other party Reduction/reduce Written contracts e.g. Missives of sale.
5
Q
What was the principle derived from Morrison v Robertson?
A
Where identity is essential to consent, deception voids contract entirely. Third parties cannot acquire title under void contracts.
6
Q
What is the principle derived from Morgan Guaranty v Lothian RC 1995?
A
Where a party lacks capacity, contract is void. Remedy may lie in unjustified enrichment, not contract.
7
Q
What is the effect of voidable contracts?
A
Valid and binding until rescinded.
* Arise from improper conduct (fraud, misrepresentation, undue influence).
* Third parties can acquire rights if:
○ They act in good faith
○ Provide value
8
Q
What is the third party acquisition of rights in a voidable contract caselaw?
A
Macleod v Kerr (1965)
* Facts: Rogue used stolen cheque to buy car, sold it to dealer before fraud discovered.
* Held: Contract was voidable, not void. Since dealer acted in good faith and gave value, they retained title.
* Principle: Where seller is not mistaken about identity (not essential), fraud renders contract voidable, not void. Title can pass to third party.
9
Q
what are the requirements to rescind a contract?
A
To rescind a voidable contract:
1. No personal bar – no delay or affirmation.
2. Restitutio in integrum must be possible – parties return to original positions.
🔸 Key Case: Boyd & Forrest v GSW Rly Co (1915)
* Principle: Restitutio must be practically possible for rescission.
10
Q
What are the three grounds for challenging a contract?
A
- Fraud (Dolus) – Deceptive conduct
- Error – Mistaken belief impacting consent
- Force and Fear (Metus) – Coercion or intimidation
11
Q
What are the three different modern forms of fraud?
A
- Misrepresentation – False statements that induce a contract.
- Fraudulent Concealment – Failure to disclose when under a duty to do so.
- Improper negotiations – Unfair pressure or taking undue advantage.
12
Q
What is the key case for misrepresentation?
A
Ritchie v Glass (1936)
* Shop advertised as having 45 ft frontage; actual was 21 ft.
* Misrepresentation must: ○ Be made by the other contracting party ○ Precede contract formation ○ Cause a material error (not necessarily essential) ○ Induce the contract (causal link) – objective standard (reasonable person)
Lord Carmont: The misrepresentation must be material – likely to induce a reasonable person to contract.
13
Q
What are the consequences of misrepresentation?
A
- Contract is voidable, not void.
- Rescission requires:
- No personal bar (e.g., delay, affirmation, inconsistent behaviour)
- Restitutio in integrum (restoration of original positions) must be possible
- Rescission requires:
14
Q
What constitutes a misrepresentation?
A
- Inaccurate Statement of Fact
- Must induce contract
- NOT mere advertising puff or exaggeration
Bile Bean Mfg Co v Davidson (1906) – Curative claims in advert were factual and thus fraudulent
- Statements of Opinion
- Generally not actionable
Bisset v Wilkinson (1927) – Seller gave opinion, not expert
But if from an expert, can become actionable:
Esso Petroleum v Mardon (1976) – Expert sales forecast = negligent misrepresentation
- Generally not actionable
- Statements of Future Intention
- Not misrepresentation unless known to be false at the time
- Misleading Conduct
Paterson v Landesberg (1905) – Fake antique display = misleading conduct
Lyon & Turnbull v Sabine (2012) – Table misrepresented but seller not expert, so no misrep - Silence
- Generally no duty to disclose, unless:
○ Fiduciary relationship
○ Half-truths or misleading omissions
○ Contracts of utmost good faith (uberrimae fidei)
Broatch v Jenkins – Duty arose from fiduciary relationship
- Generally no duty to disclose, unless:
15
Q
Inaccurate statement of fact and misrepresentation?
A
- Must induce contract
- NOT mere advertising puff or exaggeration
Bile Bean Mfg Co v Davidson (1906) – Curative claims in advert were factual and thus fraudulent
- NOT mere advertising puff or exaggeration
16
Q
Statements of opinion and misrepresentation?
A
- Generally not actionable
Bisset v Wilkinson (1927) – Seller gave opinion, not expert
But if from an expert, can become actionable:
Esso Petroleum v Mardon (1976) – Expert sales forecast = negligent misrepresentation
17
Q
Statements of Future Intention and misrepresentation?
A
- Not misrepresentation unless known to be false at the time
18
Q
How does misleading conduct go into misrepresentation?
A
Paterson v Landesberg (1905) – Fake antique display = misleading conduct
Lyon & Turnbull v Sabine (2012) – Table misrepresented but seller not expert, so no misrep
19
Q
How does silence contribute to misrepresentation?
A
- Generally no duty to disclose, unless:
○ Fiduciary relationship
○ Half-truths or misleading omissions
○ Contracts of utmost good faith (uberrimae fidei)
Broatch v Jenkins – Duty arose from fiduciary relationship
20
Q
What are the three different types of misrepresentation?
A
- Fraudulent Misrepresentation
○ Knowledge or recklessness (Derry v Peek; Bile Bean)
○ Voidable
○ Damages available (as delict)- Negligent Misrepresentation
○ Carelessness where a duty of care exists (Esso Petroleum)
○ Voidable
○ Damages available under Law Reform (Misc. Provisions) (Scotland) Act 1985, s.10 - Innocent Misrepresentation
○ Honest but mistaken belief
○ Voidable
○ No damages
○ Boyd & Forrest (1912) – Recognised this third category
- Negligent Misrepresentation
21
Q
Misrepresentation Summary:
A
- A false or misleading factual statement or conduct
- Made by the other contracting party
- Which induces a material error
- Causing entry into the contract
- Types: Fraudulent, Negligent, Innocent
- Voidable with possibility of rescission if no personal bar and restitutio possible
22
Q
What is formal validity with a contract?
A
Formal validity concerns whether an obligation is valid in form—i.e., whether writing is required. This is especially relevant for unilateral obligations and certain property-related transactions.
23
Q
What is the general rule from the Requirements of Writing (s) Act 1995?
A
- Contracts, unilateral obligations, and trusts do not generally require writing.
- Oral agreements (e.g., buying an apple) are valid.
s.1(1)
24
Q
What are the exceptions to the general rule of Requirements of the Writing (s) Act 1995?
A
Real Rights in Land (s.1(2)(a)(i))
* Applies to creation, transfer, variation, extinction of real rights in land.
* Real rights are enforceable against the world (e.g., ownership, leases >1yr, standard securities, servitudes, liferents).
* Must be in writing + comply with s.2.
* Defined in s.1(7) – includes rights to use/occupy/restrict land.
2. Gratuitous Unilateral Obligations (s.1(2)(a)(ii))
* Usually promises (one party does something for nothing).
* Must be in writing, unless made in the course of business (business promises do not need writing).
25
what is the rule in s2 of the writing act?
Each document forming the contract must be signed.
26
What is the gratuitous vs onerous obligations debate with writing?
* Gratuitous = no benefit to the promisor → writing required.
* Onerous = benefit expected → writing not required.
* Thomson v Hogg Debate: Is a conditional promise gratuitous or onerous?
○ Thomson: Conditional promises may be onerous → no writing needed.
○ Hogg: All promises are gratuitous → writing needed.
27
What is the exception to the exception of the general rule?
(s.1(3)–(4))
* Even if writing is required and missing, the obligation may still be valid if:
1. Prima facie valid obligation
2. One party relied on it
3. With knowledge and acquiescence of the other party
4. First party would be materially prejudiced if invalid
* This is a statutory restatement of personal bar (estoppel).
28
Summary of error in Scots contract law
Summary: Error in Scots Contract Law
⚖️ 1. General Principles of Error
* Error = "a discrepancy between reality and a party’s belief” (McBryde).
* Courts favour an objective approach: what was said and done, not what was privately believed.
* Historically, there was a wide scope for voiding contracts for error (Stair), but courts later required more concrete, external indicators of error.
⚖️ 2. Categories of Error
📝 (a) Error in Expression
* A mismatch between agreement and how it’s recorded (e.g., drafting/writing mistake).
* Remedy: Rectification of the document.
* Statutory Authority: Law Reform (Misc Provs) (Scotland) Act 1995, ss. 8–9.
* Key Case: Anderson v Lambie (1954): title to land did not match agreement; court allowed rectification.
⚖️ (b) Performance Error
* Mistake in carrying out agreed obligations (e.g., overpayment).
* Remedy: Unjustified Enrichment (UE).
* Not usually a consent-based error but still legally actionable.
⚖️ (c) Consensual Error (affects the validity of consent)
* Can lead to void contracts.
* Recognised categories per Bell:
○ Subject matter
○ Identity of party
○ Price
○ Quality
○ Nature of contract
3. Types of Consensual Error
🟡 (a) Common Error
* Both parties share the same mistaken belief.
* Key Case: Hamilton v Western Bank (1861): bank sold land believing it included buildings – neither party knew otherwise. Contract set aside.
🔵 (b) Mutual Error
* Dissensus: parties are at cross-purposes; no real agreement.
* Key Cases:
○ Mathieson Gee v Quigley: no meeting of minds.
○ Raffles v Wichelhaus (English law): two ships named Peerless – no consensus ad idem.
🔴 (c) Unilateral Error
➤ i. Induced (Misrepresentation)
* Treated as misrepresentation when the error was caused by the other party’s actions or statements.
* Key Cases:
○ Stewart v Kennedy (1890): Objective approach; error must be induced to be actionable in onerous contracts.
○ Menzies v Menzies (1893): error must be essential and induced to be operative.
○ Morrisson v Robertson: essential error as to identity induced by fraud → void contract.
○ Shogun Finance Ltd v Hudson (Eng.): fraudulent identity used to obtain credit → no contract.
➤ ii. Uninduced (“Error Plus”)
* Mere error is not enough — must be:
○ In a gratuitous contract, or
○ Known to and taken advantage of by the other party (bad faith).
* Key Cases:
○ Hunter v Bradford Property Trust (1970): error in gratuitous contract – contract reduced.
○ Steuart's Trs v Hart (1875): seller’s error on price known to buyer → void contract due to bad faith.
○ Wills v Strategic Procurement (2013): opposing solicitor knew of error and exploited it – proof allowed.
○ Angus v Bryden (1992): court recognised potential for remedy if expression error was known and exploited.
29
What is force and fear and how does affect a contract?
* A ground to challenge consent when coercion or pressure is applied.
* Can lead to a void contract if the fear is so great that true consent was impossible.
Legal Consequences
* Void: if no genuine consent was ever given.
* Voidable: if consent was reluctantly given (may overlap with undue influence or facility and circumvention).
30
What are the essential elements of force?
Hislop v Dickson Motors (Forres) Ltd
* Bookkeeper forced to sign withdrawals under pressure.
* Key principles from Lord Maxwell:
1. Empty threats are not enough.
2. Threat must be unlawful (threat of legal action for a real debt is not enough).
3. There must be a threat of an illegal or unwarranted act.
Earl of Orkney v Vinfra (1606)
* Extreme example: consent obtained at knifepoint – contract void.
31
Can threats by or against third parties constitute F&F?
Yes, * Trustee Savings Bank v Balloch (1983): Fear induced by a third party (husband) can still void the contract, even if he was not a party to the contract.
32
what is the derived test for fear?
* Pressure must “overpower the mind of a person of ordinary firmness” (Hislop).
* Partly subjective: includes personal traits like age, health.
* Also an objective standard: would a reasonable person resist?
Hunter v Bradford Property Trust (1970)
* Sisters claimed fear of contract being withdrawn.
* Court found it was only legitimate commercial pressure, not fear.
* Fear must be reasonable, not “vain or foolish”.
33
What do you need to claim economic duress?
* Developing in English law; less so in Scotland.
* Defined as “coercion of the will vitiating consent”.
* Common in commercial settings – key issue is whether pressure is legitimate.
Pao On v Lau Yiu Long [1980]
* Example from English law: can result in a voidable contract.
* Not yet fully embraced in Scots law.
34
What are the requirements for facility and circumvention?
Requirements:
1. Facility – mental, emotional, or physical weakness.
2. Lesion – resulting disadvantage.
3. Circumvention – exploitation or manipulation.
Examples of Facility:
* Age, illness, bereavement, mental distress.
McGilvary v Gilmarton (1986):
* Widow induced to transfer property to daughter during grief – succeeded on facility & circumvention.
35
what about circumvention by itself as a rule?
* No need for actual deceit – just taking advantage of vulnerability.
Anderson v Beacon Fellowship (1992):
* Mentally vulnerable man gave away money to religious group believing it would heal him.
Inverse Proportionality
* The more facility, the less circumvention needed – and vice versa.
36
Undue Influence case?
Gray v Binny 1879
* Young heir persuaded by mother and her lawyer to transfer inheritance.
* No independent legal advice; lawyer had conflict of interest.
Key Relationships (Quasi-Fiduciary):
* Parent/child, spouses, lawyer/client, doctor/patient, clergyman/parishioner, financial advisor, therapist, etc.
37
Abuse of good faith caselaw with cautionary obligations
Smith v Bank of Scotland (1997)
* Wife agreed to guarantee husband's business loan.
* Argued misled by husband and unaware of the consequences.
* HOL recognised duty of good faith by banks:
○ Banks must ensure cautioners understand their obligations.
○ Should advise seeking independent legal advice.
○ Coined the phrase: “sexually transmitted debt”.
38
Summary of challenges under F&F etc...
Force and Fear - Coerced by threat or fear - Void
Facility & Circumvention - Exploiting weakness - Voidable
Undue Influence - Abuse of a trusted relationship - Voidable
Abuse of Good Faith - Failure to inform cautioner properly - Voidable
39
What is Error?
* “a discrepancy between reality and a party’s belief” (McBryde)
* Tension between subjective belief and objective approach - hard for court to determine, they use the objective approach
40
What are the Three different types of error?
Error in expression - terms of contract do not match the agreement i.e. a drafting error (Anderson v Lambie 1954)
Performance in error - contract exists, but performance of contract is affected by error
* Unjustified Enrichment - example someone has overpaid
* Mistaken payments, payment to wrong person etc
Consensual error - means that the whole formation of the contract can be affected
Relates to consent
41
What authority can be used for consensual error?
Bell's Principles.
* Error in the substantials – in substantia – sometimes called essential error
* NB not identical to “essential terms”
* Essential error has to be relating to a substantial matter in the contract
42
What is the exclusive list of consensual error categories?
* 5 categories
* Subject of the contract
* Identity of the debtor - most common (Morrison v Robertson - credit cattle case)
* Price
* Quality of thing bargained for
* Nature of the contract
43
What does Stewart v Kennedy introduce?
* Objective Approach
○ “.. in the case of onerous contracts reduced to writing the erroneous belief of one of the contracting parties in regard to the nature of the obligations ... will not be sufficient to give him the right [to rescind],
* Error redefined
○ “unless such a belief has been induced by the representations, fraudulent or not, of the other party to the contract.”
Court held law holds contracts objectively, parties must be held to what they do or say, not what they think. The pursuer subjectively got the terms in the contract wrong, so claim failed.
44
What are the three different types of consensual error?
* Common Error
* Mutual Error - dissensus
* Unilateral Error
45
What is needed for unindexed unilateral error?
Error + (McBride)
45
What is common error?
* Parties mistaken about same thing
* Hamilton v Western Bank (1861) - bank selling property described as ground including buildings thereupon. Later found out, ban did not own buildings. However, both parties has been mistaken about this, thus, the contract was void.
46
What is Mutual error?
* Offer & acceptance do no coincide e.g. Mathieson Gee v Quigley (the mouldy pond)
* dissensus
* Parties at cross purposes
47
What is the first step if the unilateral error has been induced by the other party?
* First step - has it been induced? - if it has,
entering the realm of misrepresentation, which leads to a voidable contract.
* Error = misrepresentation
* Leads to voidable contract etc
48
What happens when induced unilateral error includes an essential error from Bel's categories?
* Little modern authority
Cf Morrisson v Robertson – error as to identity, therefore essential error. Led to a void contract, instead of a voidable contract. Misrepresentation leads to a voidable contract. (could only make this argument when it is about identity)
49
What happens with uninduced unilateral error plus a gratuitous contract?
courts are more sympathetic
* Presumption against donation
Hunter v Bradford Property Trust Ltd 1970
because it was a gratuitous contract. Sister won the case
50
What is the ladder for Error in defective contract?
* Essential Error (5 categories)
* Common & Mutual Error (dissensus)
* Unilateral Error
○ Induced? (misrepresentation - voidable)
□ Induced + Identity? (arguably void)
○ Uninduced
□ Error Plus
□ Conflicting authority
51
What is the view on error + with Steuart Trustees v Hart?
“Plus” Factor in this line of reasoning:
Knowledge of the error and
Bad faith / taking advantage of that error
Inducement not required
⚖️ Supporting Commentary:
Steuart’s Trs has not been overruled and is occasionally cited with approval.
Seen as a narrow exception for when a party knowingly exploits an error.
52
What is the second line of authority for uninduced unilateral error with an onerous contract?
Key Case: Stewart v Kennedy (1890)
Clear authority that uninduced error is not operative.
The court insisted that inducement is necessary for an error to void a contract.
🔁 Followed in:
Steel v Bradley Homes (1972)
Royal Bank of Scotland v Purvis (1990)
Spook Erection Ltd v Kaye (1990)
These cases affirm that induced error is a requirement, rejecting the idea that mere knowledge of another’s mistake is enough to rescind a contract.
🧩 "Plus" factor in this view:
Inducement by the other party is essential.
Without inducement, even a known error does not invalidate the contract.
52
What case supports Stuart's Trustees v Hart's reasoning?
Angus v Bryden (1992) – Lord Cameron’s obiter: affirms Steuart’s Trs remains good law in certain narrow circumstances.
Error must be:
Essential
An error of expression
Known to and taken advantage of by the other party
If these conditions are met, the error is remediable.
Wills v Strategic Procurement (2013) – Reiterated that Steuart’s Trs is still good law, and allowed proof where solicitor knew of the error and stayed silent.
Courts caution: not every appreciated error will justify a remedy – must meet a high threshold.
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