INVALIDITY, VOID AND VOIDABLE CONTRACTS Flashcards
paragraph one
Definition: Restitutio integrum refers to the principle that, in the event of a contract being voided, both parties must be returned to their original positions as if the contract never existed. This is the basis for remedies such as rescission, where the goal is to undo the effects of the contract.*
case; paragraph one
Boyd & Forrest v Glasgow Railway Co (1915)
Facts: Boyd & Forrest, contractors, agreed to build a railway for the Glasgow & South Western Railway Co., relying on soil reports provided by the railway company. The reports falsely stated that the ground conditions were stable and suitable for construction, which led to issues in construction. The case dealt with fraudulent misrepresentation.
Outcome: The court ruled that restitutio integrum was not possible in this case, as the parties could not be restored to their original positions due to the changes caused by the misrepresentation. The contract was voided, but the principle of restitutio integrum was not upheld.*
If the railway is already built and in use, you can’t undo it — so rescission is not possible.
* The contract must not have been affirmed
– You can’t continue acting under the contract or accept its benefits after discovering the issue.
* No unnecessary delay
– You must act promptly once you become aware of the reason for rescission.
paragraph two
The type of representation will decide whether or not there are additional consequences:
- Innocent Misrepresentation (unintentional and not negligently made):
○ contract avoided and price restored, provided restitutio in integrum is possible ○ (It can thus be seen that where restitutio in integrum is not possible, a party who has suffered through an innocent misrepresentation may be left without a remedy.)
- Fraudulent Misrepresentation (deliberate):
○ contract avoided and price restored, provided restitutio in integrum is possible ○ Can sue for damages in delict, but must show the misrepresenter knew statement was false, or believed it was false and was recklessly indifferent to whether it was true or false.
- Careless misrepresentation:
○ contract avoided and price restored, provided restitutio in integrum is possible ○ Can sue for damages in delict, but must show the misrepresenter owed them a duty of care, and broke it by carelessly making false statement.
paragraph three
An error can occur when one or both parties misunderstand a fundamental aspect of the contract. Depending on the type of error, the contract may be voidable, or the parties may be entitled to rescind the contract.
Types of Errors:
Uninduced Shared Error: Both parties make the same honest mistake about something important, and neither party caused the error.
Uninduced Unilateral Error: One party makes a mistake, but the other party did not cause or know about it.
Induced Error: One party makes a mistake based on false information provided by the other party (misrepresentation).
case; para three
uninduced mutual error; McLaughlin v Andrew (1926 SC 763)
This case involved a mutual misunderstanding over the subject of sale. Both parties entered into a contract for the sale of a car, but it turned out they had different vehicles in mind. Each party thought they were contracting for a different car of the same model
uninduced unilateral error; Stewart v Kennedy (1890) 17 R 1039 (HL)
In this case, a buyer misunderstood a term in the contract regarding the measurement of a property. He believed the property was being sold per “superficial foot” (i.e., surface area), but the seller meant “superficial yard”. The buyer sought reduction (cancellation) of the contract based on his unilateral
induced error; Morrison v Robertson (1908) SC 332
Facts: Morrison purported to sell cows to Telford, who falsely claimed to be the son of Wilson and was buying the cows on Wilson’s behalf. Telford failed to pay, and the case was brought before the court to determine if a valid contract had been formed.
Outcome: The court held that there was no contract due to the error about Telford’s identity. This case is an example of uninduced mutual error, where both parties were mistaken about a crucial fact—Telford’s identity—leading to the non-formation of the contract.
case; paragraph two
fraudulent;Spence v Crawford [1939] 3 All ER 271
Steve Hedley
In this case, the pursuer was induced to sell shares based on fraudulent misrepresentations made by the defender.
The House of Lords held that the contract could be rescinded due to fraud, provided that restitutio in integrum (restoration to the original position) was possible.
innocent; Woods v Tulloch (1893) 20 R 470
The pursuer purchased land based on representations about its size and rental income, which turned out to be inaccurate.
The court found that the misrepresentations were made innocently, without intent to deceive.
However, the contract could still be rescinded if the misrepresentation induced the contract and restitutio in integrum was possible
Cramaso LLP v Ogilvie-Grant, Earl of Seafield 2014
The respondents provided misleading information about the grouse population on an estate, which was relied upon by the appellants in entering into a lease.
The Supreme Court held that the misrepresentation was negligent and that the appellants were entitled to rescind the contract and seek damages.
