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Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript Vitiating Factors and Consent : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 1 Vitiating Factors and Consent Vitiating Factors : A contract may be tainted by defects that could affect its validity making it void, voidable, illegal or unenforceable. Vitiating factors include: Mistake Coercion and Duress Undue Influence Unconscionable contracts Fraud Misrepresentation Mistake Minor Illegality Void agreements Vitiating Factors Thursday, October 15, 2009 2 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Definition : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 3 Definition According to sec. 10 free consent is an essential requirement of a contract. Sec. 14 defines “free consent”. Sec 14 “free consent” : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 4 Sec 14 “free consent” Sec 15 to 18 Vitiating factors and their effect : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 5 Vitiating factors and their effect Where consent to an agreement is caused by coercion, undue influence, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. Where consent is caused by mistake, the agreement is void. Coercion : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 6 Coercion Sec 15. “Coercion” is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (XLV of 1860), or the unlawful detaining, or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. Explanation- It is immaterial whether the Indian Penal Code (XLV 1860), is or is not in force in the place where the coercion is employed. Techniques of causing coercion : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 7 Techniques of causing coercion Consent is said to be caused by coercion when it is obtained by pressure exerted by either of the following techniques: Committing or threatening to commit any act forbidden by the Indian Penal Code; or Unlawfully detaining or threatening to detain any property. Duress : Duress = actual or threatened violence, or unlawful restraint or threats, directed towards the contracting party or a member of his closed family. Effect : contract voidable Barton v Armstrong [1975] 2 All ER 465: former chairman threatened to kill the MD unless company bought back his shares – co did so – held: voidable Rationale: no free choice ; negate consent ?no genuine intention to contract Duress Thursday, October 15, 2009 8 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Economic duress : Economic duress = Apparent consent is induced by illegitimate economic pressure from the other party Pau On v Lau Yiu Long [1980] A C 614: consent is revocable ? contract is voidable Remedy: voidable Right to avoid may be lost if the innocent party chooses to affirm (The Atlantic Baron [1979] QB 705)) Economic duress Thursday, October 15, 2009 9 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Slide 10: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 10 Free Consent : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 11 Free Consent Undue influence Undue Influence : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 12 Undue Influence Sec. 16 of the Indian Contract Act 1872 defines Undue Influence. Undue influence : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 13 Undue influence A party to a transaction, though consenting to it, may not give a free consent because he is exposed to such influence from the other party as to deprive him of the free use of his judgment. In such a case, the transaction will be set aside. If property has passed, equity will order restitution, and, if necessary, follow the property into the hands of third parties. Slide 14: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 14 More than mere influence must be proved, so as to render influence as ‘undue’ in the language of law. In Lingo Bhimrao Naik V. Dattatraya Shripad Jamadagni, the diffrence between legitimate persuation and undue influence has been described: Slide 15: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 15 Slide 16: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 16 Undue Influence : Conditions: (1) A relationship between the parties; One party acquired over another a measure of influence or ascendancy; and The ascendant person takes unfair advantage. (see Royal Bank of Scotland plc v Etridge (No.2) [2001] 3 WLR 1021, 1029; Bank of China (Hong Kong) Ltd v Wong King Sing [2002] 1 HKLRD 358) Undue Influence Thursday, October 15, 2009 17 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Undue Influence : 2 types of undue influence: Actual undue influence Presumed undue influence Undue Influence Thursday, October 15, 2009 18 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Actual Undue Influence : Conditions: The wrongdoer had the capacity to influence the complainant; Influence was in fact exerted; Influence was undue; The effect: the complainant enter into the contract sufficient: the influence was a significant reason for causing no need to prove manifestly disadvantage Effect: Contract voidable Actual Undue Influence Thursday, October 15, 2009 19 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Actual Undue Influence : Williams v Bayley (1866) LR 1 HL200; Diners Club v Ng Chi Sing [1987] 1 HKC 78: father compelled to guarantee son’s debt – guarantee: voidable Actual Undue Influence Thursday, October 15, 2009 20 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Presumed undue influence : Conditions: A relationship of trust and confidence between the wrongdoer and the innocent party; The nature of the relationship is of a nature that it is fair to presume that the wrongdoer had abused that relationship – a rebuttable presumption Procuring the innocent party to enter into contract; and The contract was manifestly disadvantageous to the innocent party. Undue influence can be rebutted by: The complainant had exercise free and independent will; or The complainant had full knowledge and could not have been misled; or The complainant had competent and independent advice from another. Presumed undue influence Thursday, October 15, 2009 21 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Unconscionable contracts : The law takes a further step in protecting the innocent under the doctrine of “unconscionable contracts”. Commercial Bank of Australia v Amedio (1983) 151 CLR 447 per Mason J: Undue influence: the will of innocent party was not independent Unconscionable contract: disadvantage position (e.g. poverty, sickness, age, sex, infirmity of body and mind, drunkeness, illiteracy, lack of education, lack of assistance or explanation where assistance is necessary) vis-à-vis the other party [and the other party knew it] Unconscionable contracts Thursday, October 15, 2009 22 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Unconscionable contracts : The Unconscionable Contract Ordinance (Cap. 458) A consumer protection legislation (others being: SOGO, Control of Exemption Clauses Ordinance, MO) Applies only in consumer sales The court may refuse to enforce, enforce the remainder of the contract, limit/revise/alter the unconscionable part of the contract The court may take the initiative to examine the unconscionble provisions List of matters the court will consider: relative bargaining positions of the parties, etc. See Hang Seng Credit Card Ltd v Tsang Nga Lee & Others [2000] 3 HKC 269 : credit card debt plus costs on indemnity basis – falls under Cap 458 – “greedy bank” case – unconscionable contract Unconscionable contracts Thursday, October 15, 2009 23 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Doctrine of Inequality of Bargaining Power : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 24 Doctrine of Inequality of Bargaining Power There are cases under the English law, where equity intervened not because the terms were harsh or oppressive, but because it refused to allow one party to take advantage of the others weakness or need. The pressure in these cases was not of undue influence or personal pressure, but arose because the other party took advantage of its economic power and necessity of the vendor or the borrower which has been termed as pressure resulting from an inequality of bargaining position. This doctrine has been applied as an independent principle. Lloyds Bank Ltd V Bundy[1974] 3 All ER 797 : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 25 Lloyds Bank Ltd V Bundy[1974] 3 All ER 797 A further guarantee and a charge were given by the father to a bank on the advice of the bank manager in regard to the debt of his son. The father was held to have complete faith and did not get outside advice. The court of appeal held that a special relationship of confidence existed between the bank and the father and the last guarantee and charge were liable to be set aside for undue influence. Lord denning considered them voidable on the large ground of inequality of bargaiening powers. He stated: Slide 26: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 26 “There are cases in our books in which the courts will set aside a contract, or a transfer of property, where the parties have not met on equal terms- when one is so strong in the bargaining power and the other so week that, as a matter of common fairness, it is not right that the strong should be allowed to push the weak to the wall” Central inland water transport corporation Ltd. V Brojonath Ganguly AIR 1986 SC 1571 : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 27 Central inland water transport corporation Ltd. V Brojonath Ganguly AIR 1986 SC 1571 The Supreme Court considered the the question whether relief could be granted for an unconscionable bargain, and under which head should it fall. Free Consent : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 28 Free Consent Fraud Fraud : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 29 Fraud Sec 17 of the Indian Contract Act 1872 defines fraud. Ingredients of fraud : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 30 Ingredients of fraud Analysis of Sec 17(1) shows the following ingredients: (i) there should be a suggestion as to a fact ; (ii) the fact suggested should not be true; (iii) the suggestion should have been made by a person who does not believe it to be true; and (iv) the suggestion should be made with intent either to deceive or to induce the other party to enter into the contract. Representation : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 31 Representation A representation is a statement of fact, past or present; it is distinct from a statement of opinion, though in certain circumstances a statement of opinion may be regarded as a statement of fact. In order to enable the representee to avoid the contract, the fraudulent misrepresentation has to be material, i.e., such that a reasonable man would have been influenced by it in deciding whether or not to enter into the contract. Ambiguous Statement : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 32 Ambiguous Statement Where the representor makes an ambiguous statement, the person to whom it is made must prove that he understood that statement in the sense that it was in fact false. The representor will be guilty of fraud if he intended the statement to be understood in that sense, and not if he honestly believes it to be true, but the person relying on it understands it in a different sense. Active Concealment of Facts : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 33 Active Concealment of Facts It is a fraud where a party to the contract knows or believes a fact to be true, but conceals it actively from the other party with a view to induce that person to enter into a contract. This clause must be read with the explanation, under which mere silence does not amount to fraud. Slide 34: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 34 Mere non discloser of some immaterial facts would not per se give a right to rescission, unless it is further found that the consent has been secured by practicing some deception. Where a seller sold a property already sold by him to a third person, his conduct amounted to active concealment and fraud, and the could recover the price despite the agreement that the seller could not be responsible for defect in title. Slide 35: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 35 Mere Silence is no fraud When Silence is fraud Duty to Speak ( Contracts Uberrima fidei) Law of Caveat Emptor Law of Caveat Vendetta Damages for fraud : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 36 Damages for fraud The principles applicable in assessing damages for fraudulent misrepresentation have been stated by Lord Browne Wilkinson in Smith New Court Securities Ltd. V Scrimgeour Vickers ( Asset Management ) Ltd. [1996] 4 All ER 769 (HL) Free Consent : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 37 Free Consent Misrepresentation Misrepresentation : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 38 Misrepresentation Sec. 18 of the Indian Contract Act 1872 defines Misrepresentation. When a person making a false statement believes the statement to be true and does not intend to mislead the other party to the contract, it is known as “Misrepresentation”. Breach of legal duty : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 39 Breach of legal duty For example, section 57, Indian Easement Act, 1882 lays down that the grantor of a license is bound to disclose to the licensee any defect, which is likely to be dangerous to the person or property of the licensee, of which the grantor is aware but the licensee is not. Omission to make such a disclosure, if it is without any intention to deceive, would amount to misrepresentation. If one party, acting innocently, causes another party to make a mistake as to the substance of the thing which is the subject of the agreement, there is said to be misrepresentation. Negligent Misrepresenttaion : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 40 Negligent Misrepresenttaion Negligent misrepresentation is one made carelessly or without reasonable grounds for believing it to be true; but it can not be so regarded unless the representor owed a duty to the representee to be careful. There can be liability in negligence in respect of an innocent though careless misstatement which causes financial loss, but where there is specific disclaimer of responsibility there is no liability. The responsibility exists even where there is no fiduciary relationship between the parties. In Derry V Peek (1889) 14 A.C 337, it was held that the negligent misstatement was one made carelessly or without reasonable grounds for believing it to be true; but it could not be so regarded unless the representor owed a duty to the representee to be careful. Slide 41: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 41 In a later case Nocton v. Ashburton (1914-15) All ER 45, a solicitor was sued by his client for giving wrong advice whereby he was induced to release a part of the security and thereby the security became insufficient and it was also alleged that the advice was given to benefit himself ( the solicitor) and that the solicitor knew that the security will become insufficient. The House of Lords held that the mortgagee was entitled to relief for the breach of duty by the solicitor towards his clients, as the fiduciary relationship required a duty to take care. Slide 42: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 42 In Hedley Byrne & Co. Ltd v Heller & Partner Ltd, (1963) 2 All ER 575. Advice given in the course of social relationships would not be a ground of liability, they also made it clear that any special relationship will suffice. In case of professional relationship, even where there is no contract between the parties it would give rise to a duty of care whenever the representor knew that the representee was likely to act on the representation. Misrepresentation : Misrepresentation = a false representation of fact made orally or in writing or by conduct. Misrepresentation Thursday, October 15, 2009 43 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Misrepresentation : Representation must be: On existing facts On false existing factsShum Kong On false material existing facts Induce the innocent contracting party to enter into the contract the innocent party has suffered loss as a result of such inducement See Shum Kong v Chu Ting Lin [2001] HKEC 651 – sale of a village house (own property, 700 sq.ft) with garden (leased) under misrepresentation Misrepresentation Thursday, October 15, 2009 44 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Misrepresentation : Distinguish from: Future facts Intention of future conduct Opinion Misrepresentation Thursday, October 15, 2009 45 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Misrepresentation : 2 types of misrepresentations: Fraudulent Innocent Negligent Misrepresentation Thursday, October 15, 2009 46 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Fraudulent misrepresentation : = a false statement made by a person with a dishonest (“fraud”) intent Fraud is proved if the misrep is made by the maker: Knowingly Without belief in its truth, or Recklessly (don’t care if it is true or not) An honest belief at the material time is a good defence: Derry v Peek (1889) 14 App Cas 337: DIR rep that the company could run trams by steam or mechanical power – reality: it could not do so – DIR held an honest belief- Held: good defence Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1992] BCLC 1104 : D said that there were interested parties to buy the shares and led P to purchase them – reality: no interested buyer and D knew that at the time of making rep Held: fraud Fraudulent misrepresentation Thursday, October 15, 2009 47 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Fraudulent misrepresentation : Remedies: depends on whether fraudulent misrep had become a term of the contract : a. Become a term ? the other party may: (1) rescind the contract, or (2) affirm the contract and claim damages for breach of contract, (3) affirm the contract and claim damages under the tort of deceit b. Not become a term ? the other party may: (1) rescind the contract, and/or (2) claim damages under the tort of deceit Fraudulent misrepresentation Thursday, October 15, 2009 48 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Innocent misrepresentation : = false statement honestly believing to be true and has reasonable grounds to believe so up to the moment of contracting Remedies: Rescission (not plus damages) Misrepresentation Ordinance s. 3(2) : Damages in lieu of rescission if equitable Innocent misrepresentation Thursday, October 15, 2009 49 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Negligent misrepresentation : Elements to be proved: a duty on the representor to refrain from making a false statement; and The representor is in breach of this duty Duty exists with special relationships between representor and representee, e.g. professionals in their areas of expertise Remedies: rescission, damages and/or indemnity MO s.3(2): court has a wide discretion to affirm the contract and award damages in lieu of rescission Negligent misrepresentation Thursday, October 15, 2009 50 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Mistakes : 3 types: Common mistakes Mutual mistakes Unilateral mistakes Mistakes Thursday, October 15, 2009 51 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Common mistakes : Common mistakes as to the existence of the subject matter: Couturier v Hastie (1852) 8 Exch 40: contract for the sale of corn – unknown to the parties, corn went bad – Held : no contract Common mistakes as to ownership of the subject matter: Cooper v Phibbs (1867) 2 LR 2 HL 149: contract for sale of a fishery- mistake as to ownership – Held: void Common mistakes as to quality of the subject matter: Oscar Chess v Williams [1957] 1 All ER 325: unless of some fundamental nature, contract not void. Common mistakes Thursday, October 15, 2009 52 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Mutual mistakes : No meeting of minds – no contract Scriven Bros v Hindley [1913] 3 KB 564: mistake as to the lots of goods – Held: no contract Mutual mistakes Thursday, October 15, 2009 53 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Unilateral Mistakes : Mistake by one party while the other party knows the truth. Mainly on identity of the parties. Normally 3 parties are involved: The innocent party who mistakens The rogue The innocent party who was being mistakened 2 situations: Contracts made by correspondence Contracts made face to face Unilateral Mistakes Thursday, October 15, 2009 54 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Contracts made by correspondence : Effect: Contract void Cundy v Lindsay (1876) 1 QBD 348 A ordered some handherchiefs from B and sold them to C (being absolutely innocent) Held: A does not have a good title, cannot therefore transfer a good title to C. Contracts made by correspondence Thursday, October 15, 2009 55 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Contracts made face to face : Contract may be voidable. Phillips v Brooks Ltd [1919] 2 KB 243 A pretended to be a rich and famous person, bought a diamond ring from B. He sold the ring to C, dishonoured the cheque and then disappeared. Held: valid contract and was bound. B cannot claim the ring from C. Levis v Averay [1972] 1 198 – similar result – voidable Gist:(1) what the innocent contracting party thought he was contracting with? (2) is the identity vital influence his decision to contract or not ? Contracts made face to face Thursday, October 15, 2009 56 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. We will continue….. : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 57 We will continue….. Thanks You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
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Edit Comment Close Premium member Presentation Transcript Vitiating Factors and Consent : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 1 Vitiating Factors and Consent Vitiating Factors : A contract may be tainted by defects that could affect its validity making it void, voidable, illegal or unenforceable. Vitiating factors include: Mistake Coercion and Duress Undue Influence Unconscionable contracts Fraud Misrepresentation Mistake Minor Illegality Void agreements Vitiating Factors Thursday, October 15, 2009 2 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Definition : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 3 Definition According to sec. 10 free consent is an essential requirement of a contract. Sec. 14 defines “free consent”. Sec 14 “free consent” : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 4 Sec 14 “free consent” Sec 15 to 18 Vitiating factors and their effect : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 5 Vitiating factors and their effect Where consent to an agreement is caused by coercion, undue influence, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. Where consent is caused by mistake, the agreement is void. Coercion : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 6 Coercion Sec 15. “Coercion” is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (XLV of 1860), or the unlawful detaining, or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. Explanation- It is immaterial whether the Indian Penal Code (XLV 1860), is or is not in force in the place where the coercion is employed. Techniques of causing coercion : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 7 Techniques of causing coercion Consent is said to be caused by coercion when it is obtained by pressure exerted by either of the following techniques: Committing or threatening to commit any act forbidden by the Indian Penal Code; or Unlawfully detaining or threatening to detain any property. Duress : Duress = actual or threatened violence, or unlawful restraint or threats, directed towards the contracting party or a member of his closed family. Effect : contract voidable Barton v Armstrong [1975] 2 All ER 465: former chairman threatened to kill the MD unless company bought back his shares – co did so – held: voidable Rationale: no free choice ; negate consent ?no genuine intention to contract Duress Thursday, October 15, 2009 8 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Economic duress : Economic duress = Apparent consent is induced by illegitimate economic pressure from the other party Pau On v Lau Yiu Long [1980] A C 614: consent is revocable ? contract is voidable Remedy: voidable Right to avoid may be lost if the innocent party chooses to affirm (The Atlantic Baron [1979] QB 705)) Economic duress Thursday, October 15, 2009 9 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Slide 10: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 10 Free Consent : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 11 Free Consent Undue influence Undue Influence : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 12 Undue Influence Sec. 16 of the Indian Contract Act 1872 defines Undue Influence. Undue influence : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 13 Undue influence A party to a transaction, though consenting to it, may not give a free consent because he is exposed to such influence from the other party as to deprive him of the free use of his judgment. In such a case, the transaction will be set aside. If property has passed, equity will order restitution, and, if necessary, follow the property into the hands of third parties. Slide 14: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 14 More than mere influence must be proved, so as to render influence as ‘undue’ in the language of law. In Lingo Bhimrao Naik V. Dattatraya Shripad Jamadagni, the diffrence between legitimate persuation and undue influence has been described: Slide 15: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 15 Slide 16: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 16 Undue Influence : Conditions: (1) A relationship between the parties; One party acquired over another a measure of influence or ascendancy; and The ascendant person takes unfair advantage. (see Royal Bank of Scotland plc v Etridge (No.2) [2001] 3 WLR 1021, 1029; Bank of China (Hong Kong) Ltd v Wong King Sing [2002] 1 HKLRD 358) Undue Influence Thursday, October 15, 2009 17 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Undue Influence : 2 types of undue influence: Actual undue influence Presumed undue influence Undue Influence Thursday, October 15, 2009 18 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Actual Undue Influence : Conditions: The wrongdoer had the capacity to influence the complainant; Influence was in fact exerted; Influence was undue; The effect: the complainant enter into the contract sufficient: the influence was a significant reason for causing no need to prove manifestly disadvantage Effect: Contract voidable Actual Undue Influence Thursday, October 15, 2009 19 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Actual Undue Influence : Williams v Bayley (1866) LR 1 HL200; Diners Club v Ng Chi Sing [1987] 1 HKC 78: father compelled to guarantee son’s debt – guarantee: voidable Actual Undue Influence Thursday, October 15, 2009 20 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Presumed undue influence : Conditions: A relationship of trust and confidence between the wrongdoer and the innocent party; The nature of the relationship is of a nature that it is fair to presume that the wrongdoer had abused that relationship – a rebuttable presumption Procuring the innocent party to enter into contract; and The contract was manifestly disadvantageous to the innocent party. Undue influence can be rebutted by: The complainant had exercise free and independent will; or The complainant had full knowledge and could not have been misled; or The complainant had competent and independent advice from another. Presumed undue influence Thursday, October 15, 2009 21 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Unconscionable contracts : The law takes a further step in protecting the innocent under the doctrine of “unconscionable contracts”. Commercial Bank of Australia v Amedio (1983) 151 CLR 447 per Mason J: Undue influence: the will of innocent party was not independent Unconscionable contract: disadvantage position (e.g. poverty, sickness, age, sex, infirmity of body and mind, drunkeness, illiteracy, lack of education, lack of assistance or explanation where assistance is necessary) vis-à-vis the other party [and the other party knew it] Unconscionable contracts Thursday, October 15, 2009 22 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Unconscionable contracts : The Unconscionable Contract Ordinance (Cap. 458) A consumer protection legislation (others being: SOGO, Control of Exemption Clauses Ordinance, MO) Applies only in consumer sales The court may refuse to enforce, enforce the remainder of the contract, limit/revise/alter the unconscionable part of the contract The court may take the initiative to examine the unconscionble provisions List of matters the court will consider: relative bargaining positions of the parties, etc. See Hang Seng Credit Card Ltd v Tsang Nga Lee & Others [2000] 3 HKC 269 : credit card debt plus costs on indemnity basis – falls under Cap 458 – “greedy bank” case – unconscionable contract Unconscionable contracts Thursday, October 15, 2009 23 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Doctrine of Inequality of Bargaining Power : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 24 Doctrine of Inequality of Bargaining Power There are cases under the English law, where equity intervened not because the terms were harsh or oppressive, but because it refused to allow one party to take advantage of the others weakness or need. The pressure in these cases was not of undue influence or personal pressure, but arose because the other party took advantage of its economic power and necessity of the vendor or the borrower which has been termed as pressure resulting from an inequality of bargaining position. This doctrine has been applied as an independent principle. Lloyds Bank Ltd V Bundy[1974] 3 All ER 797 : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 25 Lloyds Bank Ltd V Bundy[1974] 3 All ER 797 A further guarantee and a charge were given by the father to a bank on the advice of the bank manager in regard to the debt of his son. The father was held to have complete faith and did not get outside advice. The court of appeal held that a special relationship of confidence existed between the bank and the father and the last guarantee and charge were liable to be set aside for undue influence. Lord denning considered them voidable on the large ground of inequality of bargaiening powers. He stated: Slide 26: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 26 “There are cases in our books in which the courts will set aside a contract, or a transfer of property, where the parties have not met on equal terms- when one is so strong in the bargaining power and the other so week that, as a matter of common fairness, it is not right that the strong should be allowed to push the weak to the wall” Central inland water transport corporation Ltd. V Brojonath Ganguly AIR 1986 SC 1571 : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 27 Central inland water transport corporation Ltd. V Brojonath Ganguly AIR 1986 SC 1571 The Supreme Court considered the the question whether relief could be granted for an unconscionable bargain, and under which head should it fall. Free Consent : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 28 Free Consent Fraud Fraud : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 29 Fraud Sec 17 of the Indian Contract Act 1872 defines fraud. Ingredients of fraud : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 30 Ingredients of fraud Analysis of Sec 17(1) shows the following ingredients: (i) there should be a suggestion as to a fact ; (ii) the fact suggested should not be true; (iii) the suggestion should have been made by a person who does not believe it to be true; and (iv) the suggestion should be made with intent either to deceive or to induce the other party to enter into the contract. Representation : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 31 Representation A representation is a statement of fact, past or present; it is distinct from a statement of opinion, though in certain circumstances a statement of opinion may be regarded as a statement of fact. In order to enable the representee to avoid the contract, the fraudulent misrepresentation has to be material, i.e., such that a reasonable man would have been influenced by it in deciding whether or not to enter into the contract. Ambiguous Statement : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 32 Ambiguous Statement Where the representor makes an ambiguous statement, the person to whom it is made must prove that he understood that statement in the sense that it was in fact false. The representor will be guilty of fraud if he intended the statement to be understood in that sense, and not if he honestly believes it to be true, but the person relying on it understands it in a different sense. Active Concealment of Facts : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 33 Active Concealment of Facts It is a fraud where a party to the contract knows or believes a fact to be true, but conceals it actively from the other party with a view to induce that person to enter into a contract. This clause must be read with the explanation, under which mere silence does not amount to fraud. Slide 34: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 34 Mere non discloser of some immaterial facts would not per se give a right to rescission, unless it is further found that the consent has been secured by practicing some deception. Where a seller sold a property already sold by him to a third person, his conduct amounted to active concealment and fraud, and the could recover the price despite the agreement that the seller could not be responsible for defect in title. Slide 35: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 35 Mere Silence is no fraud When Silence is fraud Duty to Speak ( Contracts Uberrima fidei) Law of Caveat Emptor Law of Caveat Vendetta Damages for fraud : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 36 Damages for fraud The principles applicable in assessing damages for fraudulent misrepresentation have been stated by Lord Browne Wilkinson in Smith New Court Securities Ltd. V Scrimgeour Vickers ( Asset Management ) Ltd. [1996] 4 All ER 769 (HL) Free Consent : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 37 Free Consent Misrepresentation Misrepresentation : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 38 Misrepresentation Sec. 18 of the Indian Contract Act 1872 defines Misrepresentation. When a person making a false statement believes the statement to be true and does not intend to mislead the other party to the contract, it is known as “Misrepresentation”. Breach of legal duty : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 39 Breach of legal duty For example, section 57, Indian Easement Act, 1882 lays down that the grantor of a license is bound to disclose to the licensee any defect, which is likely to be dangerous to the person or property of the licensee, of which the grantor is aware but the licensee is not. Omission to make such a disclosure, if it is without any intention to deceive, would amount to misrepresentation. If one party, acting innocently, causes another party to make a mistake as to the substance of the thing which is the subject of the agreement, there is said to be misrepresentation. Negligent Misrepresenttaion : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 40 Negligent Misrepresenttaion Negligent misrepresentation is one made carelessly or without reasonable grounds for believing it to be true; but it can not be so regarded unless the representor owed a duty to the representee to be careful. There can be liability in negligence in respect of an innocent though careless misstatement which causes financial loss, but where there is specific disclaimer of responsibility there is no liability. The responsibility exists even where there is no fiduciary relationship between the parties. In Derry V Peek (1889) 14 A.C 337, it was held that the negligent misstatement was one made carelessly or without reasonable grounds for believing it to be true; but it could not be so regarded unless the representor owed a duty to the representee to be careful. Slide 41: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 41 In a later case Nocton v. Ashburton (1914-15) All ER 45, a solicitor was sued by his client for giving wrong advice whereby he was induced to release a part of the security and thereby the security became insufficient and it was also alleged that the advice was given to benefit himself ( the solicitor) and that the solicitor knew that the security will become insufficient. The House of Lords held that the mortgagee was entitled to relief for the breach of duty by the solicitor towards his clients, as the fiduciary relationship required a duty to take care. Slide 42: 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 42 In Hedley Byrne & Co. Ltd v Heller & Partner Ltd, (1963) 2 All ER 575. Advice given in the course of social relationships would not be a ground of liability, they also made it clear that any special relationship will suffice. In case of professional relationship, even where there is no contract between the parties it would give rise to a duty of care whenever the representor knew that the representee was likely to act on the representation. Misrepresentation : Misrepresentation = a false representation of fact made orally or in writing or by conduct. Misrepresentation Thursday, October 15, 2009 43 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Misrepresentation : Representation must be: On existing facts On false existing factsShum Kong On false material existing facts Induce the innocent contracting party to enter into the contract the innocent party has suffered loss as a result of such inducement See Shum Kong v Chu Ting Lin [2001] HKEC 651 – sale of a village house (own property, 700 sq.ft) with garden (leased) under misrepresentation Misrepresentation Thursday, October 15, 2009 44 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Misrepresentation : Distinguish from: Future facts Intention of future conduct Opinion Misrepresentation Thursday, October 15, 2009 45 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Misrepresentation : 2 types of misrepresentations: Fraudulent Innocent Negligent Misrepresentation Thursday, October 15, 2009 46 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Fraudulent misrepresentation : = a false statement made by a person with a dishonest (“fraud”) intent Fraud is proved if the misrep is made by the maker: Knowingly Without belief in its truth, or Recklessly (don’t care if it is true or not) An honest belief at the material time is a good defence: Derry v Peek (1889) 14 App Cas 337: DIR rep that the company could run trams by steam or mechanical power – reality: it could not do so – DIR held an honest belief- Held: good defence Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1992] BCLC 1104 : D said that there were interested parties to buy the shares and led P to purchase them – reality: no interested buyer and D knew that at the time of making rep Held: fraud Fraudulent misrepresentation Thursday, October 15, 2009 47 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Fraudulent misrepresentation : Remedies: depends on whether fraudulent misrep had become a term of the contract : a. Become a term ? the other party may: (1) rescind the contract, or (2) affirm the contract and claim damages for breach of contract, (3) affirm the contract and claim damages under the tort of deceit b. Not become a term ? the other party may: (1) rescind the contract, and/or (2) claim damages under the tort of deceit Fraudulent misrepresentation Thursday, October 15, 2009 48 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Innocent misrepresentation : = false statement honestly believing to be true and has reasonable grounds to believe so up to the moment of contracting Remedies: Rescission (not plus damages) Misrepresentation Ordinance s. 3(2) : Damages in lieu of rescission if equitable Innocent misrepresentation Thursday, October 15, 2009 49 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Negligent misrepresentation : Elements to be proved: a duty on the representor to refrain from making a false statement; and The representor is in breach of this duty Duty exists with special relationships between representor and representee, e.g. professionals in their areas of expertise Remedies: rescission, damages and/or indemnity MO s.3(2): court has a wide discretion to affirm the contract and award damages in lieu of rescission Negligent misrepresentation Thursday, October 15, 2009 50 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Mistakes : 3 types: Common mistakes Mutual mistakes Unilateral mistakes Mistakes Thursday, October 15, 2009 51 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Common mistakes : Common mistakes as to the existence of the subject matter: Couturier v Hastie (1852) 8 Exch 40: contract for the sale of corn – unknown to the parties, corn went bad – Held : no contract Common mistakes as to ownership of the subject matter: Cooper v Phibbs (1867) 2 LR 2 HL 149: contract for sale of a fishery- mistake as to ownership – Held: void Common mistakes as to quality of the subject matter: Oscar Chess v Williams [1957] 1 All ER 325: unless of some fundamental nature, contract not void. Common mistakes Thursday, October 15, 2009 52 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Mutual mistakes : No meeting of minds – no contract Scriven Bros v Hindley [1913] 3 KB 564: mistake as to the lots of goods – Held: no contract Mutual mistakes Thursday, October 15, 2009 53 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Unilateral Mistakes : Mistake by one party while the other party knows the truth. Mainly on identity of the parties. Normally 3 parties are involved: The innocent party who mistakens The rogue The innocent party who was being mistakened 2 situations: Contracts made by correspondence Contracts made face to face Unilateral Mistakes Thursday, October 15, 2009 54 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Contracts made by correspondence : Effect: Contract void Cundy v Lindsay (1876) 1 QBD 348 A ordered some handherchiefs from B and sold them to C (being absolutely innocent) Held: A does not have a good title, cannot therefore transfer a good title to C. Contracts made by correspondence Thursday, October 15, 2009 55 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. Contracts made face to face : Contract may be voidable. Phillips v Brooks Ltd [1919] 2 KB 243 A pretended to be a rich and famous person, bought a diamond ring from B. He sold the ring to C, dishonoured the cheque and then disappeared. Held: valid contract and was bound. B cannot claim the ring from C. Levis v Averay [1972] 1 198 – similar result – voidable Gist:(1) what the innocent contracting party thought he was contracting with? (2) is the identity vital influence his decision to contract or not ? Contracts made face to face Thursday, October 15, 2009 56 Copyright 2009, Dr. Tabrez Ahmad, Associate Professor of Law,KIIT Law School KIIT University BBSR India.All rights reserved. We will continue….. : 10/15/2009 Dr. Tabrez Ahmad, KLS KIIT 57 We will continue….. Thanks