Fundamentals of Law (BL502)
Fundamentals of Law
Misrepresentation
Fundamentals of Law (BL502)
History
 1880’s – Caveat Emptor – Let the buyer beware
 Court of Equity
 Relief for fraudulent misrepresentation
 Recision was only remedy
 Common Law Courts
 Relief for innocent misrepresentation only if it
became a term of the contract
 Tort of negligent misrepresentation
 Only remedy was damages
Fundamentals of Law (BL502)
History
 1970’s – Statutory Reform
 S52 Trade Practices Act & s11 Fair Trading
Act
 Removed distinction between fraudulent,
negligent and innocent misrepresentation
 Built upon previous law regarding
misrepresentation
Fundamentals of Law (BL502)
Categories of Misrepresentation
 Fraudulent misrepresentation
 Representor knew it to be false or was
reckless as to whether it was true or false
 Innocent misrepresentation
 Representor did not know it was false and
owed no duty of care to the representee
Fundamentals of Law (BL502)
Categories of Misrepresentation
 Negligent Misrepresentation
 Representor owed a duty of care to
representee
 Representor failed to exercise the required
standard of care
 Loss, which was a reasonably foreseeable
consequence of the misrepresentation,
was caused by misrepresentation
Fundamentals of Law (BL502)
Elements of Misrepresentation
 The statement was false
 The statement was one of fact
 Statement was addressed to the representee
before or at the time that the contract was
entered into
 The statement was intended to induce, and
did induce, the representee to enter into the
contract
Fundamentals of Law (BL502)
Statement was false
 Silence will not normally suffice
 Half truths
 Re Hoffman; ex p Worrell v Scilling (p39)
 Krakowski v Eurolynx (S&OR p40)
 Altered circumstances
 Lockhart v Osman (S&OR p40)
 Misrepresentation can be made by conduct
Fundamentals of Law (BL502)
Statement was one of fact
 Not a mere puff
 Usually, not an opinion
 An opinion can be a fact where the
representor has special knowledge
 Smith v Land and House Property Corp (S&OR
p39)
 The existence of an opinion can be a fact
 Sola Optical v Mills (1987) 168 CLR 628
Fundamentals of Law (BL502)
Addressed to the Representee
 A representee cannot sue on a representation
that was not directed to him and was not
intended to induce him into making the
contract
 Peek v Gurney (S&OR p41)
 But is sufficient if communicated to a third
party with the intention that it would be
communicated to the representee
Fundamentals of Law (BL502)
Statement Induced Representee to Act
 Not necessary that it was the only reason for
entering the contract
 But it must be one of the reasons
 Representee cannot be aware of truth before
entering into the contract
 Holmes v Jones (S&OR p40)
 Representee is not required to investigate
 Redgrave v Hurd (S&OR p41)
Fundamentals of Law (BL502)
Remedies for Misrepresentation
 Recision
 Contract is void ab initio
 Not the same as termination
 Damages
Fundamentals of Law (BL502)
Rescission
 The parties must be capable of being
restored to substantially the position they
were in before the contract was entered into
 Known as “Restitution”
 Court can make consequential orders
 Precise restitution is not necessary
 Not possible where services already
supplied pursuant to a contract of service
Fundamentals of Law (BL502)
Rescission (cont.)
 Innocent party must give notice of rescission
to other party
 Notice can be implied from conduct
 Academy of Health & Fitness v Power
(S&OR p218)
Fundamentals of Law (BL502)
Rescission (cont.)
 Rescission is not permitted if the contract has
been affirmed
 After discovering misrepresentation,
innocent party does any act which
indicates that he is treating contract as still
running
 A delay in rescinding can amount to an
affirmation
Fundamentals of Law (BL502)
Rescission (cont.)
 Not permitted if the legal rights of an innocent
third party will be adversely affected
 For example, where goods have been on sold
to a bona fide purchaser for value
 But, rescission will be effective where it
occurs before the third party gains an interest
 Car & Universal Finance Co v Caldwell
(S&OR p218)
Fundamentals of Law (BL502)
Statutory Provisions
 S52 Trade Practices Act
 A corporation shall not, in trade or
commerce, engage in conduct that is
misleading or deceptive or is likely to
mislead or deceive
 S9 Fair Trading Act (Vic)
 A person must not, in trade or commerce,
engage in conduct that is misleading or
deceptive or is likely to mislead or deceive
Fundamentals of Law (BL502)
Fundamentals of Law
Duress, Undue Influence and
Unconscionable Conduct
Fundamentals of Law (BL502)
Duress
 A contract entered into due to coercion or
force can be rescinded
 Coercion can be:
 To the person;
 To goods; or
 Economic duress
Fundamentals of Law (BL502)
Duress (cont.)
 Duress to the Person
 Threats of physical punishment or
imprisonment to the person, his family or
friends
 Duress to Goods
 Threats that are made against a person’s
property
Fundamentals of Law (BL502)
Economic duress
 An economic threat that is not “legitimate”
 No rule that that commercial parties have to
be fair to one another
 A threat to break a contract can be economic
duress
 North Ocean Shipping v Hyundai (p220)
 A lawful threat may be illegitimate
 Cockerill v Westpac (S&OR p220)
Fundamentals of Law (BL502)
Undue influence
 The unconscionable use by one person of
power possessed by him over another in
order to induce the weaker party to enter into
a contract
 Presumed in special relationships and where
one party is in a position of dominance or
confidence
 O’Sullivan v Management Agency (S&OR p221)
 Lloyd’s Bank v Bundy (S&OR p222)
Fundamentals of Law (BL502)
Undue influence (cont.)
 There must be more than mere reliance or
influence
 Innocent party must show that the contract
would not have been made without the undue
influence
 Court will look at:
 The equality of the bargain
 The weaker party’s ability to make free and
independent choices
 Whether the weaker party received
independent advice
Fundamentals of Law (BL502)
Unconscionable Conduct
 One party takes advantage of the other
parties special disability to the extent that the
contract is unfair or unconscionable
 Blomley v Ryan (S&OR p219)
 Commercial Bank v Amadio (S&OR p61)
 Elements
 Special disability
 Absence of any equality between the parties
 Disability evident to other party
Fundamentals of Law (BL502)
Unconscionable Conduct - Remedies
 Originally, only rescission was available
 s51AA Trade Practices Act and s7 Fair Trading Act
permits damages
 A corporation must not, in trade or commerce, engage in
conduct that is unconscionable within the meaning of the
unwritten law, from time to time, of the States and Territories.
 S82 Trade Practices Act & s159 Fair Trading Act
 A person who suffers loss or damage by conduct of another
person … may recover the amount of the loss or damage by
action against that other person or against any person
involved in the contravention.
Fundamentals of Law (BL502)
Fundamentals of Law
Illegal and Void Contracts
Fundamentals of Law (BL502)
Illegal Contracts
 Prohibited by Statute; or
 “Injurious to the public good” and therefore
illegal at common law
 Injurious to public life
 Contrary to the nations foreign affairs
(trading with the enemy)
 Interference with administration of Justice
Fundamentals of Law (BL502)
Void contracts
 Declared void by Statute; or
 “injurious to the public good” but not serious
enough to be illegal
 Immoral contracts
 Prejudicial to family life
 Restraint of trade
Fundamentals of Law (BL502)
Void contracts (cont.)
 Differ from illegal contracts
 Bad part of contract can be severed from
good part
 Related contracts may still be enforceable
 Transferred property is recoverable
Fundamentals of Law (BL502)
Restraint of Trade
 All citizens should be free to ply their trade
 A clause in restraint of trade is only enforceable to
the extent that it is reasonable
 It will only be reasonable if it is no wider than is
reasonably necessary to protect the legitimate
interests of the party relying on it
 Otherwise it is void
 ICT v Sea Containers (S&OR p140)
 Peters (WA) Ltd v Petersville Ltd (S&OR p140)
Fundamentals of Law (BL502)
Restraint of Trade (cont.)
 3 Types of Contract where restraint of trade
often arises
 Contracts of service
 Sale of business
 Restrictive trading agreements
Fundamentals of Law (BL502)
Restraint of Trade (cont.)
 Contracts of service
 Courts will look at respective bargaining
positions
 Drake Personnel v Beddison [1979] VR 13
 Buckley v Tutty (1971) 125 CLR 353
 Restrictive trading agreements
 See Part IV Trade Practices Act