Restitution
front page

What's new?

Archive front page

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2007

2006

2008

2009

I agree with Robert. Implied contractual terms are an unsatisfactory way of explaining frustration or common mistake (where both parties have reached an objective agreement on an equal footing) (see Great Peace Shipping v. Tsavliris [2003] QB 679, [73] (CA) ("What do these developments in the law of frustration have to tell us about the law of common mistake? First that the theory of the implied term is as unrealistic when considering common mistake as when considering frustration. Where a fundamental assumption upon which an agreement is founded proves to be mistaken, it is not realistic to ask whether the parties impliedly agreed that in those circumstances the contract would not be binding. The avoidance of a contract on the ground of common mistake results from a rule of law under which, if it transpires that one or both of the parties have agreed to do something which it is impossible to perform, no obligation arises out of that agreement.").

They are an even less satisfactory way of explaining vitiating factors such as misrepresentation, duress and undue influence, where the conduct of one party (innocent or otherwise) has unbalanced the relationship in such a way as to justify the other being given the legal option, subject to certain qualifications, to undo the bargain (see John Cartwright's analysis in- "Unequal Bargaining"). Sometimes that option is exercisable unilaterally (e.g. rescission at common law for fraud) and sometimes it requires the sanction of the court (e.g. rescission in equity for undue influence). The remedy of rescission, in many cases, also effects restitution between the parties. The idea that an implied contractual term is necessary, or appropriate, to achieve this result over-complicates the analysis and is reminiscent of the argument that the reversal of unjust enrichment was itself founded on an implied contract.

Andrew

-----Original Message-----
From: Robert Stevens
Sent: 02 April 2004 16:56
Subject: Re: [RDG:] Undue Influence

Jason Neyers wrote:

This raises the question of why a contract can be rescinded for a material innocent misrepresentation. I agree the reason is not fault. But I do not agree that it has nothing to do with the implied agreement of the parties. I see the reason for the courts intervention, being similar to the reason the court intervenes (or is asked to intervene) in cases like Scott v. Coulson, Bell v. Lever Bros. The implied agreement/condition is that the contract is to bind only their shared fundamental assumption is true. Hence if you would have put the point to the parties in Redgrave v. Hurd, they would have objectively agreed that the contract was to bind only if the practice brought in L400 per year. While one may not agree with this analysis, it has a long history: see Grotius, The Law and War and Peace, Bk. II c.11 and the work of Peter Benson, The Unity of Contract of Law (2001: CUP).

I do not find this a convincing explanation as to why a misrepresentation entitles the misrepresentee to rescind.

I would be prepared to concede that where there is a common fundamental mistake made by both parties to a contract one plausible explanation as to why the contract is void is that there is an implied condition precedent that the agreement is not to bind.

A agrees to hire B's music hall and surrounding gardens. Unknown to both A and B, ten minutes before the deal was struck the music hall had burnt to the ground.

We might be prepared to say, on an officious bystander test, that there is no contract because it was an implied condition precedent that the music hall existed. We might also be prepared to say that if the music hall burnt down ten minutes after the agreement that there was an implied condition subsequent that the deal was to come to an end.

There are other plausible explanations for the result that the contract is no longer on foot and in the context of frustration the implied condition analysis has become unfashionable.

Where rescission for misrepresentation is concerned, the misrepresentation need not be fundamental nor need it be shared. All that is necessary is that the misrepresentation, however minor, was in part a cause of the decision to enter into the deal (Edgington v Fitmaurice (1885) 29 ChD 459).

A agrees to charter B's ship for six months. Wholly innocently, B misrepresents the size of the propeller. The size of the propeller played a minor role in A's decision to hire the ship.

As the contract is voidable, not void, the implied term would have to be something like:

"If either party misrepresents to the other, regardless of fault, a matter material to the other's entering into the contract, this shall entitle the other party to avoid the deal."

I don't think myself that such an implied term passes the officious bystander test. If we say the term is implied by law, rather than fact, we just get back to asking why the law should imply such a term.

It seems to me that a better explanation is that the misrepresentee's consent has been vitiated by the misrepresentation and that this entitles him to set aside the deal. If I make you a gift because of a misrepresentation you have made to me I am entitled to recover the gift. I do not, myself think that this can be explained through an implied agreement to return the gift. Similarly if I enter into a contract with you because of your holding a gun to my head or because I am hopelessly dependent upon you, I can avoid the deal. I don't think that this is because of any implied agreement that I am entitled to do so.