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Defects on Consent - Coggle Diagram
Defects on Consent
Misinterpretation
NO GENERAL DUTY TO DISCLOSE INFORMATION
- Smith v Hughes 1871)
- S.14 of the Sale of Goods Act 1979 (B2B contracts)
- S.9 (1) Consumer Rights Act 2015 (B2C contracts
English law: A party can remain silent, but if it does speak it must make sure that it is telling the truth
FRAUDULENT MISREPRESENTATION –if a party knows it is making a false statement.
NEGLIGENT MISREPRESENTATION – if a party carelessly makes a representation while having no reasonable basis to believe it to be true (S. 2 (1) of the Misrepresentation Act 1967) --> Spice Girls Ltd v Aprilia World Service BV 2002.
INNOCENT MISREPRESENTATION – if an incorrect statement is made without fault
Mistake
- FRANCE – Art. 1130 (1) CC and Art. 1132 CC
- GERMANY - §119 BGB and §122 BGB
- THE NETHERLANDS – Art. 6:288 BW
- PECL – Art. 4:103 BW
Common Requirements
There must be a contract that can be avoided – e.g., lack of consent – such a misunderstanding can prevent the contract from coming into being at all, where in the case of mistake the contract does exist but can be invalidated by the party in error.
There must be a misapprehension of the correct situation by one or both parties (the actual ‘mistake’) – party is mistaken about a fundamental characteristic of the good (the used car turns out to be a lemon) or about an essential quality of a person. A trivial mistake would be to err about something that is not likely to be of any reference.
There must be a causal link between the mistake and the conclusion of the contract – the contract wouldn’t have been concluded under the same conditions on a correct assessment of the facts
It must be clear to the other party that the mistaken party (if it knew the truth) would not have entered into the contract – the other party needn’t know about the mistake itself, but it must know that the mistaken party regarded a certain quality as vital – a matter of protecting reasonable reliance. If the other party is unaware of my wishes, it should not be confronted with a claim for avoidance for mistake.
The mistake must fall under one of three categories – Art. 6:228 BW, Art. 4:103 PECL
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Consequences
Result of this extensive survey of the requirements for legally relevant mistake must be that, although mistake as a prominent place in civil codes, its practical significance is fairly limited. Not only will a statement about the quality of a good or a person often give rise to a claim for non-performance (which is much easier to prove than a mistake), but the mistake itself will have to meet strict requirements for the avoidance of the contract to be successful.
Fraud
• FRANCE – Art. 1137 CC
• GERMANY - §123 (1) BGB
• THE NETHERLANDS – Art. 3:44 BW
• PECL – Art. 4:107
A party who believes itself to be victim of fraud --> will base its claim on both mistake and fraud – if proved that the other party had the intention to deceive, this allows for the avoidance of the contract and a claim for damages (in tort, or based on some special provision such as Art. 4:117 PECL).
Falls under fraudulent misrepresentation in English law – only if based on a party’s statement: keeping silent won’t qualify as misrepresentation
Undue Influence
•FRANCE – classifies exploitation of a party’s weakness as a special case of threat – art. 1143 CC
•GERMANY – separate provision on usury - §138 (2) BGB
•PECL – Art. 4:109
•THE NETHERLANDS – Art. 3:44 (4) BW on abuse of circumstances doesn’t require a disparity between the mutual performances and is satisfied with the mere abuse
•PICC – Art. 3.2.7; only requires an excessive disadvantage in its provision on gross disparity – it goes furthest in accepting substantive unfairness as ground for avoidance of the contract
Both provisions require:
• The deliberate exploitation of the vulnerable position of one party
• An excessive advantage resulting from this for the other Test for procedural and substantive fairness are combined
• ENGLISH LAW – lacks the general doctrine of wrongful exploitation; It may qualify as duress – more likely that the court will avoid the contract by applying the equitable doctrine of undue influence.
Requires the parties to be in a special relationship of trust; they rely in the other party’s expertise and advice (child and parent, patient and doctor)
Duties of disclosure
ENGLAND – does not allow a claim for mistake for non-disclosure, but exceptionally possible that non-disclosure qualifies as misrepresentation
Art. 4:107 (3) PECL: In determining whether good faith and fair dealing required that a party disclose particular information, regard should be had to all the circumstances, including:
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Duty to investigate
Whether a duty to investigate exists depends on the relative expertise and experience of the parties, as well as on the costs of the
investigation.
• NEGLIGENT MISREPRESENTATION – if a party carelessly makes a representation while having no reasonable basis to believe it to be true – it doesn’t lie, but is careless in saying what it says --> assuming something that should have been investigated before saying anything
Threat
- FRANCE – Art. 1140 CC
- THE NETHERLANDS – Art. 3:44 (2) BW
- PECL – Art. 4:108
It is always unlawful to threaten to do something that is against the law – to threaten with physical violence or theft. The law also allows avoidance of the contract if the threat is unrelated to the obligation of the other party. One is allowed to file for someone's bankruptcy or to report a crime to the police, but only to ensure a fair insolvency or criminal prosecution, not to achieve a low price on a contract.