New Zealand Law/Contract

Topics to be covered:

Formation of contracts

• Boulder Consolidated v Tangaere
• Powierza v Daley
• Aotearoa Int'l v Scancarriers
• Markholm Construction v Wgtn City Council
• Money v Ven Lu Ree Ltd
• Couch v Branch
• Anton's Trawling v Warwick Aird Smith

Conditions

• Buhrer v Tweedie
• Provost Developments v Collingwood Towers
• Connor v Pukerau Store
• Powierza v Daley

Mistakes

• Contractual Mistakes Act (as amended)
• Contractual Remedies Act (as amended)

• Paulger v Butland
• Mechenex Pacific Services v TCA Airconditioning
• Phillips v Phillips
• National Bank v Murlan
• Tri Star v Denning

Section 2 – Definition of mistake

Definition: Positive idea, which is wrong. In law, or fact. Fact is past or present, not future. Law is in reading a statute. Interpreting a contract is not a mistake. A subjective opinion cannot be a mistake.

Section 6 – Type of mistake, and criteria

• Unilateral – made by one party to the other, and the other knows about it – actual knowledge.
• Common – made by both, same error (i.e. its common between the parties)
• Mutual – two mistakes on the same fact

Criteria:

• Mistake influenced party to enter contract (material to that guy)
• Mistake is before or when the contract was made (not after!)
• There is a substantial unequal exchange in values, or consideration substantially disproportionate
• A term in the contract doesn’t oblige liability (i.e. assume risk of the mistake)
• If the party becomes aware of the mistake, but still enters the contract, then the mistake doesn’t count

Section 7 – Relief

• Discretionary for the court
• Court considers how much to blame you are at – i.e. “extent to which you caused the mistake”
• Reliefs are:
  • Validation and subsistence of contract
  • Cancellation – (refer other notes on cancellation)
  • Variation – this is rectification, i.e. “court orders a change in a written document to reflect what it ought to have said in the first place”
  • Restitution or compensation – this is damages
  • Vest property -“take” stuff that is related to the contract from one party, and “give” to the other

The Parol Evidence rule

Parol evidence basically means that a contractual written document “superscedes” any previous oral agreements or written drafts of that agreement, etc. It seems kinda unnecessary if you think about offer + acceptance, with counter-offers. There are some specific exceptions, but it’s perhaps not a major.

Misrepresentation

• Contractual Remedies Act (as amended)

• Ware v Johnson
• NZ Motor Bodies v Emslie
• Savill v NZI Finance

Section 6 – Definition of misrepresentation

Definition:

• Misrepresentation: False statement of Fact (positive idea)
• Induced party to enter contract
• Whether innocent or fraudulent,
• Made to party,
• By or on behalf of other party

Also common law things (which aren’t in the legislation!)

• Not a puff
• Not an opinion or belief (or intention)
  • Exceptions to opinions include:
  • Statements of intention – if you lie about what your opinion is, then it’s misrep. Doesn’t matter if you intention changes, all that matters is if you lied (remember in the exam we assume all facts can be proven). Edgington v Fitzmaurice, which raises idea of opinion containing a implied statement of your “state of mind” when making the opinion.
  • Access to superior knowledge – implies reasonable ground for making the statement, thus if it’s false, is misrep. NZ Motor Bodies, the “coach building case” where the business was being sold and the superior knowledge implied the statement of opinion regarding profitability included implied statement of fact that opinion was based on accurate figures.
  • Implication of proper skill and care – a forecast which turns out to be wrong isn’t misrepresentation, unless it was prepares without proper skill and care. Esso Petroleum, where man had 40 years experience, which implied he would have taken care in preparing the figures, but he didn’t.
• Not silence
  • Exceptions to silence include:
  • Half truths – Lunch bar case with a new one opening up within ½ a mile, vendor was silent about this
  • Becomes untrue – silence regarding change in circumstances is misrepresentation
  • Facts subsequently discovered to be false – if party who made statement later finds out it’s false, they have to communicate this, or else it’s misrep.
  • Uberrimae fidei – things that specifically require you to disclose, such as fiduciary contracts, insurance contracts, and guarantees.

Inducement

• You have to actually believe the statement!
• Statement must make you want to enter the contract – but need not be the only reason
• Party making representation must want to induce you to enter the contract – compare “small talk” to actual representations
• Exceptions:
  • If you are unaware of the statement
  • Where you know it’s false but enter anyway
  • Where you don’t act on the statement

Section 6 – Damages (remedy/relief)

Assume the representation was a term of the contact, and that term had been broken. E.g. find the difference in values between the house now, and under the assumption that the term was true, and damages would be the difference.

Remember that damages are compensatory and are meant to put parties back in the position as if no wrong had been done – they are not to punish the wrong-doer.

Sales of goods are excluded from the CRA.

Section 7 – Cancellation (remedy/relief)

Cancellation may be available in addition to damages. This is a self-help remedy which means you don’t need the court to get involved, but you want to be careful to cancel properly.

Definition: Refer section 8 for this stuff: cancellation means stuff going forward does not happen, but you get to keep whatever has already happened. This is different to rescission, which “undoes” the contract and you gotta put back all the shit that’s moved, to the party it originally belonged to. (Nullifying a contact by discharging it is slightly wider than a rescission or cancellation).

You can cancel a contract if the other party has done: misrepresentation, repudiation, or breach (actual and anticipatory).

Cancellation under misrepresentation

(Innocent party) has been induced to enter contract by misrepresentation, innocent or fraudulent, made on or on behalf of (guilty) party.

Cancellation under repudiation

Definition: Other party makes it clear (by words or conduct) they do not/will not perform under the contract (including completing performance of an under-way contract).

Cancellation under breach (actual and anticipatory)

Breaking a term, or made clear that a term will be broken. The term must be essential to the cancelling party, and substantially alters benefit/burden.

Criteria

For these three above things, one the following must be true:

• It is essential (I mean “It” in regards to the representation, term, or performance of the contract), OR
• Effect will be substantially different (for cancelling party, reduce benefit, increase burden, or otherwise substantially different to the contract).

Other notes on cancellation not in the legislation (i.e. from common law)

All that is required is that justifiable grounds exist, in order to be able to cancel – you don’t need to actually know about it.

Notes on affirmation

Cannot cancel if you have affirmed (i.e. confirmed that you will “write off” the error, pretend it never happened and move forward anyway).

Section 8 – How to cancel

• Must communicate to the other party.
• Or some other overt means if cannot communicate.
• By words or by conduct.
• Cancellation means “stuff going forward doesn’t happen, but stuff that happened in the past stays as it is” – compare this to rescission which “undoes” the contract and stuff from before the rescission date must be returned.
• Can get damages as well!

Section 9 – Application of relief (remedy/relief)

If a contract is cancelled, the court might vest property. Damages can be paid. Orders of specific performance or injunction can be made.

Other notes about remedies

CRA doesn’t allow for representation made by anyone except the parties transacting in the contract, e.g. third parties. You need to go under the FTA to go after third parties who have misrepresented, which you would do under the torts of deceit or negligent misstatement. You can’t go after the second party under those two torts (but FTA still stands). This is probably not going to be examined.

Section 4 – Merger and Acknowledgement clauses

The theory states there are two kinds of clauses:

• Merger clauses (or “entire agreement” clauses)
  • Parties cannot sue under any representations/terms contained within the contract.
• Acknowledgement clauses
  • Acknowledgement by one party that the other has not made any misrepresentations
  • Or denies misrepresentation
  • Or states they did not rely on any representations by the other party.

These prevent the court from enquiring into whether any representations were made.

The merger or acknowledgement clause must be fair and reasonable, and does not cover “true” exclusion clauses.

Duress

Basically this is extreme coercion (against your will). Two key elements:

• Illegitimate pressure – which is basically a moral judgement
• Inducement or coercion.

This seems mostly to be like common sense. There is:

1. Duress to Goods
2. Duress to the Person
3. Economic duress

Relief/Remedy

Innocent party may rescind contract. You gotta do this ASAP (no sitting on your rights!)

Undue Influence

This is a legal “gap filler” when the circumstances aren’t as extreme as duress – such as violating trust of someone. Two key elements:

• Existence of relationship
  • If special relationship categories (parent + child, etc) UI presumed on Dominant party (Allcard v Skinner).
  • If not a special relationship, then need to show excessive trust and confidence (ASB v Harlick).
• Dominant party’s influence was improper
  • Show the facts are not a “expected consequence” of that relationship (Royal Bank of Scotland v Etridge)
  • Must consider factors:
• Size of the transaction, and
• Disadvantage to the weaker party.
  • Also consider can rebut, by:
• Independent advise given
• Advice would have been disregarded

Two kinds: (I think they basically relate to the influence of the dominant party)

• Actual
  • Must prove that if it weren’t for the undue influence, you wouldn’t have entered the contract.
• Presumed
  • Start with special relationship categories, parent + child, etc. UI presumed on Parent (Allcard v Skinner).
• If not a special relationship, then need to show excessive trust and confidence (ASB v Harlick).

Imputed Undue Influence (with a Guarantor situation)

Definition: Think about “Imputed” in this situation to mean “to put on to someone else” – so this is basically putting the liability of the undue influence onto someone else. I.e. imputing the UI from one party to the third party. (I think the actual definition of imputed relates to “ignorance of the law is no excuse” but basically the effect is as above, for this). Typical three-party scenario.

• Wife/Parent of adult child = guarantor for mortgage, party providing security.
• Husband/Adult child = party seeking mortgage
• Bank = third party, party which is “imputed” by the undue influence

Bank put on notice (of Undue Influence) if:

According to Royal Bank of Scotland v Etridge:

• Nature of relationship between surety (guarantor) and debtor is “non-commercial,” and
• On the face of it, transaction has little or no financial advantage to surety.
• Also, maybe consider (substantial risk that dominant party committed legal or equitable wrong.)

If the bank knows the first two situations exist, then bank is put on notice. Once bank is put on notice, bank must take reasonable steps to ensure “mortgage valid” – basically taking guarantor aside and confirming they genuinely understand the risk of being a guarantor, etc.

If bank has taken reasonable steps, then mortgage is valid and (presumably) can enforce it.

But if they haven’t (and undue influence is exercised) then they can’t enforce the mortgage – this seems to means the undue influence in the situation has been “imputed” onto the bank and they are “liable” (in a general sense of the word).

Relief

Rescission by innocent party – “undo” contract (void it) and restore parties to position as if contract had never existed. Casually be aware that if you take too long it might not be available (“those who sit on their rights lose them”).

Unconscionable Bargains

Remember that a court will not do anything just because the contract is “bad” for you – in most cases. If there is fraud etc that’s different, but just because you made a “bad deal” doesn’t mean it will be set aside. Unconscionable bargains are for “bad deals” but where one party is “disabled” e.g. old or mentally retarded etc. This addresses bargaining power of the parties.

The key case for this is Nichols v Jessup – the old lady and the driveway (man wanted to split his and her property to develop a ROW, or something along those lines.)

Three key elements

• Weaker party under “significant disability”
  • Not just a difference in bargaining power, but must be “special” or “significant”
  • Old lady was “naïve” and “ignorant” which was disability enough.
• Other party must have actual or constructive knowledge of disability
  • Old lady lived next door to other party, so that seems enough knowledge of naivety and ignorance
• Victimisation – this is the fact that there is a bargain for the stronger party at the expense of the weaker
  • Man did not seek out to exploit old lady, but passively accepted a deal which he knew would exploit.

Also two other sub-key points:

• Inadequacy of consideration
  • Old lady’s property devalued by $3,000 plus she got extra noise from cars, and man’s property increased by $45,000. There was Zero consideration to old lady!
• Procedural impropriety – i.e. no legal advise obtained
  • Old lady didn’t talk to lawyers.

Relief

Rescission (same as Undue Influence – contract voidable by innocent party.)

Cancellation of contract

• Starlight Enterprises v Lapco
• Schmidt v Holland
• Young v Hunt
• Jolly v Palmer
• Brown v Langwoods Photo Store
• Crump v Wala

Damages

• Astra v Pharmac
• Stirling v Poulgrain
• McElroy Milne v Commercial Electronics
• Whelen v Waitaki Meas
• Crump v Wala
• Newmans Tours v Ranier Investments (HC)

aka Coxhead v Newmans Tours (CA)

• Tak v AEL Corp
• Gina Heffernan "Exemplary Damages in Contract: Another Anomaly" NZPGLeJ (2005/1)3

Other

• Frustrated Contracts Act 1944 as amended thru 1996 (1999 Reprint)

Frustrated Contracts Amendment Act 2002

• Judicature Act 1908, ss 92, 94A-94B

92 Discharge of debt by acceptance of part in satisfaction

An acknowledgment in writing by a creditor, or by any person authorised by him in writing

in that behalf, of the receipt of a part of his debt in satisfaction of the whole debt shall

operate as a discharge of the debt, any rule of law notwithstanding.

94A Recovery of payments made under mistake of law

(1) Subject to the provisions of this section, where relief in respect of any payment that has

been made under mistake is sought in any Court, whether in civil proceedings or by way of

defence, set off, counterclaim, or otherwise, and that relief could be granted if the mistake

was wholly one of fact, that relief shall not be denied by reason only that the mistake is one

of law whether or not it is in any degree also one of fact.

(2) Nothing in this section shall enable relief to be given in respect of any payment made at

a time when the law requires or allows, or is commonly understood to require or allow, the

payment to be made or enforced, by reason only that the law is subsequently changed or

shown not to have been as it was commonly understood to be at the time of the payment.

94B Payments made under mistake of law or fact not always recoverable

Relief, whether under section 94A of this Act or in equity or otherwise, in respect of any

payment made under mistake, whether of law or of fact, shall be denied wholly or in part if

the person from whom relief is sought received the payment in good faith and has so

altered his position in reliance on the validity of the payment that in the opinion of the Court,

having regard to all possible implications in respect of other persons, it is inequitable to grant

relief, or to grant relief in full, as the case may be.

• Minors’ Contracts Act 1969 as amended thru 1994 (1997 Reprint)

Minors' Contracts Amendment Act 2005

• UN Convention on the International Sale of Goods

See also

• Criminal
• Equity
• Legal System
• Property
• Torts