Week 5 - Cases invalid contracts infringing fundamental principles

Raffles v Wichelhaur

facts

• Raffles sells cotton to Wichelhaur using Peerless ship

• Wichelhaur does not accept cotton because it should be shipped in Peerless October

• but it was shipped on another Peerless in December

question

• Raffles wanted perfromance payment from Wichelhaur

• Is there a valid contract?

Solution

• no, there was never a contract because there was no agreement on the same thing (consensus)

Hartong v Colin Shields (argentine hare skins)

facts

• Colin Shields sells hare skin to hartong per pound, but they meant to do it per piece

• hence refuse to perform

question

• Hartong still wants the hare skin. Is there a valid contract?

solution

• no because there was never a contract

• because Hartong should have known it was customary in the hare skin trade that prices are per piece not per pound

• can’t be argued that Hartong acted in good faith because he should have known this information

Shark meat case

facts

• contract of sale for shark meat in Norwegian

• but buyers intended to buy and sell whale meat

• seller knew that there was a miscommunication and wanted to avoid contract because of mistake

• buyer wants to claim differences back because because shark meat is cheaper

question:

• is there a valid contract?

solution

• There was common intention, so there was a contract (consensus)

• if intention of both parties was shark meat, this prevails over the wrongly used term

Threatened shop director

facts

• C agreed to pay debt of shop customer because she was threatened with criminal prosecution

• can C avoid this agreement on ground of violence

question

• can C void this contract on the ground of violence?

Decision

• due to experience and age and because she only responded to the threat 3 months later

• the threat was not sufficiently serious

Threatened Wife

facts

• A bank director discovers a husband committed financial fraud ("jobbing in bills") against the bank

• The director threatens the wife that he will launch criminal proceedings against her husband unless she signs a personal guarantee for €36,000 to cover the husband's business debts

• She signs out of fear and later seeks avoidance

question

• Can a wife avoid a guarantee contract if she was induced to sign it by a creditor’s threat to prosecute her husband for a crime?

reason

• Yes. The wife can successfully avoid the guarantee due to duress

• The Rule = A threat is illegitimate if there is no structural, logical connection between the threat used and the goal desired

• The Reason: Using the threat of public criminal prosecution to extract a private commercial benefit from an innocent third party lacks a legitimate aim

• The creditor's subjective belief that they were justified does not protect the contract from avoidance

what is the rule for using duress?

Is the threat being used to solve the exact legal problem it was designed for?

• Yes = Legitimate connection (The contract is valid)

• No (It's just used as leverage to squeeze money out of someone) = No logical connection (The contract can be avoided for duress under II. – 7:206)

Steamship Rolf

facts

• Steamship couldn’t sail anymore but it was carrying cargo worth 363k

• Asked for help from other ship, they agreed for 18k

question

• can the agreement be voided?

decision

• yes, because it took only 45 mins and caused no harm to the salvor

• do not misuse other people’s helplessness

• but helping ship does have claim for some money (4k)

• the helping ship should not have charged such a high and unreasonable price (unfair exploitation)

Atlantic Barron

facts

• Shipbuilders threaten to stop building a tanker unless the buyer pays 10% extra due to the US currency drop because of an economic crisis

• The buyers agree because they have a lucrative deal with Shell that relies on the ship being delivered on time

• The buyers pay the extra money silently, take the ship, and wait 8 months before suing to get the 10% back

question

• can a party recover money paid under economic duress if they delay taking legal action and show no outward reservation or protest for months after the threat is lifted?

decision

• The court officially recognized that threatening to breach a contract to exploit a buyer's urgent business needs constitutes economic duress, making the agreement voidable

• Because the buyers paid without protest and waited 8 months to complain after the ship was delivered, their conduct affirmed (validated) the contract.

• You must claim duress promptly once you are free from the threat, or you lose the right to avoid it