Purchase of horse - binding contract

Misrepresentation

If Patrick cannot sue for breach of contract he may have a remedy for Joanna’s misrepresentation. To be fraudulent, the representation must be one of fact, made with a knowledge of its falsehood, or recklessly, without a belief in its truth. There must be reliance. Joanna described the horse as a “three-year-old” and an “excellent breeding mare” and said that she “had it since it was a foal”. Joanna clearly misrepresented the age of the horse and did so knowingly, as she said she had raised the horse since it was a foal. Joanna also misrepresented the demeanour of the horse, saying that it was “quiet tempered” however Patrick may find this harder to prove because how easily the horse handles may be question of opinion. Patrick relied on the information provided by Joanna and suffered a loss because he payed for a fertile three year old, but received a sterile 10 year old mare.

The measure of damages

Assuming that it is a term of the contract that the horse “was an excellent breeding mare” (or an implied term of the contract under the Sale of Goods Act) the damages Patrick can recover will be determined by the foreseeability tests in Hadley v Baxendale . Damage will be limited to that which a reasonable person would foresee as a likely natural consequence of the breach, unless another eventuality was specifically in the mind of the parties at the time of contracting.

At the time of contracting, Joanna said the horse was an excellent breeding mare; it could be inferred from this that she knew Patrick intended to breed the horse. Thus he should be able to recover the loss he suffered by reason of not having a breeding mare; such as the profit from a foal. The value of the loss of breeding capacity would not be all the foals it could have carried, because Patrick could mitigate his loss by purchasing a fertile mare. 

On the facts, it is difficult to see how the representation could be innocent or negligent, but if it were, the former provides no remedy and the latter tortuous damages.

If Patrick can prove fraudulent misrepresentation, then the contract is voidable so he can repudiate the contract and seek restitution. If he does that he will be put in the position he would have been in had the contract had not been made. He must return the horse but Joanna would have to refund the purchase price, compensate him for lost interest, the upkeep for the horse, the cost of the failed stallion fees and the vet who said the horse was sterile. Alternatively, Patrick could affirm the contract and sue Joanna for the difference between what was promised (a three year old breeding mare) and what was received (a sterile, ten year old).

Conclusion

A binding contract exists between Patrick and Joanna if price was agreed. The age and quality of the mare may not have been terms of that contract. There is probably an implied term of merchantable quality and Patrick may also have a claim against Joanna for fraudulent misrepresentation. He could avoid the contract or sue for damages.

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2. Whether Patrick is bound to the agreement to sell his house to Sally. Also discuss what remedies might be available to Patrick from Sally, in the event that he is not bound.

Issues

Is there a binding contract between Patrick and Sally? Are there any vitiating factors?

Reasoning

There was a contract between Patrick and Sally.  The contract contained the price and the obligation to sell so the main terms were agreed and certain. Real Estate contracts must be in writing, which this apparently was. If the contract was not the standard form real estate contract for sale in NSW there will be a rebuttable presumption that the parties did not intend to be bound until after exchange.

There are vitiating factors. Patrick approached Sally as a counsellor. This is similar to a doctor/patient relationship which is a recognised category of influence, so there may be a presumption of undue influence. Alternatively there was a relationship of “special trust and confidence” because Patrick became dependant on Sally’s séances for even trivial decisions after the death of his mother.

“There is no presumption of undue influence unless there is evidence that the transaction was wrongful – that it amounted to taking an unfair advantage of the other person even though there may have been a relationship of influence and/or confidence.” There is evidence that Joanna took unfair advantage of Patrick as she purchased his house well below market value.

Assuming the relationship is one of special trust and confidence, the onus of proof is on Sally to prove there was no undue influence. Patrick was vulnerable and unhappy; this affected his ability to look after his own interests, so he was in a position of special disadvantage. Sally was aware of this and took advantage of the situation by encouraging him to sell the house to her at undervalue, claiming the advice was from Patrick’s mother. Thus Sally’s conduct was unconscionable.

Sally may argue that the advice was from Patrick’s mother, but the court may not accept this since the advice about the house was unsolicited, unlike the earlier advice.  In any event, Sally took unfair advantage of Patrick’s circumstances by persuading him to sell the house at such an enormous undervalue. Patrick will be able to establish both undue influence and unconscionable conduct.

Patrick can seek restitution so the property would be returned to him on repayment of the $30,000 and he would recover any other expenses such as stamp duty. If this was not possible (for instance if Sally had on sold the property) or if Patrick did not want it, he could sue Sally for the $170,000 difference in market value.

Tentative Conclusion

Patrick was in a position of special disadvantage of which Sally had knowledge, she exerted undue influence and took advantage of Patrick. Patrick could either avoid the contract or sue for damages.

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Bibliography

Paul Latimer, Australian Business Law (CCH, 2010 edn)

Carvan, Understanding the Australian Legal System (Thomson Reuters)

Terry and Giugni, Business and the Law, 5TH ed. 2009 (Cengage Learning

Australia Pty Limited)

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