Pat was the president of Capital inc, a pharmaceutical company which was developing a pain relieving medical cream. All clinical trials had been completed over a 3 year period and Capital inc was awaiting final approval from the ministry of health to produce and market the product. Capital inc was also in financial difficulty for some reasons and the bank would not loan the company any further funds.

On june 15th, Pat received a letter from the company's lawyers, smarter and smarter (SS) demanding immediate payment of $200,000 for overdue accounts. SS knew of the company's financial position and wanted to ensure they were paid prior to numerous other creditors.

Assume that a contract was formed on June 16th between capital inc. and SS for the issuance of 100,000 shares in settlement of the account and the following scenario occurred.

On June 7th, the ministry of health had requested that capital inc complete a further 6 month study to confirm the safety of its product. Pat did not disclose this request to SS or to anyone other than the employees who would conduct the study. Details of the request were posted on the ministry of health's website although there was no other public notice of the additional requirement for approval.

Upon publication of this news by a reporter on June 20th, the shares of Capital inc. plummeted to $0.01 per share.

SS wishes to set aside the agreement to accept the shares and pursue its claim for the outstanding legal fees.

Required: Explain the basis upon which SS will proceed and whether the application will be successful. Make sure you discuss the applicable principles as part of your answer.