8. Vitiating Factors

Question 1

What is a void contract?

Answer 1

A contract that is totally without any legal effect, which cannot be enforced by either party

Question 2

What is a voidable contract?

Answer 2

A contract which operates as valid until a party elects to rescind it, but can also be affirmed which prevents rescission

Question 3

What is the difference between a void and voidable contract as they relate to title to goods which are subject to these contracts?

Answer 3

Void: title does not pass under a void contract and can never be passed on

Voidable: title can passed on if a third party buys in good faith and for value

Question 4

What are the factors which can render a contract void?

Answer 4

1. Mistake
2. Illegal/contrary to public policy at formation

Question 5

What are the factors which can render a contract voidable?

Answer 5

1. Duress
2. Undue influence
3. Misrepresentation

Question 6

Who cannot enforce a legal contract which was performed illegally and who can?

Answer 6

Can enforce: Innocent party

Cannot enforce: The party who committed the illegal act

Question 7

What are the two criteria, either one of which is enough, under which a contract will be void for mistake?

Answer 7

Mistake is so fundamental that it:

1. Prevents formation of a contract in the first place (parties not properly in agreement), or
2. Makes what has been agreed between the parties fundamentally different from what was intended

Question 8

What is common mistake and what aspect of the contract will it typically relate to?

Answer 8

Both parties have made the same mistake.

Typically concerns the existence rather than quality of the subject matter of the contract.

Question 9

What is mutual mistake?

Answer 9

Where the parties are both mistaken, but about different things

Question 10

What will the courts consider in evaluating a mutual mistake?

Answer 10

Whether a reasonable person would interpret the agreement to mean what each party did

Question 11

What is a unilateral mistake?

Answer 11

Where one party is mistaken as to the terms of the contract, and the other party is aware or should be

Question 12

When does mistake as to identity occur?

Answer 12

When an innocent party thinks they are contracting with Party A, but it is actually Party B pretending to be Party A

Question 13

Only when will mistake as to identity void a contract?

Answer 13

When Party A’s identity was fundamental to the innocent party’s decision to enter into the contract

Question 14

In the context of mistake as to identity, where Party A’s identity was not fundamental to the innocent party’s decision to enter into the contract, what avenue for remedy is available?

Answer 14

Remedy for misrepresentation

Question 15

What are the two requirements to void a contract for mistake under non est factum?

Answer 15

1. Fundamental and radical difference between what was signed and what the signatory thought they were signing, and
2. The mistaken signatory must not have been careless

Question 16

When is rectification by the court available in the context of mistake?

Answer 16

When the parties agree on the terms but the terms are recorded incorrectly when the contract is reduced to writing, such that the written document failed to express the common intention of the parties

Question 17

When will rectification in the context of mistake not be available?

Answer 17

If it would be inequitable, e.g. if a third party has acquired rights under the contract as written

Question 18

What is required to succeed with an allegation of duress?

Answer 18

Illegitimate pressure which is a factor in the innocent party’s decision to enter into the contract

Question 19

What is duress of the person?

Answer 19

Physical duress

Question 20

Does physical duress have to be the only reason the contract was entered into?

Answer 20

No

Question 21

What is duress of goods?

Answer 21

One party unlawfully keeping goods belonging to another to exert some form of influence over them to enter into a contract

Question 22

What is economic duress?

Answer 22

Where there is inequality of the bargaining positions of the parties, and the stronger party uses this position in an illegitimate manner to force the other party to enter into the contract

Question 23

How much of a factor must economic duress have been in the decision to enter into the contract for it to be available?

Answer 23

A significant factor

Question 24

Is mere commercial pressure enough to amount to economic duress?

Answer 24

No. There must be coercion of the will so as to vitiate consent.

Question 25

What factors will the court consider when dealing with economic duress?

Answer 25

1. Does the threat deprive innocent party of practical choice?
2. Is the threat unlawful (and made not in good faith)?
3. Did innocent party seek to rely on contract?
4. Did innocent party protest?

Question 26

What is the doctrine of undue influence?

Answer 26

An equitable doctrine to ensure that one person’s influence over another is not abused

Question 27

Is the pressure giving rise to undue influence more or less serious than duress?

Answer 27

Less

Question 28

What are the two ways in which undue influence can be proved?

Answer 28

1. Actual undue influence: overt acts
2. Presumed undue influence: based on relationship between the parties

Question 29

What is required to prove actual undue influence?

Answer 29

That the other party overtly influenced them to enter into a contract by improper pressure

Question 30

What are the two ways improper pressure can be applied in the context of actual undue influence?

Answer 30

1. Directly, e.g. threats like blackmail
2. Indirectly, e.g. by misleading or tricking where a relationship of trust and confidence exists

Question 31

What is a key difference regarding the conduct requirement for undue influence compared to duress?

Answer 31

The conduct for undue influence does not need to be in bad faith or illegal

Question 32

Does actual undue influence have to be the only or principal factor in causing the innocent party to enter into the contract?

Answer 32

No, it only needs to be a factor

Question 33

When there is actual undue influence, must the innocent party show that the transaction was disadvantageous to them?

Answer 33

No. The innocent party is entitled to have the contract set aside as of right.

Question 34

What is the first requirement for presumed undue influence?

Answer 34

Relationship of trust and confidence, usually a fiduciary

Question 35

What are some other relationships where the trust and confidence element will be deemed to exist for the purposes of presumed undue influence?

Answer 35

1. Parent/child
2. Medical advisor/patient
3. Guardian and ward
4. Solicitor/client

Question 36

For the purposes of presumed undue influence, is there a relationship of trust and confidence between spouses?

Answer 36

Only if it is proved

Question 37

For the purposes of presumed undue influence, what one situation may also give rise to a relationship of trust and confidence?

Answer 37

Where the innocent party trusted the other to make all the important decisions for them

Question 38

What is required for a presumption of undue influence to apply?

Answer 38

1. Relationship of trust and confidence
2. Transaction, viewed objectively, calls for an explanation

Question 39

When the presumption of undue influence arises, who has the burden to rebut?

Answer 39

The non-innocent party

Question 40

When trying to rebut the presumption of undue influence, what is the non-innocent party essentially trying to show?

Answer 40

That the innocent party entered the contract of their own free will

Question 41

When trying to rebut the presumption of undue influence, what is one factor that will be strong evidence that there was no undue influence, albeit not conclusive?

Answer 41

That the innocent party obtained independent advice before entering into the contract

Question 42

What is third party undue influence?

Answer 42

Where the undue influence does not come from a party to a contract, but a person connected to one of those parties

Question 43

Where there has been third party undue influence, when may the transaction be set aside?

Answer 43

1. Non-innocent party is aware there may have been undue influence
2. They did not take reasonable steps to ensure the innocent party is entering the contract of their own free will

Question 44

On the exam, when considering duress and undue influence, what is the order in which these should be considered?

Answer 44

1. Check for duress

if the conduct falls short of duress:

2. Check for actual undue influence

if there is insufficient evidence of actual undue influence:

3. Check for presumed undue influence, including by third parties

Question 45

In what two ways can a contract be illegal?

Answer 45

1. Illegal as formed
2. Illegal as performed

Question 46

What is the status of a contract which is illegal as formed?

Answer 46

Void and unenforceable

Question 47

What is the status of a contract which is illegal as performed?

Answer 47

1. Rights withheld from the party who committed the illegal act
2. Remedies available to other party, as long as they were not aware and did not take part

Question 48

In the context of a contract being illegal as performed, what is the impact of the other party not knowing but subsequently finding out that performance was illegal?

Answer 48

No rights can accrue from that point onwards

Question 49

In the context of a contract being illegal as performed, what option does the court have to preserve the elements of the contract which weren’t performed illegally?

Answer 49

They can sever those parts, so the remainder can be performed by both parties

Question 50

What is the effect of a contractual term which purports to restrain trade?

Answer 50

Void, unless the party seeking to rely on the restriction shows it is reasonably necessary for the protection of legitimate interests