8. Vitiating Factors Flashcards
What is a void contract?
A contract that is totally without any legal effect, which cannot be enforced by either party
What is a voidable contract?
A contract which operates as valid until a party elects to rescind it, but can also be affirmed which prevents rescission
What is the difference between a void and voidable contract as they relate to title to goods which are subject to these contracts?
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
What are the factors which can render a contract void?
- Mistake
- Illegal/contrary to public policy at formation
What are the factors which can render a contract voidable?
- Duress
- Undue influence
- Misrepresentation
Who cannot enforce a legal contract which was performed illegally and who can?
Can enforce: Innocent party
Cannot enforce: The party who committed the illegal act
What are the two criteria, either one of which is enough, under which a contract will be void for mistake?
Mistake is so fundamental that it:
- Prevents formation of a contract in the first place (parties not properly in agreement), or
- Makes what has been agreed between the parties fundamentally different from what was intended
What is common mistake and what aspect of the contract will it typically relate to?
Both parties have made the same mistake.
Typically concerns the existence rather than quality of the subject matter of the contract.
What is mutual mistake?
Where the parties are both mistaken, but about different things
What will the courts consider in evaluating a mutual mistake?
Whether a reasonable person would interpret the agreement to mean what each party did
What is a unilateral mistake?
Where one party is mistaken as to the terms of the contract, and the other party is aware or should be
When does mistake as to identity occur?
When an innocent party thinks they are contracting with Party A, but it is actually Party B pretending to be Party A
Only when will mistake as to identity void a contract?
When Party A’s identity was fundamental to the innocent party’s decision to enter into the contract
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?
Remedy for misrepresentation
What are the two requirements to void a contract for mistake under non est factum?
- Fundamental and radical difference between what was signed and what the signatory thought they were signing, and
- The mistaken signatory must not have been careless
When is rectification by the court available in the context of mistake?
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
When will rectification in the context of mistake not be available?
If it would be inequitable, e.g. if a third party has acquired rights under the contract as written
What is required to succeed with an allegation of duress?
Illegitimate pressure which is a factor in the innocent party’s decision to enter into the contract
What is duress of the person?
Physical duress
Does physical duress have to be the only reason the contract was entered into?
No
What is duress of goods?
One party unlawfully keeping goods belonging to another to exert some form of influence over them to enter into a contract
What is economic duress?
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
How much of a factor must economic duress have been in the decision to enter into the contract for it to be available?
A significant factor
Is mere commercial pressure enough to amount to economic duress?
No. There must be coercion of the will so as to vitiate consent.
What factors will the court consider when dealing with economic duress?
- Does the threat deprive innocent party of practical choice?
- Is the threat unlawful (and made not in good faith)?
- Did innocent party seek to rely on contract?
- Did innocent party protest?
What is the doctrine of undue influence?
An equitable doctrine to ensure that one person’s influence over another is not abused
Is the pressure giving rise to undue influence more or less serious than duress?
Less
What are the two ways in which undue influence can be proved?
- Actual undue influence: overt acts
- Presumed undue influence: based on relationship between the parties
What is required to prove actual undue influence?
That the other party overtly influenced them to enter into a contract by improper pressure
What are the two ways improper pressure can be applied in the context of actual undue influence?
- Directly, e.g. threats like blackmail
- Indirectly, e.g. by misleading or tricking where a relationship of trust and confidence exists
What is a key difference regarding the conduct requirement for undue influence compared to duress?
The conduct for undue influence does not need to be in bad faith or illegal
Does actual undue influence have to be the only or principal factor in causing the innocent party to enter into the contract?
No, it only needs to be a factor
When there is actual undue influence, must the innocent party show that the transaction was disadvantageous to them?
No. The innocent party is entitled to have the contract set aside as of right.
What is the first requirement for presumed undue influence?
Relationship of trust and confidence, usually a fiduciary
What are some other relationships where the trust and confidence element will be deemed to exist for the purposes of presumed undue influence?
- Parent/child
- Medical advisor/patient
- Guardian and ward
- Solicitor/client
For the purposes of presumed undue influence, is there a relationship of trust and confidence between spouses?
Only if it is proved
For the purposes of presumed undue influence, what one situation may also give rise to a relationship of trust and confidence?
Where the innocent party trusted the other to make all the important decisions for them
What is required for a presumption of undue influence to apply?
- Relationship of trust and confidence
- Transaction, viewed objectively, calls for an explanation
When the presumption of undue influence arises, who has the burden to rebut?
The non-innocent party
When trying to rebut the presumption of undue influence, what is the non-innocent party essentially trying to show?
That the innocent party entered the contract of their own free will
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?
That the innocent party obtained independent advice before entering into the contract
What is third party undue influence?
Where the undue influence does not come from a party to a contract, but a person connected to one of those parties
Where there has been third party undue influence, when may the transaction be set aside?
- Non-innocent party is aware there may have been undue influence
- They did not take reasonable steps to ensure the innocent party is entering the contract of their own free will
On the exam, when considering duress and undue influence, what is the order in which these should be considered?
- Check for duress
if the conduct falls short of duress:
- Check for actual undue influence
if there is insufficient evidence of actual undue influence:
- Check for presumed undue influence, including by third parties
In what two ways can a contract be illegal?
- Illegal as formed
- Illegal as performed
What is the status of a contract which is illegal as formed?
Void and unenforceable
What is the status of a contract which is illegal as performed?
- Rights withheld from the party who committed the illegal act
- Remedies available to other party, as long as they were not aware and did not take part
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?
No rights can accrue from that point onwards
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?
They can sever those parts, so the remainder can be performed by both parties
What is the effect of a contractual term which purports to restrain trade?
Void, unless the party seeking to rely on the restriction shows it is reasonably necessary for the protection of legitimate interests
