Chapter 5 - Vitiating factors (Part 1) Flashcards
What is the most basic requirement of a contract?
Presence of an agreement. The contract must have been voluntarily entered into and involve a “genuine meeting of minds”
Vitiating factors can result in a contract to be?
Void or voidable
What is the vitiating factor that make a contract void?
Illegality
What are the vitiating factors that make a contract voidable?
Misrepresentation
Incapacity
Duress
Undue Influence
What happens if a contract is void? Is there any legal remedies?
Contract is automatically treated as nullity (i.e. contract had never existed at all between the parties)
Any goods or money obtained under the agreement cannot be recovered.
What is a voidable contract? Is there any legal remedies?
A voidable contract is valid until it is terminated by the injured party. The injury party has the right to choose to
1) terminate the contract or
2) continue with it
If injured party decides to continue with the contract and affirms the contract, contract will remain valid between the parties
If injured party decides to terminate the contract then the contract will be considered void from the beginning.
Explain on “Illegality”?
All illegal contracts are void. Contracts are Illegal if they are forbidden by statue or are unlawful according to common law.
What are the 3 types of illegal contracts?
1) Gaming and wagering contracts
2) Contracts against public policy
3) Contracts in restraint of trade
Explain on “Gaming and wagering contracts” as an illegal contracts
A gaming contract is a contract that is based on a game
A wagering contract is dependent by betting on the outcome of an uncertain event.
All gaming and wagering contracts whether in writing or oral are null and void. The court will not assist anyone in his claim for recovery or other valuable items won under such illegal contracts.
Explain on “Contracts against public policy” as an illegal contracts and give at least 2 examples
Public policy is concerned with the health and well-being of the public.
Examples :
A contract to commit a crime or atort
A contract which promotes sexual immorality
A contract with a foreign enemy state or government
A contract that prejudices the administration of justice.
Explain on “Contracts in restraint of trade”
Contracts that restrain a person from carrying on a lawful profession, trade or business
Why is “Contracts in restraint of trade” considered illegality? When can such agreements be enforced?
The contract has an impact on the economic interest of the society and are contrary to public policy. Hence, are illegal and void on the surface.
Such agreements will only be enforced if they can be shown to be reasonable as between the parties and in the public interest.
What are the main types of “Contracts in restraint of trade” ?
- Contract of employments
- Sale of a business –> Buyer requires seller to promise that he will not carry on a similar business in competition with the buyer. This is to prevent the seller from setting up a business nearby and attracting his old customers away from the buyer.
- Suppliers of goods and services agree on a fix prices, regulate the methods of supply or otherwise influence the market for their product.
- Retailers make similar agreements with suppliers. Prevent the retailer from selling the products of the supplier’s competitor.
What are the 5 factors that show whether the restraint is reasonable?
1) Whether the person for whose benefit the restriction was imposed had any legitimate interest in imposing it
2) The nature of the restraint
3) The geographical area of operation of the restraint
4) The duration (length of time) that the restraint applies
5) The restraint as a whole, must be no more than what is reasonably necessary to protect that particular interest.
What is a legitimate interest that deserves protection?
In some cases, the employer may have special interest that requires protection even though this restrict their ex-employee’s freedom to choose where and for whom they work
