Contract Law - Vitiating Factors Flashcards
Void contract
Never had any effect from the beginning and, therefore, cannot be enforced
Factors: mistake and illegality or contravention of public policy
No remedies available for breach of a void contract
Voidable contract
Remains in effect unless rescinded - innocent party can elect to set it aside
Factors: lack of capacity, duress and undue influence and misrepresentation
Recission puts parties back into the position they would have been had contract not been entered into
Mistake
Makes a contract void
Mistake as to quality is not enough to make a contract void
Mistake must be so fundamental as to:
- Prevent formation of the contract in the first place
- Makes what has been agreed between the parties fundamentally different to what was intended
Common mistake
Both parties made the same mistake
Mutual mistake
Parties are both mistaken but about different things
Court will consider whether a reasonable person would take the agreement to mean what each party did
Unilateral mistake
One-sided mistake and other party aware of the mistake
Duress and Undue Influence
Make a contract voidable
Duress
One person applies illegitimate pressure to the other to enter into a contract
Duress of goods: unlawfully keeping goods to exert some form of pressure
Economic duress: one person in a stronger economic position. The economic duress must have been a “significant factor” in the decision to enter into the contract. Coercion of the will so as to vitiate consent + illegitimate pressure
Undue influence
One person abusing their influence over the other
Does not require bad faith
Based on personal relationships between the parties - unlikely to arise in commercial situations
Presumed undue influence
Position of trust and one party enters into an agreement that is so unfavourable to them that undue influence was exerted
Automatic relationship of trust and confidence in some cases - in others it needs to be proved (i.e. spouses)
On influencer to rebut presumption
Third party undue influence
E.g. husband gets wife to enter into financial transaction with someone else - husband is influencer but not party to contract
If party to contract is aware they may have been undue influence and does not take reasonable steps to ensure other party is entering into contract on own free will, transaction set aside
Illegality
Void if illegal at formation
Unenforceable by party committing illegal act if illegal in performance
Examples: contract involves committing an illegal act, contract itself is validly formed but the performance of it is illegal or contrary to public policy (i.e. immoral)
Contracts damaging to government
Agreementst to undermine court’s jurisdiction
Misrepresentation
False statement of fact or law that induces another party to enter into a contract
Cannot be a statement of opinion
Actual statement is required: orally, in writing or by conduct
Recission is availble for all three types
Fraudulent Misrepresentation
Knowingly false or doesn’t care whether it’s true or doesn’t believe it’s true
Remedy: damages (innocent party can recover all their losses incurred)
Innocent Misrepresentation
Representor must prove they had reaosnable grounds for believing their statement was true
Remedy: general rule is damages are not available but court has discretion to award damages in lieu of rescission
Negligent Misrepresentation
Not fraudulent but representor cannot prove reasonable grounds for their belief
Remedy: Misrepresentation Act allows innocent party to claim damages and Court has discretion to award damages in lieu of rescission
Remedies
Contract is voidable and party can rescind it.
Indemnity payment - to cover losses or other obligations they incurred by entering into contract
Recission
Equitable remedy and therefore discretionary
Bars to rescission
Affirmation; affirming party must have full knowledge of the misrepresentation
Lapse of time; for negligent and innocent misrepresentation clock starts running when misrepresentation discovered or should have been discovered. For fradulent misrepresentation, clock runs from when fraud discovered
Impossibility of restitution; impossible to restore parties to position they would have been in
Third party rights
Damages
Intended to put innocent party in position they would have been in had misrepresentation not occured
Excluding liability for misrepresentation
Misrepresentation Act says this is valid only if reasonable
Test for reasomableness is the same as under UCTA
Exclusion broad enough to cover fraudulent misrepresentation likely to be unreasonable
Mistake as to identity
It must be the case that the innocent party would not have entered into the contract if they knew the person’s true identity - i.e. was identity fundamental to the contract?
Restraint of trade
E.g. restrictive covenants and non-compete clauses
Restriction must be reasonable
Courts will consider whether activities covered by the clause, its geographical scope and duration are proportionate
Party seeking to rely on the clause must be able to show that it is reasonably necessary for the protection of its legitimate interests
Damages in lieu of recission
Cannot be awarded if right to rescind has been lost
Will generally be awarded in misrepresentation was minor and inequitable to deprive other party of benefit of contract
Damages for misrepresentation
Can recover losses incurred by entering into contract and any incidental expenditure
Any damages will be reduced if innocent party received a benefit by entering into the contract
