Contract Law - Vitiating Factors

Question 1

Void contract

Answer 1

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

Question 2

Voidable contract

Answer 2

Remains in effect unless rescinded - innocent party can elect to set it aside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

Question 3

Mistake

Answer 3

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

Question 4

Common mistake

Answer 4

Both parties made the same mistake

Question 5

Mutual mistake

Answer 5

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

Question 6

Unilateral mistake

Answer 6

One-sided mistake and other party aware of the mistake

Question 7

Duress and Undue Influence

Answer 7

Make a contract voidable

Question 8

Duress

Answer 8

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

Question 9

Undue influence

Answer 9

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

Question 10

Presumed undue influence

Answer 10

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

Question 11

Third party undue influence

Answer 11

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

Question 12

Illegality

Answer 12

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

Question 13

Misrepresentation

Answer 13

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

Question 14

Fraudulent Misrepresentation

Answer 14

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)

Question 15

Innocent Misrepresentation

Answer 15

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

Question 16

Negligent Misrepresentation

Answer 16

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

Question 17

Remedies

Answer 17

Contract is voidable and party can rescind it.

Indemnity payment - to cover losses or other obligations they incurred by entering into contract

Question 18

Recission

Answer 18

Equitable remedy and therefore discretionary

Question 19

Bars to rescission

Answer 19

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

Question 20

Damages

Answer 20

Intended to put innocent party in position they would have been in had misrepresentation not occured

Question 21

Excluding liability for misrepresentation

Answer 21

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

Question 22

Mistake as to identity

Answer 22

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?

Question 23

Restraint of trade

Answer 23

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

Question 24

Damages in lieu of recission

Answer 24

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

Question 25

Damages for misrepresentation

Answer 25

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