vitiating factors

Question 1

void and voidable contracts

Answer 1

• Mistake (void)
• Duress (voidable)
• Undue influence (voidable)
• Illegality or contravention of public policy (void)
• Misrepresentation (voidable)

Question 2

Void Contract

Answer 2

A void contract is one that is totally without any legal effect from the beginning

Question 3

Voidable Contract

Answer 3

A voidable contract is one that operates as a valid contract until a party elects to avoid (‘rescind’) it. Until it is rescinded the contract remains in full force and effect. The innocent party can choose (‘elect’) to rescind or affirm (carry on) the contract. Rescission has the effect of putting the parties back into the position they would have been in had the contract not been entered into

Question 4

2

MISTAKE

Answer 4

1. A contract can be void (not voidable) for mistake either at common law or in equity. This is known as an operative mistake.
2. For a contract to be void for mistake, the mistake must be so fundamental that:
   * It operates to** prevent formation** of the contract in the first place—in other words, the parties are not properly in agreement, so there can be no valid contract; or
   * It makes what has been agreed between the partiesfundamentally different from what was intended.

Question 5

Common or Identical Mistake

Answer 5

Common mistake occurs when the parties are in agreement but both have made the same mistake. Typically this will be in respect of the existence (as opposed to the quality) of the subject matter of the contract. This sort of mistake will render the contract void at common law.

Question 6

3

Mutual Mistake

Answer 6

1. Mutual mistake can be said to occur where the parties are mutually mistaken but about different things: they are at cross purposes.
2. In evaluating a mutual mistake, the courts will consider whether a reasonable person would take the agreement to mean what each party did.
3. If the court applies this test and the result is a totally ambiguous contract, then there is no agreement between the parties and the courts will consider the contract to be void.

Question 7

2

Unilateral Mistake

Answer 7

1. A unilateral mistake occurs when one party is mistaken as to the terms of the contract and the other party is aware of the mistake. An example of this would be an error in price when the other party realised the error (or could be assumed to have realised it). There is no agreement between the parties and therefore the contract is void
2. Like common mistake, though, a mistake as to the quality of the subject matter of the contract will not be sufficient

Question 8

4

Mistake as to Identity

Answer 8

1. This type of mistake can occur when one party believes they are contracting with a person that the other party is pretendingto be.
2. What the courts are required to determine is** whether the innocent party would have contracted irrespective of the identity of the other party.**
3. If that is the case, the innocent party might have a remedy for misrepresentation(voidable), but it is unlikely the contract would be void for mistake.
4. However, if the other party’s identity was fundamental to the first party’s decision to enter into the contract, then it will be void for mistake.

Question 9

2

Non Est Factum

Answer 9

1. The doctrine of non est factum operates to protect those who sign a document in the mistaken belief that it represents something completely different from what it actually does represent.

2.There are restrictions on its use. (1) Firstly, there must be a fundamental and radical difference between what wassigned and what the signatory thought they were signing and,
(2) secondly, the mistaken signatory must not have been careless in signing the document.

Question 10

duress

Answer 10

A contract entered into under duress is voidable (that is, the innocent party can
elect whether to set it aside), but it is not automatically void. The innocent party must take steps to rescind the contract

Question 11

types of duress

Answer 11

1. duress of person
2. duress of goods
3. economic duress

Question 12

Duress of the Person

Answer 12

Duress of the person is physical duress. Here, the innocent party must show that the duress suffered, for example, threats to kill them if they do not enter into a contract, was one of the reasons that they entered into the contract. There is no requirement for the duress to be the only reason.

Question 13

Duress of Goods

Answer 13

Duress of goods generally means that one party** unlawfully keeps goods** belonging to another to exert some form of influence over them to enter into a contract

Question 14

2

Economic Duress

Answer 14

1. Economic duress occurs where one party is in a stronger economic position than the other and they use this stronger position in an illegitimate manner to force the other party into entering into a contract.
2. Mere commercial pressure is not enough.

Question 15

4

factors considered for economic duress

Answer 15

• Does the threat deprive the innocent party of a practical choice?
• Is the threat unlawful–for example, a threatened breach of contract? However, this may not be decisive if, for example, the unlawful threat is made in good faith (this would be the case where the party making the threat believed that their act was lawful, albeit wrongly).
• Did the innocent party seek to rely on the contract?
• Did the innocent party protest?

Question 16

4

undue influence

Answer 16

1. a concept from equity
2. contract voidable
3. Duress is most concerned with** illegitimate pressure** (and has a narrower reach as a result), whereas undue influence is concerned less with improper conduct and more with whether the innocent party arrived at their own decision and therefore gave true consent
4. Like duress, undue influence operates to protect a party who enters into a contract other than through their own free will, following pressure from the other party

Question 17

2

what does the undue influence require

Answer 17

There are two ways of proving undue influence:
(1) actual undue influence by reference to overt acts and
(2) presumed undue influence as a result of the relationship between two parties

Question 18

3

actual undue influence

Answer 18

1. Actual undue influence requires the innocent party to prove that the other party overtly influenced them into entering into a contract by improper pressure.
2. However, unlike duress, the conduct constituting undue influence need** not be in bad faith or unlawful**. What matters is whether the party against whom undue influence is alleged exerted excess pressure or abuse their relationship with the other party.
3. in a similar way to to duress of the person, actual undue influence only needs to be a factor leading the innocent party to enter into a contract. It does not need to be the only factor, or even a principal factor. If actual undue influence is proved, there is no requirement for the innocent party to show that the transaction was disadvantageous to them

Question 19

2

Presumed Undue Influence

Answer 19

1. Presumed undue influence requires **a relationship of trust and confidence **between the parties. This will often be a fiduciary relationship
2. Other examples of relationships of trust and confidence include parent and child, medical adviser and patient, guardian and ward, and solicitor and client

Question 20

2

Consequences of Relationship of Trust and
Confidence

Answer 20

1. If there is a relationship of trust and confidence between the parties, and if the resulting transaction, viewed objectively, calls out for an explanation, then there is a presumption of undue influence.
2. In other words, the innocent party need only show that** the relationship between the parties does not readily explain the transaction**, for example, when a gift is so large it would not seem reasonable on the basis of their relationship.

Question 21

3

Third-Party Undue Influence

Answer 21

1. In some cases, a contract may be set aside based on undue influence by a third party (for example, the influencer is the spouse of one of the parties but is not actually a party to the contract in question).
2. If a party to a contract is aware that there may have been undue influence on the other party but does** not take reasonable steps to ensure that the other party is entering into the contract of their own free will** (for example, by obtaining independent legal advice), the transaction may be set aside.
3. The undue influence will be by the third party. It may be actual, but often it is presumed, on the basis of the relationship between the third party and the innocent party

Question 22

CONTRACTS VOID FOR ILLEGALITY
AND UNDER PUBLIC POLICY

Answer 22

1. contracts illegal as formed
2. contracts performed in an illegal manner
   In the case of a contract that is not illegal at formation, but which is performed in an illegal manner, rights are withheld from the party that committed the illegal act, but this does not preclude remedies being available to the innocent party (provided they were not aware of, and had not taken part in, the illegality). If they later learn of the illegality then they must cease performing the contract, and no rights can accrue to them under the contract from that point onward.

Question 23

5

Types of Illegality

Answer 23

1. illegal by statute
2. illegal at common law
3. Contracts Contrary to Morality or the Institution of Marriage
4. Contracts Damaging to the Government(ep. trading with enemies during time of war)
5. Contracts that Interfere with Justice

Question 24

Restraint of Trade

Answer 24

1. Parties should be able to contract in any way they see fit, and to the extent that a term in a contract attempts to restrict this freedom, it will be void unless the restriction is reasonable.
   Examples of restraint of trade clauses include obligations (often called ‘restrictive covenants’) in employment contracts torestrict employees who have left from competing against their
   former employer or poaching clients or colleagues. Similarly,non-compete clauses in business agreements could also fallfoul of the restraint of trade doctrine.
2. Reasonable
   What is reasonable will depend on matters such as whether the parties could be viewed as acting in a normal commercial relationship and whether the terms of the contract were negotiated with the benefit of legal advice.
3. Legitimate Interest
   The courts will also consider whether the activities covered by any clause, its geographical scope, and its duration areproportionate. This means that the party seeking to rely on a restraint of trade clause must be able to show that it is reasonably necessary for the protection of its legitimate interests.

Question 25

2

Mistake-rectification

Answer 25

1. rectification if possible if the aprties agree on the terms of a contract but,for whatever reason, they are recorded incorrectly when the contract is reduced to writing.
2. It is open to the courts to rectify the mistake, provided that the written document failed to express the common intention of the parties accurately, or that the written document is clear but is arbitrary or irrational.