WK 3 - Defective Agreements

Question 1

Grounds of challenge (7)

Answer 1

• Defects in consent
• Contract is unlawful
• Consent induced by force and fear
• Consent given while facile and through circumvention
• Consent given under influence
• Mistaken consent: Error & misrepresentation
• Lack of capacity

Question 2

When is a contract void?

Answer 2

No rights created or transferred
No contractual basis for legal action
No protection for third parties

Question 3

Latin for void from start

Answer 3

Void ab initio

Question 4

When is a contract voidable?

Answer 4

Good until avoided/challenged

Question 5

Conditions for avoiding a voidable contract

Answer 5

• Restitutio in integrum must be possible (restore parties to precontractual position)
• No unreasonable delay
• Rights of third parties must not be affected
• Contract must not have been ratified under s.4 ALCSA 1991 or affirmed under s.1 (3) RWSA 1995

Question 6

Latin for restoring parties to pre contractual position

Answer 6

Restitutio in integrum

Question 7

Third party rights (void contract)

Answer 7

if A sells item to B under void contract, and B to C.
C does not acquire title (ownership) and A recovers thing from C.
[No transfer of rights!]

Question 8

Third party rights (voidable contracts)

Answer 8

A sells to B under voidable contract, and B to C before A avoids contract.
C acquires title. A cannot recover.

[Assuming C purchased item for its value and was unaware of defect in og contract.]

Question 9

General rule of capacity

Answer 9

All persons, natural and legal, have capacity to enter contracts.

Question 10

Exceptions to general rule of capacity

Answer 10

Children, incapable adults, intoxicated, enemy aliens

Question 11

What happens to contracts entered into by persons lacking capacity?

Answer 11

Void.

Question 12

Who administers affairs of incapable adults?

Answer 12

Exercising power of attorney or as guardian

[see case law for this + lack of capacity]

Question 13

Can benefits passed under void agreements be recovered? How?

Answer 13

Yes, they may be recovered through unjustified enrichment.

Question 14

What happens to a contract affected by force and fear?

Answer 14

Void - must be sufficient to overcome the will of an ordinary person.

Question 15

When does facility and circumvention occur?

Answer 15

A person in a weakened state of mind, persuaded or pressured into entering a contract, and has suffered loss as a result.

Question 16

What are the necessary elements for a contract to be voidable under facility and circumvention? (3)

Answer 16

Facility
Circumvention
Lesion

Question 17

What is undue influence?

Answer 17

“Where there is a relationship between the grantor and grantee of a deed which creates a dominant and ascendant influence where confidence and trust arises from that relationship, where a material and gratuitous benefit is given to the prejudice of the grantor and where the grantor does not have independent advice or assistance, undue influence may be inferred.” Per Lord Shand: Gray v Binney

[Contract voidable]

Question 18

Elements of a contract voidable regarding facility and circumvention

Answer 18

• Advantage taken of relationship of trust
• Dominant/subordinate parties
• Material and gratuitous benefit to stronger party
• Lack of independent advice for weaker party

[See Smyth]