Sunday, May 15, 2016

Voidable Contracts

Consent of Parties to the contract

Vitiating Factors

-Some contracts contain factors (circumstances) which adversely affects the consent of the parties to the agreement.

Contracts Act 1950 provides inter alia that all agreements are contracts if they are made by the free consent of parties. Consent is said to be free when it is not caused by one or more of the following.

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Mistake

-Contract Act 1950 provides for cases where there is a mistake of fact.

-The basis for rendering agreements void that there has been no free consent between the parties.

-If a mistake occurs during contract formation, the court may declare the “contract” void for (because of the) mistake.

-There was never a contract at all, since the parties never reached agreement in the first place.

-Mistake is not easily proved, since it allows a convenient escape route from a contract. Mistake can be categories into three :

1.      Common mistake

-Cases usually relate to non-existence of the subject matter.

-But if one party effectively guarantees the existence of the subject matter, he cannot argue mistake.

2.      Mutual mistake

-This occurs when the parties are at “cross-purposes”, as where A owns cars 1 and 2.

B offers to buy car 1 from A, whereas A thinks that B is offering to buy car 2.

3.      Unilateral mistake

-This is “one-sided” mistake. One party is mistaken, and the other knows (or ought reasonably to know) that he is mistaken.

-Usually unilateral mistake applies to the subject-matter of the contract, or the identity of the other party.

Misrepresentation

-The basis difference between misrepresentation and fraud is that in fraud person making the representation does not himself believe in its truth whereas, in cases of misrepresentation, he may believe the representation to be true.

-As in the case of fraud, silence in certain situations where there is a duty  imposed to disclose, may amount to a misrepresentation.

-High standard of proof is required in cases where fraud is alleged, it is common practice for a party who attempts to set aside a contract on the grounds of misrepresentation to plead both fraudulent and innocent misrepresentation.

-If a false statement cannot be proved to be a term, the misrepresentation possibility should be explored.

-This is a false statement made during negotiations, that induces the person hearing it to enter into the contract.

-The essentials are fact and inducement.

-There are three distinct categories of misrepresentation, namely

·         Innocent (unintended deception)

-An innocent misrepresentation is relatively easy to prove, requiring only proof of a false statement that induced the contract.

·         Fraudulent (intended deception)

-More difficult to prove, this requires the additional component that the person knew that the statement was false, or that he couldn’t care less whether it was true or false.

·         Negligent (breach of a duty of care)

-Negligence is “breach of a duty of care”. There must therefore be a case where the duty is owed and breached.

-The remedies vary for the different types. 

Duress

-Duress is the use of violence, or the threat of violence to a person, his goods or his assets in order to force him into a contract.


-The victim of such contract can – at his option – have the contract set aside (avoided) because of the duress.

-The physical violence or threats to harm the person or immediate family was required.     




Undue Influence

-Is a development of equity to cover cases of particular relations and is sometimes used as a comprehensive phrase to include cases of coercion or pressure within or without those special relations.

-A plea of undue influence can only be raised by a party to the contract and not by a third party.

Unconscionable conduct

-This means conduct that offends good conscience. Relatively unknown under the common law, due to the “freedom of contract” doctrine, it is now a recognized reason to have a contract set aside.


-There is usually an inequality of bargaining power, and the weaker is disadvantaged.

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