Vitiating Factors of a Contract

A short overview as well as my personal opinion

Hello everyone, for this week’s issue of More About Law I am going to focus on the vitiating factors of contract law, if you haven’t yet read my issue upon the formation of a contract please do as it will be extremely beneficial regarding this current issue. As I previously explained within that article, contracts are a binding part of law, forcing both parties of an agreement to work within designated boundaries; this is unless a vitiating factor comes into effect.

A vitiating factor, or the word vitiate means to spoil, impair, or weaken the effectiveness or validity of something, and in this case that ‘something’ is the contract. This is an important factor of law, as it ensures that both parties within a contract are truly binded to the agreement previously discussed, reducing the change of exploitation. Key examples of vitiating factors include:

• Misrepresentation

• Mistake

• Duress

• Undue Influence

• Unconscionable Bargains

• Illegality

Out of these 6 possible factors, we will be focusing mainly upon misrepresentation, with small snippets aimed at ‘duress’, and ‘undue influence’.

Nevertheless, before focusing upon either of these it is important to discuss what is to happen once a contract is deemed to have been breached by a vitiating factor. One of two results occur: The contract is deemed to be Void, or Voidable. To make a contract void, it causes the contract to be invalid from the start, being legally treated as if it had never existed in the first place. Opposingly, when a contract is made voidable, it means that it is valid unless the affected party chooses to cancel it, with both options of void and voidable offering compensation if need be. I think that this distinction is necessary for many within society; for instance, although a contract has become breached, many may be unable to afford to carry on without it, thus explaining the need for the ‘voidable’ solution.

If a party is involved in a ‘voidable’ contract and they decide to carry on with it, there are what’s called ‘bars to rescission’, meaning that under certain circumstances the right to set aside a voidable contract is not absolute. This means that the parties involved will be unable to void this contract after a specific point or action. Examples of this may include:

• Affirmation: If a party continues to act within or under a contract after discovering the original issue.

• Lapse of time: Rescission must happen within a reasonable time after the issue has been discovered.

• Third-party rights: If the third party acquires the rights in good faith, then rescission may not be allowed.

• Restitution impossible: If the subject matter cannot be returned then rescission is not possible.

These examples are important as it ensures that contracts cannot be rescinded by individuals under either bad faith or under unreasonable circumstances, thus allowing the law and contracts to run smoothly.

The vitiating factor which we will focus upon is called ‘Misrepresentation’, which revolves around the concept of a false statement being made which ultimately educes the claimant to enter the contract. For instance, if you buy a car for the sole purpose that it has 1000hp, just to find out after the purchase that it only has 650hp. In this factor, as specific term has to be spoken upon, involving the difference between a term and a representation. A term is a statement or promise which eventually becomes part of a contract; opposingly a representation is the inducing statement or claim made which does not become part of the contract. If this representation is false, then this could very easily lead towards representation. Easy ways to deduce whether or not something is a term, or a statement is to consider: The statements importance, special knowledge involved, request to verify, or comparison with lay people.

Not all false representations are liable to being misrepresentation, which is why it is important to consider whether the statement was fact or opinion. A false fact is very liable, as one would most likely assume this ‘fact’ to be correct, however a false opinion is not liable unless the speaker withholds any special knowledge upon the opinion in question, or if the opinion is dishonest. Another note to add is that misrepresentation must be made directly to the claimant or to a third party that has the intention to pass it on to the claimant. Once again, in this specific sector of law they are careful to not allow any openings of loopholes, ensuring that almost all activity is lawful.

A difficult sector of this specific law is called a ‘Common Mistake’, which focuses on the fact that both parties may be under the same false assumption, and when this is found within court the contract is automatically rendered void. This shared false assumption must relate to something essential within the contract in order for it to be rendered a common mistake. Nevertheless, within court this is extremely rare, as it is very difficult to prove and to resolve.

Another vitiating factor is Duress, which is present when a party is forced or threatened into entering a contract against their well, which will ultimately render the contract to be voidable (the disadvantaged party will be given this option). This is a difficult part of law, as normal negotiations are deemed as fine, and it is very difficult to draw a definitive line to whether or not something classes as duress. Duress must involve pressure or threat that is immoral or unconscionable, such as blackmail or salvage (manipulating the claimant into a vulnerable position to wave rights). Duress may also involve but for causation (but for the duress, the contract would not have been signed), or the lack of a viable alternative but to comply to the contract.

Furthermore, an alternative vitiating factor is called Undue Influence, which focuses upon the concept of a party abusing their position of power, or trust within a special relationship in order to close a contract. This can only be present when one party is vulnerable or dependent on the other. In my opinion, this is an extremely important factor, as it ensures further safety within people’s home lives, making sure that people are not exploited from a point of dependency. This may happen between a father and daughter, or perhaps an elderly woman and her carer, both instances with vulnerability or dependency evident. There are two classes within undue influence, with one focusing upon proved pressure, and the other focusing upon presumed pressure, with the latter being split into a further section of whether or not the relationship can be proved, or merely assumed. These decisions, although difficult, are necessary in order to ensure safety for all within a vulnerable situation. However, one strange factor of this is that an engaged couple have a proved relationship, with a married couple merely having an assumable relationship; a concept which I find entirely strange.

One thing which must be noted is that the resulting transaction of Undue Influence must be manifestly disadvantageous, such as an impact on future autonomy, or a consistency with the relationship. This Undue Influence can only be overturned if a party can prove that consent was full, free and informed.

Finally, I will briefly comment upon a topic called ‘Frustration’, which focuses upon the fact that unforeseeable events may occur after the formation of a contract, leading to a shared purpose of the contract being altered. This is most commonly evident when a contract becomes physically, or commercially impossible to what it was previously intended for. Frustration will lead to the contract being ‘discharged’, causing it to come to an end, especially if parties have already started performing under the specific contract.

Vitiating Factors are an extremely important part of law, filling in many possible loopholes that may have been evident otherwise. I believe that this allows the legal system to flow much more smoothly, as well as fighting against any possible exploitation at the same time.

Thank you very much for your time, and I would love to hear your opinions in the comments.