BSB111 Lecture Notes - Lecture 9: Collateral Contract, Specific Performance, Australian Consumer Law
Week 9 – Contract Law part 2
Enforceability – Lack of consent
If you have all three essential requirements (agreement, intention & consideration) are
present, you have a contract.
But this contract may not be enforceable in any of the following circumstances:
◦Lack of consent (focus of BSB111)
◦Lack of capacity (not covered)
◦Lack of legality (not covered)
◦Lack of formality (not covered)
Lack of consent
A contract will only be enforceable if both parties have entered into the contract willingly. If
one of the parties have been bullied, pressured, manipulated into entering into the contract,
the contract will be unenforceable because of lack of consent.
Circumstances where consent can be lacking:
1. Mistake
2. Duress
3. Undue influence
4. Unconscionability
Mistake
As a general rule, if a party has made a mistake, it does not entitle them to terminate the
contract or argue that the contract is unenforceable: caveat emptor (buyer beware).
Exceptions to general rule:
1. Unilateral mistakes
Unilateral mistake: Only one party is mistaken.
General rule: a unilateral mistake will not make a contract void.
But the courts will refuse to enforce a contract where:
one party makes a serious mistake
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about a fundamental aspect of the contract, and
the other party seeks to take advantage of that mistake.
The general rule is that if a party signs a contract, they will be bound,
whether they have read the contract or not (L’Estrange v Groucob).
Courts are not sympathetic towards a person who signs a contract without
reading it and are generally reluctant to allow a person who has signed a
written contract to avoid liability under the contract.
A contract could be declared void due to unilateral mistake if this involves
the identity of one of the parties, and the parties are doing business at a
distance. (If business is concluded face-to-face, then this will not apply).
A written contract could be declared void and unenforceable if:
the party who made the mistake had a good reason for not reading the
contract (e.g. blindness, illiteracy), and
the mistake is about the fundamental nature of the document they were
signing.
This is known as non est factum (not my document).
2. Common mistakes
This occur where both parties make the same mistake.
A contract will be void for common mistake if:
the agreement between the parties was conditional upon the truth
of a belief held by both parties and
at the time the agreement was formed the belief was incorrect.
For example: Jin agrees to buy Johnny’s oven, but at the time the agreement
is made, and unknown to either of them, the oven has been destroyed and
no longer exists. The contract between Jin and Johnny is void due to
common mistake.
Both parties believed the oven was in existence
The agreement between them was conditional upon the truth of
this belief
At the time they made the agreement this belief was incorrect as
the oven was destroyed
3. Mutual mistakes
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Mutual mistake occurs when the parties to the contract believe they have
reached an agreement but in fact there has been no meeting of minds
because they were both thinking of different things at the time they made
the agreement.
For example: Jin agrees to buy Johnny’s oven but at the time of the
agreement, Jin was thinking of Johnny’s large oven and Johnny was thinking
of his small oven. The contract can be void due to mutual mistake.
Each of these exceptions may make a contract void (ineffective and unenforceable),
provided the mistake relates to a fundamental aspect of the contract.
The court prefers to protect, where possible, the reliability and enforceability of contracts
Duress
If one party compels the other party to enter into the contract by expressly or impliedly
threatening harm, then there is a lack of consent.
They are said to have engaged in duress and the contract is voidable.
The threat may be:
◦to the personal safety of the other party or to that of their loved ones (Barton v
Armstrong)
◦to the safety of the other party’s goods or property, or
◦to the other party’s economic or financial wellbeing, known as economic duress
Undue influence
The parties to the contract may have a pre-existing relationship where one party has a
degree of influence or dominance over the other.
If the stronger party uses this influence such that the weaker party is not really exercising
their independent judgement, the contract will be declared void on the grounds of undue
influence.
Undue influence will be presumed in certain relationships:
◦doctor and patient,
◦lawyer and client,
◦trustee and beneficiary,
◦parent/guardian and child, or
◦religious leader and follower.
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Document Summary
If you have all three essential requirements (agreement, intention & consideration) are present, you have a contract. But this contract may not be enforceable in any of the following circumstances: A contract will only be enforceable if both parties have entered into the contract willingly. If one of the parties have been bullied, pressured, manipulated into entering into the contract, the contract will be unenforceable because of lack of consent. Circumstances where consent can be lacking: mistake, duress, undue influence, unconscionability. As a general rule, if a party has made a mistake, it does not entitle them to terminate the contract or argue that the contract is unenforceable: caveat emptor (buyer beware). Exceptions to general rule: unilateral mistakes. Unilateral mistake: only one party is mistaken. General rule: a unilateral mistake will not make a contract void. But the courts will refuse to enforce a contract where: About a fundamental aspect of the contract, and.
