Void Contracts
Treated as if it never existed at all (neither party can seek legal remedies)
-doing something illegal
-doing something against the law
-doing something against public policy
-promissing something that doesn’t exist
-mistake as to the essential elements of the contract
Voidable Contracts
The innocent party has the option of terminating the contract (or to affirm it)
-entered into by a person without legal capacity
-forced on the person (duress)
-one party gained an unfair advantage on the other by exercising improper pressure
-misrepresentation
Duress
Person acts against their will
When one of the parties (stronger party) exerts illegitimate pressure on the other party (victim) to enter that contract
Types: physical/economical duress
Astley v Reynolds
Astley tried to get back some plates he gave as security for a loan to Reynolds. R asked for increased interests. A paid but asked for the excess payment to be returned.
Can the excess payment be recovered on grounds of duress or coercion?
Yes as A made the payment not voluntarily.
Economic duress—even in the form of excessive charges—can render a payment recoverable.
The Siboen and The Sibotre
The plaintiff chartered ships to the defendant. The defendant claimed to be almost insolvent
(untrue). The plaintiff agreed to a reduced rate
Can the plaintiff recover the full amount originally due under the contract?
Not in this case. However, threats to a person’s
economic interests could amount to duress if they were illegitimate and left the victim with no practical alternative but to submit
Barton v Armstrong
B and A were major shareholders in a company. B agreed to buy A’s shares. Later, B claimed he was forced to agree to that contract because A threatened to have him murdered.
Can the contract be set aside?
Yes, as B successfully proved that the murder
threats were one of the factors that pushed him to agree to the terms of the contract.
The Atlantic Baron
Builders agreed to build a ship, with price paid by instalments. There were no provisions for price revaluation. In 1973, the US dollar devalued and the builders asked for more money. The owners agreed but later sued the builders.
Is the contract voidable because of lack of
consideration and the owners were forced to
agree to the increase in price?
Yes. There was consideration (increase in letter of credit). A threat to break a contract may be
sufficient to establish (economic) duress.
However, the contract was affirmed.
Atlas v Kafko
K entered into a contract for basket ware with W, to be delivered by A. As A underestimated the price, they refused to deliver unless K paid more. K agreed but later challenged the amendment.
Is K entitled to rescind the contract?
Yes. K was able to prove that the contract was
essential to them, and they had no other viable
option but to agree to the proposed changes.
PIA Corp. v Times Travel (UK) Ltd
TT sold PIA’s tickets. PIA changed the way it
calculated commissions to travel agents, and
threatened to revoke right to sell their tickets and right to (old) commissions if no agreement.
HC held this was a case of economic duress, CA
disagreed. SC: is this a case of economic duress?
No. While the pressure was illegitimate, the claimant (travel agent) had other options and PIA is just exercising commercial pressure to get what they believe in good faith they are entitled to.
The Law Debenture Trust Corporation plc v Ukraine
US$3 bln bonds issued by Ukraine with Russia as sole subscriber, governed by English law.
Payments suspended after Dec. 2015 due to
Russia’s annexation of Crimea.
Can the contract be set aside because the bonds were procured under duress (economic + physical)?
No economic duress, but potentially physical
duress. In any case, int’l law breaches were not
material to the dispute. Lord Carnwath dissented.
Undue Influence
Person acts in accordance to their will
When one of the parties (victim) acts on the basis of an overbone/undue influence by another, dominant party (no free will)
Types: actual/presumed influence
BCCI v Aboody
Mr A (businessman) pressured Mrs A (wife) to sign a mortgage in favour of the bank (BCCI) to save his business. Mrs A stated she had been pressured to sign the mortgage, and asked to have it set aside.
Is the bank prevented from enforcing the mortgage because the security was granted under actual undue influence?
No. While there was evidence of improper
pressure and coercion, the transaction was not
manifestly disadvantageous for the claimant, and independent legal advice had been provided by the bank.
Allcard v Skinner
Allcard entered into a protestant convent and
transferred her goods to the mother superior
(Skinner), who exercised pressure to that purpose. When Allcard became Catholic, she claimed the money back.
Was there undue influence? Can A recover the
goods she gifted to Skinner?
Yes and No. While the pressure was undue, Allcard could not recover the money as she waited too long (6 years after leaving the order) to start proceedings against Ms Skinner.
Lloyds Bank v Bundy
Father re-mortgaged his house and farm for the benefit of the son’s company. The company went bankrupt, and the bank foreclosed.
Can the mortgage be set aside because Mr Bundy was unduly influenced or treated unfairly?
Yes. There was a special relationship between the father and the bank. The bank was in breach of its duty of fiduciary care in procuring the additional charge. The additional charge was set aside for undue influence
RBS v Etridge
Wife mortgaged her joint interest in the family
home to secure a debt for her husband’s business. Wife had no interest in the transaction. When the business failed, the bank tried to enforce the mortgage.
Is the bank barred from enforcing the mortgage because the security was granted under undue influence?
In part. The bank was held liable only where it was proven that they had not taken reasonable steps to ensure that the wives understood the nature and consequences of the guarantees. Not a case of actual but presumed undue influence.
