Kara Sears
Contract law is governed by state common law, and while general contract law is consistent across the country, specific court interpretations of a particular element of the contract may vary between states. Contracts are legally binding promises that the law will enforce. In certain circumstances, certain promises that are not considered contracts may be enforced to a limited extent. For example, the court may apply an equitable doctrine of promissory estoppel to award the non-breaching party reliance damages to compensate them for any losses suffered as a result of their reasonable reliance on the agreement. There are several common law contract avoidance doctrines, including the right to avoid a contract for mistake in fact or law, and the doctrines of unconscionability and abusive clauses.
| Characteristics | Values |
|---|---|
| Circumstances | A party may avoid a contract if they assumed different factual or legal circumstances at the time of conclusion |
| Renunciation | A party may renounce its right to avoid the contract through confirmation of the contract, provided they were aware of the circumstances justifying avoidance |
| Vitiating factors | Contracts may be avoided due to unfair or unconscionable dealing by one party |
| Unconscionability | A doctrine to prevent contractual unfairness and protect the weakest party from unequal and one-sided terms |
| Abusive clauses | A doctrine to prevent the inclusion of unfair clauses, such as through administrative, legislative, or judicial controls |
| Promissory estoppel | A doctrine to compensate a non-breaching party for reasonable reliance on promises |
| Unjust enrichment | A doctrine to compensate a party for conferring a benefit on another party |
| Adhesion contracts | A special type of contract that may be beneficial for one party due to convenience and ability to force terms |
| Interpretation | The doctrine of contra proferentem interprets ambiguous terms against the interests of the party who provided the wording |
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What You'll Learn
Right to avoid a contract for mistake in fact or law
A party may avoid a contract retrospectively based on a mistake of fact or law existing at the moment the contract was concluded. This means that the effects of the contract are eliminated, and the parties are considered to have never concluded the contract.
A mutual mistake occurs when both parties to a contract are mistaken about the same material fact within their contract. This means that they are at cross purposes, but there is still a meeting of the minds. For a mutual mistake to render a contract void, the item the parties are mistaken about must be material. In other words, it must be central to the purpose of the contract. For example, if you and I were unaware that a machine purchased cannot perform the function it was purchased to accomplish, that would likely be a material error.
A unilateral mistake occurs when only one party is mistaken. A unilateral mistake of law may allow one to rescind the contract only if the other party knows of, but does not correct, and takes advantage of the mistake. For instance, if a husband and wife entered into a marital settlement agreement based on the wife's misapprehension of the law relating to her property rights, and the husband fails to rectify her misunderstanding, the wife is entitled to rescind the agreement.
A mistake of fact is a mistake that is not caused by the negligence of the party making the mistake. It consists of an unawareness of a fact material to the contract. A mistake of law occurs when a party enters into a contract without the knowledge of the law in the country. The contract is affected by such mistakes, but it is not void, as ignorance of the law is not an excuse. However, if a party is induced to enter into a contract by the mistake of law, then such a contract is not valid.
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Unconscionability
There are two types of unconscionability: procedural and substantive. Procedural unconscionability occurs when, during the contract's formation, at least one party does not have a fair or meaningful choice, there is misrepresentation, or there is unequal bargaining power, among other factors. This can be the result of undue influence or coercion, where the consumer is not in a position to make an independent decision due to a lack of understanding or incapacity. Substantive unconscionability, on the other hand, refers to the contract's terms unfairly benefiting or harming one side, such as an extremely unequal price compared to the value exchanged.
A contract is more likely to be found unconscionable if both unfair bargaining and unfair substantive terms are present. The court has significant flexibility in how it remedies the situation upon finding unconscionability. It may refuse to enforce the contract or the offending clause, or it may take other measures deemed necessary to achieve a fair outcome. It is important to note that unconscionability must have existed at the time the contract was made, and later circumstances that make the contract extremely one-sided are not relevant.
An example of a case involving unconscionability is Jones v Star Credit, where the Court refused to enforce a contract that charged a low-income plaintiff three times the market value of an appliance. The plaintiff had significantly unequal education and experience compared to the defendant, making the contract unconscionable.
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Abusive clauses
An abusive clause is typically defined as one that is unilaterally imposed by one party, creating an imbalance between the duties and rights of the parties involved. These clauses are often drafted by the party with stronger bargaining power, resulting in a situation that unfairly favours the drafter. For instance, a clause that allows the seller to unilaterally modify the price or conditions of the contract, or one that imposes on the consumer a waiver or limitation of their rights.
The doctrine of abusive clauses shares similarities with the doctrine of unconscionability, which is more commonly found in common law countries like the United States. Both doctrines aim to prevent contractual unfairness and protect parties from overreaching. However, the doctrine of unconscionability focuses on preventing the incorporation of unfair terms in a contract drafted solely by one party.
It is important to note that abusive clauses are illegal and do not bind the consumer. Consumers who believe they are victims of an abusive contract should seek assistance from a local contract attorney to understand their rights and explore options for legal recourse.
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Vitiating factors
A contract that has been validly formed may be avoided due to certain 'vitiating factors'. These vitiating factors often involve some form of unfair or unconscionable dealing by one of the parties.
The doctrine of unconscionability is a legal instrument used to prevent contractual unfairness and protect the weaker party from overreaching. It is a common law contract avoidance doctrine that has been recognised in the United States and Colombia. The doctrine of unconscionability is applied in cases where there is a significant imbalance between the rights and obligations assumed by the parties, and the contract is so outrageous and unfair that it shocks the conscience or offends the sensibilities of the court.
The doctrine of abusive clauses is another contract avoidance doctrine that is implemented in civil law countries like Colombia. This doctrine is aimed at preventing the inclusion of abusive clauses in contracts, which are often unilaterally drafted by the party with greater bargaining power.
In addition to these doctrines, there are other circumstances in which a contract may be avoided. For example, a party may renounce its right to avoid the contract by confirmation of the contract, provided that the party was aware of the circumstances that would have justified the avoidance of the contract. Furthermore, if a contract does not meet the legal requirements to be considered valid, it will not be enforced by the law, and the breaching party will not be held liable.
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Promissory estoppel
There are three key elements to a legal case involving promissory estoppel: the promisor, the promisee, and a promise that was not kept. To seek damages, a plaintiff must show that the promisor made a promise with the intention that a reasonable person would act on it, and that the promisee believed and acted upon that promise.
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Frequently asked questions
Common law contract avoidance doctrines are legal instruments that prevent contractual unfairness and protect parties from overreaching.
There are two types of common law contract avoidance doctrines: the doctrine of unconscionability and the doctrine of abusive clauses.
The doctrine of unconscionability is a legal instrument used by American judges to police agreements and protect against unfairness. It is used to avoid the incorporation and legal enforcement of one-sided, oppressive, or unfair contracts or clauses.
The doctrine of abusive clauses is a legal doctrine that attempts to avoid the unlimited and abusive exercise of unequal power by restricting the autonomy of will and the freedom of the parties to enter into a contract.
A contract will be considered unconscionable if it is so outrageous and unfair in its wording or application that it shocks the conscience or offends the sensibilities of the court.
