Week 5: Vitiating Factors

Mapping Task: Defects of Consent

English Law French Law Dutch Law German Law PECL
Mistake Concepts Concepts Concepts Concepts Concepts
- Only recognizes Provisions Three Provisions Provisions
common mistake Art. 1132: “error scenarios for §119: “A person Art. 4:103
of parties – both of law or of fact, voidability that when PECL: (1) A
parties are under unless it is based on making a party may
common inexcusable, is a mistake: (1) declaration of avoid a
misapprehension cause for nullity Where you intent was contract for
Mis- of the contract enter into a mistaken about mistake of fact
representation: where it affects contract under its content or or law existing
where one party the essential the influence had no intention when the
enters into a characteristics of a mistake of making a contract was
contract on the of the and would not declaration with concluded if:
basis of a false performance have entered this content at (a) (i) the
untrue statement due or those of into that all may avoid mistake was
made by the other the other contract if the declaration caused by
party – gives contracting would have if it is to be information
grounds to avoid party.” known the assumed that he given by the
the contract Art. 1136: true state of would not have other party; or
where we’re affairs (2) made the (ii) the other
mistaken about Where the declaration with party knew or
the value of the other party knowledge of ought to have
performance we should have the factual known of the
are to receive informed you situation and mistake and it
does not of certain with a rational was contrary
constitute a information to appreciation of to good faith
ground for avoid the the and fair
nullity on the mistaken circumstances.” dealing to
basis of mistake apprehension Cases leave the
Cases that led to the Matchfixing mistaken party
entrance of (1975): a in error; or (iii)
the contract football club in the other party
(3) Where the Bundesliga made the
both parties had transferred same mistake,
share the a player to a and (b)
same mistaken club in the the other party
apprehension lower knew or ought
about the Regionalliga – to have known
situation both parties that the
Provisions were unaware mistaken
Art. 6:228 (1): of the fact that party, had it
“A contract the player had known the
which has accepted a bribe truth, would
been when he played not have
concluded a match – court entered the
 under the held that risk contract or
influence of a fell on selling would have
mistake and club as this was done so only
would not where the on
have been player worked fundamentally
concluded at the time of different terms
under a the bribe - (2) However, a
correct buyer could party may not
impression of invalidate the avoid the
the situation, transfer and contract if: (a)
is voidable.” claim the in the
Cases transfer fee circumstances
its mistake was
inexcusable,
or(b) the risk
of the mistake
was assumed,
or in the
circumstances
should be
borne, by it.
Legal Concepts Concepts Concepts Concepts Concepts
consequence of Misrepresentation Provisions Provisions Provisions The contract
mistake – gives grounds to Art. 1130: “Error Art. 6:228 (1): §122: “(1) If a can be avoided
avoid the contract vitiates consent “A contract declaration of according to
Provisions where its nature which has intent is (…) Art. 4:103 (1).
Cases is such that been avoided under A contract
without the concluded §119 and §120, cannot be
error, one of the under the the person avoided if it
parties would influence of a declaring must, falls under the
not have mistake and if the conditions of
entered into the would not declaration was Art. 4:103 (2).
contractor have been to be made to
would have concluded another person,
entered into it under a pay damages to
under correct this person, or
substantially impression of failing this to
different the situation, any third party,
conditions.” is voidable.” for the damage
Art. 1133: “Error that the other
is a cause for or the third
nullity where it party suffers as
affects the a result of his
performance on relying on the
one of the validity of the
parties.” declaration; but
not in excess of
the total
 amount of the
interest which
the other or the
third party has
in the validity of
the declaration.
(2) A duty to pay
damages does
not arise if the
injured person
knew the reason
for the voidness
or the
voidability of did
not know it as a
result of his
negligence
(ought to have
known it);
Fraud Concepts Concepts Concepts Concepts Concepts
Common law Provisions Provisions Provisions Provisions
concept of deceit Art. 1137: Art. 3:44 (3): §123: “a person Art. 4:107: “(1)
is also considered “Fraud is the act “Deceit consist who has been A party may
in terms of by a contracting of a person induced to avoid a
fraudulent party of inducing make a contract when
misrepresentation obtaining the another to declaration it has been led
 Deals with other party’s perform a unlawfully to conclude it
situations in which consent through certain legal through wilful by the other
one party was intrigue and lies. act by an deceit may party's
forced to enter Fraud is also intentionally avoid the fraudulent
into contract constituted by incorrect declaration” representation
based on the intentional statement Cases , whether by
deceit/fraudulent concealment by made for that words or
misrepresentation one of the purpose or by conduct, or
of the other party. parties of intentionally fraudulent
Provisions information of withholding non-disclosure
Cases which the latter any fact for of any
Derry v Peek: what knows that it is that purpose information
constitutes deceit decisive to the which he who which in
is where the other party.” withheld it was accordance
representor makes Cases obligated to with good faith
a false statement disclose or by and fair
knowingly or made any other ruse. dealing it
a false statement Recommendati should have
without belief in ons generally disclosed.
its truth or where phrased even
statement was if they are
made recklessly untrue do not
 (party was careless constitute
of whether deceit.”
statement was Cases
true or false) with
gross carelessness

Legal Concepts Concepts Concepts Concepts Concepts

consequence for Provisions Provisions Provisions Provisions Provisions
fraud Cases Art. 1130: Art. 3:44 (1): a §123: “a person Art. 4:107: “(1)
“fraud vitiates legal act is who has been A party may
consent where voidable induced to avoid a
its nature is where it has make a contract when
such that been brought declaration it has been led
without the about by unlawfully to conclude it
fraud one of the deceit through wilful by the other
parties would Cases deceit may party's
not have avoid the fraudulent
entered into the declaration” representation
contract or Cases , whether by
would have words or
entered it under conduct, or
substantially fraudulent
different non-disclosure
conditions.” of any
Art. 1139: information
“fraud which in
constitutes a accordance
course for with good faith
nullity.” and fair
Cases dealing it
should have
disclosed.”

Threat Concepts Concepts Concepts Concepts Concepts

Provisions Provisions Provisions Provisions Provisions
Cases Art. 1140: Art. 3:44 (2): §123: “a person A party may
Universe “duress is “a threat who has been avoid a
Tankships Inc of present where consists of a induced to contract when
Monrovia v one party enters person make a it has been led
International into contract inducing declaration to conclude it
Transport Workers under pressure another to unlawfully by by the other
Federation (1983): of fear that perform a threat may party's
HoL recognized person/property certain legal avoid the imminent and
that the classic or act by declaration” serious threat
case of duress is person/property wrongfully Cases of an act:
not “the lack of of those close to threatening (a) which is
will to submit but him may be this or a third wrongful in
the victim’s exposed to party with any itself, or
 intentional considerable disadvantage (b)which it is
submission arising harm” to person or wrongful to
from the Cases property. The use as a means
realization that threat must be to obtain the
there is no other such that a conclusion of
practical choice reasonable the contract ,
open to him” human being unless in the
could be circumstances
influenced the first party
thereby.” had a
Cases reasonable
alternative.
Legal Concepts Concepts Concepts Concepts Concepts
consequence of Where a contract Provisions Provisions Where there Provisions
threat has been brought Art. 1130: Art. 3:44 (1): A has been a A party may
about by threat, “duress vitiates legal act is threat that avoid a
there is grounds to consent where avoidable causes the party contract when
avoid the contract its nature is where it has to enter into a it has been led
Provisions such that been brought contract, it is to conclude it
Cases without it one about by a possible for by the other
of the parties threat them to avoid party's
would not have Cases the declaration imminent and
entered into the Provisions serious threat
contract” Cases of an act:
Art. 1142: (a) which is
“duress is a wrongful in
cause for itself, or
nullity” (b)which it is
Cases wrongful to
use as a means
to obtain the
conclusion of
the contract ,
unless in the
circumstances
the first party
had a
reasonable
alternative.
Cases
Undue Influence Concepts Concepts Concepts Concepts Concepts
Provisions Provisions Provisions Provisions Provisions
Cases Art. 1143: Art. 3:44 (4): §138 (2): “a Art. 4:109: “(1)
Royal Banks of “duress is also “abuse of legal transaction A party may
Scotland v Etridge present where circumstances is void by which avoid a
(2001) – Lord one contracting consists of a a person, by contract if, at
Nicholls: “Doctrine party abuses the person who exploiting the the time of the
of undue influence state of knows or predicament, conclusion of
seeks to ensure dependency of ought to inexperience, the contract:
that the influence the other party understand lack of sound (a) it was
of one party over on the former that another is judgment or dependent on
another is not thereby induces to considerable or had a
abused. In obtaining a perform a weakness of will relationship of
everyday life, commitment legal act of another, trust with the
people constantly the latter would because of causes to be other party,
seek to persuade not have made special promised or was in
those with whom in the absence circumstances granted to economic
they are dealing to of such a such as himself or distress or had
enter into constraint and emergency another third urgent needs,
transactions. The procuring a situations, party in return was
law has set limits manifestly dependence, for a improvident,
to the means excessive thoughtlessnes performance, ignorant,
properly advantage.” s, abnormal pecuniary inexperienced
employable for Cases mental advantages or lacking in
this purpose. If the conditions or which are bargaining
intention was inexperience. clearly skill, and
produced by an Having disproportionat (b) the other
unacceptable facilitated that e to the party knew or
means, the law will legal act, performance.” ought to have
not permit the although what Cases known of this
transaction to he knows or and, given the
stand. The means ought to circumstances
used is regarded as understand and purpose of
an exercise of should prevent the contract,
improper or undue him from took
influence and doing so. advantage of
hence Cases the first party's
unacceptable situation in a
when the consent way which was
thus procured grossly unfair
ought not fairly to or took an
be treated as the excessive
expression of the benefit.”
person’s free will.” Cases
Allcard v Skinner
(1887): Court
recognized that
there can be two
classes of undue
influence: (1)
Actual undue
influence (2)
Presumed undue
influence
Lloyd’s Bank Ltd v
Bundy (1975) –
 introduction of
general principle
of inequality of
bargaining power
Legal Concepts Concepts Concepts Concepts Concepts
consequence of Provisions Provisions Provisions Provisions Provisions
undue influence Cases Art. 1130: Art. 3:44 (1): §138 (2): “a Art. 4:109: A
“where there is “A legal act is legal transaction party may
a case of duress, voidable is void by which avoid a
this vitiates the where it has a person, by contract
consent.” been brought exploiting the brought about
Art. 1142: about by an predicament, by undue
where duress abusive inexperience, influence.
can be circumstance.” lack of sound Cases
established, a Cases judgment or
contract can be considerable
nullified weakness of will
Cases of another,
causes to be
promised or
granted to
himself or
another third
party in return
for a
performance,
pecuniary
advantages
which are
clearly
disproportionat
e to the
performance.”
Cases
Mis- Concepts Concepts Concepts Concepts Concepts
representation Doctrine of mis- Provisions Provisions Provisions Provisions
representation: (1) Cases Cases Cases
unambiguous false Cases
statement of
existing fact (2)
that is made to a
claimant (3) which
induces that
person to enter
into a contract.
Three types of mis-
representation:
(1) innocent mis-
 representation
(2)negligent mis-
representation
(3)fraudulent mis-
representation.
Caveat emptor :
purchaser must
ask questions, or
investigate
himself, in the
absence of a duty
of the seller to
volunteer
information
Provisions
Cases
Smith v Hughes
(1871) – seller
knew that the
buyer wanted to
buy a quantity of
old oats, but still
sold his new –
English tradition of
separating morals
from law
Spice Girls Ltd v
Aprilia World
Service BV (2002)
– court held Spice
Girls liable for
negligent
misrepresentation
b/c signed a
contract w/ Aprilia
despite knowing
Halliwell would
leave group
Legal Concepts Concepts Concepts Concepts Concepts
consequence of Fraudulent: a party Provisions Provisions Provisions Provisions
misrepresentation can avoid the Cases Cases Cases Cases
contract and claim
damages on basis
of the tort of
deceit
Negligent: allows
party to avoid the
contract and claim
 damages under S.
2 (1) of the
Misrepresentation
Act 1967
Innocent: allows
party to avoid the
contract, unless
the court regards
this to be a too
severe sanction
and wants to
award damages
instead (Mis. Act s.
2 (2))
Provisions
Cases
Spice Girls Ltd v
Aprilia World
Service BV (2002)
– court held Spice
Girls liable for
negligent
misrepresentation
b/c signed a
contract w/ Aprilia
despite knowing
Halliwell would
leave group

Problem Task: The Citroen DS Break

Issue: Can Alex reclaim his money on the basis of mistake or misrepresentation?
Rule:
French Law:
- Art. 1132: “error of law or of fact, unless it is inexcusable, is a cause for nullity of the
contract where it affects the essential characteristics of the performance due or those of
the other contracting party.”
German Law:
- §119: “A person that when making a declaration of intent was mistaken about its content
or had no intention of making a declaration with this content at all may avoid the
declaration if it is to be assumed that he would not have made the declaration with
knowledge of the factual situation and with a rational appreciation of the circumstances.”

Dutch Law:
- Art. 6:228 (1): “A contract which has been concluded under the influence of a mistake and
would not have been concluded under a correct impression of the situation, is voidable.”
o Where both parties share the same mistaken apprehension about the situation
French Law:
Discussion Task: Illegal and Immoral Contracts
• Drawing your inspiration from the four jurisdictions you are studying, when is a contract
usually held to be contrary to public policy or good morals? What applicable provisions can
you find?
In common law, there are specific types of contracts identified as being generally contrary
to public policy or good morals. These include:
o Contracts to commit/further criminal or civil wrong
o Contracts that interfere with administration of justice
o Contracts prejudicial to state
o Contracts prejudicial to sexual morality
o Contracts prejudicial to family life
o Contracts prejudicial to personal liberty
o Contracts prejudicial to freedom to trade/freedom to earn living
o Contracts prejudicial to existence of competitive market
Instead civil law identifies criteria for contracts that can be considered as going against
public policy or good morals.
o Contracts that unduly restrict the personal/artistic/economic freedom of parties
o Contracts that go against moral views that are believed to be held in society
o Contracts that go against interests of community at large
• What other examples of illegal or immoral contracts can you think of?
• How should a judge determine if a contract is illegal or immoral?
In common law, it is less clear how to identify contracts that should be forbidden because
of their illegality or immorality. However, there should be the basic understanding that
contracts which harm any of the contracting parties or any third party not related to the
contract in terms of their person, their property, their freedom, etc. should not be
enforceable.
In civil law, it is more straightforward as a judge can determine if a contract is illegal or
immoral by looking at the previous criteria.
• What would be the consequences of accepting these as valid contracts?
• What are the consequences of an illegal or immoral contract?
• French Law: Art. 6: “Statutes relating to public policy and morals may not be derogated
from by private agreements.”
• Art. 1162: “A contract cannot derogate from public policy either by its stipulations or by its
purpose, regardless of whether the latter was known to all the parties or not.”
• German Law: §134: “A juridical act which violates a statutory prohibition is void, unless the
statute leads to a different conclusion.”
• §138: “A juridical act which violates good morals is void.”
Dutch Art. 3:40: “(1) A juridical act that by its contents or implications violates good morals
or public policy, is null and void. (2) A juridical act that violates a statutory provision of
mandatory law is null and void; if, however, this statutory provision is only intended to
protect one of the parties to a multilateral juridical act, the juridical act is only avoidable; in
both cases this applies in so far as the provision does not imply otherwise. (3) Section 2
does not apply to statutory provisions which do not purport to invalidate juridical acts
contrary to them.”

Notes on Videos for Week 5

Video 5.1 – Defects of Consent: Introduction
 - Good reasons for contract to not be enforceable because of contents of contract
- Defects of consent is where consent has come about defectively
o Contracting party does intend to be bound
o Way in which intention has been formed is defective
o Vitiating factors
- Two broad categories of vitiating factors:
o Parties consent is impaired due to deficiencies in judgement or knowledge
 Ex. Parties enter into contract without full information needed to province
consent – failure of one party to disclose necessary information
 Can lead to ground of voiding the contract
 Both parties are under a mistaken apprehension about facts/circumstances
that are fundamental to contract
 Ex. Where contracting parties contract about a thing believing both
that the thing still exists but find out that after the contract is formed
the thing doesn’t exist
 One party receives information that is false from other party – deficiency in
information of party
 English law: misrepresentation
 Consent may be formeddefectively – leads to possibility of avoiding
contract
o Other party to contract behaved improperly with view to inducing other party to
enter into contract
 Ex. One party threatens other with harm to person/property with view to
getting that party to enter into contract
 Behaviour of threatening person that leads to consent of threatened
 Ex. One party exploits circumstances within which other party is in
 Other party is weaker/more vulnerable
 Through undue influence, party induces other party to enter into
contract which it may not have entered into otherwise
Videos 5.2 – Threat
French Law:
- Art. 1140: “duress is present where one party enters into contract under pressure of fear
that person/property or person/property of those close to him may be exposed to
considerable harm”
- Consequence of duress: Art. 1130: “duress vitiates consent where its nature is such that
without it one of the parties would not have entered into the contract”
- Art. 1142: “duress is a cause for nullity”
- If contract is entered into on basis of duress/threat exerted by one party onto another to
have them enter into a contract, It is possible to nullify the contract
German Law:
- §123: “a person who has been induced to make a declaration unlawfully by threat may
avoid the declaration”
o Where there has been a threat that causes the party to enter into a contract, it is
possible for them to avoid the declaration
Dutch Law:
- Art. 3:44 (2): “a threat consists of a person inducing another to perform a certain legal act
by wrongfully threatening this or a third party with any disadvantage to person or
 property. The threat must be such that a reasonable human being could be influenced
thereby.”
o Art. 3:44 (1): A legal act is avoidable where it has been brought about by a threat
English Law:
- Where a contract has been brought about by threat, there is grounds to avoid the contract
- Universe Tankships Inc of Monrovia v International Transport Workers Federation (1983)
o HoL recognized that the classic case of duress is not “the lack of will to submit but
the victim’s intentional submission arising from the realization that there is no
other practical choice open to him”
 Basic requirements for duress is that there must be some kind of illegitimate
pressure from one party that induces the other party to enter into contract
– party doesn’t see other practical alternative than entering contract
Video 5.3 – Fraud
French Law:
- Art. 1137: “fraud is the act by a contracting party of obtaining the other party’s consent
through intrigue and lies. Fraud is also constituted by the intentional concealment by one
of the parties of information of which the latter knows that it is decisive to the other
party.”
o Use of intrigue or lies
o Intentional concealment of relevant information
- Art. 1130: “fraud vitiates consent where its nature is such that without the fraud one of the
parties would not have entered into the contract or would have entered it under
substantially different conditions.”
- Art. 1139: “fraud constitutes a course for nullity.”
German Law:
- §123: “a person who has been induced to make a declaration unlawfully through wilful
deceit may avoid the declaration”
Dutch Law:
- Art. 3:44 (3): “Deceit consist of a person inducing another to perform a certain legal act by
an intentionally incorrect statement made for that purpose or by intentionally withholding
any fact for that purpose which he who withheld it was obligated to disclose or by any
other ruse. Recommendations generally phrased even if they are untrue do not constitute
deceit.”
o Incorrect statement made with view of getting party to enter into contract
o Withholding relevant information which he is obligated to disclose
o Any other ruse
- Art. 3:44 (1): a legal act is voidable where it has been brought about by deceit
English Law:
- Common law concept of deceit is also considered in terms of fraudulent misrepresentation
o Deals with situations in which one party was forced to enter into contract based on
deceit/fraudulent misrepresentation of the other party
- Derry v Peek: what constitutes deceit is where the representor makes a false statement
knowingly or made a false statement without belief in its truth or where statement was
made recklessly (party was careless of whether statement was true or false) with gross
carelessness
o Causal link must be established between the false statement and the other party
entering into the contract
Overall:
 - In French and Dutch law, it is explicitly said that the giving of false information with
intention of inducing the party to enter into contract as well as the intentional
concealment with view of having other party enter into contract constitutes fraud
- German law doesn’t define what constitutes wilful deceit
o Making of false statement
o Withholding of information with view to having person enter into contract
- English law, fraud only comes about where there is a false statement
o Failure to disclose information does not necessarily constitute fraud
o General idea that no one is under obligation to provide information – however
when information is provided it must be correct
- In legal systems, there must be causal link b/w false statement and entry into contract
o Fraud/deceit must have led other party to enter into contract
Video 5.4 – Undue Influence
- Undue influence includes the idea that one party exploits another parties circumstance to
induce them into entering a contract
- Aim of law is to protect person who has been induced into entering into a contract due to
fact that vulnerability has been exploited by other party – exploiting party is able to obtain
an excessive benefit/advantage
French Law:
- Art. 1143: “duress is also present where one contracting party abuses the state of
dependency of the other party on the former thereby obtaining a commitment the latter
would not have made in the absence of such a constraint and procuring a manifestly
excessive advantage.”
o There has to be a vulnerability of one party or a state of dependency on the other
o Exploiting this vulnerability gives one party excessive advantage
- Art. 1130: “where there is a case of duress, this vitiates the consent.”
- Art. 1142: where duress can be established, a contract can be nullified
German Law:
- §138 (2): “a legal transaction is void by which a person, by exploiting the predicament,
inexperience, lack of sound judgment or considerable weakness of will of another, causes
to be promised or granted to himself or another third party in return for a performance,
pecuniary advantages which are clearly disproportionate to the performance.”
o Legal transaction that violates good morals is void
Dutch Law:
- Art. 3:44 (4): “abuse of circumstances consists of a person who knows or ought to
understand that another is induces to perform a legal act because of special circumstances
such as emergency situations, dependence, thoughtlessness, abnormal mental conditions
or inexperience. Having facilitated that legal act, although what he knows or ought to
understand should prevent him from doing so.
- Art. 3:44 (1): “A legal act is voidable where it has been brought about by an abusive
circumstance.”
English Law:
- General doctrine of undue influence: where one party exploits relationship of influence to
obtain undue advantage
- Royal Banks of Scotland v Etridge (2001)
o Lord Nicholls: “Doctrine of undue influence seeks to ensure that the influence of
one party over another is not abused. In everyday life, people constantly seek to
persuade those with whom they are dealing to enter into transactions. The law has
 set limits to the means properly employable for this purpose. If the intention was
produced by an unacceptable means, the law will not permit the transaction to
stand. The means used is regarded as an exercise of improper or undue influence
and hence unacceptable when the consent thus procured ought not fairly to be
treated as the expression of the person’s free will.”
- Allcard v Skinner (1887)
o Court recognized that there can be two classes of undue influence:
 Actual undue influence
 Person who claims that they entered into contract on basis of undue
influence is able to actually prove undue influence
 Presumed undue influence
 Claimant doesn’t have to establish undue influence but has to
establish that there was special relationship of trust and influence
o Some relationships where trust and confidence is
automatically presumed by law
 Solicitor and client
 Doctor and patient
o Other situations special relationship has to be established
 Claimant has to prove to court that trust and
confidence existed
 Claimant has to establish that transaction that resulted in manifestly
disadvantage
 Is possible for defendant to prove that there was no undue influence
and that claimant entered into contract freely
o Evidence of presence of independent advisor
Video 5.5 – Mistake
French Law:
- Art. 1132: “error of law or of fact, unless it is inexcusable, is a cause for nullity of the
contract where it affects the essential characteristics of the performance due or those of
the other contracting party.”
o Essential characteristics explained in Art. 1133: “essential characteristics of the
performance are those which have been explicitly or tacitly agreed upon and in
consideration of which the parties have entered into the contract.” – essence of the
contract
- Art. 1136: where we’re mistaken about the value of the performance we are to receive
does not constitute a ground for nullity on the basis of mistake
- Art. 1134: “error with regard to characteristics of the other party only constitutes a cause
for nullity in case of contracts concluded in consideration of the person.”
- Art. 1135: “a minor error, unrelated to the essential characteristics of the performance due
or of the other party, does not constitute a cause for nullity, unless the parties have
explicitly made it a specific element of their consent.”
- Art. 1130: “Error vitiates consent where its nature is such that without the error, one of the
parties would not have entered into the contractor would have entered into it under
substantially different conditions.”
o Causal link between mistake and entrance into contract
- Art. 1133: “Error is a cause for nullity where it affects the performance on one of the
parties.”
German Law:
 - §119: “A person that when making a declaration of intent was mistaken about its content
or had no intention of making a declaration with this content at all may avoid the
declaration if it is to be assumed that he would not have made the declaration with
knowledge of the factual situation and with a rational appreciation of the circumstances.”
o Provides a party the possibility to avoid a contract where it’s been entered into on
the basis of a mistake about its content
Dutch Law:
- Art. 6:228 (1): “A contract which has been concluded under the influence of a mistake and
would not have been concluded under a correct impression of the situation, is voidable.”
o Three scenarios for voidability based on mistake:
 Where you enter into a contract under the influence of a mistake and would
not have entered into that contract if would have known the true state of
affairs
 Where the other party should have informed you of certain information to
avoid the mistaken apprehension that led to the entrance of the contract
 where both parties share the same mistaken apprehension about the
situation
- Art. 6:228 (2): if the risk of the mistake should lie with you then it is not possible to avoid
the contract for mistake
English Law:
- Only recognizes common mistake of parties – both parties are under common
misapprehension
- Misrepresentation: where one party enters into a contract on the basis of a false untrue
statement made by the other party – gives grounds to avoid the contract

Video 5.6 – Mistake General Requirements

- General requirements for mistakes
o Art. 6:228 Dutch Civil Code
o Art. 4:103 PECL
- General requirements that reflect concept of mistake in different legal systems:
1. Contract
i. Contract must be already in place – after the formation of a contract
2. Misapprehension of fact or law at the time of conclusion of the contract
i. Party must be entering into contract on basis of misapprehension
3. Causation
i. Causal link between mistaken apprehension and conclusion of contract
4. Category of mistake
i. How mistake came about
ii. 3 categories that can lead to mistake
1. Mistake caused by incorrect information provided by other party –
false statement
2. Mistake cause by failure to disclose information by other party
iii. Both parties have a mistaken understanding of facts of case
5. Apparent importance
i. Has to be apparent to other party that mistaken information is essential –
from other party’s perspective – from perspective of party that made the
mistake
ii. Other party should have known
 iii. Protects reasonable reliance
6. Excusable
i. Mistake must be excusable – is it understandable that one party was
mistaken?

Video 5.7 – Disclosure and Misrepresentation

- In French law, duty to disclose exists
- Art. 1104 (c. civil): Contracts must be negotiated, entered into, and performed in good
faith.
- Pre-contractual, contractual and post-contractual phases must be governed by good faith
- Idea of good faith can include the duty of parties to disclose information with each other
o Consumer Rights Directive: long list of information that traders have to provide
consumers with before they are bound by contract
- Art. 1112-1: “Party who has knowledge of info whose important is decision for the consent
of the other party must inform that other party thereof, as far as the latter is legitimately
ignorant of the info or relies on his contractual partner.”
o During negotiation phase, disclosure of info is relevant for formation/closure of
contract
o Where one party has legitimate reason to not know all info
- Art. 4:107(3) PECL: “in determining whether good faith and fair dealing required that a
party disclose particular info, regards should be had to all circumstances including whether
party had special expertise, cost to acquiring relevant info, whether other party could
reasonably acquire info itself, and the apparent importance of info to other party.”
o Determines whether there is duty to disclose
- English law no general duty to disclose info
o Lack of principle of good faith
o Parties do not have obligation to provide info but any info provided must be true
 If not, claim on basis of misrepresentation
o Silence or non-disclosure, even if important facts, does not generate liability
o Smith v Hughes (1871)
 Judge quoted: if vendor was aware that purchaser thought that the article
possessed equality and would not have entered into the contract unless he
had so thought still the purchaser is bound. A mere abstinence of disabusing
the purchaser of that impression is not fraud or deceit for whatever may be
the case in the course of morals, there is not legal obligation on the vendor
to inform the purchaser that he is under a mistake not induced by the act of
the vendor.”
 No duty to disabuse other party of mistaken impression
 Caveat Emptor: Buyer beware
 Each party responsible for protecting its own interests
o Ex. Investigating further, asking questions, gathering their
own info
o Exception to lack of duty of disclosure
 Contracts uberimae fidei: contracts of utmost good faith
 Ex. Contracts of insurance
o person seeking insurance has duty of disclosure to disclose all
facts reasonable and prudent insurer would regard as
material to the risk assessment
  Marine Insurance Act, 1906, Section 18 (2): where the insured fails
to disclose material information that’s relevant to the insurance
policy and the risk assessment, the insurer is entitled to avoid the
contract and avoid claims made under contract
 Reasons for duty of disclosure in uberimae fidei contracts is that
material facts lie exclusively within knowledge of person who seeks
to be insured
o Insurer doesn’t have access to all info to determine risks
 Contracts in fiduciary relationships – special relationships of trust
 One party entrusts the other party to perform a specific job or to
hold or control person’s property
 One party depends on other party/trusts other party
 Ex. Solicitor-client; doctor-patient
 Duty to provide necessary and relevant information to one another
o English law pays particular attention to statements made by parties during
contractual negotiations
 Doctrine of misrepresentation: (1) unambiguous false statement of existing
fact (2) that is made to a claimant (3) which induces that person to enter
into a contract
 Consequence is contract can be rescinded – avoidable
 Sometimes can lead to claim for damages
 English law recognizes three types of misrepresentation:
1. Innocent misrepresentation
 False statement of fact is made
 False statement is not made carelessly or on purpose
– person may believe that what he is saying is true –
innocent misrepresentation
2. Negligent misrepresentation
 Person making statement is careless about truth or
the statement
i. Meets the standard of negligence
3. Fraudulent misrepresentation
 Deceit
 Party fraudulently with intention to deceive other
party makes false statement
 Gross negligence/carelessness
Common law tradition v. Civil law tradition
- Civil Law:
o More emphasis being placed on taking account of other parties’ interests
 Ensuring that other party is sufficiently informed in conclusion of contracts
o Balance interests of parties
 Determine extent to which there is duty to provide information
 Determine extent to which there is a duty for party to investigate
themselves and inform themselves
- Common law:
o No general obligation to take into account interests of other party
o Each party responsible for own interests
 Permitted to act in self-interest when concluding contract
  Have to be careful that representation that is false can be grounds for nullity
of contract
Video 5.8 – Prohibited Contracts
- Freedom of contract
o Individuals can decide what to contract about with who and when
o Freedom is restricted to boundaries set by law
o Law determines certain contracts that cannot be entered into
- Provisions dealing with prohibited contracts may make:
o Formation of contracts illegal
o Means used to perform contract illegal
o Contract’s purpose illegal
- French: Art. 6 (c. civil): “One cannot derogate by private agreements from laws which
concern public policy and good morals.”
o Art. 1162: “Contract may not derogate from public order either by its terms or by
its aims, regardless of whether or not the latter was known to all parties.”
- Germany: §134 (BGB): “A legal transaction that violates a statutory prohibition is void,
unless a different consequence follows from the law.”
- §138 (BGB): “(1) A legal transaction that violates good morals is void.”
- Dutch: Art. 3:40 (BW): “(1) A legal act that through its content or purpose is contrary to
good morals or public order, is void. (2) Violation of a mandatory legislative provision
renders the legal act void, however, if the provisions only serve to protect one of the
parties to a multilateral legal act, it is only voidable, all this to the extent that nothing else
results from the purpose of the provision.”
o Clear look at wording of statutory provision to see whether or not it protects only
one party – look at provision to see if it provides other consequences
- English law: also has statutory provisions that makes certain contracts prohibited
o Holman v Johnson (1775): courts will not assist one whose course of action is
founded an immoral/illegal act
 Party who relies on immoral/illegal act cannot go to courts to have contract
enforced
o Patel v Mirza (2016): courts generally will not enforce illegal contracts
- Open-ended provisions in different jurisdictions:
o Allow for more discretion in deciding which cases are prohibited – times have
changed and contracts that were prohibited a long time ago may not be today
o There is less guidance with respect to when contracts will be considered opposite
to public policy or good morals – more difficult to determine
o Important to remember that judges have to take into account general norms and
values within society and not own beliefs
- Categories identified in common law as contrary to public policy:
o Contracts to commit/further criminal or civil wrong
 Ex. One party pays another to beat someone up
 Ex. Party breaches building license
o Contracts that interfere with administration of justice
o Contracts prejudicial to state
 Ex. Contracts where party trades with enemy at wartime
o Contracts prejudicial to sexual morality
o Contracts prejudicial to family life
 Ex. Contracts relating to transfer of parental rights or duty
  Ex. One party pays another not to marry
o Contracts prejudicial to personal liberty
 Ex. Contracts leading to slavery
o Contracts prejudicial to freedom to trade/freedom to earn living
o Contracts prejudicial to existence of competitive market
- Categories identified in civil law as contrary to public policy:
o Contracts that unduly restrict the personal/artistic/economic freedom of parties
o Contracts that go against moral views that are believed to be held in society
o Contracts that go against interests of community at large
- Consequences of decision of courts to deem contract prohibited:
o Courts will not enforce contract – contract deemed void
 If contract is void, parties cannot start proceedings to claim performance
 Illegal contracts, claims for restitution are not permitted
o Saunders v Edwards (1987)
 Lord Bingham: “Where issues of illegality are raised,
courts have to steer middle course between two
unacceptable positions. Unacceptable that court
should aid/lend authority to party seeking to enforce
agreement prohibited by law. Unacceptable that court
should refuse assistance to claimant at first sign of
illegality of contract.”
 §817 (BGW): in pari delicto-rule: where both parties
have dirty hands, they cannot recover anything from
contract that has been voided
 One party is innocent/less blameworthy/ not
at fault for illegality, restitution is permitted
 English law: some exceptions for restitution are made
o Contracts can be simply considered voidable
 Ex. Art. 3:40 (2) (BW – Dutch Civil Code)

Class Notes
- Mistake not the same as fraud
o Mistake can be done unintentionally
o Fraud is done with the intention to deceive
- Misrepresentation can only be there if there was a statement – mistake can happen also by
omission
- Misrepresentation starts with party that induced the mistake – mistake starts with party
that makes the mistake
- Undue influence contains three factors:
o Factor of vulnerability – exploitation of vulnerability
o Factor of dependency – one party depends on others and that dependency is
exploited
o Imbalance – one party through undue influence receives an excessive advantage
- Void: never produced effects
- Voidable: produces effects if party decides so
- French Law: defects of consent are grounds for relative nullity (relatively void) not absolute
nullity – can only be argued by certain types of people
 o Art. 1131: “Defects of consent constitute a cause for relative nullity of the
contract.”
- In English law, undue influence must be argued on grounds of a relationship of trust and
confidence
- Public policy = interests of society
- Good morals = decency of humanity