Assignment: Vitiating Factors (Avoiding a Legal Transaction)

Vitiating Factors (Avoiding a Legal Transaction)
Long problem: Liam
Liam’s aunt recently passed away, and he has been left with a large inheritance. Liam’s wife Fatima
wants him to use the money to pay off her loans from when she was a student. Liam is not so sure.
Fatima becomes frustrated with him and she says, ‘How can you be so selfish? If you don’t do
something sensible with the money like pay off those loans, I’ll have to go to your parents and tell
them about that gambling problem you had a few years ago. Maybe they could talk some sense into
you.’ Fatima knows that Liam is terrified of his family finding out about his gambling addiction. She
hopes that this fear will make him do the right thing with the money.
Later that week, Liam is speaking with his pastor, Pastor Jane, about the inheritance. Pastor Jane
suggests, ‘How about you use your inheritance to invest in my catering business? It’s been doing
very well over the past few years. You would then get a share in the business, so you could receive
some of the profits each year.’
Liam responds, ‘Well, that’s a tempting offer. I’ll have to think about it.’
Finally, Liam has a tenant, Malcolm, renting an apartment from him. Malcolm has always admired
Liam’s car. He says to Liam, ‘Now that you have more money, you will be getting a new car. Why
don’t you sell the old one to me?’
Liam is not keen to sell Malcolm his car, but Malcolm insists. In fact, he threatens to ‘trash the
apartment’ if Liam doesn’t sell him the car. Liam doesn’t want the hassle and cost of dealing with
damage to the apartment, so he agrees to sell Malcolm his car, and he buys a new one.
When Fatima sees that Liam has bought a new car, she is furious. She goes to Liam’s parents and
tells them about his gambling problem. Concerned not to worsen his family’s impression of him,
Liam agrees to use his inheritance to pay off Fatima’s loans. Fatima takes him to her lawyer, who
prepares the paperwork. Liam sits silently and signs the papers presented to him.
Liam is seeking your advice. He regrets selling Malcom his old car. When he calls Malcolm to tell him
he has changed his mind, Malcolm explains that he has already re-sold the car to someone else. Liam
also regrets agreeing to spend the money on Fatima’s loans. He wants to get his money back, and
invest in Pastor Jane’s business. But he is worried about the risk involved. He wants to know whether
he can invest in the business, but then change his mind later if the business isn’t going well.
1. Can Liam rescind the agreement with Malcolm and get his car back? Why or why not?
2. Can Liam invest in Pastor Jane’s business, but then rescind the agreement later if the
business does not perform as expected? Why or why not?
3. Can Liam rescind the transaction of spending his money to pay off Fatima’s loans?

1.Issue: Can Liam rescind the agreement with Malcolm and get his car back? Why or why not?
Relevant law
Duress refers to the application of pressure or acts of violence against a person, their
property of economic interests, which forces that person to enter into a contract against
their will. Duress need not be the only inducement to contract, provided it was a
contributing factor in the decision to contract.
The critical question the court may consider this pressure illegitimate(North Ocean Shipping
v Hyundai Construction).
Application
On the facts, Malcolm has threatened to ‘trash’ Liam’s apartment, which is a threat of
property damage. This raise the issue of duress. In order to be duress which makes an
agreement voidable, the threat must have been illegitimate(North Ocean Shipping v
illegitimate, because it would be illegal, and we can assume it would also be a breach of the
lease agreement between Liam and Malcolm.
The facts tell us that the threat is the main reason why Liam enters the agreement to sell
the car. This makes the agreement voidable.
However, rescission is unavailable here, because a third party has acquired rights in good
faith(when Malcolm re-sold the car).
Conclusion
Liam cannot rescind the agreement with Malcolm and get his car back.
2.Issue: Can liam invest in Pastor Jane’s business, but then rescind the agreement later if the
business does not perform as expected? Why or why not?
Relevant law
Undue influence occurs where one party uses their strong influence over another to
persuade them to enter a contract that provides the person withe stronger influence with a
direct or indirect benefit. Consequently, genuine consent is missing.
Usually, there must be a fiduciary relationship between the parties. This means that the
person with stronger influence occupied a position of trust in regard to another and was
obliged to act in that person’s best interests(Allcard v Skinner)
The common law automatically recognises parties with ‘special relationship’ as a fiduciary
relationship. There is a presumption that undue influence has occurred and the defendant
has the onus of proof. They must disprove the presumption by showing, on balance of
probabilities, that they did not influence the plaintiff to enter the contract. The relationship
between a religious leader and a believer is regarded as ‘special’ by the courts.
Application