MBA 600: Legal and Ethical Environment for Business
Read and summarize chapter 19 of Biz Law text in at least 400 words.
19.1 Undue Influence
In situations where undue influence, is established, it will also render a contract voidable. Undue Influence
occurs when there is an inequality of power between the contracting parties and results in the weaker
party entering into a contract with the dominant party usually without true or genuine consent being
present. Where undue influence has been satisfactorily established, the transactions will not always result
in a remedy at law. However, where the undue influence that exists between the parties can be classified
as ‘undue’, ‘unfair’, ‘oppressive’ or coercive’ and the weaker party will have the choice of rescinding the
contract. Undue influence generally takes two main forms; express undue influence. This arises where
the dominant party acts in such a manner that it effectively deprives the other party of their free will and
this sometimes may overlap with duress and can arise where there is no special relationship. The other
form of undue influence is commonly referred to as presumed undue influence which occurs where the
dominant party holds a position of trust or confidence over the weaker party, for example where there is
a special relationship as between a solicitor and client, where in such situations it will be presumed that
the influence that existed between them when entering the contract was ‘undue’ or ‘unjust’ or ‘oppressive’
or coercive’ unless the dominant party can prove otherwise.
19.1.1 Presumed Undue Influence
Where a contract is actually made between the parties in certain specified relationships, the law operates
to presume that there was undue influence in that agreement. In these particular cases the weaker or
subservient party need to only establish that the relationship existed. In these types of situations the
dominant or stronger party has to establish that there was in fact no undue influence. The classes or
relationships where the law actually presumes that there is undue influence are as follows.
Read and summarize chapter 20 of Biz Law text in at least 400 words.
20.3 Vitiating Factors and Voidable Contracts
When a contract is made voidable due to the existence of a vitiating factor such as misrepresentation,
mistake, undue influence, duress, unconscionable or unfair conduct the innocent or injured party has the
right to repudiate that is reject the contract. A contract is said to be voidable when it has no legal effect
and the injured or innocent party has the right to reject the contract and sometimes claim restitution and/
or damages. When a contract is voidable essentially all of the legal obligations are effectively terminated
as between the parties and they are back to the position before the contract was entered into.
This right or remedy arises in equity and is referred to as rescission which is often used to describe
a termination of a contract. This equitable right arises when a contract is voidable because genuine
consent is lacking and one party had induced another party to enter into the contract because of mistake,
fraudulent misrepresentation, duress, undue influence or unconscionable conduct. In this instance the
innocent party is able to continue with the contract ore rescind it, thus making the contract void and or
voidable which means that it is treated as never having existed between the parties.
20.4 Remedy of Rescission
When the equitable remedy of rescission is applied it is distinguished from the usual remedies for breach
of contract, namely damages (monetary compensation). Accordingly, the equitable remedy of rescission
can be granted because of mistake, misrepresentation, undue influence, duress, unconscionability or
under any consumer law legislation in respect to consumer protection. Generally, the consumer protection
legislation provides that a consumer is entitled to rescind a contract for the supply of goods for breach
of the implied conditions as to title, correspondence with description, merchantable quality, fitness for
purpose and sale by sample corresponding to those that are implied in contracts of sale under sale of
goods legislation. It should be noted that for rescission to be available to the injured party, substantial
restoration or rectification must be possible.
20.4.1 Effect of Rescission
The requirement that parties must give true and genuine consent is a very important aspect of contract law.
Accordingly the existence of a vitiating factor, such as misrepresentation, mistake, undue influence, duress,
unconscionable or unfair conduct, renders the contractual consent given at the time of the negotiation
without genuine and voluntary consent invalid and hence the contract will be void or voidable. In this
sense, the contract is, either of no legal effect, that is void, or at the option of the innocent party, may be
rescinded or avoided (voidable). The main aim of rescission is to essentially return the parties to their
original and pre-contractual positions, which means that that the parties are returned or substantially
returned to the position in which they would have been if no contract had taken place in the first instance.
In this regard the equitable remedy of rescission is essentially backward looking, and it seeks to restore
the parties as far as is possible to the positions that they had occupied before the contract was made
Read and summarize chapter 21 of Biz Law text in at least 400 words.
Business Law – Now!
Vitiating Factors in Business
21.1 Statutory Unconscionability
The equitable doctrine of unconscionable conduct as laid down and highlighted by court decision in
various jurisdictions was that the plaintiff is required to prove among other things, a special disability
or special disadvantage. This requirement in practice often places a huge restriction on the effective
operation of the equitable doctrine and in general business and commercial practice this was not a
regular occurrence or in the nature of the specific ‘special disability’ as stated in the legislation.
The positive outcome of increased consumer protection awareness at all levels in the market place at
local, national and international levels of trade and business was that there were a number of statutory
interventions and new provisions introduced for the purpose of increasing consumer protection beyond
the limited scope of the equitable doctrine of unconscionability. Some of these provisions included
• to give protection from unconscionable conduct to consumers;
• to give legislative expression to the equitable doctrines of unconscionable conduct and what it
means by, having a ‘special disability’ and to provide the innocent party with certain procedural
and remedial advantages;
• to protect small business from unconscionable conduct when dealing with larger corporations
in business or commercial transactions.
In respect to statutory unconscionability there are three main statutory provisions that prohibit
unconscionable conduct in certain commercial and business circumstances. When applying these
principles to business and commerce it is essential that the differences between them are clearly
understood as they give rise to different outcomes in the application of the different provisions various
legislation within jurisdictions. These three important consumer protection statutory provisions include: