165 Session 7 - content

Margaret, an elderly widow with limited financial literacy, is approached by Victor, a financial advisor, who convinces her to invest her life savings in a high-risk venture. Victor is aware that Margaret does not fully understand the risks involved and exploits her trust in him. The investment contract includes complex terms and conditions that heavily favor Victor's firm, including exorbitant fees and penalties for early withdrawal. After the investment fails, Margaret realizes that she has lost her life savings and that the contract terms were extremely unfair and exploitative. What actions can Margaret take in relation to the contract?

• The contract is valid, and Margaret has no recourse, as she willingly signed the agreement

• The contract is voidable at Margaret's option due to unconscionable conduct, allowing her to seek rescission and restitution

• The contract is automatically void, and Margaret must return any benefits received from the investment

• The contract is valid, but Victor must pay Margaret damages for the unconscionable conduct, while the contract remains in effect

Answer explanation

Unconscionable conduct under equity covers scenarios where a party must be at a special disadvantage, and the other party must exploit this disadvantage

John, a real estate agent, advertises a property as having "stunning ocean views" and "recently renovated." Sarah, a potential buyer, is impressed by these claims and decides to purchase the property for $500,000. After moving in, Sarah discovers that the ocean views are obstructed by a new building and that the renovations were poorly done and not up to code. Sarah feels misled by John's statements. What is the likely outcome of the contract between John and Sarah under Australian consumer law?

• The contract is voidable at Sarah's option due to misleading and deceptive conduct

• The contract is valid, and Sarah has no recourse

• The contract is automatically void, and Sarah must return the property

• The contract is valid, but John must pay Sarah damages for the misleading and deceptive conduct

Answer explanation

Under section 18 of the Australian Consumer Law (ACL), misleading or deceptive conduct in trade or commerce can render a contract voidable at the option of the misled party

Alice, a seller, enters into a contract with Bob, a buyer, to sell a vintage car. Alice claims that the car has never been in an accident and is in perfect condition. However, Alice knows that the car has been in a major accident and has significant hidden damage. Bob, relying on Alice's statements, agrees to purchase the car for $20,000. After the purchase, Bob discovers the car's true condition and the extent of the hidden damage. Given this incident, which of the following outcomes is most likely regarding the contract between Bob and Alice?

• The contract is valid, and Bob has no recourse

• The contract is automatically void, and Bob must return the car

• The contract is voidable at Bob's option due to fraudulent misrepresentation

• The contract is voidable at Bob's option due to unconscionable conduct

Answer explanation

Fraudulent misrepresentation renders a contract voidable, not void.

Shama, a highly respected religious leader, has always been a figure of authority and guidance for his follower, Fiona. One day, during a private meeting, Shama convinces Fiona to sign a contract that transfers ownership of her family’s property to his charitable organization. He emphasizes that it’s a “divine calling” and that her generosity will please a higher power. Fiona feels uncomfortable but signs the contract without seeking legal advice, due to Shama's insistence and her belief that it is her religious duty. After some time, Fiona realizes that she has made a hasty decision and regrets her decision. She wishes to take legal action to cancel the contract. Can Fiona take any legal action to void the contract?

• Yes

• No

Which of the following scenarios best illustrates genuine consent in contract law?

• A person signing a document because they were threatened with negative consequences if they refused

• A person is tricked into signing a contract with false information

• A person freely agrees to the terms of a contract after fully understanding them

• A person agreeing to a contract without reading it because they trust the other party

What is the effect of undue influence on the validity of a contract?

• The contract is automatically void

• The contract is voidable at the option of the influenced party

• The contract remains valid and enforceable

• The contract is considered illegal

Which of the following is NOT a factor that can vitiate genuine consent in a contract?

• Mutual agreement

• Misrepresentation

• Duress

• Undue influence

Which of the following statements correctly distinguishes between a "term" and a "representation" in contract law?

• A term is a statement of intent in a contract, while a representation is a binding promise

• A term is binding and forms part of the contract, while a representation is a statement intended to induce a party to enter into the contract but is not binding

• Both terms and representations are legally binding and form part of the contract.

• A representation is a formal agreement between parties, whereas a term is a casual statement not intended to be binding.

Under the Australian Consumer Law (ACL), which of the following best describes unconscionable conduct?

• Conduct that breaches express terms of a contract

• Conduct that is harsh, oppressive, and goes against good conscience, taking advantage of a party's vulnerability or disadvantage

• Conduct that involves offering a defective product for sale

• Conduct that involves misleading or deceptive advertising