Third Party Impropriety

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[1] Third-party impropriety is when a party has been induced to enter a contract by an improper conduct of a third-party. the party who fell victim to third-party impropriety may obtain relief if the following requirements are satisfied:

  1. The conduct of the third-party was considered a improper or a vitiating factor. These include:
  2. The other party to the contract should ought to be affected by the the improper conduct or vitiating factor. Parties will satisfy this requirement if:
    • The party relied on the the third-party to procure the victim's acceptance.
    • The party knew of, or had reason to believe that, the third-party was acting improperly or a vitiating factor exists.

In addition, a party may obtain relief under the rule in Yerkey v Jones.[2] The rule applies for wives entering contracts to guarantee their husband's debts, and require that:

  • The wife entered without understanding the contract; and
  • The wife entered without dealing with the other party personally.
    • The rule also applies if the wife understood the transaction but her consent was obtained by the husband's undue influence.
    • The rule also applies if the wife guaranteed a company controlled by the husband, and if she does not have a significant interest in it.
    • The rule does not apply if the wife also stands to benefit from the contract.

If such requirements are satisfied, the victim may rescind the contract.

This article is a topic within the subject Contracts.

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 953-959 [37.05-37.15].

Modern application of the Yerkey v Jones rule

The modern application of the rule set in Yerkey v Jones was discussed in Garcia v NAB:[3]

  • Facts: Appellant entered a mortgage with the respondent to secure money for her husband. Clearly didn't understand it, had no interest in it and only did it because of misrepresentations of her husband. The appellant sought to have the contract for mortgage set aside.
  • Held: Yerkey v Jones still applies. The rationale of Yerkey v Jones is not to be found in notions based on the subservience or inferior economic position of women. Nor is it based on their vulnerability to exploitation because of their emotional involvement, save to the extent that the case was concerned with actual undue influence. Instead, it is based on the trust and confidence, in the ordinary sense of those words, between marriage partners. Further, the principles applied in Yerkey v Jones do not depend upon the creditor having, at the time the guarantee is taken, notice of some unconscionable dealing between the husband as borrower and the wife as surety.
  • It would have been unconscionable for the respondent to enforce the guarantee against the appellant as:
    • the appellant did not understand the purport and effect of the transaction;
    • the appellant was a volunteer because she did not obtain any financial benefit from the transaction;
    • the respondent was taken to have understood that, as a wife, the appellant may have reposed trust and confidence in her husband in matters of business and therefore to have understood that the husband may not have fully and accurately explained the purport and effect of the transaction to the appellant; and
    • the respondent took no steps to explain the purport and effect of the transaction to the appellant or to ascertain whether the effect of the transaction had been explained to her by a competent, independent and disinterested stranger.

References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. Casebook, p. 953 [37.05-37.10]
  2. (1940) 63 CLR 649
  3. (1998) 194 CLR 395
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