Section 1 Contracts
Section 2 Federal Securities Acts
Section 3 Secured Transactions
Section 4 Bankruptcy
Section 5 Debtor-Creditor Relationships
Section 6 Agency
Section 7 Regulation of Employment
Section 8 Business Structure
Section 9 Professional and Legal Responsibilities
Section 10 Individual taxation
Section 11 Corporate Taxation
Section 12 Partnership Taxation
Section 13 Transactions in Property
Section 14 Gift and Estate Tax, Trusts And Exempt Organizations, Other Taxation Topics

1.3 How Contracts May Be Voided

Several circumstances can negate what might otherwise constitute a valid contract.


By definition, fraud means misrepresentation of a material fact or concealment of a significant defect.  Fraud also includes a falsified appraisal by an expert but does not include a non-expert’s opinion. Examples of fraud include the rollback of an automobile’s odometer prior to sale or an altered appraisal of a diamond ring. On the other hand, if you are looking to buy a 1965 Mustang and the owner tells you that he predicts its value will double within five years, this does not constitute fraud.


To prevail in a suit to have a contract set aside on account of fraud, the plaintiff must prove three things:

1. There was intent to mislead. The term that reappears often in this business law course and on the IQEX Exam is “scienter” which a Latin word denoting intent to mislead is and or reckless disregard for the truth.
2. Reasonable reliance by the plaintiff (i.e. the injured party).
3. Injury resulted (in a financial sense).

Fraud may occur in the inducement to enter into a contract during negotiations or in the execution of the contract.  An example of the former is a representation that a car has only been driven 10,000 km whereas the actual distance is 50,000. An example of the latter is a lawyer representing to a client that the client is signing a will, while, in reality, the document is a promissory note in favour of the lawyer.


Remedies for fraud include rescission (voiding) the contract or a reduction in compensation (e.g. a price reduction to compensate for the inaccuracy of a car’s odometer).


Innocent misrepresentation may give rise to the same resolution, but damages would not likely be awarded.

Please answer the question below and review your answer.


Duress means threats of violence or extreme pressure against a party or a family member.  It may involve social or economic coercion. Extreme duress causes an agreement to be void while ordinary duress creates a voidable agreement.

Undue Influence

Undue influence occurs when a dominant person (parent, employer, advisor) persuades a weaker person to enter into a contract to the latter’s detriment.

A good example is a situation where an individual is hired to work in a remote area and is required to sign a lease for company housing. If the individual quits or is fired, he or she would probably use the undue influence argument to void the lease.

Please answer the question below and review your answer.

Note that option b refers to a term that does not appear in these notes.  Generally, this means you can reject it as a choice.