Avoiding

Contractual
Obligation

DEFINITIONS
The courts may uplift the corporate veil
when the contracting party is using the
separate legal entity as a tool to
circumvent his contractual lawful
obligations.
The establishment of a company may be
used as a cloak and a sham to defeat the
other party from enforcing its right under
a lawful contract.

Elements of a Contract
OFFER
MISTAKEINSENDINGOFFER
TERMINATIONOFANOFFER

Reality of Consent
There will be no binding contract without
the real consent of the parties.
Apparent consent may be vitiated because
of:
a) Mistake
b) Fraud
c) Undue influence

Mistake
a)Mutual mistake
If the mutual mistake significantly changed the
subject matter of the contract, a court will
refuse to enforce the contract.
b)Unilateral mistake
Occur where a contractor submits an erroneous
bid for a public contract.
Where such a bid is accepted, the contractor
will be permitted to avoid the contract only if
the agreement has not been executed or if the
other party can be placed in the position that
they occupied prior to the contract.

Fraud
Fraud prevents mutual agreement to a contract
because one party intentionally deceives
another as to the nature and the consequences
of a contract.
Due to fraud, contract fails to express the
agreement that the parties intended it to
express, then the defrauded party may seek a
decree of reformation, by which the court will
rewrite a written agreement to conform with the
original intent of the parties.

Undue Influence
Is unlawful control exercised by one person over
another in order to substitute the first persons
will for that of the other.
A person takes advantage of the psychological
weakness of another, in order to influence that
person to agree to a contract to which, under
normal circumstances, he or she would not
otherwise consent

Case Study & Court

Decision
GILFORD MOTOR CO V HORNE
(1993) CH. 935

Gilford motor co v horne

(1993) ch. 935
In his case, Horne was formerly the managing
director of the Gilford Motor Company (the
plaintiff).
While he was still the company he entered into
a contract with the company whereby he agreed
not to solicit customers of the company after
the termination of his employment.
When he left the company he set up a company
called JM Horn & Co. Ltd. Through this new
company he solicited the Plaintiffs customers.
The plaintiff then brought an action against
Horne and his company for breach of contract.

Court decision
The court granted an injunction against both
Horne & his company, having held that he had
breached his contact even though he has not
the one personally solicited the customers.
He was liable for the act of the company as the
court lifted the veil and treated him and the
company as a single entity.
Horne had used his
contractual obligation.

company

to

evade