In an ideal world, people who enter into contracts would choose to enter the contract, and agree to its terms, because they have accurate and comprehensive information on which to base their decision. This chapter will first explain when a contract may be invalid, because one or both parties entered into the contract under some sort of misapprehension, or on the basis of misinformation. We will look at mistake (mutual mistake, unilateral mistake and common mistake) and misrepresentation. We will also briefly explain the old action ‘non est factum’ (‘not my deed’) and the remedy of rectification. Second, the chapter will explore when a contract may be invalid because of ‘unfair’ conduct by one of the parties – for example, where one party (Party A) enters an agreement because another party (Party B) subjected A to undue pressure (duress or undue influence); or because the conduct of B is so ‘unconscientious’ or the contract is able to be set aside in equity for unconscionable conduct.

Equitable intervention into contract law defies easy summary. Apart from equitable remedies to enforce contracts, such as specific performance and injunctions, or to rescind voidable contracts, equitable doctrines perform a number of distinct roles in the formation, modification and enforcement of contracts. Equity recognises more extensive grounds than the common law to set aside agreements based on defective consent. So, while contracts can be rescinded at common law for duress or fraudulent misrepresentation, in equity they can be avoided on the additional grounds of undue influence, unconscionability, non-fraudulent misrepresentation, mistake and under the rule in Yerkey v Jones (1939) 63 CLR 649. Equity can also occasionally modify or prevent contract enforcement even though the bargaining process was not defective. Terms constituting penalties (as opposed to liquidated damages clauses), forfeiture clauses and contractual restrictions on a mortgagor’s equity of redemption belong to this category and can be set aside.

Much equitable doctrine concerning contract law is now covered in contract law or property law subjects. Our coverage will therefore be brief. Equitable intervention into contract law takes one of four forms: (a) Equity enforces some promises which are unenforceable at common law. It may also modify or even prevent the enforcement of promises which would otherwise be enforceable at common law. These results are principally achieved by estoppel doctrines. (b) Equity sets aside contracts where the consent of a party to the contract has been impaired or vitiated by factors such as mistake, misrepresentation, undue influence or unconscionability. (c) Equity intervenes in some cases where the contract is substantively unfair; for example, where it contains a penalty clause or a clause authorising forfeiture of property. (d) Equity provides remedies unavailable at common law (or, in the case of rescission, available on restrictive conditions) which: • enforce contracts (for example, specific performance or injunctions); • set aside contracts where consent has been vitiated (rescission); • correct contracts where they do not reflect the mutual intention of the parties (rectification).