(1) Where fraud, threat, gross disparity or a party's mistake is imputable to, or is known or ought to be known by, a third person for whose acts the other party is responsible, the contract may be avoided under the same conditions as if the behaviour or knowledge had been that of the party itself.
(2) Where fraud, threat or gross disparity is imputable to a third person for whose acts the other party is not responsible, the contract may be avoided if that party knew or ought to have known of the fraud, threat or disparity, or has not at the time of avoidance reasonably acted in reliance on the contract.
This Article deals with situations, frequent in practice, in which a third person has been involved or has interfered in the negotiation process, and the ground for avoidance is in one way or another imputable to that person.
1. Third person for whom a party is responsible
Paragraph (1) is concerned with cases in which fraud, threat, gross disparity or a party’s mistake is caused by a third person for whose acts the other party is responsible, or cases in which, without causing the mistake, the third person knew or ought to have known of it. A party is responsible for the acts of a third person in a variety of situations ranging from those in which that person is an agent of the party in question to those where the third person acts for the benefit of that party on its own initiative. In all such cases it seems justified to impute to that party the third person’s acts or its knowledge, whether actual or constructive, of certain circumstances, and this irrespective of whether the party in question knew of the third person’s acts.
2. Third person for whom a party is not responsible
Paragraph (2) deals with cases where a party is defrauded, threatened or otherwise unduly influenced by a third person for whom the other party is not responsible. Such acts may be imputed to the latter party only if it knew or ought to have known of them.
There is however one exception to this rule: the defrauded, threatened or otherwise unduly influenced party is entitled to avoid the contract, even if the other party did not know of the third person’s acts, whenever the other party has not reasonably acted in reliance on the contract before the time of avoidance. This exception is justified because in this situation the other party is not in need of protection.