Capacity, Consent, Legality and Defective Contracts

Introduction and Context

A contract is enforceable only when the law recognises that the parties had the legal ability to contract, genuinely agreed to the transaction, and pursued a lawful purpose. In corporate and commercial practice, these requirements are especially important because transactions are frequently negotiated through employees, agents, directors, subsidiaries and digital systems. A signed document may therefore fail to produce its intended legal effect if the company lacked authority, a director acted beyond a constitutional restriction, consent was obtained improperly, or the transaction was illegal.

This chapter examines four connected questions:

1. Capacity: Did each party possess legal competence and, in the case of a company, was the transaction entered into with proper corporate authority?
2. Consent: Was agreement real, informed and voluntary?
3. Legality: Is the agreement consistent with legislation, public policy and regulatory requirements?
4. Remedy and classification: Is the contract valid, void, voidable or merely unenforceable, and what follows from that classification?

The discussion uses general common-law principles. Statutory rules differ among jurisdictions, particularly concerning companies, minors, electronic contracting, consumer protection, illegality and remedies. A lawyer must therefore consult the governing legislation and current case law before advising on a particular transaction.

Learning Objectives

By the end of this chapter, a learner should be able to:

• explain contractual capacity and corporate authority;
• distinguish actual authority, apparent authority and authority by ratification;
• analyse mistake, misrepresentation, fraud, duress, undue influence and unconscionability;
• distinguish illegal contracts from contracts that are merely voidable or unenforceable;
• explain the operation of public policy;
• determine when rescission is available and identify its consequences and limitations;
• advise a company on practical controls for reducing defective-contract risk.

1. Capacity and Corporate Authority

1.1 Contractual capacity

Capacity refers to the legal ability to make a binding agreement. Most adults of sound mind have full contractual capacity. Exceptions commonly include minors, persons lacking mental capacity, and persons whose authority is restricted by law or by an organisational relationship.

Capacity is distinct from a party’s commercial sophistication. A person may make a commercially poor bargain and still have capacity. Conversely, an intelligent and experienced person may lack genuine consent if the agreement was induced by fraud or duress.

1.2 Minors

Rules concerning minors vary by statute. Traditionally, contracts for necessaries—goods and services suitable to the minor’s condition in life and actual requirements—may be enforceable to the extent of a reasonable price. Beneficial contracts of service may also receive special treatment. Many other contracts are voidable at the minor’s option, subject to statutory exceptions and limits.

A company dealing with a minor should not assume that a signature creates ordinary contractual liability. The company should verify age where it matters, use statutory procedures, and avoid relying on informal assurances.

1.3 Mental incapacity and intoxication

A person may challenge a contract if, at the time of contracting, the person was unable to understand the nature and consequences of the transaction and the other party knew or ought reasonably to have known of that condition. Temporary intoxication can raise similar issues, but mere regret or unusual behaviour is insufficient. The central question is functional: could the person understand the transaction, and was the impairment apparent?

A company should adopt safeguards for vulnerable customers, including clear explanations, cooling-off procedures where appropriate, and referral mechanisms for suspected incapacity.

1.4 Companies as legal persons

A registered company is a separate legal person. It can own property, incur liabilities, sue and be sued, and enter contracts through authorised human representatives. Modern company legislation commonly gives companies broad capacity, sometimes equivalent to that of an individual. Older concepts of an ultra vires act—an act beyond the company’s objects—may now have limited effect internally, although constitutional restrictions may still create consequences for directors or officers.

Corporate capacity and corporate authority must be distinguished:

• Capacity asks whether the company can legally enter the type of transaction.
• Authority asks whether the person purporting to act for the company was empowered to bind it.

A company may have capacity to borrow money, but a particular employee may lack authority to sign a loan agreement.

1.5 Actual authority

Actual authority is authority conferred by the company. It may be:

• Express, created by the constitution, board resolution, employment contract, power of attorney or specific instruction; or
• Implied, arising from the officer’s position, customary responsibilities or necessary incidental powers.

For example, a chief financial officer may have implied authority to approve ordinary banking transactions, while a major acquisition may require board approval. Internal delegation policies are important evidence of the scope of authority.

1.6 Apparent or ostensible authority

Apparent authority protects a third party who reasonably relies on a representation that an agent has authority. The representation must generally be attributable to the company, the third party must rely on it, and the reliance must be reasonable. The agent cannot normally create apparent authority merely by asserting, without more, that authority exists.

A company may therefore be bound even where the employee breached an internal instruction, provided the external representation and reliance satisfy the legal test. The company may then have an internal claim against the employee for breach of duty or policy.

1.7 Ratification and authority by estoppel

A company may ratify an unauthorised act after learning of it. Ratification generally requires adoption of the transaction as a whole, by a person or body competent to authorise it, and within the period allowed by law. Ratification may relate back to the date of the original act, although it cannot unfairly prejudice third-party rights.

Estoppel may prevent a company from denying authority where its conduct represented that authority existed and a third party relied on that representation to its detriment. Careful management of letterheads, email signatures, public registers, delegated authorities and board minutes reduces this risk.

2. Consent and Genuine Agreement

Contract law usually requires objective agreement: the question is how the parties’ words and conduct would reasonably be understood, not what an undisclosed party privately intended. Nevertheless, certain defects undermine consent and permit avoidance or other remedies.

2.1 Mistake

A mistake is an incorrect belief about a fact, law or assumption relevant to the agreement. Not every mistake affects validity. The law distinguishes several categories.

Common mistake occurs where both parties share the same fundamental mistaken assumption. Relief is exceptional. It may be available where the mistake makes performance impossible or transforms the transaction into something radically different from what was contemplated.

Mutual mistake occurs where the parties are mistaken about different matters and therefore fail to agree on the same subject. If the terms are objectively too uncertain to identify a common bargain, no contract may arise.

Unilateral mistake occurs where one party is mistaken and the other knows, or ought in the circumstances to know, of the mistake. A contract may be denied or set aside where one party knowingly exploits an error concerning a fundamental term, such as price or identity.

A mistake about value or commercial judgment normally does not invalidate a contract. A buyer who overestimates the resale value of machinery has usually made a bad bargain, not a legally operative mistake.

2.2 Misrepresentation

A misrepresentation is a false statement of existing fact or law that induces another party to enter a contract. Silence is not ordinarily a misrepresentation, but disclosure duties may arise where a statement becomes misleading, a half-truth is given, a fiduciary relationship exists, or the contract is one requiring full disclosure.

Misrepresentation is commonly classified as:

• Fraudulent: made knowingly, without belief in its truth, or recklessly as to whether it is true;
• Negligent: made without reasonable grounds for believing it to be true, under common law or statute; and
• Innocent: made with reasonable grounds for belief and without negligence or fraud.

The claimant must generally establish a false representation, materiality, reliance and inducement. The representation need not be the only reason for contracting, but it must have played a real and substantial part. A statement of opinion may be actionable if the speaker lacks the facts or expertise implied by the opinion.

Possible remedies include rescission and damages. Statutes may give courts power to award damages instead of rescission, particularly where restoring the parties is difficult but compensation is appropriate.

2.3 Fraud

Fraud is deliberate or reckless deception. Examples include concealing a known defect, falsifying financial information, manipulating tender documents or making a statement while consciously ignoring its truth. Fraud may support rescission and damages, and contractual exclusion clauses are generally construed strictly against attempts to exclude liability for fraudulent conduct.

Corporate fraud also raises governance consequences. Directors and officers may breach fiduciary duties, disclosure obligations, securities laws, anti-bribery laws or criminal provisions. A company should preserve evidence, investigate promptly and consider reporting obligations.

2.4 Duress

Duress involves illegitimate pressure that coerces a person into contracting. Traditional physical duress has expanded to include certain forms of economic duress. Relevant factors include the nature of the threat, whether it was unlawful or illegitimate, whether the victim had a practical alternative, and whether the pressure caused entry into the contract.

A threat to do something lawful is not automatically legitimate. For example, a party may lawfully demand payment of a debt, but threatening conduct that is unconscionable or accompanied by bad-faith commercial pressure may be improper. Mere hard bargaining is not duress.

The usual effect is that the contract is voidable, not automatically void. Prompt objection and timely steps to rescind are important because continued affirmation may defeat the remedy.

2.5 Undue influence

Undue influence concerns improper influence over a person’s free will. It may be:

• Actual, where evidence shows that influence was actively applied; or
• Presumed, where a relationship of trust and confidence, together with a transaction calling for explanation, shifts the evidential burden.

Common examples include certain relationships involving fiduciaries, dependent persons, professional advisers and vulnerable clients. A transaction is not invalid merely because one party trusted another. The issue is whether the influence was improperly used to procure the agreement.

Independent advice is strong evidence of free consent, but it is not an automatic cure. The adviser must be appropriately qualified, receive adequate information and explain the nature and consequences of the transaction.

2.6 Unconscionability

Unconscionability addresses serious exploitation of a weaker party’s special disadvantage. The weaker party may suffer from poverty, ignorance, lack of education, language difficulty, illness, dependency, urgent need or lack of practical alternatives. The stronger party must have known, or reasonably should have known, of the disadvantage and taken unfair advantage of it.

Unconscionability differs from ordinary inequality of bargaining power. Commercial parties are not required to make equal bargains. Courts generally intervene only when disadvantage and exploitation are sufficiently serious, assessed in context and under applicable legislation.

Consumer-protection statutes may extend these principles by prohibiting unfair terms, misleading conduct, excessive charges or unfair commercial practices, even where traditional equitable requirements are not fully established.

3. Legality and Public Policy

3.1 Illegality

A contract is illegal where its formation, performance or purpose contravenes legislation, criminal law or a recognised public policy. Examples may include agreements to bribe an official, evade taxation through sham arrangements, sell prohibited goods, restrain trade unlawfully, or conceal regulatory breaches.

Illegality may affect a contract in different ways. The agreement may be void from the beginning; a party may be denied enforcement; a statutory penalty may apply without invalidating the entire contract; or the court may grant limited relief depending on the legislation and the seriousness of the misconduct.

The modern approach in many common-law jurisdictions considers the purpose of the relevant prohibition, the consequences of denying relief, the need to preserve legal coherence, and proportionality. The result cannot be predicted solely from the label “illegal.” The governing statute is the starting point.

3.2 Public policy

Public policy expresses fundamental legal and social interests. Courts use it cautiously because excessive intervention creates uncertainty. Traditional categories include contracts involving crime, corruption, fraud on the public, interference with justice, serious restraint of trade, sexual immorality in certain contexts, and transactions harmful to public administration.

Public policy can evolve. Modern concerns include human trafficking, exploitative employment practices, bribery, sanctions evasion, money laundering, data misuse and agreements that undermine statutory protections. At the same time, courts generally respect freedom of contract and will not invalidate a bargain merely because it appears unwise or morally questionable to one judge.

3.3 Restraint of trade

A clause restricting a person or business from competing may be valid if it protects a legitimate interest and is reasonable in scope, geography and duration. Restrictions that go further than necessary may be unenforceable. Employment restraints, sale-of-business restraints and distribution restrictions are assessed in their commercial context.

Drafting should identify the protected interest—such as confidential information or goodwill—and use the narrowest effective restriction. Severance may sometimes save a reasonable part of a clause, but courts do not generally rewrite an excessive provision.

3.4 Regulatory compliance and corporate transactions

Commercial legality may involve company law, licensing, competition law, financial services regulation, consumer law, employment law, sanctions, anti-bribery rules, privacy law and taxation. A transaction can be commercially documented yet legally defective because an approval, licence or disclosure requirement was ignored.

Board members should ask whether the company has power and authority, whether conflicts have been disclosed, whether required approvals were obtained, and whether the transaction exposes the company to regulatory or reputational risk.

4. Classification of Defective Agreements

The labels below describe different legal consequences. Their precise meaning may vary by jurisdiction.

A void contract is not the same as a voidable contract. In a voidable transaction, title or obligations may operate until avoidance. This distinction matters to third-party rights, accounting treatment, restitution and limitation periods.

An unenforceable agreement may arise where a statute requires writing, signature or formalities. The agreement is not necessarily void; the difficulty is proving or enforcing it in the required form. Electronic signatures and digital records may satisfy formal requirements where legislation recognises them.

5. Rescission and Its Consequences

Rescission is an equitable or statutory remedy that sets aside a voidable contract and seeks to restore the parties to their pre-contract positions. It is commonly associated with misrepresentation, fraud, duress, undue influence and certain forms of mistake.

5.1 Requirements and bars

The claimant should act promptly after discovering the defect and communicate an election to rescind. The claimant must generally be able to return what was received, although courts may apply flexible rules where exact restoration is impossible, especially in cases of fraud.

Rescission may be barred by:

• affirmation, meaning an informed decision to continue with the contract;
• undue delay;
• impossibility of substantial restoration;
• intervention of innocent third-party rights; or
• statutory limits.

Affirmation requires knowledge, or sometimes sufficient notice, of the relevant defect and conduct treating the contract as binding. Accepting benefits with knowledge may amount to affirmation, but the facts are decisive.

5.2 Restitution and accounting

On rescission, each party normally returns money, property or benefits received. If goods have been consumed, sold or transformed, an accounting or monetary allowance may be required. A party may also claim damages where fraud, negligence or statute supports them.

Rescission does not necessarily erase every consequence. Third-party purchasers, secured creditors, insolvency proceedings and statutory rights may complicate restoration. Lawyers should identify transfers, registrations, security interests and benefits before advising that rescission is straightforward.

6. A Practical Decision Framework

A structured investigation improves advice:

1. Identify the parties: individuals, companies, partnerships, agents and beneficiaries.
2. Confirm capacity: age, mental competence, corporate status and statutory restrictions.
3. Map authority: constitution, board approvals, delegations, powers of attorney and apparent authority.
4. Identify the bargain: essential terms, subject matter, price, conditions and formalities.
5. Test consent: mistake, misrepresentation, fraud, duress, undue influence and vulnerability.
6. Test legality: statute, licensing, regulatory approvals, public policy, sanctions and competition rules.
7. Classify the defect: valid, void, voidable, unenforceable or illegal.
8. Select the remedy: rescission, damages, declaration, injunction, restitution, rectification or statutory relief.
9. Check bars and timing: affirmation, delay, limitation, third-party rights and restoration.
10. Preserve evidence: communications, approvals, due diligence, financial records and digital audit trails.

This framework is not a substitute for jurisdiction-specific legal analysis, but it prevents the common error of treating every defective agreement as simply “invalid.”

Applied Case: Northstar Components Ltd

Background

Northstar Components Ltd, a manufacturer, appointed its procurement manager, Elena, to purchase ordinary production materials up to a stated internal limit. Without obtaining board approval, Elena signed a five-year exclusive supply agreement with Apex Metals. The agreement included a large minimum-purchase obligation and a restriction preventing Northstar from buying a key alloy from competitors.

Before signing, Apex’s sales director told Elena that Apex had an exclusive source of the alloy and that prices would rise sharply within a week. Apex knew that another supplier could provide the alloy at a lower price and that no immediate shortage existed. Elena, facing pressure to avoid a production delay, signed after Apex threatened to withdraw a temporary credit arrangement unless she accepted the agreement that day.

Problem

Northstar later discovers that the agreement exceeds Elena’s internal authority, was induced by misleading statements and pressure, and may contain an unreasonable restraint of trade. It asks whether it is bound and whether it can unwind the transaction.

Analysis

Northstar may have actual internal limits on Elena’s authority, but Apex may argue apparent authority based on her position, prior dealings and the company’s conduct. If Northstar represented that Elena could negotiate and sign procurement contracts, or failed to communicate a known limitation, the company may be bound externally despite an internal breach. The precise result depends on the representation and Apex’s reasonable reliance.

The statements about exclusive supply and imminent price increases are factual representations. If false and material, and if they induced the agreement, Northstar may claim misrepresentation. If Apex knew they were false or was reckless, the claim may be fraudulent. Evidence of emails, market information and internal sales instructions would be important.

The threat to withdraw credit is not automatically duress. The court would assess whether the pressure was illegitimate, whether Northstar had a practical alternative, whether the threat caused the agreement, and whether Northstar promptly objected. A serious production emergency may support the argument that Northstar lacked a realistic alternative, but commercial urgency alone does not establish duress.

The exclusivity clause must be examined for legitimate interests and reasonableness. A five-year restriction preventing all competing purchases may be excessive, particularly if it is unrelated to protection of goodwill, confidential information or a genuine investment by Apex.

Approach and likely outcome

Northstar should immediately reserve its rights, avoid conduct affirming the agreement, gather evidence, assess alternative supply, and obtain advice on seeking a declaration or injunction. It should investigate whether statutory unfair-contract or competition provisions apply. It should also review Elena’s conduct internally, without assuming that an internal policy automatically defeats Apex’s external claim.

The likely outcome cannot be stated conclusively without the governing jurisdiction and evidence. Northstar may have grounds for rescission based on misrepresentation or duress, while Apex may rely on apparent authority and argue that Northstar affirmed the contract by continuing to order goods. The restraint may be severable or unenforceable even if other terms survive.

Learning points

• Internal authority limits should be communicated where third-party reliance is foreseeable.
• Procurement controls must match the commercial value and duration of contracts.
• Misrepresentation analysis focuses on factual falsity, materiality and inducement.
• Economic pressure must be illegitimate, causative and sufficiently coercive.
• Prompt action is essential when rescission is being considered.

7. Governance, Ethics and Best Practice

Corporate compliance should treat contract defects as governance risks, not merely litigation issues. Effective controls include a delegation-of-authority matrix, approval thresholds, conflict registers, dual signatures for high-risk transactions, supplier due diligence, standard representations, audit trails and regular training.

Ethically, a company should not exploit vulnerability merely because a transaction may technically be enforceable. Fair dealing supports long-term commercial trust and reduces regulatory exposure. Directors should consider whether a transaction is lawful, informed, properly approved and consistent with the company’s interests.

Technology can assist through automated approval workflows, electronic signature controls, contract repositories and anomaly detection. However, artificial intelligence does not replace legal judgment. An AI system may fail to identify a hidden misrepresentation, a jurisdiction-specific statutory requirement or a conflict of interest. Human review, access controls, confidentiality protections and verification of generated legal analysis remain essential.

Challenges and Limitations

Defective-contract disputes are fact-sensitive. Witness credibility, commercial context, timing and documentary evidence may determine the result. Legal classifications also vary across jurisdictions: a defect described as “void” in one statute may produce a different remedy elsewhere. Courts may distinguish between the validity of a contract, enforceability of a particular term and liability for misconduct. Finally, rescission can be difficult after goods have been consumed, assets transferred or insolvency intervenes.

Accordingly, professional advice should avoid absolute conclusions until the governing law, contract wording, authority documents, communications, performance history and third-party effects have been examined.

Chapter Summary

Contractual validity depends on more than offer, acceptance and consideration. Parties must possess capacity, representatives must have authority, consent must be genuine, and the transaction must comply with law and public policy. Corporate capacity concerns what the company can do; authority concerns whether the individual representative can bind it. Actual authority arises from corporate authorisation, while apparent authority may bind a company through reasonable reliance on its representations.

Mistake, misrepresentation, fraud, duress, undue influence and unconscionability can undermine consent. Some defects make an agreement void; others make it voidable and capable of rescission. Unenforceability commonly concerns formal or evidential requirements, while illegality depends on the relevant prohibition and public policy. Rescission normally requires prompt action and substantial restoration, and may be barred by affirmation, delay, third-party rights or inability to restore.

For corporate practitioners, the central lesson is practical: verify authority, document approvals, test representations, identify vulnerability and regulatory risks, preserve evidence, and act quickly when a defect is discovered.

Key Terms

Capacity: Legal ability to enter a binding contract.

Corporate authority: Power of a representative to bind a company.

Actual authority: Authority expressly or impliedly granted by the company.

Apparent authority: Authority arising from a company’s representation and a third party’s reasonable reliance.

Ratification: Later adoption of an unauthorised act by the competent principal.

Mistake: An incorrect belief affecting a contractual assumption or term.

Common mistake: A shared mistaken assumption by both parties.

Misrepresentation: A false statement that induces entry into a contract.

Fraudulent misrepresentation: A knowingly or recklessly false representation.

Duress: Illegitimate pressure that coerces contractual agreement.

Economic duress: Improper commercial pressure causing a party to contract.

Undue influence: Improper influence that overcomes a person’s free will.

Unconscionability: Exploitation of a serious special disadvantage.

Illegality: Conflict between a transaction and law or public policy.

Void agreement: An agreement treated as having no legal effect.

Voidable contract: An operative contract that a protected party may avoid.

Unenforceable agreement: An agreement that cannot be enforced because of a procedural or formal defect.

Rescission: Setting aside a voidable contract and seeking restoration.

Affirmation: Conduct showing an informed decision to continue with a contract.

Restitution: Returning benefits received under a transaction.

Review Questions

Short Answer Questions

1. Distinguish corporate capacity from corporate authority.
2. What is the difference between actual authority and apparent authority?
3. Identify the principal elements of actionable misrepresentation.
4. Why is a voidable contract different from a void contract?
5. State two circumstances that may bar rescission.

Long Answer Questions

1. Explain the legal treatment of mistake, including common, mutual and unilateral mistake.
2. Discuss duress, undue influence and unconscionability, highlighting their similarities and differences.
3. Explain how a company may become bound by an employee’s unauthorised act.
4. Analyse the role of illegality and public policy in commercial contracts.
5. Describe rescission, including its requirements, consequences and limitations.

Analytical / Application Questions

1. A sales manager signs a ten-year exclusive distribution agreement without board approval. The company’s website describes the manager as authorised to negotiate all distribution contracts. Analyse whether the company is bound and identify relevant evidence.
2. A supplier falsely claims that its product is legally certified and threatens to cancel essential deliveries unless the buyer signs immediately. Advise the buyer on misrepresentation, fraud, duress and possible remedies.
3. A company discovers that a director used a vulnerable relative’s dependence to secure a guarantee for a corporate loan. Analyse capacity, undue influence, unconscionability, rescission and the position of the lender.

Multiple Choice Questions with Answers

Question 1

Which statement best distinguishes corporate capacity from corporate authority?

A. Capacity concerns whether the company can enter the transaction; authority concerns whether the representative can bind it.

B. Capacity concerns whether a contract was signed; authority concerns whether consideration exists.

C. Capacity applies only to individuals; authority applies only to courts.

D. Capacity and authority are identical concepts.

Correct Answer: A. Capacity concerns whether the company can enter the transaction; authority concerns whether the representative can bind it.

Question 2

Apparent authority most directly depends on which combination?

A. A private instruction unknown to the third party and a signed document

B. A company representation, reasonable reliance and resulting legal prejudice or commitment

C. The employee’s personal belief that authority exists

D. A transaction being commercially profitable

Correct Answer: B. A company representation, reasonable reliance and resulting legal prejudice or commitment

Question 3

Which is generally required for actionable misrepresentation?

A. A false statement that materially induced the contract

B. Any statement made during negotiations, whether true or false

C. Proof that the claimant made a better bargain

D. A written statement in every case

Correct Answer: A. A false statement that materially induced the contract

Question 4

What is the usual legal effect of duress?

A. The contract is always automatically void.

B. The contract is generally voidable by the coerced party.

C. The contract becomes criminal in every case.

D. The contract is automatically affirmed.

Correct Answer: B. The contract is generally voidable by the coerced party.

Question 5

Which classification describes a contract that operates unless and until the protected party avoids it?

A. Void

B. Voidable

C. Unenforceable only

D. Non-existent offer

Correct Answer: B. Voidable

Question 6

Which circumstance may bar rescission?

A. Prompt objection after discovering the defect

B. An ability to return all benefits immediately

C. Affirmation after full knowledge of the defect

D. A material fraudulent statement

Correct Answer: C. Affirmation after full knowledge of the defect

Question 7

A statement made knowingly false, or recklessly without caring whether it is true, is most likely what?

A. An innocent representation

B. A fraudulent misrepresentation

C. A common mistake

D. An implied term

Correct Answer: B. A fraudulent misrepresentation

Question 8

What is the central concern in unconscionability?

A. Whether the contract contains any commercial risk

B. Whether a stronger party exploited a serious special disadvantage

C. Whether the parties are competitors

D. Whether the agreement was typed rather than handwritten

Correct Answer: B. Whether a stronger party exploited a serious special disadvantage

Question 9

Which statement about illegality is most accurate?

A. Every illegal contract has exactly the same consequence.

B. Illegality may affect enforcement and remedies, depending on the relevant law and public policy.

C. Illegality is irrelevant if the contract was signed.

D. Only criminal contracts can be illegal.

Correct Answer: B. Illegality may affect enforcement and remedies, depending on the relevant law and public policy.

Question 10

What is the principal purpose of restitution following rescission?

A. To punish every breach with a fine

B. To return parties, as far as possible, to their pre-contract positions

C. To rewrite the contract at market price

D. To transfer all company assets to the claimant

Correct Answer: B. To return parties, as far as possible, to their pre-contract positions