THE
ANALYSIS OF THE LAW ON VITIATING FACTORS.
KAMARABE
JOHN
STUDENT
UGANDA
CHRISTIAN UNIVERSITY LAW SCHOOL
TABLE
OF CONTENTS
Introduction
Mistake
Misrepresentation
Undue
influence
Frustration
Duress
Conclusion
Introduction
A
vitiating factor is a condition that will render an otherwise valid contract
invalid.
Mistake.
A
mistake is an erroneous belief of fact by the parties to a contract concerning a
matter of a contract very essential to a contract. A mistake will operate to
either nullify consent or negative consent. A mistake operating to negative
consent is an erroneous belief by the parties to a contract concerning a matter
very essential to a contract, which will operate to prevent the parties from
reaching an agreement.
A
mistake operating to nullify consent is an erroneous belief by the parties to a
contract concerning a matter very essential to a contract in which parties
reach an agreement but under a fundamentally mistaken assumption.
Types
of mistake
Common
mistake.
This
is a form of mistake where both parties to a contract are under the same erroneous
belief concerning a matter very essential to the contract. This form of mistake
is one which will operate to nullify consent. For example; mistake as to
existence of the subject matter, mistake as to identity of the subject matter,
mistake as to quality of the subject matter, mistake as to the possibility of
performing the contract, mistake as to quantity.
Mistake
as to the existence of the subject matter.
This
is an erroneous belief by both parties to the contract concerning the existence
of the subject matter. In this form of mistake, both parties to the contract
have an erroneous belief that the subject matter of the contract exists yet it
actually does not exist. To this end, their consent is nullified. For example,
where parties contract to sell a good, and without the fault of any party to
the contract, the goods had already perished. See section 7 Sale of Goods Act
Cap 87, Couturier v Hastie [1852] 8 Exch.40 In this case, there existed a
contract to sell corn f.o.b., before the time of sale, unknown to the parties
the cargo had become overheated and sold out. Court held that the contract was
void.
Mistake
as to the identity of the subject matter.
This
is an erroneous belief by both parties to the contract concerning the identity
of the subject matter they are contracting for. In this form of mistake, both
parties think they are dealing with one thing yet actually they are dealing
with another thing. This will nullify consent. So, mistake as to identity of
the subject matter will nullify consent where the parties are under an
erroneous belief in which they both think they are dealing with one item yet
infact they are dealing with another item.
Mistake
as to possibility of performing a contract.
This
is a an erroneous belief by both parties to a contract in which they both
believe that the contract is capable of being performed yet infact that is not
the case. forexample;
·
Physical impossibility.
·
Legal impossibility
·
Commercial impossibility
Unilateral
mistake;
This
is an erroneous belief by only one party to the agreement concerning the
subject matter or a term very essential to the contract. In my opinion, it
would appear that this type of mistake is that of Section 17(2) of the Contracts Act, 2010 that provides, “A contract is void where one of the parties
to it operates under a mistake as to a matter of fact essential to the contract.”
In this type of mistake, it is only one party to the contract that is under a
mistake as to the subject matter of the contract. For example a mistake as to
identity of the contracting party. In Lewis
V Averay [1971] 3 All E.R. It was held that the fact that a party is
mistaken as to the identity of the other party to the contract does not render
the contract void but it becomes voidable at the option of the mistaken party
provides there exists no third parties that have taken up rights over such
contracts. In that case, Lord Denning had this to say,
In Ingram v Little the majority of the
court suggested that the difference between Phillips v Brooks and Ingram
v Little was that in Phillips v
Brooks the contract of sale was concluded (so as to pass the property to
the rogue) before the rogue made the fraudulent misrepresentation (See [1960] 3
All ER at 337, 343, [1961] 1 QB at 51, 60), whereas in Ingram v Little the rogue made the fraudulent misrepresentation
before the contract was concluded. My own view is that in each case the
property in the goods dwid not pass until the seller let the rogue have the
goods. Again, it has been suggested that a mistake as to the identity of a
person is one thing; and a mistake as to his attributes is another. A mistake
as to identity, it is said, avoids a contract; whereas a mistake as to
attributes does not. But this is a distinction without a difference. A man’s
very name is one of his attributes. It is also a key to his identity. If then,
he gives a false name, is it a mistake as to his identity? or a mistake as to
his attributes? These fine distinctions do no good to the law. As I listened to
the argument in this case, I felt it wrong that an innocent purchaser (who knew
nothing of what passed between the seller and the rogue) should have his title
depend on such refinements. After all, he has acted with complete
circumspection and in entire good faith; whereas it was the seller who let the
rogue have the goods and thus enabled him to commit the fraud. I do not,
therefore, accept the theory that a mistake as to identity renders a contract
void. I think the true principle is that which underlies the decision of this
court in King’s Norton Metal Co Ltd v
Eldridge, Merrett & Co Ltd and of Horridge J in Phillips v Brooks Ltd, which has
stood for these last 50 years. It is this: when
two parties have come to a contract—or rather what appears, on the face of it,
to be a contract—the fact that one party is mistaken as to the identity of the
other does not mean that there is no contract, or that the contract is a
nullity and void from the beginning. It only means that the contract is
voidable, that is, liable to be set aside at the instance of the mistaken
person, so long as he does so before third parties have in good faith acquired
rights under it
It
therefore follows that the principle in the case of Lewis V Averay is, when parties come in to a contract, the mere
fact that one party to a contract is mistaken as to the identity of the other
party, the contract in not void but becomes voidable at the option of the party
mistaken provided he does that before third parties have in good faith acquired
rights under the contract.
Whether
or not this principle can be reconciled with Uganda is a question of dispute
that I would appeal to you that you ask your lecturers. This is because, the
principle states that a mistake as to identity renders the contract voidable
but not void. However, Section 17 of the
Contracts Act states that a mistake of any fact essential to the contract
renders the contract void and not voidable. In my opinion, if the identity of
the contracting party was essential to the contract, then the contract is void
and not voidable . if follows, in my opinion, that the principle in Averay case
is absolutely wrong.
A
mutual mistake
This
is an erroneous belief by both parties to a contract concerning a subject
matter of the contract in which both parties are at cross purpose with each
other. This is a type of mistake in which both parties to a contract are at
cross-purpose with each other concerning a matter material to the contract.
Mistake
as to quality of thing contracted for.
A
mistake as to quality of the thing contracted for will invalid a contract only
if the quality of the goods contracted for formed part of the contractual
description of the goods. If the quality of the thing contracted for did not
form the contractual description of the thing contracted for, there will be no
mistake and the contract will not be set aside only on that ground. In Bell V Lever Brothers [1931] ALL E.R. 1 it
was held;
“A mistake to quality of
a thing contracted for will not affect the assent of the party unless it is a
mistake on both the parties to the contract and is a mistake as to the
existence of the quality which makes the thing without the quality essentially
different from the thing as it is believed to be”.
Ingredients
necessary to establish a mistake
·
The mistake must be of a matter of fact.
The courts will not render a mistake as to expectation as a mistake of fact,
the mistake must be as to existing facts as to the date the contract was formed
and not as to future expectations. See Amalgamated
Investment & Property Co. V. John Walker [1977] 1 W.L.R. 164
·
The matter of fact must be essential to
the agreement.
·
The mistake must induce the party
mistaken to enter in to the contract, this means that the mistaken party must
have relied on the mistake to enter into the contract.
·
The mistake must be operative. This
means that the mistake must be serious enough to render the contract void.
THE
DOCTRINE OF NON-EST FACTUM
This
doctrine simple means, “Not my deed”
meaning that the person disputes the fact that he signed the document alleged
that he signed. The general rule is that except where there is a
misrepresentation, mistake or fraud, etc, a person who signed a document must
be bound by it and must not be heard saying that he did not sign it.
Requirements
There
pleader of non est fuctum must show
he signed the document by mistake
The
mistake was a serious mistake as to the contents of the document, if the person
pleads non est factum over a matter which is not serious, the plea fail. For example,
you cannot raise a plea over a document you intended to operate as something
but it later operates through something else but it achieves the aim you wanted
it to achieve. See Gallie V Lee [1969] Ch.1 the
mistake forming non es fuctum must be
sufficiently serious.
It
was induced by the other party. If the mistake was induced by the plaintiff’s
own negligence, then the plea will not succeed. For example, where the
plaintiff does not understand the language of the document but does not labor
to have the document translated to him. See Kakande V Nsimbi [1984] H.C.B.37
MISREPRESENTATION
a
misrepresentation is an untrue statement of material fact made by a party to a
contract at the time or before entering into a contract to another party to a
contract with intention that it induces that other party to enter into a
contract.
The effect of a misrepresentation
to a contract.
·
The general rule is that a
misrepresentation makes a contract voidable at the option of the representee
and not void. The contract is voidable and not void.
·
The contract is voidable at the option
of the party misrepresented
·
The party misrepresented may if it
thinks fit insist that the contract is performed and put back to the position
it would be in if it had not been misrepresented
Section 16 Contracts Act, 2010 Laws
of Uganda
The difference between the effect
of a mistake to a contract and misrepresentation.
A
mistake renders a contract void while a misrepresentation makes a contract
voidable and not void.
Where
a mistake has affected a contract, and a third party has gained rights from
that contract, the party under the mistake can regain his goods from the third
party because property did not pass to the third party. However, when a third
innocent third party acquires goods under a contract voidable for
misrepresentation, property passes to him and the other party cannot regain his
property from such a contract.
For
a misrepresentation to suffice, the following must be proved,
·
There must have been made an untrue
statement of fact and not of opinion
·
The untrue statement must be of a
material fact to the contract
·
The untrue statement must have been made
by the defendant with the intention to induce the plaintiff to enter into the
contract
·
The plaintiff must have been induced to
enter into the contract by the untrue statement by relying on it
·
The plaintiff must have suffered damages
as a result of an untrue statement.
The
conduct of the defendant may also amount to a misrepresentation. silence does
not amount to a misrepresentation. Examples of misrepresentations include, a
seller of a ship takes the ship into the water to conceal its rotten hull, the
seller of a gun inserts a plug to conceal a weak spot in the gun’s workmanship,
and the conduct must be of a positive act to amount to a misrepresentation.
This simply means that the defendant must do an act to amount to a
misrepresentation. Mere silence does not amount to a misrepresentation. See Keates V Lord Cadogan (1851) 10 C.B.
There must be some positive statement, or some conduct from which a statement
can be implied, or in order to amount to a misrepresentation. With regard to
conduct, a nod or a wink or a shake of the head or a smile may suffice. See Walters V Morgan (1861)3 De GF J 718, R V
Charles [1977] AC 177 as may a photograph. See Atlantic Estates Plc v Ezekiel [1991] 2 EGLR 202. It has been held
that the participation b the spice girls in the making a commercial to be shown
in the future constituted a misrepresentation by conduct that none of the group
had an existing intention to leave the group before it was shown.
Negligent Misrepresentation
This
is an untrue statement of fact made by a party to a contract carelessly or
recklessly in breach of a duty of care owed by the party to another with
intention to induce the party to enter into the contract.
·
There must be an untrue statement of
fact
·
The statement must have been made by the
defendant intending to induce the other party to enter into the contract
·
There must be a duty of care of care
owed by the defendant to the plaintiff by taking up a responsibility which is
breached
·
The statement must have been made
recklessly or negligently by the defendant without care whether it is true or
not
·
The statement must have induced the
contract
·
Damage as result of the reliance on the
statement
Hedley Byrne & Co.Ltd V Heller
& Partners Ltd [1963] 2 All E.R. 575
It
was held that:
“there
need not be a contract subsisting between parties for there to be a breach of
duty of care giving rise to negligent misrepresentation. That as long as a
party has taken up a responsibility towards another, then a duty to take care
arises”
Fraudulent Misrepresentation
This
is a false statement of material fact made by a party to a contract knowing of
its falsity, without believe of its truth, reckless not caring whether it is
true or false with intention of inducing the other party to enter into a
contract.
·
There must be a false statement of fact
made by the defendant
·
The defendant must be aware of its
falsity or without believe that its true,
·
The defendant must have made it with
intention of inducing the other party to enter into contract
·
The plaintiff must have been induced to
enter into the contract by the statement by relying on it
·
Damage as result from the false
statement
Derry v Peek (1889) 14 App. Cas.685
To
maintain an action of fraudulent misrepresentation, it must be proved that
there was a false statement made by the defendant who was aware of its falsity.
To
support an action of deceit, fraud must be proved and that nothing less than
fraud will do. Fraud can be proved by showing that a false statement was made
by a person who had knowledge of its falsity with intention to induce another
to enter into the contract.
Accordingly,
see Section 15 of the Contracts Act, 2010 Laws of Uganda
Innocent Misrepresentation
This
is an untrue statement of material fact made by a party to a contract without
fault on his party reasonably believing it to be true intending to induce the
other party to enter into the contract.
Remedies for misrepresentation
Rescission.
This is the setting aside of a contract to restore the state of things as they
were before the contract was entered into. When a party rescinds for
misrepresentation for breach, the party can set aside the contract and claim
damages for breach, but where the party only rescinds the contract on
misrepresentation, the party only sets aside the contract and cannot claim
damages.
When misrepresentation can be
raised as a defence.
Misrepresentation
can be raised as a defence for an action of specific performance. When a party
is sued under specific performance, he can plead misrepresentation in order to
rescind the contract and avoid performing it.
Loss of rights to rescind.
Lapse
of time, affirmation, benefit to the representee only if the representor was
put to an expense in conferring a right to the representee, third party rights,
Partial
Non-disclosure and active concealment.
The
general rule is that there is no duty on the contracting party to disclose
material facts known to him and not to the other party. To this end, a landlord
is not liable under deceit from failing to inform a tenant before leasing the
house to him that it is in bad condition. However, if a party lies, this
amounts to a misrepresentation. The doctrine is that of caveat emptor.
Caveat emptor.
This
is a principle under contract law that a party to a contract must be aware of
some information material to the contract necessary so as to avoid making a bad
bargain. In Smith V Hughes (1871) it
was stated. “There is no legal obligation
in a vendor to inform the purchaser that the other is under a mistake if the
vendor did not induce the mistake”
Latent
defect.
A
latent defect is a fault in a property that would not be easily visible at the
time of contract without thorough inspection. The general rule is that there is
no duty upon the vendor to disclose latent defects. There is no general duty to
disclose latent defects known by the seller.
A
partial non-disclosure may constitute a misrepresentation. Suppression of
material facts can render that which is stated false as where the seller of
land told the buyer that the land had recently been occupied at a particular
rent (which was true) but omitted to inform him that more recently he failed to
find a new tenant except at a lower rent, which therefore gave a wrong
impression that the land still had the higher value. See Dimmock v Hallet (1866) LR 2 Ch. App 21
Exceptions
to caveat emptor.
Where
there exists events that have falsified previous statements made by the party
before the contract is concluded.
Where
there exists a custom not known by the other party but known by the party to
which the contract is subject to.
Where
the contract is that of uberimmae fidei.
This is a contract of at most good faith. There is a duty to disclose in
contracts where the party is in stronger position to know the material facts
and the other is in weak position. E.g. Insurance contracts.
Statements
literally true but misleading.
UNDUE
INFLUENCE AND DURESS
DURESS
Duress
is an illegitimate form of pressure, violence or threat by one party to a
contract to the other party made with an intention of inducing the other party
to enter into a contract. Distress[duress] is the coercion of the will of one
party to the contract by another party to the contract so as to vitiate consent
of the coerced party. See Pao On v Lau
Yiu Long [1979] 3 All ER 65 Section 13 Of The
Contracts Act provides, consent of parties to a contract is taken to be
free where it is not caused by coercion.
Ingredients of Duress:
·
There must be threats whether actual or
not, violence.
·
The threats must be unlawful
·
There must have been no reasonable
alternatives for the coerced party to avoid the threats. For example, if the
party had an alternative to sue on the threats, he cannot plead duress. See Hennesy
V Craigmyle [1986] 1 C.R.461.
·
They must have been made by the other
party to the contract with intention to induce the coerced party into the
contract
·
The coerced party must have relied on
the threats to enter into the contract.
UNDUE INFLUENCE.
This
is the improper use of power by a person in a way that deprives of another’s
free will and substitutes it with the other’s objective.
This is the unfair use of position by a party to a contract who stands in a
dominant position over the other party to dominate the will of that other party
and infact dominates the will of that other party to his advantage.
Types
of undue influence;
·
Actual undue influence
·
Presumed undue influence.
Actual undue influence: This is the type of undue influence where one
party who is in a dominant position to dominate the will of the other party
directly uses that position by directly putting pressure on the other party to
obtain an unfair advantage.
Ingredients of actual
undue influence
·
The party must show the existence an
influence.
·
The exercise of that influence by the
other party unfairly.
·
The
contract was entered into by the influence.
·
That the contract was to his
disadvantage.
See:
Bank
of Credit & Commerce International S.A. V. Aboody [1990] 1 Q.B.923
Presumed undue influence:
This is the type of undue influence where a party in a pre existing
relationship with another party in which court can infer would dominate the
will of the other party and infact dominates the will of the other party to its
disadvantage. In this category of undue influence, because of a pre existing
relationship between the parties to a contract, court would infer that the
other party in a dominant position to the other would use that position to
dominate the will of the other party and infact used that position to dominate
the will of the weaker party to its disadvantage. If the agreement on the face
of it appears to court to be unconscionable [an agreement, which no promisor without any delusions would make, or no
honest and fair promisee would accept], the burden will shift to the party
in the dominant position to show that it did not dominate the will of the
weaker party.
Ingredients for presumed undue
influence
Where
a party to an agreement raises undue influence, and of the face of the
agreement or the evidence available it appears to court that the agreement is
unconscionable, the burden of proof is the party that is presumed to be in a
dominant position to show it did not dominate the will of the other party.
The
ingredients are,
·
There exists a pre existing relationship
between the parties in which court can infer undue influence
·
The defendant was in a dominant position
to dominate the will of the plaintiff who was in a weaker position
·
The defendant dominated the will of the
plaintiff to its disadvantage. Whether the contract was disadvantageous will be
determined by looking at the contract itself and weighing the advantages with
the disadvantages of the contract. If court determines that the contract’s
advantages are more for the other party and the disadvantages to the opposite
party, then it will be disadvantageous.
·
The contract was entered into as a
consequence of the undue influence.
The
burden on the plaintiff is to show that there existed a necessary relationship and ounce that
burden is established, the defendant must rebut the presumption on undue
influence by showing that the plaintiff entered the contract in the free exercise of his independent
will.eg, showing that the plaintiff had independent advice from a competent
adviser basing on the facts relevant to the case.
See:
National
Westminster Bank Plc V Morgan [1985] A.C. 686
Relationships in which courts will
presume undue influence.
Undue
influence may be presumed where there is a pre-existing relationship of
confidence between the two parties to a contract, as a result of which one
places trust in the other, and the contract between them is manifestly
disadvantageous to the party who places trust in the other. Such a relationship
of trust is called a fiduciary relationship, and it may arise in two ways.
First, it may fall into one of several categories in which a relationship of
trust is automatically presumed to exist. These categories are:
● Parent and child;
● Religious adviser and
disciple;
● Guardian and ward;
● Solicitor and client;
● Trustee and
beneficiary; and
● Doctor and
patient.
Unconscionable
bargains.
See
Lloyds
Bank v Bundy [1974] 3 ALL E.R. 757
The
contract can be set aside on grounds of being an unconscionable bargain. This
is because the shopkeeper unconscionably obtained an advantage from the poor
old woman by charging her a gross valued consideration. He was in a stronger
position to dominate the will of the poor woman and infact dominated her will
by charging her a gross valued consideration.
EXAMPLES
·
catching bargains.
These
are contracts between two or more parties where one of the parties is under an
anticipation of an expectation. For example, an expectant heir.
·
Dealing with poor and elderly persons.
Equity
will set aside a contract where an unfair advantage has been obtained from a
poor, old, ignorant person, weak-minded etc. if the poor did not have
independent advice
The
principle in Alkard v Skinner by lord lindley.
The
principle of undue influence is to save people from being victimized by other
people. That courts of equity have never set aside a gift on grounds of
imprudence or lack of foresight by the donors.
ILLEGALITY:
PRINCIPLES.
Pari Delicto;
This simply means that courts will not enforce a claim by one party as against
another if both parties to the claim are at fault.
in aequali jure (melior est conditio possidentis). This simply means that courts will not enforce
a claim by one party as against the other party if neither party to the claim
is at fault.
Nemo auditur propriam turpitudinem allegans. This means that no party can be heard who
invokes his own guilt.
Pari
causa turpitudinis cessat repetitio. Where both parties are guilty, no one can recover.
A severance clause; This is a statement in the
contract which states that where there is an offending statement in the
contract which would otherwise hold the contract illegal, the offending
statement should be removed from the contract so long as the removal of the
offending statement does not impair the validity of the contract. This is also
known as the Pencil Rule
Solus
agreement. This is an agreement by a party to bind itself to buying its
supplies from only one specified party.
Public
interest. This is the general welfare of the public that warrants recognition
and protection
Public
Interest exception. This is the principle that courts may never the less hear
and determine a moot case although such decisions are generally prohibited.
A
contract to restrain business competition is unenforceable however if the
contract is to restrain an employee from using his employers’ confidential
information is enforceable as long as the restrain is limited to that purpose.
Distinction between a void contract
and an illegal contract
A
void contract is one which a statute sets out formalities required for its
validity but does not set out a penalty for non-compliance while an illegal
contract is one in which the statute sets out the formalities required for its
validity and sets out the penalty for non compliance.
Examples
of void contracts.
·
Employment agreements that that preclude
the application of the Employment Act
·
Agreements entered into by mistake
·
Agreements in restraint of trade unless
the restraint is reasonable in respect of protecting the interest of the
parties concerned and the public interest,
·
Agreements to do impossible acts
·
Contracts restricting personal liberty
·
Wagers. This is a promise to pay money
or any consideration on the occurrence of uncertain event.
Examples
of illegal contracts
·
Suicide pacts
·
Sale of noxious drugs
·
Sale of adulterated drugs
·
Sale of tobacco to persons below 21
years
Examples
of voidable contracts
·
Contracts entered into by
misrepresentation
·
Contracts entered into by fraud,
coercion, undue influence.
Effects of an illegal contract to
third parties
The
third party can recover property transferred under an illegal contract provided
the third party did not participate in the contract.
