ABSTRACT.
In the fascinating legal world, few concepts carry as much weight as Vitiating factors. These concepts have the meticulous ability to taint even the most seemingly ironclad contracts, casting doubt on their validity and bringing forth a cascade of legal consequences. Join me in my voyage through the intricacies of vitiating factors, as we unravel their enigmatic nature, and uncover the delicate balance between upholding the sanctity of contracts and safeguarding against their potential vulnerabilities. Brace yourself for an enlightening exploration of these elusive, yet potent, elements that can unravel the very fabric of legal arrangements.
INTRODUCTION.
In the realm of contracts, where intentions converge, hidden pitfalls and deceit can turn the firmest agreements into ethereal promises, it is perhaps why Lord Denning maintained and I quote, “Fraud unravels all, even the most solemn contracts.”
There are perhaps few principles in Contract Law that bear as much weight as Freedom to Contract and the Sanctity of Contract. These principles dive to the very root of the Contract and their absence might as well mean the absence of a legally recognizable agreement.
The classical law of contract is based upon freedom of contract and sanctity of contract, that is to say, it is up to the parties to decide for themselves the terms of their contract and the task of the court is to give effect to the agreement that the parties have reached.
But the law of contract was never committed to freedom of contract to the exclusion of all other policies. The law has always had a concern for the fairness of the bargain and the protection of the weak. That is why children[1] have very little contractual capacity and the courts have refused to enforce illegal contracts.
In the former case, the demands of freedom of contract give way to the need to protect the inexperienced and the vulnerable, whereas in the case of illegal contracts freedom of contract has to bow to public policy considerations. The law attempts to strike a balance between the conflicting demands of freedom of contract, on the one hand, and fairness on the other hand. These conflicting policies have been labelled ‘market-individualism’ and ‘consumerwelfarism’ by Professors Adams and Brownsword.[2]
Even where a contract meets the requirements of offer and acceptance, consideration and intent to create legal relations, it may still not be binding if, at the time the contract was made, certain factors were present which meant there was no genuine consent. These are known as vitiating factors (because they vitiate, or invalidate consent)4.[3]
The presence of a vitiating factor usually makes a contract either void or voidable,[4] depending on which vitiating factor is present. Where a contract is declared void, the effect is that there was never a contract in the first place, so neither party can enforce the agreement. If a contract is voidable a contract comes into existence and the innocent party can choose whether or not to end the contract.[5]
WHAT THEN ARE VITIATING FACTORS?
These include Misrepresentation[6], Duress[7], Undue Influence[8], which make a contract voidable Mistake[9]and illegality, which makes a contract void.
This article seeks to tackle them individually, in that order while answering some if not all of the enigmatic questions raised by each one.
Deceptive Veils: Unmasking the Impact of Misrepresentation as a Vitiating Factor.
Before the formation of a Contract, parties make all sorts of statements to each other perhaps to induce one another into forming or creating a contract and therefore legal relations.[10]
These statements are known as representations, some eventually make it into the Contract therefore making them terms of the contract, that is express terms, actionable on breach while others remain as mere representations which are not actionable as they may be trade puffs[11], mere opinions[12] or representations of the future and don’t impact on the Contract as a general rule, that is, The Parole Evidence rule[13].
However, if the said representations are of fact, false and induce a party into contracting, they might as well fall within the law of misrepresentation.
A misrepresentation is an untrue statement of fact by one party which has induced the other to enter into the contract.[14] The Contracts Act, hereinafter referred to as The Act defines misrepresentation as;
(a) a positive assertion made in a manner which is not warranted by the information of the person who makes it or an assertion which is not true, though the person who makes it believes it to be true;
(b) any breach of duty which without an intent to deceive, gains an advantage to the person who commits it or anyone who claims under that person by misleading another person to his or her prejudice or to the prejudice of anyone claiming under that other person; or
(c) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is subject to the agreement[15]
The representer’s intentions when they made the contract are irrelevant, although this may influence what type of misrepresentation is claimed by the misrepresentee. [16] It is imperative to break down the definition of misrepresentation to better comprehend it.
To start, for it to be classified as a misrepresentation, it must be a statement of fact and not one of Law. The rule is justifiable since the law is equally accessible to everyone and if a person is not sure as to the state of the law they should seek the advice of their legal adviser. Statements relating to the contents and meaning of an Act of Parliament or Statutory Instrument are statements of law and the presumption is that they are known to everyone.19
However, if the person making the statement is a professional, for example, an advocate, making the statement to his or her client in a professional capacity, and it turns out to be an incorrect statement of the law, he may be held liable for professional negligence.[17]
A statement of fact can be understood as one made by a person in the position to authoritatively know the subject from which the statement is derived, this is what distinguishes it from one of opinion. This distinction is however very difficult to draw for obvious reasons.
In a case where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion. The statement of such opinion is in a sense a statement of fact, about the condition of the man’s mind, but only of an irrelevant fact, for it is of no consequence what the opinion is. But if the facts are not equally well known to both sides, then a statement of opinion by one who knows the facts best involves very often a statement of a material fact, for he implicitly states that he knows facts which justify his opinion.
This view was shared by Bowen L.J. in Smith v. Land and House Property Corporation[18] when he said and I quote, “It is often fallaciously assumed that a statement of opinion cannot involve the statement of fact.”
Lord Denning offers more insight into this question in Esso Petroleum v Mardon[19]where he distinguished Bisset v Wilkinson[20]on the ground that ‘the land had never been used as a sheep farm and both parties were equally able to form an opinion as to its carrying capacity’. The key fact would therefore appear to be that the vendor was not possessed of any special skill or expertise in relation to sheep farming. The position is otherwise where, as in Esso Petroleum, the maker of the statement does profess to have some special skill or expertise in relation to the subject matter of his statement of opinion.
In such a case the courts will readily imply that the maker of the statement is subject to a duty to make the statement with reasonable care and skill. The effect of this implication is to leave the maker of the statement potentially exposed to a claim for misrepresentation when he makes the statement without exercising reasonable care and skill.
2. The statement must induce the other party into making the contract. The misrepresentation, to be actionable, must be important enough to influence a reasonable person in considering whether or not to enter into a contract, or on what terms they are prepared to enter into the contract.[21] It should be noted that an objective test is used here and thus, even if the representor does not consider the false statement to be material it may nevertheless be held to be so.[22]
So if the claimant was not aware that the statement had been made or knew it was untrue, or it did not affect the decision to enter into the contract, the misrepresentation will not be actionable. The untrue statement must have been made before or at the time of making the contract because otherwise, it cannot have induced the contract to be made.[23]
3. The statement must have been itself false to amount to a misrepresentation, I mean it’s in the name! Ideally for a representation to be classified as a misrepresentation, it has to be false.[24]
Does Silence amount to a misrepresentation?
When, if ever, is it the duty of a contracting party to disclose facts that are within his knowledge?….
It is human for a person seeking to enter legal relations to sing praises for the subject matter of the contract they wish to make, there is no duty to volunteer all information about the subject matter of the contract.
Where the representor keeps silent, the contract remains valid if the representee had the means of discovering the truth with ordinary diligence.[25] So as a general rule, Silence doesn’t amount to a misrepresentation because misrepresentation is a positive assertion of fact.[26]
An illustration of the general rule is seen in the case of Fletcher v Krell[27] where a woman applied for a post as a governess, without revealing the fact that she had previously been married. At that time, this may well have been a factor that would have affected the employer’s decision to employ her. Despite this, the court held that her silence did not amount to a misrepresentation.
Just like all General rules in Law, they are subject to exceptions and this rule is no different. These include;
Change in circumstance or subsequent falsity.
Where a party makes a false statement under the belief that it is true, he or she is under an obligation to disclose the truth should he or she subsequently discover that he or she was mistaken.[28] An illustration of this is served up by the decision in With v O’Flanagan32 where a doctor was negotiating the sale of his practice and made certain representations regarding the income that could be earned from it. At the time the misrepresentation was made the figures were true. Subsequently, the doctor fell ill so the income earned from the practice decreased substantially. The reduction was not made known to the purchaser who purchased the practice based on the original earnings. When the purchaser discovered the true state of affairs he sought to rescind the contract. It was held that the purchaser should succeed in his action for rescission on the grounds of misrepresentation, as the doctor should have declared the change of circumstances.
2. Partial revelation or half-truths
Though a party is legally entitled to remain silent about some material facts, if he or she chooses to speak, he or she must make a full and frank statement.[29] To illustrate this the decision in Dimmock v Hallett[30] serves up a good read. In the case of a landlord selling property which he disclosed in the negotiation as fully let was under a duty to reveal that the tenants had served notice to quit on the representor landlord.
3. Contracts uberimae fidei (utmost good faith)
A contract uberimae fidei is one where all the material facts are in the possession of one party and not the other, yet the other party needs to base on these facts to decide whether or not to enter into the contract and on what terms.[31] These are contracts where a fiduciary relationship exists between parties. These kinds of relationships are defined in the Act under Section 14(5)
An example of a common contract uberrimae fidei is a contract of insurance. It is clear in such a contract that the decisions of an insurer to insure, or as to what premiums to charge a person seeking insurance, depend entirely on the nature of the information supplied by that individual. The law therefore requires persons applying for insurance to be placed under a duty of utmost good faith, so that anything likely to affect the decision of a prudent insurer as to whether to insure at all or if they will insure, what premiums to charge, must be declared. In Ibrahim Nanji v Queensland Insurance Company[32], it was held that failure to disclose previous accidents as asked by the insurance company on the form of application for insurance in respect of a motor vehicle will permit the insurance company to repudiate liability in respect of a contract made based on that application
Types of misrepresentation include; Fraudulent[33], Negligent[34]and Innocent misrepresentation[35], but all follow the same principles nonetheless.
Vulnerable Consent: Deciphering Duress’s Legal Complexities.
For a contract to have legal effect, consent of the parties must be free or as the case may be must not be forced, that’s the requirement in any contract by definition.[36]
The Act terms duress as coercion, which by definition is the compulsion of will to vitiate consent.[37] It is defined in the Act as ‘the commission or threatening to commit any act forbidden under any law or the unlawful detaining or threatening to detain any property, to the prejudice of any person to cause any person to agree.’
In its development, the common law concept of duress was a narrow one, restricted to actual or threatened physical violence to, or unlawful constraint of, the person of the contracting party[38]or of his employees for whom he is responsible.[39]
This narrow construction of the concept of duress was therefore rejected in The Siboen and the Sibotre[40], where Kerr J. said that a plea of "compulsion or coercion" would also be available in other circumstances e.g. where a person had been forced to enter into a contract under an imminent threat of having his house burnt down, or a valuable picture slashed.
Duress at common law relates to contracts induced by violence or the threat of violence. The act or threatened act must be illegal in that it may amount to either a tort or a crime. It follows that if the threatened act would otherwise be lawful then this cannot amount to duress (as, for example, a threat of lawful imprisonment[41].
At common law, it was always considered that duress had to be directed against the person and that a threat to goods could not amount to duress.[42]
In the realm of contracts, the concept of Economic Duress is perhaps the one of more concern and to be given more emphasis. An early example of this being recognized was the case of D & C Builders Ltd v Rees[43]. In that case, Lord Denning considered that the actions of the wife had amounted to improper pressure to compel the building firm to accept a sum substantially less than the one they were truly owed. In such a situation Lord Denning refused to exercise estoppel because of the wife’s inequitable actions since she knew the builders needed the money. The case thus amounted to a crude but crucial step towards the development of the wider doctrine. In later cases, the doctrine began to take shape and a more formal doctrine emerged, the decision in Occidental Worldwide Investment Corporation v Skibs A/S Avanti[44] opened the gates to the development of a wider doctrine. In this case, Kerr J rejected the early doctrine of duress that was based simply on a threat of physical violence. He stated:
I do not think that English law is as limited... For instance, if I should be compelled to sign a lease or some other contract for a nominal but legally sufficient consideration under an imminent threat of having my house burnt down or a valuable picture slashed, though without any threat of physical violence to anyone, I do not think that the law would uphold the agreement. I think that a plea of coercion or compulsion would be available in such cases…[45]
In this statement Kerr J unlocked the door to the development of a notion of economic duress, carefully enough to widen the scope of the doctrine too much, he maintained that mere commercial pressure was inadequate to set up the defence. He considered that there had to be such a degree of coercion of will that the other party was deprived of their ability freely to consent. Kerr J identified two questions that had to be asked before the test could be satisfied. First, did the victim protest at the time of the demand and, secondly, did the victim regard the transaction as closed or did they intend to repudiate the new agreement?[46]
This test by Kerr J. was further considered in a later case,
The Atlantic Baron[47] The facts of the case were that the defendants had agreed to build a tanker for the plaintiffs at a price to be payable in five installments in dollars. The plaintiffs paid the first instalment but then the dollar suffered a 10 per cent drop in the international money market. The defendants demanded a 10 per cent increase in the contract price, stating that they would not complete the ship unless this was forthcoming. At the time the defendants were not aware that this threat was particularly damaging to the plaintiffs since they had an agreement to charter the ship when it was completed. The plaintiffs agreed to pay the extra money even though, as they pointed out to the defendants, they were not legally obliged to do so. Eventually, all four of the further instalments were paid, increased by 10 per cent, and the plaintiffs took delivery of the ship. Eight months later the plaintiffs sought to recover the extra sums of money paid but failed in their action. While Mocatta J considered that this was a case of economic duress, he held that they would be unable to recover since their delay in seeking the recovery of the extra sums of money paid amounted to affirmation of the contract, even if they had no intention of affirming the contract as such.
So clearly that was a matter involving Economic Duress and the decision we see that the only reason the claim failed is that the delay amounted to the affirmation of the contract.
Another decision that further shaped the doctrine was that of Pao On v Lau
Yiu Long[48] where Scarman L.J. stated and I quote,
there is nothing contrary to the principle in recognizing economic duress as the factor which may render a contract voidable provided always that the basis of such recognition is that it must amount to coercion of will, which vitiates consent. It must be shown that the payment made on the contract entered into was not a voluntary act
It is material to inquire whether the person alleged to have been coerced did or did not protest; whether at the time he was allegedly coerced into making a contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether, after entering the contract, he took steps to avoid it.54
This was applied by Mulyagonja Kakooza, J in Steven Seruwagi Kavuma v Barclays Bank (U) Ltd55, where the judge held that the applicant was not induced to sign the consent judgment by duress.
The question arose again in the case of The Universe Sentinel[49] where both Lord Scarman and Lord Diplock concluded that economic duress may arise where there is an intentional submission to the inevitable and that the pressure used to secure such submission was illegitimate in that there was a suppression of the will of the victim. The problem with the case is that it failed to address how one tested the differences between legitimate and illegitimate pressure, or how a court is supposed to deal with the dilemma of a victim in the face of such pressure.
To successfully prove Economic duress, the pressure exerted must have been illegitimate.[50] A threat to do an unlawful act (which includes breaking a contract) will always be illegitimate but a threat to do a lawful act[51] will only be illegitimate if the threat is unreasonable, which will depend on the circumstances. This appears to have been the approach taken in Atlas Express Ltd v Kafco (Importers and Distributors) Ltd[52]. Here a small basket ware company had secured a valuable contract to supply its products to Woolworths. They then contracted with a national firm of carriers to transport their products. After the contract with the carriers was made, the carriers insisted on raising their charges, threatening to stop deliveries unless the higher price was paid. This happened at a vulnerable time for Kafco when the shops were beginning to require deliveries for the Christmas period, so they had no time to find an alternative carrier. They reluctantly agreed to the new terms, but later refused to pay the extra.
The court held that Kafco’s agreement to pay extra had been obtained by duress, and was therefore not binding. The pressure applied was illegitimate, and Kafco had no realistic alternative but to agree. Had they had more time, they might have been expected to find an alternative carrier and then sue Atlas for breach, but in the circumstances, this was completely impractical.
The Pressure-induced the claimant to enter the contract. Duress must be one of the reasons for entering (or modifying) a contract, but it does not have to be the only or even the main reason.[53] The claimant had no real choice but to enter the contract.[54] The claimant protested at the time or shortly after the contract was made.[55]
Whispers of Manipulation: Uncovering the Nuances of Undue Influence.
Undue influence exists where a contract has been entered into as a result of pressure, which falls short of amounting to duress.[56]
The Act provides that,
[a] contract is induced by undue influence where the relationship subsisting between the parties to a contract is such that one of the parties is in a position to dominate the will of the other party and uses that position to obtain an unfair advantage over the other party.[57]
The position of Dominance is that of real or apparent authority65 or he or she ‘stands in a fiduciary relationship with the other party’66 or ‘the mental capacity of the other party is temporarily or permanently affected because of age, illness, mental or bodily stress’[58] A fiduciary relationship arises where a party has duties involving good faith, trust, special confidence and candour towards another party.[59]
The law on this topic was extensively reviewed by the House of Lords in Royal Bank of Scotland v Etridge (No.2) ("the Etridge case")[60] and the following discussion attempts the far from easy task of stating the effects of that review.
The first involves actual pressure or as Professor Ben Kiromba calls it, actual undue influence.[61] This class of undue influence arises where there is no special relationship between the parties. For example, a promise to pay money can be set aside if obtained by a threat to prosecute the promisor,[62] his close relative, or his spouse, for a criminal offence.[63] In Williams v Bayley,[64] a son issued to his bank several promissory notes upon which he had forged the endorsements of his father. To save his son from prosecution, the father was forced to give security for the debts of the son. It was held that the father’s agreement with the bank had been extracted by undue influence being exerted on the father.
The Act requires that the party should have used his or her dominant position ‘to obtain an unfair advantage over the other party’. The question is, does a party who alleges actual undue influence have to prove unfair advantage? In Bank of Credit and Commerce International SA v Aboody,[65] it was held that the plaintiff must establish that he or she had suffered a manifest disadvantage. However, in CBIC Mortgages plc v Pitt,[66] it was held that manifest disadvantage was not required in cases of actual undue influence, which according to Lord Browne-Wilkinson, is a species of fraud. In addition to proving that there was influence, the victim must show that it was undue.[67] The second group of cases in which equity gives relief for undue influence is that in which the relationship between the parties is such as to give rise to what has been called a "presumption of undue influence" Under this type of undue influence, the victim must show that there is a fiduciary relationship – a relationship of trust or confidence between himself and the wrongdoer. Once the relationship is proven, undue influence is presumed to have occurred. The victim is not obliged to prove undue influence he or she only needs to show that there is a confidential or fiduciary relationship. After proving the existence of the relationship of trust and confidence, the onus shifts to the other party to prove that the plaintiff entered the contract freely and voluntarily.[68]
A presumption is a rule of law by which, on proof of a specified fact or facts (the basic fact(s)) another fact (the presumed fact) is taken to exist.78
There are two types of presumptions, rebuttable and irrebuttable presumptions of undue influence. Irrebuttable (or conclusive) presumptions are rules of substantive law which have nothing to do with ways of proving facts.79
If the law says that, on proof of the basic fact, the presumed fact is irrebuttable taken to exist, this means that proof of the basic fact produces the same legal consequence as proof of the presumed fact, even though the latter fact may be shown not to exist.
A rebuttable presumption, by contrast, is a rule of law by which, on proof of the basic fact(s), the presumed fact is assumed to exist in the absence of evidence negativing (or "rebutting") its existence.[69]
Navigating Errors: The Intriguing Influence of Mistakes as Vitiating
Factors.
According to the Contracts Act, consent of the parties may be vitiated, inter alia, by mistake.[70] Where one or both of the parties are mistaken as to the terms of the contract, there is no consensus ad idem, and thus no agreement. However, this depends on the type of mistake as explained.[71]
In Bell v Lever Bros Ltd,83 Lord Atkin said: "If mistake operates at all, it operates to negative or in some cases to nullify consent." Mistake negatives consent where it puts the parties at cross-purposes to prevent them from reaching an agreement, e.g. because they intend to contract about different things. It nullifies consent where the parties reach an agreement which is based on a fundamentally mistaken assumption made by both of them, e.g. where a contract is made to buy a car of someone who, unknown to either party, the car has been destroyed. Thus it has been held that a separation deed between a man and a woman, who mistakenly thought that they were married to each other, was void because it purported to deal with a marriage which did not exist.[72] At law, the effect of a mistake is to make a contract void.[73]
From the above, I think it is therefore sufficient to examine the different types of mistakes. These are common, mutual and unilateral mistakes. One last point that should be noted is that in all types of mistakes, however, labelled or described, the mistake must be a fundamental mistake of fact.[74]
A common mistake arises in cases of res extinca or res sua. The former is a mistake as to the existence of the subject matter of the contract. Here, both parties wrongly believe that the subject matter of the contract exists, yet it had ceased to exist at the time the contract was made[75]. It is important to distinguish res extincta from res sua, which refers to a situation where a party contracts to buy something which belongs to him or her. Both res extincta and res sua generally render a contract void. However, if the action is based on equity, res sua will render the contract voidable.[76]
In Couturier v Hastie[77], the plaintiffs sold a cargo of corn to the defendant. Unknown to either party, a few days before the contract was made, the cargo, which was on board a ship, had overheated and started to ferment, and as a result the captain sold the cargo to prevent it from deteriorating further. The buyer contended that since the subject matter of the contract, the corn had ceased to exist before entering into the contract, the contract was void and he was not liable to pay the price.
The vendor, however, argued that the contract was based on the handing over of the shipping documents and that the defendant had not simply bought a cargo of corn but a whole venture in which he took all the risks regarding the shipment of the cargo.
It was held that the contract contemplated that the goods sold existed, and since they did not, the seller could not be required to deliver the goods, and the buyer had no obligation to pay for them.
Lord Cranworth stated that at the time they made the contract, the parties contemplated that cargo to be bought and sold existed, but, at that time, there was no such cargo. The buyer, therefore, was entitled to repudiate the contract.[78]
A Mutual mistake occurs when the parties are at cross purposes as to the identity of the subject matter of the contract. Case in point, Mafabi offers to sell Rogers a Rolex (Nyanya mbisi), and Rogers accepts believing that he is buying a Rolex(watch). In such a situation, the contract is void because there is no meeting of minds, the offer and acceptance of Mafabi and Rogers respectively do not coincide.
The case of Raffles v Wichelhaus[79] offers an illustration there was a contract for the sale of 125 bales of cotton ‘to arrive ex Peerless from Bombay’. There were two ships named Peerless leaving Bombay at about the same time. The buyer meant one whilst the seller meant the other. It was held that the contract was void for a fundamental mistake of fact that had prevented the formation of an agreement. That the offer and acceptance of the parties had failed to coincide. Consent was negatived in Falck v Williams92. A and B were negotiating about two charter parties: one to carry shale from Sydney to Barcelona, and one to carry copra from Fiji to Barcelona. B's agent sent a coded telegram intending to confirm the Copra charter, but the telegram was ambiguous and was understood by A to refer to the shale charter. It was held that there was no contract.
To establish a mutual mistake one has to show that there is such a degree of ambiguity that it is impossible, on applying the objective test of a reasonable person, that the parties intended to be bound by one set of terms or the other. If, on an objective view, the parties could only have come to a single, common understanding of the terms of the contract then they will be bound by the contract, despite the actual view of a party that they were mistaken as to the terms.[80]
A Unilateral mistake arises when one party is mistaken as to the terms of the contract while the other knows of the mistake or ought to have known of the mistake. For example, Nsereko and Shivan are contracting for the sale and purchase of 50 kgs of Sugar at 5000 Ugandan Shillings per Kg, then Shivan, who is the purchaser, writes 50000 Ugandan Shillings per Kg in the written contract, there is a mistake in Shivan’s part and Nsekero knows or ought to know of the mistake, therefore, the contract is void for mistake because there is no consensus ad idem.
For illustration, In Hartog v Colin and Shields[81],the defendants had some animal skins for sale, which they intended to sell at a certain price ‘per piece’, as was the custom in the trade. By mistake, they offered them at the same price ‘per pound’ instead of ‘per piece’, which, at about three skins to the pound, obviously worked out much cheaper. The buyers accepted this offer. When they realized their mistake, the sellers refused to deliver the skins and were sued by the buyers for breach of contract. The court held that there was no contract because the buyers were aware of the seller’s mistake.
A unilateral mistake may also occur where a party is mistaken as to the identity of the person contracted with and the other party is aware of that mistake. For the mistake to operate, the identity of the other party must be of fundamental importance to the innocent party. Whether the identity of the other party is fundamental or not is a question of fact.[82]
In Car and Universal Trading Co. Ltd. v Caldwell96, a car was sold and delivered to a rogue whose cheque was dishonored the next day, by which time the rogue had disappeared with the car. In an attempt to recover the car, the owner informed the police and the Automobile Association. The rogue then sold the car to a buyer who purchased it in good faith. The court held that by informing the police and the association, the owner had made it clear that he intended to rescind the contract. Consequently, the rogue no longer had any title to the goods to pass to the garage or the innocent buyer. The latter had to return the car to the owner.
The person alleging a mistake of identity must prove several things. In the first instance, he or she must show that there was an intention to contract with some other person rather than the rogue and that the latter knew of this intention.[83] Secondly, a party alleging a unilateral mistake as to identity must show that at the time of contracting, the identity of the person he or she was dealing with was of fundamental importance to him or her.[84]
Beyond the Line: Unveiling Illegality’s Disruptive Force in Agreements.
An illegal contract may be defined as an agreement or promise which, by its nature, is prohibited by law. Illegality may have two principal effects on a contract and the distinction between the two is of the utmost importance.
First, a contract may be regarded as illegal if the actual creation of the contract itself is prohibited[85]. Under the Land Act, non-citizens are prohibited from owning mailo or freehold land 100. A non-citizen can only be granted a lease not exceeding 99 years[86]. The Employment Act also prohibits payment of wages other than in legal tender.[87] The position here is that the contract is void ab initio.
Secondly, a contract may be created lawfully but be illegal because of how it is performed.[88] As far as illegal contracts are concerned, classifications can be endless, they can include Contracts contrary to public policy[89],
Contract to commit a crime or a tort or civil wrong[90],
Contracts prejudicial to the administration of justice[91],
Contracts tending to corrupt public life[92], Contracts to defraud revenue[93], sexually immoral Contracts,
Contracts in restraint of trade. In this article, I will only be diving into only those in restraint to trade.
Contracts in restraint of trade are defined in Cheshire, Fifoot and Furmston as A contract in restraint of trade is one by which a party restricts his future liberty to carry on his trade, business or profession in such manner and with such persons as he chooses.[94]
The modern doctrine of restraint of trade is to be found in the case of Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co111 where Lord MacNaghten stated:
The true view at present I think, is this: The public has an interest in every person’s carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification if the restriction is reasonable – reasonable, that is, about the interests of the parties concerned and reasonable about the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time, it is in no way injurious to the public.
In the foregoing text, we see Lord MacNaghten hint at the aspect of reasonableness as an exception to such Contracts. A covenant found to be in restraint of trade can only be regarded as reasonable if it is designed only to protect the legitimate interests of the covenantee.
Take these two scenarios, A and B…. In A, Wahanze is a worker at Coca-Cola Beverages, one of if not the largest beverage companies in Uganda, where he has access to classified information that makes Coca-Cola what it is, he then signs a Contract with Coca-Cola that prohibits it from working in any other beverage company in Uganda for a period of 6 years if he is to lose his Coca Cola Job….
In B, Wahanze signs a contract with Riham Beverages, a relatively new player in the business in Uganda, with similar terms….. The question is, which of the two becomes a reasonable one and which Contract is illegal due to restraint of trade? It is reasonable for Coca-Cola to impose such terms because of the stature of the Company with a lot to lose while it’s not the case for Riham Beverages.
In Herbert Morris Ltd v Saxelby[95] Lord Shaw identified two types of contracts which illustrate the types of interests capable of being protected by a covenant in restraint of trade. First, in contracts for the sale of a business, together with its goodwill, it is proper for the purchaser to restrain the vendor from acting in competition with the business just sold to the purchaser since the goodwill is a proprietary interest legitimately capable of protection.
Secondly, in contracts of employment an employer, while not legitimately able to prevent a former employee from acting in competition with the employer, can prevent the former employee from making use of trade secrets acquired during a period of employment.
Similarly, the employer can prevent a former employee from soliciting the former employer’s customers. In these two examples, one can see that the law is attempting to balance the rights of the individual and the requirements of the state in respect of trade.
Lord Shaw identified two types of contracts which illustrate the types of interests capable of being protected by a covenant in restraint of trade.
First, in contracts for the sale of a business, together with its goodwill, it is proper for the purchaser to restrain the vendor from acting in competition with the business just sold to the purchaser since the goodwill is a proprietary interest legitimately capable of protection.
Secondly, in contracts of employment an employer, while not legitimately able to prevent a former employee from acting in competition with the employer, is able can the former employee from making use of trade secrets acquired during a period of employment. Similarly, the employer can prevent a former employee from soliciting the former employer’s customers. In these two examples, one can see that the law is attempting to balance the rights of the individual and the requirements of the state in respect of trade.
CONCLUSION.
In Conclusion, vitiating factors in legal contexts remain enigmatic, casting a veil of complexity over the principles of Contract Law. As we have already demystified, these factors possess the power to nullify agreements, often revealing unforeseen intricacies within the dynamics of contractual relations. The mysterious interplay between misrepresentation, Duress, undue influence, mistake and illegality underscores the delicate balance between autonomy and protection in contractual dealings. Despite their elusive nature, vitiating factors serve as a reminder of the ever-evolving nature of Law and the ongoing need for adaptability and precision in the face of the intricate tapestry of human interaction and legal discourse. By
Edgar Okitoi; LLB3 – 2023 September.
egokitoi@gmail.com @egokitoi +256777177453 School Of Law, Uganda Christian University, UG – Mukono
[1] S11(1)a Contracts Act 2010 Act 7 of 2010 [2] J Adams and R Brownsword, ‘The Ideologies of Contract Law’ (1987) 7 Legal Studies 205, 206–213 4 S,13 Contracts Act 2010, Act 7 of 2010 [3] Catherine Elliott and Frances Quinn, Contract Law,2009 seventh Edition,Pearson Longman p183 [4] Guest , A. G. (ed.) Anson’s Law of Contract 26th ed. (Oxford University Press, 1986) p. 17 [5] Ibid [6] S13 Contracts Act 2010, Act 7 of 2010 [7] Ibid [8] Ibid [9] Ibid [10] Paul Richards, Law Of Contract,2009 Ninth Edition, Pearson Longman, P 217 [11] “statements which are so vague that they have no effect at law or in equity.”…. To describe land as "fertile and improvable" is mere sales talk which affords no ground for relief- Dimmock v Hallett (1866) L.R. 2 Ch.App. 21 [12] “it is not a positive assertion that the fact stated is true, but only a statement of the maker's opinion or belief.” Assertions that an anchorage was safe and that a piece of land had the capacity to support 2,000 sheep have been held to be of this character- Bissett v Wilkinson [1927] A.C.177 ….. In any case, the party making the statement had (as the other party knew) no personal knowledge of the facts on which it was based, it was understood that he could only state his belief. [13] If a contract is reduced to writing, then, under the ‘parol evidence’ rule, oral or other evidence extrinsic to the document is not normally admissible to ‘add to, vary, or contradict’Cavendish LawCards: Contract Law P40 [14] Catherine Elliott and Frances Quinn, Contract Law,2009 seventh Edition,Pearson Longman P186, Also Fred Nuwagaba v Ade Musana Kaguma HCCA No. 42 of 2012. [15] S2 Contracts Act 2010, Act7 of 2010 [16] Paul Richards, Law Of Contract,2009 Ninth Edition, Pearson Longman p 217 19 S,6 Penal Code Act [17] Kirima Estates (U) Ltd v Korde [1963] EA 637 where Sir Udo Udoma, CJ, relied on Hedley Byrne & Co. V Heller Partners Ltd [1964] AC 932; [1963] 2 All ER 575. [18] Smith v. Land and House Property Corporation (1884) 28 Ch D 7, 15 [19] Esso Petroleum v Mardon [1976] QB 801 [20] Bisset v Wilkinson [1927] AC 177 [21] If the claimant can show that he was in fact induced, it is no defence to argue that a reasonable person would not have been influenced by the misrepresentation- Museprime Properties Ltd v Adhill (1990) [22] Paul Richards, Law Of Contract,2009 Ninth Edition, Pearson Longman p 221 [23] Catherine Elliott and Frances Quinn, Contract Law,2009 seventh Edition,Pearson Longman p191 [24] Ben Kiromba Twinomugisha, Principles Of Contract Law in Uganda, 2018 Makerere University Printery p118 [25] S16(2) Contracts Act 2010 Act 7 of 2010 [26] S15(2) Contracts Act 2010 Act 7 of 2010 [27] Fletcher v Krell (1873) 2 LJ(QB) 55 [28] Ben Kiromba Twinomugisha, Principles Of Contract Law in Uganda, 2018 Makerere University Printery p 118 32 With v O’Flanagan [1936] Ch 575 [29] Ben Kiromba Twinomugisha, Principles Of Contract Law in Uganda, 2018 Makerere University Printery 119 [30] Dimmock v Hallett (1866) LR 2 Ch App 21. See also, Nottingham Brick and Title Co. v Butler (1889) 16 QBD 778 [31] Ben Kiromba Twinomugisha, Principles Of Contract Law in Uganda, 2018 Makerere University Printery 119 36 S14(5) Contracts Act 2010 Act 7 of 2010 [32] Ibrahim Nanji v Queensland Insurance Company [1952-1957] ULR 60 [33] ‘a false statement that is ‘made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless as to whether it be true or false’ - Lord Herschell in Derry v Peek (1889) 14 App Cas 337 [34] See Hedley Byrne & Co. Ltd v Heller & Partners Ltd [1964] AC 465. - the court stated that it would be possible for a defendant to be liable for a plaintiff’s loss where there was a special relationship. [35] It is confined to those misrepresentations that are made in the honest but mistaken belief that they are true. [36] S,10 (1) Contracts Act 2010 Act 7 of 2010 [37] Pau On v Lau Yiu Long [1980] A.C. 614 at 636 [38] Cumming v Ince (1847) 11 QB. 112 at 120; the violence threatened had to be unlawful: Biffin v Bignell (1862) 7 H. & N. 877; Smith v Monteith (1844) 13 M. & W. 427. cf Latter v Bradell (1880) 50 L.I.C.P. 166; (1881) 50 L.J.Q.B. 448. [39] Gulf Azov Shipping Co Ltd v Idisi [2001] 1 Lloyd's Rep. 111 [40] The Siboen and the Sibotre [1976] 1 Lloyd's Rep. 293 [41] Williams v Bayley (1886) LR 1 HL 200) [42] Skeate v Beale (1840) 11 A & E 983= ‘a promise given in return for goods that had been unlawfully detained was held to be valid.’ This principle has been criticised, however, and in Maskell v Horner [1915] 3 KB 106 it was held that money that had been paid in order to recover goods unlawfully detained could itself be recovered onthe basis of money had and received under the law of restitution. [43] D & C Builders Ltd v Rees [1966] 2 QB 617 [44] Occidental Worldwide Investment Corporation v Skibs A/S Avanti, [The Sibeon and The Sibotre] [1976] 1 Lloyd’s Rep 293 [45] Ibid [46] Paul Richards, Law Of Contract,2009 Ninth Edition, Pearson Longman p276 [47] North Ocean Shipping Co. Ltd v Hyundai Construction Co. Ltd, [The Atlantic Baron] [1979] QB 705 [48] Pao On v Lau Yiu Long [1979] 3 All ER 65 54 Ibid 55 Steven Seruwagi Kavuma v Barclays Bank (U) Ltd Misc. Application No. 0634 of 2010 (Arising from Civil Suit No. 0332 of 2008); Esther Nakulima v Ann Nandawula Kabali, Misc. Application No. 235 of 2013 (Arising from Civil Suit No 277 of 2012). HCCS No. 534 of 2012. [49] Universe Tankships Inc. of Monrovia v International Transport Workers’ Federation, [The Universe Sentinel] [1983] 1 AC 366 [50] Liberty Construction Co. Ltd v Lamba Enterprised Ltd HCCS No. 215 of 2008 [51] CTN Cash and Carry v Gallaher (1994) [52] Atlas Express Ltd v Kafco (Importers and Distributors) Ltd (1989) [53] Barton v Armstrong (1975) - Armstrong’s threats had contributed to Barton’s decision to sign the deed, even if they were not the only reason. [54] Universe Tankships v International Transport Workers’ Federation (The Universe Sentinel) (1983) - It now appears that economic duress will be present where there is compulsion of the will to the extent that the party under threat has no practical alternative but to comply. [55] North Ocean Shipping Co. Ltd v Hyundai Construction Co. Ltd, [The Atlantic Baron] [1979] QB 705 - it was because the claimant waited eight months after the ship was delivered that the claim for duress was unsuccessful. [56] Allcard v Skinner (1887) 36 Ch. D 145 [57] Section 14(1) Contracts Act 2010 Act 7 of 2010, see also Hassanali Issa & Co. v Jeraj Produce Store [1967] E A 555. 65 Section 14 (2) (a).Contracts Act 2010 Act 7 of 2010 66 Section 14 (2) (b). Contracts Act 2010 Act 7 of 2010 [58] Section 14 (2) (c). Contracts Act 2010 Act 7 of 2010 [59] Section 14 (5) Contracts Act 2010 Act 7 2010, Also Wright v Carter [1903] 1 Ch 27, Benningfield v Baxter (1886) 12 App Cas 167, Powell v Powell [1900] 1 Ch 243., [60] Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44; [2002] 2 A.C. 773, at [7] [61] Ben Kiromba Twinomugisha, Principles Of Contract Law in Uganda, 2018 Makerere University Printery p147 [62] Such a threat was formerly thought to be incapable of giving rise to duress at common law: Flower v Sadler (1882) 10 QB.D. 572 [63] Williams v Bayley (1866) L.R. 1 H.L. 200; Kaufman v Gerson [1904] 1 K.B. 591; Société des Hotels Réunis (S.A.) v Hawker (1913) 29 T.L.R. 578; Mutual Finance Ltd v Wetton [1937] 2 K.B. 389. [64] Williams v Bayley (1866) L.R. 1 H.L. 200 [65] Bank of Credit and Commerce International SA v Aboody [1990] 1QB 923 [66] CBIC Mortgages plc v Pitt [1993] 4 All ER 433 [67] Dunbar Bank plc v Nadeem [1998] 3 All ER 876 [68] Ben Kiromba Twinomugisha, Principles Of Contract Law in Uganda, 2018 Makerere University Printery p 148 78 SIR GUENTER TREITEL The Law of Contract, 2003 Eleventh Edition, Sweet and Maxwell p409 79 Cross and Tapper on Evidence (9th ed.), p.66. [69] National Westminister Bank v Morgan [1985] AC 686., A Heard v Skinner (1887) 36 Ch.D. 145 at 171; Lloyd's Bank Ltd v Bundy [1975] Q.B. 326 at 342; Hylton V Hylton (1745) 2 Ves. Sen. 547 at 549 ("public utility"). Inche Noriah v Shaik Allie bin Omar [1929] A.C. 127 at 136; Mahoney v Pumell [1996] 3 All E.R. 61 at 85; Naidoo v Naidu, The Times, November 1, 2000 ,Powell v Powell [1900] 1 Ch. 243 at 246; Wright v Carter [1903] 1 Ch. 27; Credit Lyonnais Bank Nederland v Burch [1997] 1 All E.R. 144 at 155-156. [70] Section 13 (c).Contracts Act 2010 Act 7 of 2010 [71] Ben Kiromba Twinomugisha, Principles Of Contract Law in Uganda, 2018 Makerere University Printery P127 83 Bell v Lever Bros Ltd [1932] A.C. 161 at 217. [72] Galloway v Galloway (1914) 30 T.L.R. 531 [73] Associated Japanese Dank (International) Ltd v Crédit du Nord SA [1989] 1 W.L.R. 255 at 268. In Re Goldcorp Exchange Ltd \ 1995 ] 1 A.C. 74 at 103 [74] Paul Richards,Law Of Contract,2009 Ninth Edition, Pearson Longman P243, Where the common mistake relates only to the quality of the subject matter, as opposed to its very existence or ownership, this is not considered to be so fundamental as to vitiate the contract. Hence, the Act provides that ‘an erroneous opinion as to the value of the things which form the subject matter of the agreement shall not be deemed a mistake as to a matter of fact’ - Section 17 (3) Contracts Act 2010 Act 7 of 2010 – See Also Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (2002) -The Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (2002) goes as far as suggesting that the mistake must have rendered performance impossible or devoid of purpose. [75] S7 Sale of Goods and Supply of Services Act, 2017 - ‘[w]here there is a contract for the sale of specific goods, and the goods, without the knowledge of the seller have perished at the time when the contract is entered into, the contract is void’. [76] Cooper v Phibbs (1867) LR 2 HL 149 - It was held that the lease was voidable for mistake since the nephew already had a beneficial ownership right to the fishery. [77] Couturier v Hastie [1843-60] All ER. Rep. 280; (1856) HL Cas 673. See also, McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 [78] Ibid [79] Raffles v Wichelhaus (1864) 2 H & C 906 92 Falck v Williams [1900] A.C. 176. [80] Smith v Hughes (1871) LR 6 QB 597. Blackburn J - If whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he intended to agree to the other party’s terms – See also Scriven Bros & Co. v Hindley & Co. [1913] 3 KB 564 [81] Hartog v Colin and Shields (1939) , By contrast, in Centrovincial Estates plc v Merchant Investors Assurance Co Ltd (1983) - The Court of Appeal held that the mistake had no effect upon the contract, because the tenant did not know of it, and the contract was therefore binding [82] Ben Kiromba Twinomugisha, Principles Of Contract Law in Uganda, 2018 Makerere University Printery p132 96 Car and Universal Trading Co. Ltd. v Caldwell [1964] 1 All ER 290. [83] King’s Norton Metal Co. Ltd. v Edridge, Merret & Co. Ltd (1897) 14 TLR 98 - the court observed that the plainiffs had failed to show that there was some other person with whom they had intended to do business [84] Cundy v Lindsay (1878) 3 App Cas 459 - The court stated that the identity of the person they were to contract with was of fundamental and crucial importance at the time of entering the contract. Also Phillips v Brooks [1919] 2 KB 243. Ingram v Little [1961] 1 QB 31. Lewis v Averay [1972] 1 QB 198. Citibank NA v Brown Shipley & Co. Ltd & Another [1991] 2 All ER 690 [85] Levy v Yates (1838) , Mistry Amar Singh v Serwano Wofunira Kulubya [1963] EA 408. Cope v Rowlands (1836) 2 M & W 149, 9 In Nsimbe Holdings Limited v Attorney General and Another Constitutional Petition No. 2 of 2006; [2007] 1 ULR 362. the Court of Appeal held that contracts to which the government of Uganda is a party must be concluded with the advice of the Attorney General. Thus, a contract entered into without the advice of the Attorney General may be declared unconstitutional and thus void. Also Jamba Soita Ali v David Salaam HCCS No. 400 of 2005 100 Section 40 (4) Land Act Cap 227 [86] Section 40 (1) & (3) of the Land Act, cap. 227. A non-citizen for purposes of this provision is defined under section 40 (7) (a)-(e) of the Act. [87] Section 41 (1) Employment Act [88] Anderson Ltd v Daniel [1924] 1 KB 138, Shaw v Groom [1970] 2 QB 504, St John Shipping Corporation v Joseph Rank Ltd [1956] 3 All ER 683 [89] Section 19 Contracts Act 2010 Act 7 Of 2010, Christ for All Nations v Apollo Insurance Co. Ltd22 the court stated that public policy covers anything that is inconsistent with the constitution or the laws or is against the national interest, or contrary to justice and morality [90] Beresford v Royal Insurance Co. Ltd [1937] 2 KB 197, Allen v Rescous (1677) 1 KB 169. [91] Egerton v Brownlow(1853) 4 H.L. Cas. 1.- the court stated that any contract or engagement having a tendency, however slight, to affect the administration of justice, is illegal and void. Shell (U) Ltd & Others v Rock Petroleum & 2 Others -Misc. App. No. 645 of 2010. Kawamara Sam v Richard Jjuuko HCCS No. 294 of 2009. Trendex Trading Corp v Credit Suisse [1982] AC 679. See also, Jennifer Simpson v Norfolk & Norwich University Hospital NHS Trust [2011] EWCA Civ 1149 [92] Parkinson v College of Ambulance [1925] 2KB 1. [93] Miller v Karlinski [1945] 62 TLR 85. See also, Alexander v Rayson [1936] 1 KB 169. [94] Cheshire,Fifoot and Furmston's Law of Contract (16th edn) 2012 Oxford University Press 111 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co. [1894] AC 535 [95] Herbert Morris Ltd v Saxelby [1916] AC 688
.jpg)
Comments