VITIATING FACTORS IN CONTRACTS

Vitiating factors are also referred to as contractual faults. These are circumstances which interfere
with the enforceability of a contract. They are factors which affect the validity of an otherwise
valid contract.

They have a negative effect on contracts. Vitiating factors may render a contract void or voidable.
If a contract is void, neither party can enforce it and neither party gains any rights under it or
suffers any obligations from it. On the other hand, if a contract is voidable, one party is innocent
and the other party is some way to blame. The innocent party can enforce the contract if he wishes,
but if he does not so wish, then he can refuse to be bound. In other words, a voidable contract is
valid until avoided by the innocent party.

Vitiating factors include:

1. Mistake
2. Misrepresentation
3. Duress
4. Undue influence
1. Mistake
In many contracts one or both of the parties may be said to have made a mistake. A mistake is a
misapprehension of a fact or factual situation. It is an erroneous assumption.

The general rule is that mistake is legally irrelevant. A person will not be relieved from performing
his contractual duties merely because he entered into the contract on a mistaken view of the
relevant facts. This was illustrated in Tamplin vs James (1880). The defendant, who had made
the highest bid at an auction sale of a public house, refused to pay the purchase price on the ground
that he had made a mistake. At the time when he made his bid, he believed that certain land at the
back of the house, which had long been occupied by the seller, was part of the lot offered for sale.
The land was in fact held by the publican under a separate lease from a 3 rd party. The defendant
was held liable since there had been no misrepresentation or ambiguity in the particulars of sale.

Likewise, in Bell vs Lever Bros Ltd (1932), two directors were removed by the majority
shareholder, LB Ltd. As there was a period of time still to run on both directors’ five-year contract,

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LB Ltd agreed to pay compensation to the directors for loss of office. It subsequently emerged that
past misconduct of the directors could have rendered them liable to dismissal without
compensation. LB Ltd sought to recover the money paid by arguing that the contract to pay the
directors compensation was void for mistake. The House of Lords ruled that both parties believed
there was an entitlement to be paid and an obligation to pay. This was therefore, a mistake by LB
Ltd and could not invalidate the contract.

There are two types of mistakes;

(a) Mistake of law
(b) Mistake of fact

As a general rule, mistake of law does not affect a contract because ignorance of the law is not a
defence. However, a mistake of foreign law may affect a contract.

On the other hand, mistakes of fact affect contractual relationships. Mistakes of fact that affect
contracts are generally referred to as operative mistakes. An operative mistake is legally relevant,
and it operates to destroy the consensus that is the basis of a contract, therefore, the parties are
deemed not to have agreed on anything.

The law recognizes various types of operative mistakes:

(a) Common mistake

(b) Mutual mistake
(c) Unilateral mistake
(d) Mistakenly signed documents
(e) Mistake as to quality of subject matter

(a) Common Mistake

Common mistake is whereby both parties make the same mistake. Each party understands the other
party’s intention but are both mistaken about some underlying fundamental fact.

A common mistake renders a contract void in two circumstances;

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(i) Res Extincta: These are circumstances in which the parties are mistaken as to the existence
of the subject matter. This circumstance is captured by Section 8 of the Sale of Goods Act,
which provides that where there is a contract for the sale of specific goods which without
the seller’s knowledge have perished, the contract is void. The contract is void because of
the absence of the subject matter, and not because of the mistake per se.

In the leading case of Couturier vs Hastie (1852) 8 Exch 40, the question concerned the sale of
a cargo of corn supposed at the time of the contract to be in transit from Salonica to the United
Kingdom, but which unknown to the parties had become fermented and had already been sold by
the ship captain to a purchaser in Tunis. The seller still tried to obtain price for the cargo from the
buyer. The House of Lords held that the buyer was not liable for the price of the cargo. The contract
was void for common mistake.

A similar holding was made in Lessie Anderson vs Vallabdos Khalidas Company, where parties
had contracted to buy and sell a quantity of gunny bags but unknown to them, the bags had been
destroyed by fire. It was held that the contract was void for common mistake.

In Galloway vs Galloway (1914) 30 TLR 531, a man and a woman made a separation agreement,
believing that they were married. In fact, they were not married because, unknown to them, at the
time of their marriage ceremony the man’s wife was still alive. The separation agreement was held
to void for mistake because the ‘marriage’ which was the basis for the agreement was void.

A different view of res exitncta was taken by the High Court of Australia in McRae vs
Commonwealth Disposals Commission. The Commission invited tenders for the purchase of an
oil tanker lying on Jourmaund Reef, which is approximately 100 miles north of Samarai. The
plaintiff submitted a tender which was accepted. In fact, there was no tanker lying anywhere near
the latitude or longitude stated by the Commission and no place as Journmaund Reef, but the
plaintiff did not discover this until he had incurred considerable expense in fitting out a salvage
expedition. Though not fraudulent, the employees of the Commission were clearly careless and
had no adequate reason for believing that the tanker existed. It was held that a seller who had
agreed to sell goods which never existed at all was liable for breach of contract. That is, breach of
the implied warranty that the goods actually existed.

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(ii) Res Sua: These are circumstances in which parties are mistaken about the ownership of the
subject matter. The party purporting to buy is the legal owner, but both parties are unaware
of the fact. For example, if A agrees to buy or take a lease from B of property which both
parties believe, belongs to B, but which in fact belongs to A. The purported seller has no
title to pass; hence the contract is void.

In Cooper vs Phipps (1867) L.R. 2 H.L 149, the appellant signed a 3-year lease of a
salmon fishery only to discover sometime later that he in fact was the owner of the fishery.
The House of Lords held that the lease was voidable and could therefore, be set aside on
condition that the respondent should have lien over the fishery for such money as he had
spent on its improvements.

In Cochrane vs Willis, the agreement was for the preservation of timber, which unknown
to the parties, was already the property of the defendant.

(b) Mutual Mistake

A mutual mistake arises when the parties misunderstand each other or are at cross-purposes. No
agreement arises between the parties for lack of consensus ad idem. For example, A intends to
offer his Toyota Allion for sale, but B believes that the offer relates to Toyota Premio also owned
by A.

However, it is important to note that not every misunderstanding constitutes a mutual mistake; it
depends on what a reasonable person who deem the circumstances to be.

In Raffles vs Wichelhaus, the parties entered into a contract for the sale of cotton to be shipped
to UK, on board a ship called ‘ex peerless’ from the port of Bombay. Unknown to the parties, there
were two ships by the name peerless at the port of Bombay. One sailed in October and the other
one in December. While the buyer meant the October ship, the seller referred to the December
one. The cotton was shipped by the December vessel and the buyer refused to take delivery. It
was held that the buyer was not liable for refusal to accept cotton dispatched by the December
ship, as the contract was void for mutual mistake.

(c) Unilateral Mistake

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Unilateral mistake is whereby only one party to the contract is mistaken. As illustrated in the Bell
and Tamplin cases, unilateral mistake is not sufficient to affect the validity of the contract.
However, there are two situations where the courts will hold that an unilateral mistake will affect
the validity of a contract.

(i) Mistake as to the identity of the contracting party

Normally, the identity of parties is of no use importance in the formation of the contract. For
example, if someone sells his motorbike to another party and the buyer states that his name is
‘Musoke’ it matters little to the seller if his name is actually Muwonge. But if the seller could
prove that the buyer’s identity was crucial to him when contracting with the buyer, then the
situation is a totally different one.

Unilateral mistake may arise where a fraudulent person misrepresents his identity to another
person, so as to obtain goods on credit or other favorable terms, which he then sells to a bona fide
3rd party who takes the goods without notice of the fraud. The dispute is usually between the
original owner of the goods and the bona fide purchaser. Unilateral mistake as to the identity of
the other party is mostly common in cases where the buyer wants to buy goods on credit or wants
to pay by cheque.

The original owner of the goods is entitled to the goods or their value by establishing that the
contract between him and the fraudulent person was void for unilateral mistake. The original owner
of the goods, that is, the mistaken party, must prove the following;

(i) That he to deal with some person other than the person with whom he has apparently
made a made;
(ii) That the person he dealt with was aware of his intention;
(iii) That the identity of the person, he intended to deal with was crucial or fundamental to
the contract;
(iv) That he took reasonable steps to verify the identity of that party.

By proving the above facts, the party establishes that the contract was void for unilateral mistake.

In Cundy vs Lindsay & Co. Ltd (1876) 1 Q.B.D. 348, a fraudulent person named Blenkarn
ordered goods from Lindsay & Co. He signed his name so that it looked like ‘Blenkiron & Co.’

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He used an address in the same road that the real firm of Blenkiron & Co. had their place of
business. Lindsay & Co. had heard of Blenkiron & Co. and thought that they were dealing with
that firm. The goods arrived at Blenkarn’s address and he immediately sold them to Cundy who
was unaware of Blenkarn’s fraud. Lindsay now sued Cundy for conversion (wrongfully handling
another person’s goods). The House of Lords held that the contract between Lindsay and Blenkarn
was void for mistake as to identity, therefore, Blankarn never gained true ownership of the goods.
In this case, Blenkarn could not pass good title to any buyer. Cundy was liable to pay damages,
equal to the value of the goods to Lindsay.

In Phillips vs Brooks Ltd (1919) 2 KB 243, a man called North entered the plaintiff’s shop and
selected pearls of the value of £2,550 and a ring worth £450. He then wrote out a cheque for £3,000
saying, as he did so, ‘You see who I am, I am Sir George Bullough’, and then gave an address in
St James’ s Square. The plaintiff had heard of Bullough and upon consulting a directory found that
he lived at the address given. He then said: ‘Would you like to take the articles with you?’ North
replied: ‘You had better have the cheque cleared first, but I should like to the ring, as it my wife’s
birthday tomorrow’. The plaintiff let him do so. North pledged the ring for £350 to the defendant,
who had no notice of the fraud. It was held that the plaintiff did not tender sufficient evidence to
support the fact that he intended to contract with Bullough and nobody else. Beyond looking up
Bullough’s address in a directory, he had taken no steps to verify his customer’s story and would
seem that he deliberately took the risk of the story being true.

In Ingram and Other vs Little (1961) 1 QB 31, a swindler, falsely calling himself Hutchinson,
went to the residence of the plaintiffs and negotiated for the purchase of their car. They agreed to
sell it him for £717, but on hearing his proposal to pay by cheque, called the bargain off. He
therefore told them that he was P G M Hutchinson having business interests in Guildford and that
he lived at Stanstead House, Caterham. Upon hearing this, one of the plaintiffs slipped out of the
room, consulted the telephone directory at a nearby post office and verified that P G M Hutchinson
lived at the Caterham address. Feeling reassured, the plaintiffs, though they had never previously
heard of P G M Hutchinson, agreed to sell the car to the swindler. He later sold it to the defendant
who acted in good faith. The Court of Appeal held that the offer of the plaintiffs to sell the car was
to be interpreted as made solely to P G M Hutchinson and that the swindler was incapable of
accepting it.

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In Lewis vs Averay (1972) 1 Q.B. 198, the plaintiff advertised his car for sale, and was induced
to accept a cheque from a crook who said he was the famous actor ‘Richard Greene’. The cheque
was dishonoured. The plaintiff then claimed the car from the defendant, who had bought it in good
faith from the crook. The claim failed because his contract with the crook was not void for mistake,
since the presumption that he intended to contract with the person physically before him had not
been overcome. The Court of Appeal held that the crook’s identity was not crucial to the making
of the contract. The plaintiff’s mistake was as to the creditworthiness of the other party, and not as
to his identity. The contract between the plaintiff and the crook was voidable for fraud. Voidable,
however, means valid until avoided, and the plaintiff had not avoided the contract by the time the
crook sold the car to the defendant. The contract was therefore, valid, and the crook was able to
pass a good title.

(ii) Documents Mistakenly Signed

The general rule concerning signed documents is that a person is bound by his signature and he
cannot be heard to say that he did not understand the document or that it was too technical or too
difficult to read. One of the exceptions to this general rule was illustrated in Curtis vs Chemical
Cleaning Co. (1951) 1 K.B. 805, where the contents of the documents were misrepresented to the
signatory by the other party. Therefore, the signatory was not bound.

There is another possible way of avoiding liability and that is by proving that you were mistaken
as to the nature of the document itself. This defence was originally created in the 16 th Century to
safeguard blind and illiterate people in England who signed documents after the contents had been
read over to them. The defence was later expanded so that even a literate person could claim to be
protected by proving that the person asking him to sign had by fraud or trickery misled him as to
the nature of the document.

This mistake does not render the contract void but voidable at the option of the party who
mistakenly signs the document. However, to avoid the contract, the party must prove the
following;

(a) That the document signed was fundamentally different from the one the party thought
he/was signing.
(b) The party was neither careless nor negligent when he signed the document.

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By proving the above facts, the party establishes the defence of non-est factum which literally
means, this is not my deed/act.

In Foster vs Mackinnon, the defence of non-est factum was successful. The defendant an elderly
person, signed a bill of exchange on being told that it was a guarantee similar to the one he had
previously signed. He had only been shown the back of the paper. It was held that he was not liable
on the document.

In Lewis vs Clay (1897) 67 L.J.Q.B. 224, X was asked to sign as a witness to a family document.
The contents were covered by blotting paper, the other party explaining that he wished to keep
them a secret. In fact, the documents were promissory notes, whereby it looked as though X was
promising to pay a large sum of money. It was held that X was not bound by his signature.

Care should be taken in the application of the defence of non est factum. It must be shown that the
mistake was as to the character or nature of the document not merely a mistake as to some aspect
of its contents. For example, Lewis case, if X knew that the document was a promissory note but
was told that it was for Kshs. 1,000 when in fact it was for Kshs. 10,000, then he could not plead
the defence of non est factum.

In Saunders vs Anglia Building Society (1971) A.C. 1004, also known as Gallie vs Lee, Mrs.
Gallie, a 78-year-old widow, wanted to help her nephew, Parkin, to raise money on the security of
her house, provided she could continue to live there rent free for the rest of her life. Parkin did not
want to raise the loan or become the owner of the house himself as he feared this would enable his
wife from whom he had separated, to enforce a claim for maintenance against him. He therefore,
arranged that his friend, Lee, should raise the money on a mortgage of Gallie’s house, and then
give the money to him. Before Lee could mortgage the house, it had to be transferred to him. A
transfer was prepared under which the house was transferred to Lee for £3,000. When Gallie was
asked to sign the transfer document, she did not read it because her glasses were broken, but Lee
told her that it was a deed of gift to Parkin. Lee then raised the money by mortgaging the property
to The Anglia Building Society, but he did not pay any money to Parkin, nor did he pay the £3,000
to Gallie.

It was held that the defence of non est factum did not apply to Gallie’s signature on the transfer
document. The House of Lords held that the document it was still the same document she thought

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it was, namely, a transfer document. Gallie was mistaken only as to the contents of the documents
but not the nature or character of the document. It was also stated that Mrs. Gallie’s carelessness
prevented her from relying on non est factum.

(iii) Mistake as to the Quality of the Subject Matter

This mistake arises when one of the parties to the contract is mistaken about the quality of the
subject matter of the contract. This mistake renders the contract voidable at the option of the
innocent party.

However, it is important to be able to distinguish a mistake as to quality from a mistake as to the

identity of the other contracting party. A mistake as to quality of the subject matter will only
invalidate the contract if it is a mistake as to the fundamental quality by which the thing is
identified. In Smith vs Hughes (1871), the plaintiff was shown a sample of oats by the defendant,
and thinking that they were old oats he bought them. They were in fact new oats, and he refused
to accept them. It was held that his mistake did not invalidate the contract. The parties were at
cross-purposes, but not to such an extent that there was no contract.

2. Misrepresentation

A misrepresentation is an untrue statement of fact which is made by a contracting party to the other
party, before or at the time of contracting, which is intended to induce, and actually induces, the
party to whom it is made, to enter into the contract.

A misrepresentation renders the contract voidable at the option of the innocent party. This means
that the contract is valid and binding, until the innocent party takes legal steps to render it void.

What amounts to Misrepresentation?

(a) It must be a statement of fact. It may be written, spoken or made by conduct.

(b) The following statements do not amount to misrepresentation;

(i) A statement of law. This is because everyone is presumed to know the law.

(ii) A statement of opinion, unless the maker of the statement is an expert or has special
knowledge. In Bisset vs Wilkinson (1927) A.C 177, the plaintiff wanted to buy the

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 defendant’s farm to use it for sheep rearing. He therefore, asked the defendant, how
many sheep he thought the farm would accommodate. The defendant said 2,000 sheep
and this proved to be an overestimate. The court held that the defendant’s statement
was merely a statement of opinion not fact and since the farm had never been used for
sheep rearing, the defendant had nothing on which to base his answer.

However, in the Wilkinson case, the statement could have been one of fact if the
defendant had been in possession of extra information which should have made him
aware that his answer was inaccurate.

(iii) A statement of future conduct or intention, unless it can be proved that the alleged
intention never existed. In Edginton vs Fitzmaurice (1885), the plaintiff was induced
to lend money to a company because the directors said they intended to use the money
to finance expansion. In fact, this intention never existed since the directors needed the
money to pay off company debts. It was held that there had been a misrepresentation.

(iv) An advertising puff or hype. Care should be taken to distinguish a statement of fact
from a mere salesman talk. It reaches a point where the exaggerations are so great that
the court says that they have no meaning at and cannot surely influence the mind of an
average buyer. For example, ‘these shoes will last a lifetime’ or ‘this coffee is the best
in the world’.

(c) The statement must induce the other party to enter into the contract. An untrue statement which
is intended to induce the other party to enter into the contract, but does not achieve the desired
effect cannot constitute misrepresentation. It must be shown that the statement of fact was
intended to induce the other party, and did in fact, induce him to enter into the contract.

In Peek vs Gurney (1873) L.R. 6 H.L. 377, X bought shares in Y & Co. and later sold them
to Z. The shares fell in price and Z argued that a statement in the company’s prospectus was
false. The House of Lords agreed that the statement was a misrepresentation but it had been
directed to those applying for the prospectus. Z had not received the prospectus from the
company and therefore, they were not liable to him for the misrepresentation.

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 In Horsfall vs Thomas (1862), the seller of a gun concealed a defect in the gun, which
amounted to a misrepresentation by conduct. The buyer bought the gun without examining it.
Therefore, the concealing of the defect could not have affected his decision as to whether or
not purchase it. Thus, his action against the seller failed.

There are 3 types of misrepresentation;

(i) Innocent misrepresentation.

(ii) Fraudulent misrepresentation.
(iii) Negligent misrepresentation.

(i) Innocent Misrepresentation

An innocent misrepresentation is an untrue statement made in the honest belief that it is actually
true. Therefore, it is possible for X to mislead Y without realizing that his statement is incorrect.
For example, X assumes that the mileage his car has done is that shown on the milometer and
when he sells the car to Y, he states that mileage as being correct. If in fact, the previous owner of
the car had turned back the milometer before selling it to X in order to demand a higher price for
the car, X will be ignorant of this fact, when he sells the car to Y.

Obviously, in this case X is fraudulent but his statement misleads Y just as effectively as if he had
been deceitful. The law however, treats X leniently because he is liable for an innocent
misrepresentation. It is important to remember that the function of contract law is to compensate
the injured party, not to punish the defendant.

In Oscar Chess vs Williams, the defendant had no means of ascertaining that the year of
registration of the vehicle was incorrect.

If innocent misrepresentation is proved, the innocent party may either;

(a) Apply for rescission of the contract

(b) Sue for indemnity for any direct financial loss occasioned by the misrepresentation as was
illustrated in Whittington vs Seale-Hayne (1900) 82 L.T. 49, where the defendant had
innocently misrepresented the sanitary condition and habitation of his premises to the

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 plaintiff who as a consequence took a lease to carry on business of poultry breeding. The
premises were in fact not in good sanitary condition and was unfit for human habitation.
Some of the defendant’s poultry died while others lost value. The defendant’s farm
manager was taken ill. The defendant spent money putting the premises in a habitable
condition, and paid outstanding rates. He claimed the value of the lost stock, loss of profits
on sales and medical expenses. The court held that the defendant was entitled to recover
rent, rates and repair bills as an indemnity, but not the other items claimed.

NOTE: Damages are not recoverable for innocent misrepresentation.

(ii) Fraudulent Misrepresentation

A fraudulent misrepresentation is an untrue statement which is made, knowing it to be untrue or

made recklessly not caring whether it is true or false. In Akerhielm vs De Mare ((1959) E.A. 476,
the defendants were sued for false statements in their circular that had been sent out inviting the
public to subscribe to their shares. The company was to be formed in Kenya but the circular stated
that about a third of its capital had already been taken up in Denmark. This was untrue, but because
the company believed that it was true and were not reckless in believing so, then they were not
liable for fraudulent misrepresentation.

In Bartholomew vs Petronida Civ. App. 112-M-68 (Tanzania), X sold land to Y describing it

as 40 by 60 paces. In fact, it was 40 by 60 feet. The court held that this was a fraudulent
misrepresentation as X knew that the land was less than he stated.

Remedies for fraudulent misrepresentation are either;

(a) Action for rescission of the contract

(b) Damages for the tort of deceit.

The tort of deceit is however, difficult to prove because of the burden of proving fraud, as was
illustrated in the Akerheilm case. The difficulty was further illustrated in Derry vs Peek (1889)
14 App. Cas. 337. A bus company had the power to operate horse drawn buses and if they obtained
Board of Trade Consent, they could operate mechanically driven buses. In a prospectus asking for
subscribers, the company said that they had the right to operate mechanized buses. X bought shares
in the company. The Board of Trade later refused to grant permission to the company and the

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company was wound-up. The House of Lords held that the company was not guilty of fraud on the
grounds that the directors honestly believed that the consent would be granted automatically. In
addition, they had not acted recklessly.

Lord Herschell explained, “First, in order to sustain an action of deceit there must be proof of
fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a
false representation has been made (i) knowingly, or (ii) without belief in its truth, or (iii)
recklessly, careless whether it be true or false… To prevent a false statement being fraudulent,
there must, I think, always be an honest belief in its truth… if fraud is proved, the motive of
the person guilty of it is immaterial. It matters not that there was no intention to cheat or
injure…”

Another cause of action available to the deceived party is to rescind the contract. When the court
orders rescission it means that the two parties give back and take back whatever was the subject
matter of the contract. Both parties should be put in a position as though there had never been a
contract.

The strict interpretation of rescission was offered in Shirima vs Lalaito Kirikengori Civ. App.
3-A-67 (Tanzania), X agreed to sell a car to Y, although it was agreed that title should not pass
until the full price had been paid. Y paid a deposit and also did some repairs to the car. Y failed to
keep up the payments and therefore, X rescinded the contract and took possession of the car. Y, of
course, is party in the wrong but the court held that having exercised his right of rescission then X
must give back the deposit and the cost of the repairs.

The problem with rescission as a remedy is that it is too easily lost. Although it is available for
both fraudulent and innocent misrepresentation, it may still leave the plaintiff without a remedy if
he is unable to return in whole the subject matter of the contract. There must be what is termed as
restitutio in integrum. For example, if a person is told that a car is 1966 model and he drives it for
year before discovering that it is really a 1964 model, it is unlikely that the person will be able to
rescind the contract, because it is no longer the ‘same’ car.

The right to rescission is also lost if an innocent 3 rd party acquires some interest in the subject
matter. For example, if a customer misleads a shopkeeper into giving him an article on credit and

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the customer then later sells the article to an innocent buyer, the shopkeeper cannot rescind the
original contract because the new buyer has now acquired interests in the article.

Lastly, the right to rescind is lost if there is too long a delay between the contract being made and
rescission being sought. Also, if the behaviour of the plaintiff shows that he has affirmed the
contract the right is lost. The problem here is that sometimes it is only after a length of time has
elapsed that deception is discovered. In Long vs Lloyd (1958) 2 All E.R. 402, X was induced to
buy a lorry by Y’s statement that it was in ‘exceptional condition’. In fact, it broke down almost
immediately. Y offered to pay half the repairs and X accepted this. Later the lorry broke down
completely. The court held that X could not rescind the contract because his behaviour amounted
to an ‘acceptance’ of the lorry. But is this not the way the average buyer would in fact behave? It
is easy to say that he should immediately return the vehicle but it is not so easily done. One ‘hopes’
that the fault is not serious, one ‘needs’ the vehicle at that time, one ‘assumes’ that he is not being
cheated.

(iii) Negligent Misrepresentation

A statement is deemed to be negligently misrepresented if the maker has both means and capacity
of ascertaining its falsity but fails to do so. The maker of the statement is deemed negligent as a
reasonable person in such circumstances would have ascertained its falsity.

However, for negligent misrepresentation to be relied upon, the following must be proved;

(a) There was a special relationship between the maker and the recipient of the statement hence
the maker owed the recipient a legal duty of care;
(b) That the recipient suffered loss of a financial nature.

In Hedley Byrne and Co. Ltd vs Heller and Partners Ltd (1964) A.C. 465, the plaintiffs,
representing a firm called Easipower, entered into certain advertising contracts for which they were
liable should Easipower default. In order to satisfy themselves with regard to Easipower’s financial
position, they asked their bank to enquire from Easipower’s bankers the financial stability of
Easipower. The answer received, made the plaintiffs place more orders and when finally,
Easipower went into liquidation, the plaintiffs lost a considerable sum of money. The
correspondence between the two banks had emphasized that the information was given ‘without

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responsibility’, therefore, the plaintiff’s claim against Easipower’s bank for negligent
misrepresentation was dismissed.

In Kirimu Estate (UG) Ltd vs K.G. Korde, an advocate was asked by his client to have a piece
of land valued. The advocate gave a figure without the assistance or even consultation of an estate
agent or land valuer. The figure he gave was grossly above the real market price and the client lost
money on the arrangement. He therefore, sued his advocate for negligence and breach of duty in
giving the wrong figure. The client was successful and the advocate had to pay the difference
between the market price and the sum he had estimated.

Can Silence amount to Misrepresentation?

Silence, as a general rule, cannot amount to misrepresentation. The basic rule is that of Caveat-
Emptor (buyer beware). Normally there is no duty a party to disclose information to the other party
about the subject matter of the contract. That means, a party does not have to tell the other party
prior to the sale that his car is in a very poor condition. It is up to the buyer to test the car or ask
the seller questions about it. If the seller lies, then that will be a misrepresentation or even a breach
of contract.

Once the misrepresentation has been made, it does not mean that the innocent party must
investigate the truth of the statement. The caveat emptor rule, does not impose this type of burden
on the buyer.

This was illustrated by the Nigerian case of Bamgbala vs Deputy Sheriff, Lagos and C.F.A.O
(1967) (I) A.L.R. Comm. 292. The plaintiff bought land at a public auction and later sought
rescission of the contract and return of the purchase price on the basis that he had been misled as
to the extent of the estate. Part of the defence argument was that because various parties had
objected to the sale in the first place, then the plaintiff was forewarned of possible danger and
should have investigated the matter. The court held that such investigation was unnecessary. If the
plaintiff had been misled by the defendant, then the defendant was bound to refund the purchase
price.

There are however, exceptions to the caveat emptor rule, which give rise to circumstances under
which silence will amount misrepresentation. These exceptions or circumstances, are usually
grouped under the heading of contracts uberimae fides or contracts of the utmost good faith.

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 (a) Insurance contracts

Insurance contracts are an exception to the caveat emptor rule because, the person seeking the
insurance cover is possessed of all relevant facts concerning the risk he wishes the insurance
company to cover. The burden is therefore, placed on his shoulders to disclose fully all information
that would be relevant to a prudent insurer. Failure to do this, will allow the insurance company to
avoid their liability under the insurance policy. It does not matter if the misrepresentation is
innocent. However, a person cannot be expected to disclose information which he is unaware of.

Again, whether a person thinks that a particular fact is relevant, is an objective test rather than a
subjective test.

In the Court of Appeal case of Joel vs Law Union and Crown Insurance Co. (1908) 2 K.B. 863,
the insured took out a life insurance cover with the respondent company and filled in a proposal
form, the answers to which were to form the basis of the contract. The answers were correctly
stated. Subsequent to this, but prior to the formal execution of the insurance policy, a doctor
presented certain other questions to the assured, two of which were incorrectly answered. These
answers were however, not made the basis of the contract. The incorrect answers were not
fraudulently made. The assured later committed suicide. The Court of Appeal, overruling the High
Court, held the insurance company liable on the policy.

Fletcher Moulton L.J. stated, “The duty is a duty to disclose, and you cannot disclose what
you do not know. The obligation to disclose, therefore, necessarily depends on the
knowledge you possess.…if a reasonable man would have recognized that it was material
to disclose the knowledge in question, it is no excuse that you did not recognize it to be so.
But the question always is, was the knowledge you possessed such that you ought to have
disclosed it?”

It can be seen from the above extract that the misrepresentation will only affect the validity of the
insurance policy if the court is of the view that it was material to the assessment of the risk.

(b) Special relationships

There are certain relationships known as fiduciary relationships, that require the fullest disclosure
between the parties. Such relationships are found in family arrangements, contracts between

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partners, agency relationships between a principal and an agent, advocate and client, trustee and
beneficiary.

(c) Where a legal obligation to disclose exists

This covers scenarios where there is no special relationship between the parties, but there is a legal
obligation to disclose a material fact. This was illustrated in the case of With vs O’Flagan (1936)
in which the defendant, a medical practitioner, was selling his practice. In January 1934 the
defendant told the plaintiff that the income from the practice was £2,000 a year. The contract was
not signed until May, 1934. In the meantime, due to the defendant’s illness, the income fell to £5
a week. No mention of this fact was made when the contract was signed. The plaintiff successfully
sued to have the contract set aside. The defendant’s silence amounted to misrepresentation.

3. Duress

Fortunately, there are very few examples in modern times of contracts brought about by duress or
coercion of one party by another. Duress at common law means actual violence or threats of
violence to the person. In other words, threats calculated to cause fear of loss of life or of bodily
harm. Therefore, to threaten a person’s property is not duress, but to threaten the person with
unlawful imprisonment is duress. The effect of duress is that the contract is voidable at the option
of the innocent party.

In Cumming vs Ince (1847), an old lady was threatened with unlawful confinement in a mental
home if she did not transfer certain property rights to one of her relatives. The subsequent transfer
was set aside since the threat of unlawful imprisonment amounted to duress.

The threat must be illegal, in the sense that, it must be a tort or a crime. Therefore, to exercise
one’s legal rights, however harsh it may appear would not amount to duress. In Hassanali Issa
and Co. vs Jeraj Produce Store (1967) E.A. 555, a garage owner did repairs to Y’s motor-bike
and stored it until collection. Y objected to the bill but realized that the garage would not release
the bike until he paid. He gave a cheque and obtained the bike. He immediately cancelled the
cheque. When sued, he alleged that the cheque had been obtained by duress. The Court of Appeal
held that this was not so, the garage owner was merely exercising his possessory lien over the bike
until the bill was paid.

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In Freideberg-Seeley vs Klas (1957) 101 Sol. Jo. 275, the defendants gained admission to the
plaintiff’s flat and refused to leave until she signed a receipt for her own jewels. They then gave a
cheque for £90 and took the jewels. The court held that the plaintiff did not want to sell the jewels
but had been coerced into doing so by the defendants. The contract of sale was therefore, voidable.

4. Undue Influence
Undue influence may be described as a situation where the relationship between the parties to the
contract is such that one party is in a position to dominate the will of the other party, and in fact
uses that position to gain an unfair advantage over the party.

Therefore, there will be a presumption of undue influence where one party holds a real or apparent
authority of the other, or where he stands in a fiduciary relationship with him, or where one party
makes a contract with a person whose mental capacity is temporarily or permanently affected by
reason of age, illness or bodily distress.

Where it can be shown that a person is in a position to dominate or influence the mind of the other
party and the contract itself appears to be against the interests of the weaker party, then it is for the
dominant person to prove that he did not unduly influence him. Usually, it is for the person who
makes an allegation to prove it, but in cases touching on undue influence, there is a reverse
situation.

In special relationships where a confidential relationship exists between the parties, it is for the
party in whom confidence is placed to show that undue influence was not used. In such
relationships the courts will presume undue influence. The relationships include; parent and child,
advocate and client, contracts between partners, agency relationships between a principal and an
agent, advocate and client, trustee and beneficiary, doctor and patient, religious leader and disciple.
However, the presumption applies whenever the relationship is such that, one of the parties by
reason of the confidence placed in him, is able to take unfair advantage of the other party.

In Ottoman Bank vs K.S. Mawani (1965) E.A. 464, X signed a guarantee with the plaintiff bank
as further security for a loan by the bank to a company owned by his parents. The court found that

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X was immature for his age and much subjected to his father’s authority. Therefore, he was not
bound by his guarantee.

Rudd J. explained how a special relationship can lead to presumption of undue influence.
He stated, “Although the defendant is now, and at the time he signed the guarantee was,
considerably over the age of majority, he was very much subject to his father’s authority,
and he did not impress me as a very mature person. He had no property or income of his
own. He lived with his father, had no salary, worked in his father’s business and was
entirely dependent on his father and mother. In fact, I think that he was very much subject
to his father’s influence”.

In Tate vs Williamson (1866), the defendant became the financial adviser to an extravagant
Oxford undergraduate. The undergraduate sold his estate to the defendant for about half of its
value, and died of alcoholism at the age of 24. His executors were successful in having the sale set
aside due to undue influence.

Where there is no special relationship between the parties

If there is no special relationship the party seeking to avoid the contract must prove that he was
subjected to influence which excluded free consent. In Williams vs Bayley (1866) a father agreed
to mortgage his property to a bank, if the bank would return to him promissory notes on which his
son forged his signature. The bank had hinted at prosecution and ‘transportation’ of the son if the
father did not agree to execute the mortgage. The contract to execute the mortgage was set aside
because undue influence had been proved.

Unconscionable bargains
The courts are unwilling to extend the concept of undue influence to situations where one party
has taken an unfair advantage over the other person due to his weak economic bargaining power.
The courts will also not give assistance where one person’s lack of business expertise has given
the other party a chance to exploit him.

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Unconscionable bargains are unfair bargains. They are transactions entered into in circumstances
in which one party takes advantage of its position to procure the deal. Such transactions are
voidable at the option of the innocent party. The concept of conscionable bargains was developed
by equity courts as an extension of the doctrine of undue influence and was explained by Lord
Denning in D. C. Builders Ltd vs Rees.

In Lloyds Bank Co. Ltd vs Bundy, the plaintiff bank extended a loan to a business owned by the
defendant’s son. The defendant guaranteed the loan to the tune of £1,000 but the bank required
further guarantee. He extended it to £6,000. His lawyer informed him that it would be unwise to
extend the guarantee further. The defendant owned a house worthy £10,000. An official of the
bank visited the defendant and procured a further guarantee of up to £11,000. The son’s business
collapsed and the bank sought to enforce the guarantee against the defendant who argued that it
was unconscionable bargain. It was held that the guarantee was voidable at the option of the
defendant because it was unfair.

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