FACTORS VITIATING CONTRACTS

DL ONE
 VITIATING FACTORS
• These are factors which in one way or the other
affects the parties' CONSENT in the formation of
contract.
• During the formation of contract, a party ought
to consent freely to everything in order for a
contract to be valid.
• Vitiating factors invalidate/vitiate the CONSENT
hence, renders the contract invalid even if all
other essential elements of contracts are
available.
 VITIATING Cont…..
• Parties’ free will expressed in what they have agreed
it is a fundamental principle of enforcing their
agreement in the eyes of the law
• The notable factors vitiating contracts are such as:-
1. Misrepresentation
2. Mistake
3. Duress
4. Undue influence, and
5. Illegality
 VITIATING Cont…
• The presence of vitiating factors, renders the
contract either void or voidable depending with the
type of vitiating factor.
• If the contract is VOID, then its effect is to render
such a contract a nullity from the very beginning as
if it never came into existence.
• If it will be VOIDABLE, then the said contract will be
enforceable at the choice of the innocent party (the
choice as to whether to continue with it or not)
 VITIATING Cont…
• VOID CONTRACT: • VOIDABLE CONTRACT
Entails that, never a Entails that; a contract
contract in the first comes into existence.
place The innocent party can
choose whether or not
to end contract
 MISREPRESENTATION
• A misrepresentation is an untrue statement of
fact by one party which induces the other to
enter into the contract.
• The courts will find a misrepresentation if one
party:
1. Made an untrue statement;
2. It was a statement of fact; and
3. It induced the innocent party to enter into
the contract.
 TYPES OF MISREPRESENTATION
a) The courts recognise FOUR types of
misrepresentation, namely:
i) Fraudulent misrepresentation;
ii) Negligent misrepresentation at common law;
iii) Negligent misrepresentation under statute; and
iv) Innocent misrepresentation
b) Where there has been a misrepresentation the
contract is voidable and the innocent party may
have a right to damages. The same depends with
the type of misrepresentation induced.
 MISREPRESENTATION Cont….
• For a misrepresentation to be actionable, it
has to fulfill three requirements namely:
i) There must be an untrue statement;
ii) It must be a statement of fact, not mere
opinion; and
iii) It must have induced the innocent party to
enter the contract.
 Un Untrue Statement
• An untrue statement of fact must have been
made by the other contracting party (or by
their agent acting within the scope of their
authority), or the other contracting party must
have known of the untrue statement.
• The statement may be in any form – spoken,
written or by conduct.
 Silence and Misrepresentation
• It is natural that a sales person will sing the praises of
goods being sold, while remaining silent about their
weaknesses.
• Mere silence will not usually amount to a false
statement, even though it may involve concealing
some fact which is highly significant.
• Under the traditional rule of caveat emptor (Latin for
‘let the buyer beware’), a purchaser is required to ask
questions about important matters if necessary – the
seller is not usually expected to volunteer information
which may put the buyer off.
 Silence Cont…..
• Even if one contracting party knows that the other
has misunderstood some aspect of the situation,
there is no duty to point this out.
• In Fletcher v Krell (1873) 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.
 Silent cont….
• There are five types of situation where the law
does impose a duty to disclose information.
• To remain silent about a material fact in any of
these circumstances can therefore amount to a
misrepresentation. Such situations are thus:
1. Contract requiring utmost good faith
2. Subsequent falsity
3. Partial revelation
4. Fiduciary relationship
5. Voluntary assumption of responsibility
Contract Requiring Utmost Good Faith
• These are often known as contracts requiring
uberrimae fidei, which is Latin for ‘utmost good faith’.
• Examples are contracts for insurance, the sale of
shares in a company, the sale of land (where utmost
good faith is required on matters affecting title to the
land, although not physical defects) and certain family
arrangements.
• Failure to disclose a matter regarding which utmost
good faith is required allows the innocent party to
rescind the contract, although damages are not
available.
 Cont…
• The way the rule on utmost good faith works can
be seen most clearly in insurance contracts, where
the party taking out the insurance policy must tell
the insurance company of any fact he or she
knows about which might affect the company’s
decision on whether or not to accept the
insurance risk, and what premium to charge.
• If the insured party fails to disclose any fact that
affects those decisions, the contract is voidable,
and the company is not required to pay out
against a claim, even if that claim has no
connection with the fact that was not disclosed.
 Cont….
• For example, if a client takes out a life insurance
policy without revealing that they have a heart
condition, and is then killed in a car accident which
has no connection with the illness, any dependants
will not be able to claim against the policy.
• The basis for the rule is that the relevant facts are
likely to be difficult or impossible for the other
party to find out for themselves, so the law should
ensure that one party does not have an unfair
bargaining position over the other.
 Subsequent falsity
• A misrepresentation may occur where a statement was true
when it was made, but because of a change of circumstances
has become incorrect by the time it is acted upon.
• Keeping silent about the change can amount to
misrepresentation.
• In With v O’Flanagan (1936) a doctor was selling his medical
practice. He told a prospective purchaser that it was worth
£200 per annum, which was true at the time. The seller then
fell ill, and was unable to keep up with his work. Patients left
the practice, and by the time the contract of sale was signed,
four months later, there was almost no income. It was held
that the failure of the seller to tell the buyer what had
happened amounted to a misrepresentation.
 Partial revelation
• If one party makes a statement which is itself true,
but which misrepresents the whole situation
because of what is left unsaid, the statement may
amount to a misrepresentation.
• In Dimmock v Hallett (1866) a seller of land told a
prospective buyer that the farms on the land were
let, but did not mention that the tenants were
about to leave.
• Omitting this fact presented such a distorted
picture of the true situation that the court held
there had been a misrepresentation.
 Fiduciary Relationship
• Sometimes it is the existing relationship between the
parties, rather than the type of contract concerned, which
gives rise to a duty to disclose important facts about a
contract.
• The main types of relationship accepted by the courts as
imposing such a duty (called fiduciary relationships) are
those between parent and child, solicitor and client,
trustee and beneficiary, and principal and agent.
• The courts have stressed that this list is not exhaustive, and
it is always open to a party to show that the relationship
between him or her and the other contracting party is such
that one party necessarily places some trust in the other,
and that other therefore has influence over them
 Voluntary Assumption of responsibility
• In Banque Financière de la Cité v Westgate Insurance
(1989) the Court of Appeal suggested that a party might
incur liability for remaining silent where the courts found:
i) there was a voluntary assumption of responsibility by
one party, and
ii) reliance on that voluntary assumption by the other. This
will be difficult to show in normal commercial
negotiations.
• The Court gave the example of a father who engaged an
estate agent to advise his son regarding the purchase of a
property.
• The estate agent would be regarded as having assumed
responsibility to the son.
 A Statement of Fact
• The statement must be one of fact; merely delivering an
opinion will not create an actionable misrepresentation.
In Bisset v Wilkinson (1927) Bisset was selling land in
New Zealand to Wilkinson, who planned to use it for
sheep farming.
• The land had not previously been used as a sheep farm,
but during the negotiations Bisset expressed the view
that if the land were worked properly, it could support
2,000 sheep.
• This was not actually the case. On the face of it, the
statement looked likely to constitute a
misrepresentation; a farmer’s description of the quality
of his land sounds exactly like a statement of fact.
 Cont…..
• However, in this case it was regarded as no
more than a matter of opinion, on the grounds
that both parties were aware that the land
had never been used for sheep farming, and
therefore neither could expect the other to
know, as a matter of fact, how many sheep it
could support.
 Cont….
• There are some cases in which what looks like a
statement of opinion will be considered by the courts
to be a statement of fact.
• An example is where one party falsely states their
opinion. For example, Ann wants to sell a clock to
Ben, and says she thinks the clock is 200 years old,
when in fact she knows it was made the week before.
• Her state of mind is a fact, and she is lying about it;
therefore she is making a misrepresentation of fact.
• This rule was laid down in Edgington v Fitzmaurice
(1885).