VITIATING FACTORS

What are vitiating factors?

A contract which is unenforceable could be void or voidable. In the sense that the contract could be
avoided or rescinded by one party under certain circumstances. A void contract is a complete nullity
and does not therefore confer any rights or impose any obligations on the parties and has
retrospective effect. A voidable contract, however, is one which is valid unless and until it is avoided
or set aside by the party entitled to do so.
1. MISTAKE
 
Mistake in the context of the law of contract refers to the following situations:
(i) Where a party a party ends up contracting on terms he does not intend to contract on
(ii)Where a person ends contracting with a person he does not intend to contract with
(iii)Where a person ends up contracting for a subject matter he does not intend to contract for.
(quality of the subject matter)
Mistake may be committed by one or both parties to an agreement. Where a mistake is
committed by one person it is called a unilateral mistake.
Where the mistake is committed by the two parties, it is called a common mistake or a mutual
mistake.
Both common and mutual mistakes are called bilateral mistakes.
 
(a) Unilateral mistake
This arises in instances where a party intends to contract on certain terms but ends up contracting on different
terms, not as a result of a change of mind but as a result of error of judgment.
Sometimes a mistake a party is induced negligently, fraudulently or innocent by the other party.
Generally, unilateral mistakes do not affect the validity and enforcement of a contract. The implication is that a
party who enters into a contract on mistaken terms is bound by it, notwithstanding the mistake.
See Tamplin v James (buying a piece of land based on personal knowledge of it being occupied by a tenant)
Smith v Hughes (new oats bought instead of preferred old oats)
Exceptions to the rule on unilateral mistake
(i) Where the mistake is as a result of misrepresentation of one of the parties or induced or caused by the other
party. The effect of that will be to render the contract voidable and the mistaken party may rescind it.
(ii) Where the inducement if fraudulent, then in addition to rescinding the contract, the prejudiced party may
sue for damages for the tort of deceit.
(iii)Where there is ambiguity not caused by the mistaken party, he can rescind it.
(iv) Where a party commits a mistake as a result of factors not attributable to him or the other party, he can
rescind the contract.
(b) Common mistake
 
(i) Common mistake about the existence of the subject matter
Where the parties enter into a contract thinking that the subject matter of the contract exists
when as a matter of fact, it does not exist, it renders the contract void. This position was stated
by Lord Atkin in Bell v Lever Brothers Ltd to the effect that an agreement between two parties
to purchase a specified item is void if in fact the item perished before the date of the contract.
(1932) AC 161
(ii)Mistake about the quality of the subject matter
This happens where parties enter into an agreement thinking that the subject matter of the agreement has
some level of quality which turns out not to be the case.
The effect of this type of mistake has been analysed in Leaf v International Galleries (Salisbury Cathedral
painting case). In that case, Lord Denning said that the quality of a subject matter of a contract is a term of the
contract. That being the case, the effect of a mistake as to the quality of the subject matter of contract will
depend on whether the term is a condition of the agreement or a warranty.
If it is a condition, then the party prejudiced by that mistake is entitled to repudiate the contract and to sue
for damages. On the other hand, if it is a warranty, then the prejudiced party is entitled to sue for damages.
Similar point has been made by Treitel, where the author is of the opinion that if the subject matter of the
contract entered into later turns out not to have level of quality intended, the contract is still valid. However
the implication will be that the party who gave the description will be said to have breached his obligation to
sell and deliver a subject matter whose quality corresponds with the description by which it was sold.
In Bell v Lever Brothers Ltd, Lord Atkin stated that where there is a mistake as to the quality of the subject matter,
it does not affect the validity of the contract, unless the mistake is the mistake of both parties and also relates to
the quality which makes the subject matter essentially different from what it is believed to be. The same point
was made by Lord Thankerton. (1950) 2 KB 86
 See Magee v Pennine Insurance where the court held that a mistake as to the quality of the
subject matter does not render it void but voidable unless the mistake is fundamental. In the
view of the court the mistake made was fundamental because if the insurance company had
known that the buyer did not have licence, they would not have entered into the contract.
The court therefore held that the insurance company was entitled to set aside or rescind it on
grounds of a common mistake about the quality of the subject matter.

Also see: Frederick Rose v William Pim. In that case, parties entered into an agreement to sell
and buy a certain kind of beans called feveroles but ended up contracting for different beans
called horsebeans. That was due to innocent misrepresentation on the part of seller’s
representative. Mistake held to be common which rendered the contract voidable.
(iii)Mistake regarding the identity of the subject matter
This occurs where at the time of the contract each party intends to contract in respect of a different
thing from the other.
This type of mistake is called mutual mistake because each party thinks of a different thing as the
subject matter of the contract.
See: Raffles v Wilchelhaus and Scriven Brothers v Hindly & Co where a buyer at an auction thought that
the lot he was bidding for was made up of hemp when in fact it was made up of hemp and tow. The
court held that there was no contract.
 
(iv) Mistake regarding the identity of the other party
This occurs where a party ends up contracting with the wrong person (ie someone he does not intend to
contract with).
See Cundy v Lindsay
(iv)Mistake about the attribute of a party to a contract
See Lewis v Averay.The court also took the view that the mistake was caused by the fraudulent
misrepresentation of the buyer. Lord Denning held that the mistake rendered the contract voidable as a
result of which the third party obtained good title. Contracts inter praesente-where the parties contract in
each other’s presence
 (2) MISREPRESENTATION
Before a contract is concluded various statements may be made by the parties to each other. Such
statements which are intended to influence the other party into entering the contract, but which do
not become part of the contract as terms of it are referred to as ‘representations’
An operative misrepresentation consists of false statement of fact, made by one party to another,
before or at the time of the making of the contract, which is intended to and does in fact induce the
other party to enter into the contract.
Note that generally statements of opinion and intention are not statements of facts and cannot
therefore constitute misrepresentation if they turn out to be inaccurate or incorrect.
 
(a) Fraudulent Misrepresentation
The definition of fraudulent misrepresentation can be found in Lord Herschell’s formulation in the case
of Derry v Peek where the law was stated as follows:
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 shewn that a false representation has been made
 knowingly, or (2) without belief in its truth, or (3) recklessly, carelessly whether it be true or
false.
Fraudulent misrepresentation renders a contract voidable. In Clarke v Dickson, Lord Crompton J
held that a contract that is induced by fraud is not void but voidable at the option of the party
who has been defrauded. A voidable contract remains valid and binds all the parties to it until it
is set aside.

The prejudiced party is entitled to refuse to perform his obligations under it and to claim for
rescission of the contract. He may also sue the party responsible for the fraud for damages for
the tort of deceit if he suffers any loss because of the fraud.
(b) Negligent misrepresentation

A representation is negligent if it is made carelessly and in breach of a duty owed by the representor to
the representee to take reasonable care that the representation is accurate.
Generally, a misrepresentation cannot be regarded as negligent unless the representor owed a duty of
care to the representee.
A person does not, however commit negligent misrepresentation if at the time he makes the statement
and up to the time the contract is entered into, he had reasonable grounds or basis to believe the
statement to be true and accurate.
Negligent misrepresentation renders a contract voidable. A prejudiced party is entitled to sue for
damages for misrepresentation if he has suffered loss. He may also refuse to perform his duties under
the contract and to claim for a rescission of the contract.
See Nocton v Ashburn where a solicitor advised his client to release part of a mortgage. The client took
his advice, the security became insufficient and the client suffered loss. The client brought the action
against the solicitor, claiming that the advice given was fraudulent and improper and claimed
compensation for his loss. The court held that there had been no fraud sufficient to found an action in
deceit. However, an action for negligent misrepresentation would lie.
(c)Innocent misrepresentation
This is an untrue statement made in good faith, with honest belief in its truth, intended to induce a party to enter
into induce a party to enter into a contract.
An innocent misrepresentation generally gives the party misled the right to rescind the contract but it does not
entitle the party misled to claim damages.
A party misled may also repudiate the contract ( ie refuse to carry out his obligations under the contract) and set
up the misrepresentation as a defence to any action brought against him for breach of contract or for specific
performance of the contract.
In addition to the right to rescission, a party misled is entitled to be indemnified against all losses or liabilities
incurred by him in the discharge of obligations created by the contract, even though he is not entitled to claim
damages.
See Newbigging v Adams, where the court held that the plaintiff was entitled to the rescission of the contract
and to be discharged from all liabilities imposed on him by the partnership agreement.
Bowen LJ stated in that case that: When you are dealing with innocent misrepresentation, the proposition is that
the plaintiff is to be replaced in status quo, but with this limitation: He is not to be replaced in exactly the same
position in all respects, otherwise he would be entitled to recover damages, but his is to be replaced in his
position so far as regards the rights and obligations which have been created by the contract into which he has
been induced to enter.
(3) Duress
This deals with situations where the consent of a contracting party has been obtained by some form of
pressure which is considered by the law as improper. Since a contract is based essentially on the consent
of the parties (freedom of contract doctrine), agreements obtained by coercion or undue exertion of
pressure are generally not enforceable.

Thus a party who has entered into a contract as a result of pressure may be entitled to relief under the
common law doctrine of duress. The effect of duress on a contract is to render the contract voidable.
A person who enters into a contract under duress is therefore entitled to set it aside or rescind it.
At common law, duress was said to consist of actual or threatened violence to the person, threats of
imprisonment or prosecution or threats of violence or dishonour to a person’s wife, husband or
children.

See also Barton v Armstrong - (Board chairman threatened the MD with death for the company not
agreeing to purchase his shares). In that case the court stated that the threat of death deprived the MD
of independent judgment. The effect of this on the contract was that it rendered the contract voidable.
The MD was therefore entitled to rescind it.
It can thus be said that the law has developed the concept of duress in contract to protect persons from
being forced against their will to enter into contracts.
(4) Undue Influence
This is an equitable doctrine and it arises where a person uses the influence which he wields over
another person to get that person to enter into a contract or to transfer property on terms that are
disadvantageous to him (the influenced person)
This doctrine applies where one person exercises considerable influence and control over the mind,
will and decisions of another person such that the agreement or the promise of the person so
influenced does not generally result from his independent free will but result from the influence
exercised over him.
In Mercer v Brempong, the High Court defined undue influence as:
‘undue influence means any influence by which the exercise of free and deliberate judgment is
excluded at a time when some interest or benefit is given to another person by someone over whom
such influence was exercised’.
Gleaning from the definition above, undue influence comes into play where there is the absence of
free will and independent judgment.
Where undue influence is established by the court, then the agreement is rendered voidable, as a
result of which the person influenced is entitled to have it set aside.
There are two instances where the court will set aside a contract on grounds of undue influence:
(i) Express or actual undue influence
This happens where there is evidence that one party exercised such domination over the mind and
will of the other party that his consent to a contract cannot be said to have been independently
given. In such a situation the influenced party can have the agreement rescinded.
Here the onus is on the part of the person seeking to rescind the contract to prove actual coercion or
high degree of domination or control leading to the loss of independence of will or consent.
See Morley v Loughman
(ii)Presumption of undue influence
This arises where there is no evidence of express influence and control of the decision to undertake
the transaction yet the court will presume that there has been undue influence.
The presumption can arise in the following instances:
Parent and child; Guardian and Ward; Solicitor and Client; Physician and Patient and Trustee and
Beneficiary
It has been established that husband/wife relationship is not considered as one raising presumption of
undue influence
 (5) Contracts violating the law(illegality)

This is when the contract violates the laws of the land. An illegal contract is a contract whose subject
matter or purpose, or whose performance contravenes the laws.
 
See the following cases:
Bedford Insurance Co v Instituto de Resseguros do Brasil (unlicensed insurance company)
Re Mahmoud and Ispahani (1921) 2 KB 716
Schandorf v Zeini
 
Effects of Illegal contracts
It renders the contract void ab initio and unenforceable. Such a contract does not create unenforceable
rights and obligations.
In Ramia v Chivelli, Amissah JA has occasion to explain the duty of the courts in situations in which a
contract is tainted with illegality. According to his Lordship, the courts will take notice of any illegality
affecting a contract under which a person is suing and will decline to assist such a person. Thus the
courts will not allow a party to a contract that is affected by illegality to sue under the contract. (1985)
QB 966
 
(6) Contracts against public policy

Public policy has to do with public interest. In Article 295 of the Constitution, Public interest has been
defined to include any right or advantage which enures or is intended to enure to the benefit
generally of the whole of the people of Ghana.
Public policy has to do with things or conduct which the society as a whole generally either seeks to
encourage because it enures to its benefit; or things and conduct it seeks to discourage because it does
not enure to its benefit.

The courts will hold a contract against public policy if the contract seeks to encourage the doing
of something which the society generally seeks to discourage.
See Kessie v Charmant
  
(7) Contracts in restraint of trade
It is not every restraint of trade that is illegal but the ones that law regards as unreasonable and unjust
because it is against public policy. Thus a court will uphold a reasonable and just restraint.
What is reasonable or not will depend on the circumstances of the case.
Generally the courts take certain factors into consideration. In the case of employment contracts, the
courts will consider whether it is an attempt to prevent competition or aimed at preventing employee
from using trade secrets of former employer to act against his interest.
In other cases the courts will consider the duration and distance of the restraint and how mutually
beneficial the restraint is to the parties and particularly whether the restrain is in the public interest.
Contracts in violation of public policy are also treated as illegal and therefore void.