LAW OF CONTRACT II

 Mr. Henry Kerore Atuma

 Professionally trained Counsellor in practice since the

year 2000.
 The core duty at the university is to offer counselling

support services to students.

 LPR 108: Law of Contract II
 Prerequisite: LPR 101: Law of Contract I
3

 Vitiating factors in Contract: Misrepresentation, Mistake,

Illegality, Duress and Undue influence; Discharge of contracts

- Performance, Frustration, Breach; Quasi contracts; Remedies
in Contract- Common law remedies- Damages, Restitution of
Advanced payments, Quantum Meruit, Equitable remedies-
Specific performance, Injunctions, Rescission; Interpreting
contracts, incomplete contracts; limits of contract and contract
law.
4

Course Assessment Weighting

 Examination 70%
 Continuous Assessment Tests 30%
 Total 100%
• Even the most carefully drafted/ valid contract can become
unenforceable if certain factors were - present.
• These are factors that, had they been known by all parties
at the time of the contract, an agreement may have never
been reached and the contract never formed.

• Contracts contain factors (circumstances) which adversely

affects the consent of the parties to the agreement.

• Undermines the legality of a contract & so reasons why a

valid contract can be set aside
2/15/2022
These are known as vitiating factors

2/15/2022
Vitiating factors include:

1. Misrepresentation
2. Duress
3. Mistake
4. Illegality
5. Undue Influence
2/15/2022
 1. Misrepresentation
• A representation means a statement of fact made by one party
to the other, either before or at the time the contract is made,
relating to some matter essential to the formation of the
contract, with an intention to and does induce the other party
to enter into contract.
• It may be expressed in spoken or written form or implied from
the acts or conducts of the parties (e.g. non-disclosure of a fact).
• A representation when wrongly made, either innocently or
intentionally, is termed as a misrepresentation.
• Misrepresentation may be either innocent or intentional or
deliberate or fraudulent or negligent - with the view to
deceive the other party.
2/15/2022
 Fraudulent misrepresentation defined by Lord
Herschell in DERRY v PEEK 1889 as:

-an untrue statement which is made:

-knowingly, or
-without caring whether it be true or false, or
-without belief in its truth
-which induces the other party to enter into
contract.
2/15/2022
Innocent misrepresentation

• An untrue statement made in the honest belief that it

is actually true (Derry v Peek).

• Where the party who made the statement can prove

that they had reasonable grounds to believe and did
in fact believe, up to the time of the contract, that
the facts represented were true.

2/15/2022
 Negligent misrepresentation

• Made carelessly, or without reasonable grounds for

believing it to be true.

• Misrepresentation cannot be regarded as negligent

and, therefore, giving rise to liability on the part of
the representator unless he owes a duty of care to
the representee.
2/15/2022
 Example
• Bob wants to sell his car to Wendy. He tells her that the
car is “accident-free” when it has been in two major
accidents in the last 2 years. Based on this, Wendy agrees
to buy the car from Bob. After Wendy buys the car, she
discovers the truth.

• This is misrepresentation by Bob.

• Under contract law, Wendy has the right to rescind (set

aside) contract to buy Bob’s car.
2/15/2022
Remedies for Misrepresentation
• Misrepresentation renders a contract voidable at the
instance of the representee (the innocent party).
Consequently, the remedy of rescission and damages
is available to him.
• Recission: if you rescind the contract, the parties are
put back in the position they were in before the
contract was entered into. It is as if the contract
never existed.
• Damages: you can sue for financial compensation if
you have suffered any losses as result of the
misrepresentation.
2/15/2022
 How about silence? Misrepresentation?

2/15/2022
•
General rule:
Silence does not amount to misrepresentation
except when:

-There is a positive duty to disclose, e.g. in fiduciary

relationships
(Adv. and clients, Doctors and patients, Will
executor to will beneficiaries)

2/15/2022
 2. Duress
• The parties must enter into a contract-free from any
coercion or threat if such a contract is to be enforceable by
the court. But, there are certain situations where duress is
exerted on the party into a contract.

• Duress refers to actual violence or threats of violence

calculated to produce fear in the mind of the person
threatened.
• The effect of duress is to render a contract voidable, and
the remedy will be rescission and/or damages.
2/15/2022
 Example
Bob wants to sell his car to Wendy. He tells her, “if
you don’t buy my car at this [high] price, I will break
your legs and destroy your business!”. Frightened by
Bob’s threats, Wendy agrees to buy the car.
This is duress by Bob.

•Wendy as the “victim” has the choice to set aside the

contract to buy Bob’s car.

2/15/2022
3. Undue influence
• Undue influence is another factor which tends to restrict the
freedom of a party in entering into a particular contract.
• The improper use of a position of power to pressure a party to
enter into a contract. The pressure exerted falls short of duress but
it is enough to vitiate a party's free and informed consent.
• A contract is said to be induced by undue influence where,
(i) the relations existing between the parties are such that one of
the parties is in a position to dominate the will of the other, and
(ii) The use position to obtain an unfair advantage over the other.
• It is based on the equitable principle that no person may take an
unfair advantage of the inequalities between him and another
party so as to force an agreement on the other party.
2/15/2022
• But where a confidential (or fiduciary) relationship exists betwn the
parties, undue influence is presumed, and the burden is shifted on to the
other party to prove that there has been no undue influence on his part.
Examples of relations in which undue influence is presumed:
• (Parent and Child), (Advocate and Client - relying upon the advice),
Religious Adviser and Disciple
• Hus/Wife relationships do not raise the presumption of undue influence;
undue influence must in this case be specifically proved by the party
seeking to rely on it.
• Where undue influence is sufficiently proved to have existed at the time
of the contract, the contract is voidable at the instance of the party
unduly influenced and may on this ground be set aside. Smith v Kay

2/15/2022
Example
•Bob wants to sell his car to Wendy. Bob knows Wendy is
very sick and is very disturbed because of her health. Bob
persuades Wendy to sign a contract with him.

This is undue influence by Bob.

•Wendy has the right to set aside the contract unless Bob
can satisfy the court he did not use excessive influence to
make Wendy sign the contract.
2/15/2022
 4. MISTAKE
• If a mistake occurs during contract formation, the
court may declare the “contract” void because of
the mistake.
• If so, there was never a contract at all, since the
parties never reached agreement in the first place.
The “contract” is “void ab initio”, or a nullity from
the beginning.

2/15/2022
3 types of mistakes that can arise in contract:
1. Common mistake
• This type of mistake occurs where both parties, A and B, make
the same mistake. A and B perfectly understand each other and
their respective intentions but they are mistaken about some
underlying and fundamental fact. They may both be ignorant of
the fact that the thing which is the subject matter of their
contract does not exist or has ceased to exist. e.g. the existence
of goods under a sale of contract.
• Where both parties make the same mistake as to the subject
matter (res extincta), the ownership of a property (res sua), or
the quality of the subject matter.
• A contract entered into as a result of a common mistake is a
nullity (or null and void) at common law
2/15/2022
2. Mutual mistake
• Mutual and common mistakes are similar in one important
aspect. They both involve a mistake of both parties. But
whereas both parties make the same mistake in a common
mistake, in mutual mistake, they make different mistakes.
In this case, both parties misunderstand each other.
• Example: A intends to offer, and in fact does offer to sell
his video set to B. B accepts the offer in the honest belief
that what A was offering to sell was a radio set. A does
not know of B’s mistake and B does not also know of A’s
mistake.
• In this situation, the parties are not ad indem. In other
words, they do not have one mind.
2/15/2022
3. Unilateral Mistake
•In a unilateral mistake, as the name implies,
only one party is mistaken. For example: A with
full knowledge offers to sell an imitation of
a Toyota Corolla carburetor to B. B accepts the
offer, believing the Carburetor to be a genuine
original Japanese made Carburetor. A knows of
B’s mistake.
•Concerning the transaction, therefore, only B is
actually operating under mistake.
2/15/2022
• Common mistake - Where both parties make the
same mistake

• Mutual mistake - Where the parties are at cross

purposes

• Unilateral mistake - Where only one party is

mistaken

2/15/2022
 5. Illegality
• An illegality contract is one which is prohibited by
law or is against public policy.

• e.g. making a contract to break into a house to steal

goods is an illegal contract.

2/15/2022
• Besides statute, there are certain contracts which are
prohibited by, and therefore illegal at common law.
These are contracts which offend against public
policy, i.e. those which are prejudicial to public
morality and public well-being. For e.g:

i. Contracts to commit a crime,

ii. Contracts to defraud the revenue
iii. Contracts that are prejudicial to the country’s
foreign relations
2/15/2022
Vitiating factors include:

1. Misrepresentation
2. Duress
3. Undue Influence
4. Mistake
5. Illegality
2/15/2022