FACTORS WHICH MAY VITIATE A CONTRACT

Vitiating factors is a phrase used to refer to those situations which when they arise may nullify or
vitiate an otherwise valid contract. Ordinarily a contract is valid so long as the essential elements
exist – offer, acceptance, consideration, legality, intention to enter into relations etc. However,
even when these exist, a contract could still be nullified if the circumstances under which it was
made are such that the parties could not really have intended to enter the contract. These factors
known as vitiating factors include – Mistake, Misrepresentation, Illegality, Duress and Undue
influence.

Mistake

A mistake by one or both parties to a contract may render the contract void but this depends on
the nature of the mistake. Indeed the basic rule is that a mistake does not affect the validity of a
contract. The justification for this general rule is to be found in the two major doctrines that
underlie the law of contract i.e. the doctrine of caveat emptor and the doctrine of freedom of
contract. However the courts have accepted that if a mistake is such that the parties were not
really consensus ad idem, the law recognises three types of mistake – common mistake, mutual
mistake and unilateral mistake (Solle v Butcher 1959; Tamplin v James 1927)

Common mistake

Two types exist, namely a mistaken belief by both parties that the subject matter of the contract
is in existence when it is not. Here the subject matter is res extincta; the second is the mistaken
belief that the seller owns the subject matter when actually it is the buyer who does (Couturie v
Hastie 1852; Strickland v Turner).

Cases on Res Extincta

Couturie v Hastie – In this case there was a contract for sale of a consignment of corn. At the
time of the contract, the corn was supposed to be on a ship from Saronica to the UK. Unknown
to both parties, the corn had begun to ferment owing to leakage and in order to cut losses, the
ship master had sold it off in Tunis. It was held that there was no contract because what the
parties contemplated was that there was an existing item to buy and sell respectively and yet not.
Prof. Atiya has suggested that this position in Couturie may no longer be good law because the
existence of instantaneous communication means that the parties can always cross-check if the
goods still exist. Besides in CIF contracts, what is really sold is not the goods but documents of
entitlement to the goods such that if the goods are lost, the buyer can claim insurance.

Strickland v Turner – A party took out an annuity upon the life of a person who, without his
knowledge, had already died. It was held that there was total failure of consideration and so he
was entitled to receive back the full refund of the money he had paid.

Galloway v Galloway – This case involved a separation agreement which was subsequently
declared a nullity because it was later discovered there was no valid marriage in the first place.

Cases on Res Sua

Sometimes a party could agree to buy goods or land unknown to……………

Huddersfield Banking Co. Ltd v Henry Lister & Son Ltd - In this case, a borrower mortgaged a
mill and the machinery fixed therein. The terms of the mortgage provided that if he defaulted or
if the mortgagor wound up business, the property would automatically belong to the mortgagee.
Later the mortgagor wound up business but in ignorance the mortgagee allowed them to sell the
property. It was held that the mortgagor could not sell, therefore the contract was void.

Mutual Mistake

This occurs where the parties are at cross-purposes. There are two types 1) mutual mistake
relating to the identity of the subject matter; 2) relating to the possibility of performance.

1) Mutual mistake as to identity of subject – where a buyer operates on the understanding that
he is buying item A while the seller is under the belief he is selling item B, such a mistake
may vitiate the contract if the court is convinced that it was not unreasonable for the parties
to hold the mistaken belief.
Rafles v Winchelhaus – there was sale of a consignment of goods. The contract stated that
the goods being bought and sold respectively were those on board a ship called “The Peers”
docked in Bombay habour. It so happened that there were two ships with that name – peer 1
 and Peer II. The seller had in mind Peer I and the buyer Peer II. It was held that there was no
contract.
2) Mistake as to possibility of performance – when the parties at the time of the contract
mutually believe that the contract is capable of being performed whereas not, then there is no
contract. There are three categories i) legal impossibility – here the parties believe that the
law allows the contract whereas not. In such a case the contract is void ab initio because a
court cannot force a person to do an illegal act. Kuluba v Singh – this a contract between a
Muganda and an Asian whereby the Muganda was selling land to the Asian. S.2 of the Land
Transfer ordinance provided that the contract for sale of land to a non-African without prior
ministerial consent was void. It was held that the contract was void ab initio and it could not
order even the refund as the court would be involving itself in an illegal matter. ii) physical
impossibility – this is where it is not practically possible to perform the contract at the time
when it is executed. Sheikh Brothers v Oschener. iii) Commercial impossibility – it may be
legally permissible to perform a contract and physically possible to do so but where it is
commercially senseless to do so. Both parties may be excused from it. Griffith v Brymer – a
landlord entered into a contract with a potential tenant by which he let a room to the
tenant/defendant. Both parties fully understood that the purpose of renting the room was to
enable the defendant view the coronation procession of King Edward VII as it was known to
be that evening. Unknown to the parties at the time of executing the contract, the King had
fallen ill and the coronation had already been cancelled. It was held that although it was
legally and practically possible to perform the contract, it had been rendered commercially
sterile. Bell v River Brothers – this case demonstrates that the mistake or impossibility must
be one relating to the actual identity not merely quality of the subject matter.

Unilateral Mistake

This occurs on the part of only one party to the contract, and generally courts are even more
reluctant to set aside contracts of such a mistake than where the mistake is on both parties. Soul v
Butcher; Bell V River Brothers. However, even this general rule is subject to some exceptions.
There are only two situations where a contract may be set aside on the basis of a unilateral
mistake – i) where documents are mistakenly signed; ii) where there is mistaken identity of a
contracting party.
Mistake as to identity of a contracting party – the general rule is that the identity of a contracting
party is immaterial and the party to a contract may not be allowed to escape from obligations
under it by claiming that he intended to be someone else. The rationale for this rule is that the
law assumes that what the contracting party is interested in is the content of the contract, not the
person he is dealing with. If however the court is convinced that the identity of the contracting
party is crucial, then it may set aside the contract. Given that generally identity is deemed
unimportant, the burden lies on the party seeking to rely on identity to defeat a contract to prove
that identity is crucial.he must prove four things;

 That he intended to deal with somebody else other that the one he dealt with.
 That the party whom he dealt with knew that he was not the one intended to be dealt
with.
 That identity was fundamental to the contract.
 That he took reasonable steps to confirm the identity of the person he dealt with.

Cundy V Lindsay

A rogue known as Brekern approached the respondent and offered to buy goods on credit and
signed on the order papers in such a way that his signature and particulars looked like Blendron
and co., 37 Wood street. The sellers had ever heard of such a company at a different address but
never dealt with it. They delivered the goods to the rogue who refused to pay. Meanwhile, he had
sold the goods to Cundy. The respondents sought to recover the goods by sueing Cundy for
conversion. It was held that he never acquired good title.

Phillips V Brooks

The respondents were jewellers. A rogue called North visited their premises and offered to buy a
diamond ring. He misrepresented himself as sir George of Stansteid. The jewellers only knew of
sir George by reputation. They checked the postal directory and found that sir George lived at the
address. They allowed the rogue to take the ring and accepted the cheque. The cheque was
dishonoured upon presentation. Meanwhile, North had sold the ring to Phillips a pawn broker. It
was held that the jewellers must have intended to deal with the person before them, not sir
George whom they knew nothing about.ie, merely making a directory search did not show they
intended to deal with someone else.
Ingram V Little

A rogue in response to an advert by the respondents visited their residence and offered to buy
their family car. When they hesitated to accept his cheque, he told them that he was P G M
Hutchinson and gave the address. The sisters had never heard of such a person but one them
checked the directory and found a person of those names lived at that address. They accepted the
cheque and surrendered the car to him. He sold the car to the defendants and disappeared. When
they presented the cheque, it was dishonoured. They then sought to recover the car from the
second buyer. It was held that the offer was intended for the real PGM Hutchinson, therefore the
rogue could not accept it. He did not therefore acquire good title to sell.

Discharge of a contract

Remedies

Lewis v Avery

A rogue offered to buy a car. He misrepresented himself as Richard Greene. They asked for
identification as they knew of but had never dealt with Richard Greene. The rogue produced a
special gate pass without a name or photograph but authorising the bearer to enter the studio.
They were impressed that he must be Mr. Greene and parted with the car for a cheque. The
cheque was dishonoured. It was held that there was a contract. This case has tended to be
disregarded because it was a court of appeal decision. However, the difference between the two
cases is hard to appreciate because in both cases the sellers only knew the buyers by implication.
In both cases, they confirmed the identity of the purported buyer by consulting the directory yet
the court reached a different decision.

The only difference between the two cases seems to be firstly that the seller in Philips case was
an expert jeweller expected to take precautions, unlike the girl selling a car in a one off
transaction. Secondly, dealers in minute things like rings would be expected to appreciate that it
would be harder to trace the culprits than a car.

Namjee Brothers v Awadha

A fraudulent person obtained goods by presenting a delivery note purported to be issued by the
defendant company whereas the company had not issued the note. He resold the goods and
disappeared. The original sellers sought to recover the goods from the final buyer. It was held
that the seller released the goods under the mistaken belief that the promisor was an employee of
the company. The seller therefore intended to deal with the company. The court ordered that the
final buyer was to return the goods to the original seller or pay the price for them and seek
compensation from the rogue. The absurdity of this decision is that in cases of this nature, the
rogues cannot be traced, or where he can, he is not worth much.

Non est factum – Where a party has signed a document giving rise to contract, he may seek to
escape liability that the document he signed is not the one he intended to sign i.e. that he was
misled. eral is the plea of non est factum meaning it is not my deed. This plea is an exception to
the general rule. The general rule is that when a person attaches his signature or mark to a
document, he is bound by the document whether or not he has read and understood the
document, and whether or not he can even read at all.

Initially, the doctrine was applied in very restricted terms. It could only be invoked in respect of
deeds i.e. formal documents. Over the centuries, the courts allowed a wider application of the
doctrine such that it is now applied to ordinary contractual documents.

In the case of Foster v MacKinnon where a person signed a document not knowing its contents,
it was held that he was not bound by it because his mind did not accompany the signature. Later,
in the case of Lewis v Clay, Lord Neville presented a document to Clay and asked him to append
his signature to it. The document was completely covered with blotting paper in which a space
had been cut through which he should sign. He told Clay that the document was a private family
document on which he only required Clay’s signature as a witness. It turned out that the
document was a promissory note and by signing it Clay undertook to pay Lewis 11,113 p. He
used the document to convince Neville to advance money to him, which he did not repay. It was
held that the document he signed was fundamentally different from the one he intended to sign
and was not bound by it.

The locus classicas in this area is the case of Saunders v Anglia Building Society. A 78 year old
woman wished to transfer the title of her house to her nephew. A clerk who was a friend of the
nephew learned of this. He prepared a document by which the house would go to himself and
presented it to the lady to sign. The lady’s eye sight was bad and she had lost her glasses. She
asked the clerk to explain the document to her and he told her it was a transfer of the house to the
nephew. She signed. The clerk then used the document to borrow money from the Building
Society, defaulted on payment. The company now sought to take over and sell the house. The
lady pleaded non est factum. It was held that she was bound by the signature because the
document she signed was not fundamentally different from the one she intended to sign. She
intended to sign a document by which she would give away the house. The court explained that
for a person to deny his signature, the document he signed must be radically, basically,
essentially and fundamentally different from the one he thought he was signing. Ref. Jinah’s
Company v Owino. From these decisions it would appear that the plea of non est factum applies
subject to the following limitations –

1. It is only available to a limited class of persons ie persons without fault on their part are
unable to read and understand the documents in question – illiterates, minors, unsound
mind, blind, senile or those who are so intoxicated at the time of signing that they cannot
appreciate what they are signing.
2. The mistake must be a serious one in the sense that the document is fundamentally
different from the one intended.
3. Mere ignorance of the contents of the documents as opposed to the inability to read and
understand it cannot excuse.
4. A person cannot benefit from the plea if he acted negligently.

Kakande v Nsimbi – the part owner of a piece of land agreed to sell part of it to the plaintiff. The
sale agreement was prepared by the seller’s own lawyer and was signed by the two parties in the
presence of the lawyer as a witness. After signing, the two parties went to the land office to sign
transfer forms. Much later the seller sought to repudiate the contract contending that he thought
he was only signing a ten year lease of the land and that he had signed the wrong document
because it was not translated to him in Luganda, the language he understood. The court rejected
his defence and held that if he had not been careless, he would have asked his lawyer to translate
the document for him.

THE ILLITERATES PROTECTION ACT, CAP 78

First enacted in 1918 as the Illiterates Protection Ordinance. It was an attempt to protect illiterate
persons in respect of documents prepared and signed on their behalf. Section 1 of the Act defines
an illiterate in subjective terms as a person who cannot read and understand the script or text of
the document in question. Section 2 provides that no person shall append the name of an illiterate
person to a document by way of signature unless the illiterate has first attached his mark and any
person who write the illiterates name must also write his full names and address on the document
as a witness. By so doing he certifies that he only put the illiterates name after the illiterate had
put his mark; and 2) that he read and explained the contents of the document to the illiterate.
Section3 provides that no person shall write a document for or on behalf of an illiterate person
without putting his own full names and address on the document as the author. By so doing, he
certifies that 1) he wrote the document on the instruction of the illiterate 2) that the document
accurately represents the instructions of the illiterate and 3) ……. Section 4 provides that any
person who signs or writes a document without complying with the provisions of 2 and 3
commits an offence and is liable to a fine of 300 = or in default to imprisonment for a term not
exceeding 3 months.

Shortcomings of the Act

1. It does not render the document invalid. It only penalises the offender;
2. It imposes a ridiculously low and therefore non deterrent sentence on the offender;
3. It does not apply to receipts for taxes and government payments;
4. It only creates a rebuttable presumption that the guidelines stipulated in it have been followed
where a document is made or signed for an illiterate.

EFFECT OF MISTAKE ON CONTRACT.

Once established, a mistake renders a contract void ab initio and neither party can enforce it in
court. Equity sometimes intervenes to reduce the drastic implications of a contract being
rendered void by mistake. A mistaken party who has not acted negligently may be allowed to opt
out of the contract if he can do so without injuring the other party – Webster v Cecil; Cooper v
Phipps.

ILLEGAL AND VOID CONTRACTS

It is necessary to distinguish between illegal and void contracts because the two terms are
confusing especially when courts tend to use them interchangeably or jointly. i.e that the contract
is illegal and void. It becomes even more confusing when a distinction is made between a void
and voidable contract.

Illegal contracts are those that are prohibited by the law, expressly or by implication. Void
contracts on the other hand, are essentially valid, ie they are permissible but are unenforceable,
either because one of the essential elements of a valid contract is missing or because they are
vitiated by mistake or arguably duress. Void contracts are also distinguishable from voidable
contracts. A void contract is void ab initio. This means that nothing done subsequently can
render it valid. On the other hand, a voidable contract is initially valid but potentially
challengeable. Because a void contract is irredeemable, neither party needs to do anything to
avoid it.; whereas a voidable contract is valid until it is avoided and set aside. It is therefore
necessary to submit it to court in order to avoid it.

A voidable contract can only be avoided by the innocent party whereas a void contract is invalid
for all purposes and either party is at liberty to refuse to implement its terms. When a contract is
declared illegal, it means that neither party can enforce it through a court of law. On the other
hand, it is possible though not common for courts to grant some remedies to parties to a void
contract by invoking equity. Illegal and void contracts can be categorised into 3;

1. Contracts which are rendered illegal by statute.

2. Contracts illegal at common law on grounds of public policy.
3. Contracts which are void at common law on grounds of public policy.

CONTRACTS ILLEGAL BY STATUTE

Certain Acts of parliament specifically prohibit certain transactions with the result that it will be
illegal to enter into contracts relating to those transactions. Under English law, certain Acts of
parliament prohibited 3 types of contracts.

1. Wagering contracts-these were prohibited by the gaming Act. Here two parties stake a
sum of money which will be won or lost by one upon the happening of a future uncertain
event.
 2. Restrictive Trade Agreements.
3. Resale Price Maintenance Agreements.

The above laws would not apply in Uganda. However, Uganda has its own statutory provisions
which prohibit certain transactions eg. The Land Act prohibits the sale of land to non-Ugandans
where the interest acquired by the buyer is higher than a lease. The employment act provides that
a contract of service of 6 months and above shall be in writing

The money lenders act provides that no person may enter into a transaction to lend money on
interest unless he is registered and licensed as a money lender.

CONTRACTS WHICH ARE ILLEGAL AT COMMON LAW ON GROUNDS OF PUBLIC

POLICY

Even when a contract is not specifically prohibited by law, a court of law may refuse to enforce
it if it is of the view that a contract offends public policy. A contract is said to offend public
policy if it is injurious to members of the public other than the parties to it. The notion of public
policy is a controversial one. It has its origins in 18 th century intrusion of Christian sentiments in
matters of law. Public policy represents an invasion of questions of morality in matters of law. It
is based on the view that a court of justice cannot allow contracting parties to injure society for
their personal gain. This view is problematic because there is no known set of rules to be used to
determine public policy. What is unacceptable to one society may be acceptable to the other.
Even the standards of morality themselves change over time within the same society.
Consequently it is difficult to develop an exhaustive list of contracts which are illegal on grounds
of public policy, but include at present the following –

1. A contract to commit a crime – where parties enter a joint undertaking to perpetuate crime,
they cannot submit the resulting disputes to a court of law for adjudication. Hence contracts
to assault, to obtain goods by false pretences, to defraud 3 rd parties etc are not enforceable in
courts. This principle even extends to family law. In the case of Reejiles, a wife killed her
husband by hitting him on the head with a chamber pot. The criminal court acquitted her on
the grounds of diminished responsibility. Nevertheless, she could not benefit from her
husband’s will because to allow her to do so would be to reward her for her crime. In
Belsford v Royal Insurance Co – a man took out a life assurance policy and then shot himself
 three minutes after. It was held that his estate could not recover the compensation because to
allow them to do so would allow the deceased benefit from his last criminal act. Regazoni v
Sylvia – there was a contract for sale of Indian jute to Italy. It was understood between the
parties that the jute would be re-exported to South Africa at the time when India had imposed
sanctions on South Africa. A dispute between the parties was submitted to the court of
England. The defendant argued that since the transaction did not breach English law, it could
be enforced by an English court. The English court disagreed and held that it could not
knowingly give force to a contract designed to breach the laws of a friendly country. Foster v
Glisco – in the 1920’s the US amended its constitution and introduced a provision which
prohibited the importation, marketing and consumption of liquor within the US. The plaintiff
and the defendant entered an agreement by which they were to enter into a partnership to
import English liquor into the US through the Canadian border. The defendant breached the
contract. The plaintiff sought to enforce it through English courts but the courts declined
jurisdiction, observing that enforcing such a contract designed to violate the laws of a
friendly country would undermine the principle of comity of nations i.e. mutual respect and
was therefore contrary to public policy and unenforceable.

2. A contract to commit a tort – SW Smith v Clinton

3. A contract to promote corruption in public life – a promise to pay a bribe cannot be enforced
in court. A promise by a public servant to use his office to obtain preferential treatment for
the promisee cannot be enforced. Parkinson v College of – the secretary of the defendant
college promised Col Parkinson that if he made a big donation to the college, which was a
charity with royal connections, the college would use its influence to enable him get a
knighthood. He made the donation but he did not get the knighthood. He sued the college. It
was held that the promise denigrated the dignity of the crown because knighthoods could not
be bought and sold. It was therefore contrary to public policy. Tekere v - two potential
parliamentary candidates cast lots and it was agreed that the looser of the lots would allow
the leader to stand unchallenged in the election. If the looser insisted on standing, he would
forfeit 5000 Ethiopian pounds. The looser nevertheless stood and his colleague sued. It was
held that every citizen has the right and freedom to vote in an election and that right could
 not be sold. Likewise, the right to represent the people could not be obtained through money
and deceit.
4. A contract which undermines public safety – a contract, the enforcement of which
undermines the security of the state cannot be enforced through court. Courts have always
held that contracts with an enemy alien cannot be enforced. Dembra Co. Ltd v Continental
Rubber Co. – the appellant company was incorporated in England. The objects for which it
was formed was to market in England tyres manufactured in Germany. All its
shareholders/directors except one were Germans. When the 1 st world war broke out the
defendant refused to pay the company certain trade debts arguing that to do so would be to
trade with an alien enemy. The court agreed.

5. Contracts to defraud the revenue – a contract which is couched in such a way that the parties
will avoid paying tax may not easily be enforced through court. Miller v Kalinsky – there
was an employment contract that provided that the employee would be paid wages weekly
and part of those weekly payments would include a refund of taxes. The employer breached
the contract and the employee sued both for the wages and the tax refunds. The courts
refused to enforce either. Samuel Kizito Mubiru v Byesiga – the defendant bought land at a
public auction of the plaintiff’s property in execution of a court order against the plaintiff. In
the agreement of sale between the court bailiff and the defendant, the consideration for the
land was deliberately understated as 500,000= instead of 2,000,000. This was intended to
enable the defendant pay less stamp duty on the transfer of the land into his own names
because it is calculated as a percentage of the value of the land. Subsequently, the plaintiff
sued and sought to set aside the sale on the ground that it was tainted with fraud. The court
agreed and held that such a transaction calculated to cheat the government of revenue was
fraudulent and void, and so the defendant never acquired good title to the land and the land
title was cancelled.
6. Contracts to promote immorality. These are sometimes called,…… there are many examples
at common law that prohibit immoral contracts. Likewise a landlord who rents out premises
knowing that they are to be exclusively used to receive clients in sex trade may not enforce
his rent. Agreements for illicit future cohabitation may not be enforced. …..

Pearce V Brooks
 A taxi driver hired out his taxi to a prostitute knowing that she intended it to pursue her
customers and his suit to recover the hire charges failed.

7. Contracts of maintainance/trafficking in litigation. These are contracts which involve

trafficking in litigation. For example investing in a case which does not necessarily concern
you in the hope of benefiting from the expected court benefits. Eg. X is knocked by a car
belonging to Y. being poor, X cannot afford to sue Y and Z undertakes to fund the suit on
the understanding that he will have a share of the expected court award. –Not enforceable
because Z had no direct interest in the case.

Trendlex Trading Co. V Credit Suisse

Trendlex sold cement to an English corporation, CIF Lagos. The payment was to be effected
under a letter of credit issued by the Central Bank of Nigeria. The bank failed to honour the
letter of credit. Credit Suisse had lent money money to Tradelex with which to perform the
contract. It now guaranteed Trendlex its legal fees against the bank. In return, Trendlex
assigned to Credit Suisse the right of action and the benefits that would accrue from the suit.
The agreement gave Suisse the right to re assign the right to another party. 5 days later,
Suisse re assigned the rights to another party. Trendlex now turned around and claimed that
its agreements with Suisse and the re assignment to another party were void as they provided
for…… the house of Lords held that the agreement between Trendlex and Suisse was valid
because they had a bonafide interest against the outcome of the case being the financiers of
the transaction giving rise to the suit. The illegality arose from the agreement for the
contemplated re assignment of rights to a third party which brought up the likelihood of a
third party benefiting from a suit in which they had no connection or interest.

CONSEQUENCES OF ILLEGALITY
The general rule is that illegality renders a contract wholly unenforceable by either party and
the principle is that loss lies where it falls. Over the centuries, courts have allowed a number
of narrow exceptions and consequently the law can be summarised as follows;
1. Where the parties have knowingly and deliberately entered into a contract which is legal,
such a contract is intrinsically and irretrievably void ab initio and no party to it can make
benefits through the law.
 2. Where the parties are not in pari delicto, in such a case the court may assist a party who is
less at fault.(Kiriri Cotton Co. V Dewani)
3. Where one party repents and withdraws from the contract before it has been substantially
performed, then the court may allow such a party to retreat from the contract by granting
the remedy of restitution. (Taylor V Boaz.)
4. Where a contract is initially lawful but one party exploits it for an illegal purpose, or
where the illegality is commited in the course of performace, the party who is not tainted
by the guilt of the other party may enforce the contract. Ashmore Benson, Peace Co ltd V
Dawson Ltd. This was a contract to carry cargo of 50 tonnes and was to be delivered in
two instalments of 25 tonnes each. The deliverer carried using 20 tonne trucks which
were thus overloaded. The owner of the goods refused to pay. It was held that both were
tainted because they knew the company had only 20 tonne trucks.
5. Where the contract consists of distinct and separate units (severable) and the illegality
only affects some units and not the others, then it can be enforced in respect of the parts
not affected by the illegality.
6. Where the contract concerns property rights and it is possible to enforce the contract
without relying on the contract but some other laws, then those rights can still be enjoyed.
Signh V Kulubya. The right for recovery of land could be enforced outside the contract.

CONTRACTS VOID AT COMMON LAW ON GROUNDS OF PUBLIC POLICY

There are three categories of contracts which are void but not illegal on the ground that they
offend public policy.

1. Contracts to oust the jurisdiction of courts. Sometimes parties to a contract insert

provisions to the effect that any disputes arising between the parties shall not be taken to
courts but to a mediator. The question is whether such a provision is mandatory or
binding with the effect that if a party opts to sue in court the case will be thrown out or
stayed. Arbitration agreements are recognised by the law. Ie. Arbitration and
Reconciliation Act.
CONTRACTS IN RESTRAINT OF TRADE

A contract in restraint of trade is a provision by which one party agrees to restrict his future
liberty to carry out business or practice his trade of profession freely. Such a contract is prima
facie void. This is because it is deemed to be in the public interest to promote competition and
allow freedom in the market. In Giella v , the employee of a firm specialising in roofing and
flooring signed a contract of service which contained a clause which stated that the employee
undertakes on determination of this contract not to engage in any similar undertaking within a
radius of 10 miles from the post offices of Nairobi, Mombasa, kampala, Arusha, Naivasha and
Daressalam, until a period of three from the determination of the contract has elapsed. When he
resigned, he went to work for a rival firm on the same road in Kampala. The employer sued
seeking an injunction prohibiting the former employee from engaging in the trade. It was held
the restraint was unreasonable and an injunction could not succeed.

From decided cases, the law can be summarised as follows –

 1) That contracts in restraint of trade are contrary to public policy and are therefore invalid
prima facie.
2) A restraint of trade can be enforced if it is reasonable, and the restraint is reasonable if the
restraint is in the interest of both parties and of the public.
3) The burden is on the party seeking to enforce the restraint to prove that it is reasonable as
between the parties and is not injurious to the public
4) In determining whether or not a restraint is reasonable, the court considers the
geographical coverage of the restriction, the duration for which it is to apply and the
range or scope of activities it restricts.
5) An employer is entitled to protect his trade secrets but he is not entitled to protection
from competition per se.

(Ref. to the Constitution Arts.40 onwards and the case of AG v Tinyefuza 1997)

Considering the above provisions and the decision in the above case, are the above
principles constitutional?

CONSEQUENCES OF A VOID CONTRACT

When a contract is declared void, as opposed to being illegal and void, then the courts adopt a
more lenient approach and the law which has developed is as follows –

1) A contract will be invalid only to the extent to which it offends public policy;
2) Money paid or property transferred under such a contract may be recoverable. In Herman
v Charlesworth, although the contract was declared void, the lady was allowed to recover
the deposit she had paid to the defendant to help her get a partner.
3) Subsequent transactions springing from the void contract may not themselves necessarily
be invalid.
4) If valid promises are severable from the invalid ones, the former may still be enforced.

MISREPRESENTATION

In the course of entering into a contract, parties may make statements oral or written which may
or may not be incorporated into the contract. If they become part of the contract they are referred
to as terms which can either be conditions or warranties depending on their centrality to the
contract. If they do not, they are referred to as mere representations.

A representation is a statement of fact made by a party to a contract called the representor to the
other party called the representee, which while not forming part of the contract yet it induces the
representee to enter the contract.

A misrepresentation is a representation which turns out to be untrue.

Nature of misrepresentation

It is not every statement made by a party to a contract which will make the other party to seek
relief. To amount to a misrepresentation, the statement must exhibit the following

1) It must be a statement of existing fact. This means that it must not be a statement of
opinion or a statement of law. It is not always easy to distinguish facts from opinions and
that difficulty can be illustrated by using the case of Biset v Wilkinson – The owner of
land in NewZealand told a prospective buyer of land that in his judgement it could
accommodate over 1000 sheep. Nevertheless it was held that this was an honest statement
of opinion and not a representation of the actual capacity of land because the land had
never been used for sheep rearing and both parties were aware of this fact. Note that if an
opinion is stated as if it were a categorical fact, it will be binding on the maker. An
opinion given by a professional in the course of his professional business may give rise to
liability if it turns out to be wrong.
2) It must be a statement of existing fact not a promise as to the future. A promise to do
something in the future is only binding if it is incorporated into the contract. Edgington v
Fitzmaurice – a company issued a prospectus inviting the public to buy shares. It stated
that the income realised from the sale of shares would be used to improve the buildings
and expand the business of the company. This was untrue. The company had already
planned to spend the proceeds of the sale to settle existing liabilities. It was held that the
company had not made a promise which it failed to fulfil but had told a blatant lie
regarding its already settled intentions. The directors were therefore liable for deceit.
Sometimes it is necessary to distinguish between a statement of fact and a mere puff. In
the Carlil case, court defined a puff as a statement which is so vague and which involves
 such obvious exaggeration that as far as the law is concerned, they have no meaning and
are incapable of influencing a party to enter into a contract.
In the second element of misrepresentation, the statement must have been intended to
influence the representee. Normally this requires the representee to prove that the
statement was directed at him or at least the representor know or ought to have known
that the representee would rely on the statement. Peek v Gurney – there was a sale of
company shares to the public which was preceded by the issue of a prospectus. The
persons who bought shares on the IPO resold their shares to the plaintiff on the secondary
market. The plaintiff made a loss and claimed on the basis of a misrepresentation
contained in the prospectus. It was held that the statements in the prospectus were not
directed at the plaintiff but those who bought at the IPO.
The third element is that the statement must have actually induced him to enter into the
contract. The court applies the “but for” test. This requires the plaintiff to show that 1) the
statement did come to his notice; 2) that he believed it to be true; 3) that because of the
belief, he entered into the contract. If the plaintiff knew that the statement was untrue, or
if there were no reasonable grounds to believe it, or if the representee actually did not
believe the statement to be true but relied on other considerations to enter into the
contract, then he cannot claim misrepresentation.

Silence as Misrepresentation

The basic rule is that misrepresentation is a positive assertion of fact and mere silence cannot
amount to misrepresentation. This is because a contracting party has no legal obligation to
volunteer the facts within his knowledge. The basis of this is caveat emptor meaning that the
contracting party has an obligation to make all inquiries to satisfy himself. However, there are
three exceptions whereby silence may amount to misrepresentation: 1) where the contract in
question is a contract uberimma fides i.e. a contract founded on utmost good faith. This is a
contract where all the material facts are in the possession of one party and cannot be easily
accessed by the other. The party having knowledge of these facts has the duty to disclose to the
other. Material facts are those which a party needs to determine whether to enter a contract and
on what terms. 2) Where there exists a fiduciary or special or professional relationship. A
fiduciary relationship is one founded on trust, normally where the parties are of unequal power
such that the weaker party has put herself in the hands of the stronger party. Eg family
arrangements. Gordon v Gordon – a distribution of the property of a deceased man was based on
the assumption that the first son was illegitimate. 19 years later, it was discovered that at the time
of the distribution, the younger son knew that the parents had entered into a private marriage
ceremony before the birth of the elder son with the effect that he was legitimate and entitled to a
substantial share. The distribution was set aside because the younger son had breached his
fiduciary duty. Others include advocate/client, parent/child, trustee/beneficiary, fiancé/fiancée,
BUT not husband/wife. 3) Where silence distorts a positive assertion already made. When in the
course of negotiating a contract, a party asserts facts which are at that time correct, but before the
contract is concluded the facts change substantially, he has the obligation to disclose the new
state of affairs and will be held liable for misrepresentation by silence if he does not. Ref. With v
O’Flanagan.

Types of misrepresentation

It is important to distinguish the various types of misrepresentation because the remedies

available in law depend on the type. They may be fraudulent, negligent or
innocent.

Fraudulent Misrepresentation
In the case of Derry v Peek, a fraudulent misrepresentation was defined as a statement made by a
party knowing it to be untrue or having no reason to believe it to be true; or in reckless disregard
of whether it is true or not. In such a case the representee can sue either in contract for
misrepresentation or in tort for deceit. A transport company applied to operate trams using steam
power. The Act was passed authorizing them to use steam power provided they obtained the
consent of the Board of Trade. They took it for granted that the board would give its consent as a
formality, and so in their prospectus, they stated that the company had authority to operate steam
powered trams. On the basis of this statement, the respondent bought shares in the company.
Subsequently, the board refused to give consent. Consequently the company faced financial
difficulties and eventually wound up. The respondent sued for deceit/fraudulent
misrepresentation. The House of Lords after setting down the element of fraudulent
misrepresentation held that in the circumstances, the directors made the statement honestly
believing it to be true.

Friedman v Njoro – shares were sold after the buyer was misled by the false assertion that there
were other offers when there were none. It was held that that was a fraudulent misrepresentation.

Negligent misrepresentation

In law, negligence arises only where there exists a duty of care. A negligent misrepresentation is
therefore one made by a person who has a legal duty to take reasonable care to ensure that the
statements made to the other party are accurate. For many years after the decision in Derry and
Peek the courts operated on the assumption that a person could only be liable for
misrepresentation if his statements were fraudulently made. Then in 1914 the principle was
extended in Nocton v Lord Ashburton, a case which dealt with negligent advice given by a
solicitor to his client and that case enunciated the principle that a party could be held liable for
careless misstatement if he had a fiduciary or special relationship with the representee. Even after
this decision, the principle continued to apply in a restricted way until 1964 when in the case of
Hedly Bryan v Heller Partners, the house of lords decided that a person could be held liable for
misrepresentation even if there was no contractual or fiduciary relationship if he was in such
proximity with the representee that he could reasonably foresee that the representee would act on
his statement to his prejudice. To prove negligent misrepresentation you must prove 1) that the
representor made the statement which turned out to be untrue; 2) that when he made the
statement he could reasonably foresee that the representee would act on it; 3) that the representee
did act on the statement to his prejudice. In that case, the plaintiff entered into an advertising
contract on behalf of a company called Easypower. The terms of the contract were that they
would be liable. The defendants advised that Easypower was financially solid but stated that this
was given without responsibility on their part i.e. they made a disclaimer. On the basis of their
advice, the plaintiffs went on to make the advert. Easypower was infact in financial problems and
went into liquidation shortly thereafter. As a result the plaintiffs personally paid for the advert.
They then sued the defendants for misrepresentation. Court held that a representee in
circumstances like the instant case could be held liable for the misstatement even if there was no
contractual or fiduciary relationship with the representee. However, in this particular case, the
defendants were protected from liability because they had specifically included a disclaimer. The
rule in Hedly Bryan has recently been applied in East Africa in the case of Kirima Estates U Ltd
v Korde – the plaintiff company lent out a sum of 60,000= which was secured with a mortgage
on the borrower’s land. They first consulted the defendant, an advocate, who without having the
land valued by a qualified valuer and without even inquiring about prevailing local land prices,
advised that the land was worth 120,000=. The borrower failed to repay and when the land was
put on the market, it could only fetch 45,000=. The plaintiff then sued the advocate alleging
professional negligence. Held CJ Udo that the defendant was perfunctory and reckless in giving
the value of the land at 120,000 as he had no grounds on which to base that valuation. In Winther
v Arbon Langrish and Southern Ltd, the wife of a life assurance policy holder called at the office
of the defendants who were insurance brokers. She asked them what she needed to do in order to
benefit from her husband’s insurance policy. The brokers did not advise her to renew the policy.
Consequently when the husband died in an accident, she could not recover. She successfully sued
for negligence.

Innocent Misrepresentation

This occurs when a statement, though wrong, is made neither knowingly, nor recklessly, nor
negligently. The misrepresentation must have been made in the honest but misguided belief that
it is true.

Remedies for misrepresentation

The general rule is that misrepresentation renders a contract voidable but not void.
Remedies depend on the type, the prevailing circumstance at the time it is made, and the wishes
of the

1. Damages – refers to the monetary compensation for the loss or injury naturally and directly
resulting from the defendant’s breach. If it is a remote loss, it cannot be recovered. In terms
of misrepresentation, damages are awarded to cover as precisely as possible, the loss suffered
by the representee as a result of the misrepresentation. Usually damages represent the
 difference between what you gained from the contract and what you would have gained if
you had been given correct facts. Where the misrepresentation complained of is fraudulent
misrepresentation, the representee has the option either to rescind the contract or claim
damages. If he opts to claim damages, he brings the action, not in contract but in tort for
deceit; in which case he has to prove the ingredients of deceit as laid down in Derry and
Peek. Damages are not recoverable for innocent misrepresentation but the representee may
be awarded indemnity or may be allowed to rescind the contract.

2. Indemnity – refers to a refund of actual expenses incurred. It is difficult to distinguish

Indemnity from damages since both are compensatory. Indemnity is limited to actual
expenses incurred in the performance of a contract which has been induced by
misrepresentation.
Whittington v Scale-Hayne - The plaintiffs were poultry breeders. An owner of farmland
induced them to take lease of the land by representing that it was in a sanitary condition. This
proved to be a misrepresentation. The fowls kept on the land died. The farm manager also
fell ill. The plaintiff sued claiming the value of the lost fowls, the loss of profits which would
have been made, and the medical expenses on the farm manager. It was held that they were
entitled to recover the rent, rates and repair expenses but not the value of stock, profits lost
and medical expenses, because to award them that would be to award them damages.

3. Rescission – since misrepresentation makes a contract only voidable, the contract remains
valid until it is set aside. Upon discovering the misrepresentation, a representee has two
options - 1) he can use it as an excuse to rescind the contract; 2) he can choose to affirm the
contract and claim damages. A contract is affirmed if the representee opts or expresses the
intention to continue with the contract after discovering the misrepresentation. The
affirmation may be express or implied or inferred from the conduct.

Mode of rescission – one can rescind a contract informally i.e. by merely communicating a
notice to the representor that you no longer consider yourself bound by the contract. The
requirement of communication of rescission to the representor will be satisfied if the
representee does any overt act deemed reasonable in the circumstances.
 Eg in Carr and Universal Co Ltd v Cadwell – the owner of a car was induced through fraud
to sell it to a rogue who disappeared without trace. Upon discovery of the fraud he notified
police and the Automobiles Association to help him trace the car. It was held that he had
done enough to rescind the contract and accordingly the innocent 3 rd party who bought from
the rogue never acquired good title because the contract with the rogue had already been
rescinded. It is however preferable to rescind the contract by legal proceedings such the
consequences of rescission can be properly worked out. Rescission is an equitable remedy.

Under common law the representee could only claim damages. The logic behind rescission is
that a party should not be forced to remain in a contract which he entered into when he was
misled. Being an equitable remedy, the right to rescind is lost if the canons of equity are not
satisfied. In particular the right to rescind in any of the following situations – 1) affirmation
of a contract – when the representee chooses to proceed with the contract after he has learnt
of the true facts he loses the right to rescind. 2) Laches/lapse of time – when the contract is
not rescinded within a reasonable from the discovery of the falsehood, then the representee is
taken to have affirmed the contract.

In Leaf v International galleries – there was a contract for sale of goods. The representation
was not fraudulent. The plaintiff sought to rescind the contract after 5 years. Court dismissed.
Note that if the misrepresentation is fraudulent or a misrepresentation in breach of a fiduciary
duty, then lapse of time cannot bar the right of rescission. 3) when restitutio in integram/no
longer practical to restore to the original position. Restitution requires refund of monies paid
and recovery of the subject matter. It follows therefore that if the nature or character of the….
has fundamentally changed or the subject matter has been resold, or extinguished, then the
right to rescind is lost. 4) the right to rescind is lost if the party is likely to suffer injury due to
restitution.

DURESS AND UNDUE INFLUENCE

The basis of agreement is consent. Accordingly an agreement obtained either through the use of
force or the threat to use force or other unlawful form of persuasion cannot stand because the
affected party is not a free contracting agent. The old law was rigid and narrow. Under the
common law an agreement could only be vitiated in this regard if there was actual use of
violence on the person or a threat of immediate application of violence to the person. Only then
could you rely on duress to set aside a contract.

This common law doctrine of duress known as legal duress was clearly unsatisfactory because
there are non physical threats whose effect can even be more serious than physical ones.
Accordingly equity came in to tone down the strictness of legal duress by introducing the sister
doctrine of undue influence.

Duress at common law means actual violence or a threat of violence to the person calculated to
cause fear of loss of life or bodily harm. To amount to legal duress, the threat had to meet the
following criteria

1) The threat had to be illegal i.e. amounting to a crime or a tort. The exercise of one’s rights
however hash does not amount to duress. In Hasanali Issa v Jeroig it was held that the
plaintiff was merely exercising his possessory lien when he refused to release the bike until
repair and storage charges were paid, and therefore his conduct could not amount to duress. It
was immaterial that the value of the goods in question was far greater than the sum for which
they were being retained. Likewise a threat by a law enforcement officer to imprison a
suspect does not amount to duress unless it is made in obvious abuse of authority. Cumming
& Ince

2) To amount to duress the threat had to be a threat to one’s person not to property.

3) It had to be a threat to inflict actual physical violence; hence the threat to dismiss an
employee however unfair did not amount to duress. In Latter v Brandel, a housemaid was
coerced by her mistress to undergo a medical examination on an unfounded suspicion that
she was pregnant. She vehemently protested but finally submitted to the examination. She
then claimed damages. It was held that the examination was not vitiated by duress because no
physical violence was threatened or inflicted.

In more recent years the narrow approach which emphasises legal duress has been rejected and
modified; and the courts have accepted that a threat to one’s property or one’s economic interests
does amount to duress known as economic duress.
The Universe Sentinum was a ship registered under the Liberia flag. Trade union officials
threatened to induce the crew of the ship to lay down the tools and by so doing to prevent the
ship from leaving the port unless their demands were met. The ship master agreed to pay the sum
being demanded and to sign collective agreements. He lkater sued to recover the money paid and
the court accepted the argument that in view of the disastrous financial consequences the ship
owners would have suffered if the ship did not leave dock. The threat constituted economic
duress. Read Sibeon v The Sibotre;

North Shipping Co v Hyundai Co.- The defendant ship builders agreed to build a tanker for the
plaintiff at about 40m $ dollars payable in 5 instalments. After the plaintiffs had paid one
instalment, the exchange rate of the dollar collapsed worldwide. The defendants threatened not to
proceed with the construction unless the plaintiff increased the pay by 10% and paid in one
lumpsum. The plaintiffs had already signed contracts with 3 rd parties to carry the 3rd parties’
goods using the tanker and under the terms of those contracts, they stood to be penalised heavily
in damages if they did not deliver. Accordingly they reluctantly agreed to pay as demanded. 8
months after receiving the ship they sued for refund of the excess pay citing economic duress. It
was held that threat not to build the ship amounted to economic duress but on the facts, the
plaintiffs had lost the right to set aside the contract because by delaying to take action to set aside
the contract after the threat had ceased, they were presumed to have affirmed the contract.

UNDUE INFLUENCE

In spite of introducing the doctrine of economic duress, many unfairly induced contracts could
not be set aside, especially contracts which are induced by forms of persuasion that do not
amount to threats. Equity therefore intervened by introducing undue influence.

It operates at 2 levels –

1) where there is actual pressure – where an agreement is alleged to have been obtained through
pressure, it is voidable for undue influence but the burden is on the party alleging such
pressure to prove a) that pressure was applied as a matter of fact and b) that if it had not been
applied, he would not have entered into the contract. The law has not satisfactorily defined
undue influence, but in Alkard & Skinner, Justice Lindley described undue influence as
“some unfair and improper conduct; some coercion from outside; some overreaching; some
 form of cheating and generally, though not always some personal advantage obtained by the
guilty party”.

2) Where there exists a special or confidential relationship. Such a relationship exists when one
party is in position to dominate the will of the other, and he uses his position to gain unfair
advantage over her. Where one alleges actual pressure by a person with whom he has no
special relationship, he has to prove undue influence in fact. However where a special or
confidential relationship exists, there is a presumption of undue influence and the burden is
on the stronger party to prove that he did not take advantage of his dominant position to
obtain benefit. Secondly where such a relationship exists the weaker party will be granted
relief even if the stronger party did not gain a personal benefit in the relationship. Ref.
Allcard & Skinner where it was held that although no personal pressure was made by the
defendant and although no personal gain was made by her, nevertheless considering the
special relationship between them especially the vow of obedience, there was undue
influence. Undue influence is presumed in relations between parent/child, guardian/ward,
religious advisor/disciple, doctor/patient, solicitor/client etc. it applies to some transactions
between fiancé and fiancée but not transactions between husband and wife and between
employer and employee.

Read - UNCONSCIONABLE BARGAIN

EFFECT OF DURESS AND UNDUE INFLUENCE

Undue influence renders the contract voidable at the option of the weaker party who may either
confirm the contract after the influence has ceased or set aside upon gaining liberty. As regards
duress however, there is split opinion. Some authorities assert that because duress negates
consent, then there is no contract i.e. that duress renders a contract void; but the bigger body of
authorities is to the effect that it only renders a contract voidable. It would appear that it depends
on the nature of the duress.

Like misrepresentation, undue influence and possibly duress can only be relied on if the affected
party acts vigilantly. The right to set aside is lost in case of unreasonable delay, affirmation of
the contract, impossibility of restitution or interference by a 3rd party.
DISCHARGE OF CONTRACT

This means bringing the contract to an end. When a contract is discharged, the parties are free
from their mutual obligations. The parties cease to have rights and duties under the contract. A
contract may be discharged in the following ways –

1) By agreement which may take the form of a waiver, a novation, accord and satisfaction, a
mutual agreement under seal;
2) By performance;
3) By breach i.e. breach of a condition or warrant, or
4) By frustration as a result of war, personal incapacity, destruction of the subject matter, non-
occurrence of an event on which a contract is based, government intervention

Discharge by agreement

The general rule is the Latin maxim “eode modo quo oritur” or “eodem modo – disso ritui”
which means that what has been agreed upon by parties may be dissolved or extinguished by
them through another agreement. An agreement between parties to end the existing contract or to
extinguish their rights and obligations creates in itself a new binding agreement. However,
problems may arise in cases where the discharged contract performed by one party and the other
party derives a benefit eg where X delivers goods on the basis of an earlier contract but P refuses
to pay the price for the goods, and then the contract is discharged. This is a unilateral discharge
of the contract which will only be effective if P furnishes consideration.

A contract is unilateral where it is discharged by one party after the other person has performed
his side of the bargain; and it is bilateral where both parties mutually agree to discharge the
contract. Discharge by agreement may take the following forms –

a) Waiver – where neither party has completely performed obligations under the contract, the
contract may be discharged by a mutual waiver of the outstanding obligations. The waiver is
binding because each party gives, by this waiver, consideration to the other party. However,
difficulties may arise where the waiver suits the convenience of only one party. Therefore
such a waiver by one party which subsequently affects and shapes the conduct of the other
party remains effective. By his waiver a party is said to be estopped from claiming otherwise.
 Charles Richards Ltd v Oppenhein - where in 1947 the defendant ordered from the
complainant a Rolls Royce chassis and in July the plaintiff agreed that the body should be
built for it within 6 or at least 7 months. The body was not complete 7 months later but the
defendant agreed to wait another 3 months. At the end of this extended period, the body was
still not built. The defendant then gave a final notice that if the work was not finished within
a further period of 4 weeks, he would cancel the order. The body was not finished within this
period and the defendant cancelled the order. The completed body was subsequently tendered
to the defendant 3 months later, but he refused to accept it. The plaintiff sued for breach of
contract claiming that the defendant had waived his rights under the agreement when he
extended the time of delivery. The court stated that this was a case where time of delivery
was the essence of the contract. The defendant’s agreement that the delivery should be
postponed for three months constituted a waiver of his right in this respect; and if the body
had been completed within the extended time, he would have been estopped from denying
that the contract had been performed. But by granting a further 4 week’s notice he had given
reasonable notice that time was once more of the essence and since the car was not ready
within this final period, the plaintiffs were in breach of the contract, hence judgement was for
the defendant.

b) Novation – This is where a party to a contract releases the other and substitutes a 3 rd person
who then undertakes to perform the released person’s obligations. By the agreement of the
three parties a new contract comes into play and replaces the original contract. This process
of having a new agreement replacing the old one is called novation. For a novation to be
effective, there must be consent of all the three parties involved – ( Read - Settlement Fund
Trustees v Murani; Price v Kelsall)