You are on page 1of 38

The Law of Contract

Vitiating Factors

Lecturer: Shirley-Ann Eaton


Vitiating Factors

There are factors that may affect the


validity of a contract.
Mistake
Misrepresentation
Duress/Undue Influence
Illegality
2
Mistake
Where the elements required to form a contract are
all present, the parties are entitled to assume that
the expectations reasonable raised by their conduct
will be sanctioned by the court.There are
circumstances in which this assumption may be
defeated by the presence of other factors such as
by mistake, which at common law may make the
contract void or by misrepresentation, which
may make it voidable.
3
Mistake
It is generally in the interest of business that
contracts be enforced. Thus most mistakes,
for example as to the quality of a product
will not affect the validity of a contract. The
common law rules on mistake, if applicable,
render the contract void, but these rules are
exercised within narrow limits. In equity the
rules have a wider scope, but their effect is
less drastic.
4
Mistake
It is important to distinguish a contract
which is void for mistake from one which is
voidable for misrepresentation.
The distinction is of little importance to the
parties themselves since the goods or money
can be recovered from the other party to the
contract if they are still in his possession.

5
Mistake
The distinction is of significance if the goods have
been sold to a third party.
For example, if A sells his car to B and B resells it
to C, if the contract between A and B is void for
mistake, A can recover the car from C because no
title passes under a void contract. C will be able to
sue B for breach of the implied condition that he
had a right to sell and pass title.

6
Mistake
However in a similar situation if the
contract between A and B is only voidable
for misrepresentation, then provided the
sale to C took place before A avoided the
contract, C will obtain a good title, since
viodable means valid until avoided. A
would then have to seek remedy for
misrepresentation against B
7
Mistake
Common Law
The following types of mistake render a contract
void, provided the mistake actually induces the
contract.
1. Mistake as to the existence of the subject matter
2. Mistake as to the possibility of performing the
contract
3. Mistake as to the identity of the subject matter
4. Mistake as to the identity of the other party
5. Mistake as to the terms of the contract of which the
other party is aware
8
Mistake
Common Law
1. Mistake as to the existence of the subject
matter
In Galloway v Galloway a man and a woman
made a separation agreement, believing they
were married. In fact they were not married
because, unknown to them, at the time of their
marriage ceremony the mans wife was still alive.
The separation agreement was held to be void for
mistake because the marriage which was the
basis for the agreement was void.
9
Mistake
Common Law
2. Mistake as to the possibility of performing
the contract.
In Sheik Bros v Ochsner a contract was made
for the exploitation of sisal grown on a specific
plot of land. The contract provided for an
average delivery of 50 tons of sisal per month.
The contract was held to be void because the
land was not capable of producing 50 tons per
month.
10
Mistake
Common Law
3. Mistake as to the identity of the subject
matter.e.g. A intended to buy product X, but B
intended to sell product Y.
In Raffles v Wichelhaus the plaintiff agreed to sell
to the defendant a consignment of cotton which was
to arrive ex Peerless Bombay. There happened to
be two ships called Peerless sailing from Bombay,
one in October and one in December. The plaintiff
was thinking of one ship and the defendant of the
other. It was held that there was no contract.

11
Mistake
Common Law
It is important to be able to distinguish a mistake
made as to identity from a mistake as to quality.
In Smith v Hughes the plaintiff was shown a
sample of oats by the defendant, and thinking that
they were old oats he bought them. They were in
fact new oats, and he refused to accept them. It was
held that his mistake did not invalidate the contract.
The parties were at cross-purposes, but not to such
an extent that there was no agreement at all.

12
Mistake
Common Law
The mistake was only one of quality, and as
such does not operate to render the contract
void.
A mistake as to quality will only invalidate
the contract if it is a mistake as to the
fundamental quality by which the thing is
identified, but not if it is a mistake as to one
of the various other qualities of the product
13
Mistake
Common Law
4. Mistake as to the identity of the other
party.
A mistake as to identity cannot be made
when the parties deal face to face. In such
a situation a person can only make a
mistake as to the attributes (i.e. the quality
of the other party,) and not his identity.

14
Mistake
Common Law
An agreement made between X and Y will
be void if X can prove that:
at the time of the agreement he regarded
the identity of the other party as of
importance,
he did not intend to contract with Y, but
with a different person Z, and
this fact was known to Y.
15
Mistake
Common Law
In Cundy v Lindsay a fraudulent person named
Blenkarn, writing from 37 Wood St. Cheapside,
offered to buy handkerchiefs from the plaintiffs
who manufactured handkerchiefs, and he signed
his letter in such a way that his name appeared to
be Blenkiron & Co. The latter was a respectable
firm carrying on business at 123 Wood St.
Blenkarn occupied a room which he called 37
Wood St., but in fact its entrance was from an
adjoining street.
16
Mistake
Common Law
The plaintiffs, who were aware of the high
reputation of Blenkiron and Co, though they
neither knew nor troubled to ascertain the number
of the street where they did business, purported to
accept the offer and despatched the goods to
Messrs. Blenkiron & Co., 37 Wood St.,
Cheapside. These were received by the rogue
Blenkarn, and he in turn sold them to the
defendants, who took them in all good faith. The
plaintiffs sued the defendants for conversion.
17
Mistake
Common Law
It was held that there was no contract
between the plaintiffs and Blenkarn, since
the plaintiffs intended to deal with
someone else. Thus the title to the
handerkerchiefs did not pass to Blenkarn,
and so he could not pass title to the
defendants. The defendants therefore had
to return the handkerchiefs to the
plaintiffs.
18
Mistake
Common Law
But in Lewis v Averay, a rogue posing as Richard
Greene the well-known film actor, called upon the
plaintiff and offered to buy his car which was
advertised for sale at 450. The plaintiff accepted the
offer, and was given a cheque, signed R.A. Greene
for 450. Afraid that the cheque might be worthless,
he resisted a proposal that the car should be removed
at once. The rogue, by way of showing that he was
Richard Greene, produced a special pass of admission
to Pinewood Studios bearing an official stamp.

19
Mistake
Common Law
Satisfied with this, the plaintiff handed over the log
book and allowed the car to be taken away. The
cheque had been stolen and was worthless. The
rogue, now passing as Lewis, sold the car to the
defendant and handed over the log book to him.
The action of conversion by the plaintiff for the
recovery of the car or its value failed. The Court of
Appeal held that despite his mistake, the plaintiff
had concluded a contract with the rogue.
20
Mistake
Common Law
He had failed to rebut the prima facie presumption
that he had made a contract with a rogue when he
allowed the car to be taken away. The contract was
no doubt voidable for fraud, but it could not be
avoided now that the car had come into the hands of
an innocent purchaser for value.
Voidable means valid until avoided and the plaintiff
had not avoided by the time the rogue sold the car to
the defendant. The contract was therefore valid, and
the rogue was able to pass title to the defendant.

21
Mistake
Common Law
In King Norton Metal v Eldridge Merrett the
plaintiff received an order for wire from Hallam
and Co. The letterhead depicted a large factory
and described Hallam and Co. as a substantial
firm. In fact Hallam and Co. did not exist, being
merely an alias for a crook named Wallis. The
plaintiff sent the goods to Hallam and Co., on
credit. Wallis took possession of them and re-sold
them to the defendant.
22
Mistake
Common Law
It was held that as Wallis and Hallam and
Co., were the same person, the plaintiff had
not made a mistake as to identity, but had
intended to contract with the writer of the
letters. Thus the contract was only voidable
for fraud, and since Wallis sold to the
defendant before the plaintiff avoided the
contract the defendant obtained title to the
goods.
23
Mistake
Common Law
5. Mistake as to the terms of the contract of
which the other party is aware.
In Hartog v Colin and Shields a seller of hare
skins mistakenly offered them at a price per
pound instead of per piece, there being about
three pieces to the pound. The buyer, knowing of
the mistake, accepted the offer, and later sued
the seller for non-delivery. His action failed
since he knew that the seller did not intend to
contract on the terms stated.
24
Mistake
Terminology
Different terminology is often used to
describe the various types of mistake.
Unilateral mistake this occurs when one
of the parties is mistaken about some
fundamental fact and the other party knows
or should know this, e.g. Cundy v Lindsay

25
Mistake
Terminology
Bilateral ( or common) mistake - this occurs
when both parties make the same mistake. Usually
this will be a mistake as to the existence of the
subject matter, e.g. Galloway v Galloway
Mutual mistake - this occurs when the two
parties mean different things. It will normally be a
mistake as to identity of the subject matter of the
contract, e.g. Raffles v Wichelhaus

26
Mistake
Equity
Equity will in limited situations relieve a party
from the effects of his mistake where the common
law would hold him to the contract. In fulfilment
of the principles of equity, the court interferes in
two respects.
First, it will, if it thinks fit, set aside the contract
on such terms as are just whether it is void at
common law or not i.e. rescission.
Secondly, it rectifies a written contract or deed that
does not accurately record the agreement made by
the parties i.e. rectification
27
Mistake
Equitable Remedies
Rescission
The circumstances when this remedy will be
granted have never been precisely defined.
In general it will only be granted if the party
seeking to rescind was not at fault, and
provided justice can be done to the other
party by imposing conditions.

28
Mistake
Equitable Remedies
Rescission
In Grist v Bailey, the plaintiff agreed to buy the defendants house
subject to an existing tenancy. The value of the house with vacant
possession was about 2,250, but the purchase price was fixed at 850
since both parties believed that the tenancy was protected by the Rents
Act. This belief was wrong. In fact, the tenant left without claiming
protection. In an action for specific performance brought by the
plaintiff, the defendant counterclaimed that the contract be set aside on
the ground of common mistake. It was held that, though the mistake
did not suffice to nullify the contract at law, it was material enough to
attract the intervention of equity. The contract for sale of 850 was
rescinded in equity, with the condition imposed that the vendor should
give the purchaser first option to buy the house at the correct market
price.

29
Mistake
Equitable Remedies
Rectification
Where there has been a mistake, not in the actual
agreement, but in its reduction to writing, equity
will rectify the written document so that it
coincides with the true agreement of the parties.
Suppose that A orally agrees to sell a house,
exclusive of its adjoining yard, to B. Owing to a
mistake the later formal and written instrument
includes the yard as part of the property to be sold,
and, what is worse, the subsequent conveyance
actually conveys the yard to B.
30
Mistake
Equitable Remedies
Rectification
In a case of this type where it is proved that
owing to a mistake the written contract does
not does not substantially represent the real
intention of the parties, the court has
jurisdiction, not only to rectify the written
agreement, but also to order specific
performance of it as rectified.
31
Mistake
Equitable Remedies
Rectification
It is, however, not the contract itself which is rectified,
but the incorrect manner in which the common intention
of the parties have been expressed in a later document.
Rectification will be allowed provided:
1. The terms were clearly agreed between the parties
2. The agreement continued unchanged up to the time it was
put in writing, and
3. The writing fails to express the agreement of the parties.

32
Mistake
Equitable Remedies
Rectification
In Weeds v Blaney, the plaintiff orally agreed with
the defendant to sell him a farmhouse and some
land. The plaintiffs solicitor in error prepared a
contract which included further land owned by the
plaintiff. The error was not noticed and the land
was transferred to the defendant who became the
registered owner. It was held that the plaintiff was
entitled to rectification of the contract and the
transfer.
33
Documents mistakenly signed
Non Est Factum
(It is not my act)
The general rule concerning signed
documents is that a person is bound even if
he does not read or understand the
document: LEstrange v Graucob.
However an apparent signed contract will
be regarded as void if a party can
successfully plead the defence non est
factum. Three conditions must be satisfied:
34
Non Est Factum
(It is not my act)
The signature must have been induced by
fraud
The document must be fundamentally
different from that thought to be signed. A
mistake as to the contents is not sufficient
to allow non est factum to be raised.
The party seeking to avoid the liability must
prove that he acted with reasonable care.
35
Non Est Factum
(It is not my act)
In Lewis v Clay, the defendant was induced to
sign two promissory notes by the fraudulent
misrepresentation that his signature was required
as a witness. The rest of the document apart from
the space for the signature was covered by blotting
paper, the defendant being told that the documents
were of a private nature. It was held that the
defence of non est factum applied even though the
defendant could not say precisely what type of
document he thought he was signing.
36
Non Est Factum
(It is not my act)
However in Saunders v Anglia Building Society, the original plaintiff (a
Mrs. Gallie who died before 1970) wanted to help her nephew, Parkin, to
raise money on the security of her leasehold house, provided she could
continue to live there rent free for the rest of her life. Parkin did not want
to raise the loan or become owner of the house himself as he feared this
would enable his wife (from whom he was separated) to enforce a claim
for maintenance against him. He therefore arranged that his friend, Lee,
should raise the money on a mortgage of Gallies house, and then give the
money to him. Before Lee could mortgage the house it had to be
transferred to him. An assignment was prepared under which the lease of
the house was transferred to Lee for 3,000 (a reasonable price was
included in the assignment so as not to subsequently arouse the Building
Societys suspicions). When Gallie was asked to sign the assignment she
did not read it because her glasses were broken, but Lee told her it was a
deed of gift to Parkin (who witnessed the document). Lee then raised
money by mortgaging the property to The Anglia Building Society, but he
did not pay any money to Parkin, nor did he pay the 3,000 to Gallie.

37
Non Est Factum
(It is not my act)
It was held that non est factum did not apply to
Gallies signature of the assignment, since her
mistake was not sufficiently serious. She believed
the document would enable Parkin to raise money
on the security of the house, and the document
was designed to achieve this aim, though by a
different method than that contemplated by Gallie.
It was also stated that Mrs. Gallies carelessness
prevented her from relying on non est factum
38

You might also like