Hellow! and welcome once again, to the series of notes on Contract Law tailored specifically fo law students in Tanzania.
Today we are going to have a deep coverage of the vitiating factors in a contract.
These notes will cover;
- Meaning of Vitiating Factors
- Coercion
- Undue influence
- Fraud
- Misrepresentation
- Mistake
We will cite legal provisions and use case laws to make these notes more helpful and authoritative.
Let’s get Started
Table of Contents
Meaning of vitiating factors in Contract
For a contract to be considered legally binding upon the parties, there must be free consent (consensus ad idem), meaning the parties must be in agreement about the same thing in the same sense.
This implies that both parties willingly enter into the contract and agree to be bound by its terms and conditions.
In contract law, “vitiating factors” refer to elements that can undermine or invalidate the consent or agreement between the parties, potentially rendering the contract void or voidable.
These factors affect the validity and enforceability of a contract and can lead to legal remedies or allow a party to escape from their contractual obligations.
In Tanzania Viatiatin factors are provided under Section 14 of the Law of Contract Act (LCA) which provides that; Consent is said to be free when it is not
caused by
- Coercion
- Undue Influence
- Fraud
- Misrepresentation
- Mistake
These vitiating factors ensure that contracts are entered into freely, fairly, and with a clear understanding of the terms. If any of these factors are present, the affected party may have legal grounds to avoid the contract or seek remedies.
Now let’s break them down one by one;
Coercion/Duress
Duress in contract law refers to situations where one party is forced or coerced into entering a contract under the threat of harm or other wrongful pressure, rendering the agreement involuntary.
This pressure can be physical, economic, or psychological.
When a contract is entered into under duress, it undermines the principle of free consent, and the contract may be declared voidable at the option of the coerced party.
Section 10 of the LCA define Coercion as threatening to commit or committing any act forbidden by the penal code or unlawful detaining or threatening to detain any property to the prejudice of any person whatever with the intention of causing any person to enter into an agreement.
In Barton v Armstrong [1975] 2 W.L.R. 1050, Barton, the managing director of a company, was threatened with death by Armstrong if he did not sign a contract to sell certain shares.
Held: The Privy Council held that Barton was under duress, and the contract was voidable. It was sufficient that the threats were a reason for Barton’s agreement, even if he had other reasons for signing the contract.
Elements of Duress
To establish a claim of duress, the following elements typically must be proven:
- Illegitimate Pressure: The pressure exerted must be unlawful or improper. This could be a threat of illegal action, breach of contract, or other wrongful acts.
- Causation: The pressure must have induced the coerced party to enter into the contract. It must be shown that the contract would not have been agreed to but for the duress.
- Lack of Reasonable Alternative: The coerced party must have had no reasonable alternative but to agree to the contract terms.
Legal Consequences
A contract entered into under duress is not automatically void but is voidable at the option of the coerced party. Section 19(1) LCA
This means the party subjected to duress can choose to either affirm the contract or repudiate it.
If the contract is repudiated, the parties are typically restored to their pre-contractual positions, and any benefits conferred under the contract must be returned.
Undue Influence
Undue influence is a vitiating factor in contract law that occurs when one party exerts excessive pressure on another party to enter into a contract, taking advantage of a position of power or trust.
This pressure compromises the free will of the influenced party, making their consent to the contract not truly voluntary.
Unlike coercion, which involves committing or threatening an unlawful act or detaining or threatening to detain some property, undue influence involves the improper use of power to affect somebody’s character, beliefs, or action through for example fear, administration, examination, etc.
When define Undue Influence Section 16 of LCA provides that A contract is said to be induced by “undue influence” where the relationship subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.
Elements of Undue Influence
- Relationship of Trust and Confidence: There must be a relationship where one party is in a position of trust or confidence relative to the other. Common examples include relationships between parent and child, solicitor and client, doctor and patient, or spiritual adviser and follower.
- Abuse of Position: The dominant party uses its position to obtain an unfair advantage or to coerce the other party into the contract. This can involve moral, social, or domestic pressure rather than physical force or threats.
- Unfair Terms or Transactions: The resulting contract or transaction is significantly one-sided or otherwise unfair to the influenced party. The fairness of the transaction is often scrutinized to determine if undue influence was present.
Let us take a look on the following Scenario and case for more clarification on what amounts to undue Influence;
Miriam is a contractor and agreed to build a house for Barnabas with an agreement on the amount payable in respect of the Contract.
Barnabas is a Magistrate. However at some instance Miriam finds herself charged with a criminal offense and the case is assigned before Magistrate Barnabas for determination of the case. Knowing the case involves his Contract , Barnabas proposes to pay 1,000,000 TZS which is for ordinary building charges to Miriam which is opposite to the prior agreed Consideration of 3,000,000 TZS in exchange of a promise to acquit Miriam on her Criminal Charges.
Miriam accepts the proposal and at the end Barnabas ultimately rules the case in favour of Miriam.
Here Barnabas, holds an authority over Miriam and is in the position to bend Miriam’s will on his favour to leave her with no choice but to accept his offer.
In the case of Tate V. William [1866] E.L.R. The plaintiff, Tate an undergraduate aged 23years was being pressed to pay his college debts which amounted to 1000 Euros. Being estranged from his father, he asked his great uncle to advise him on how he should find the means to pay.
The great-uncle was unable to advice in person owing to ill health but he disputed the defendant, his nephew to do so.
The Conversation took place between the plaintiff and defendant in which the plaintiff expressed the desire to sell part of his estate upon which the defendant offered to buy it for 7000 Euros.
Before the sale was completed the defendant obtained a report from a surveyor on the property and the value of the property was at 20000 Euros.
The defendant didn’t disclose this fact to the plaintiff but proceeded with the purchase. Excessive drinking led to plaintiff’s death one year later. It was held that the purchaser must be set aside.
The defendant having been asked to give advice, understood in a confidential relationship to plaintiff, and this prevented him from becoming a purchaser of the property without fullest communication of all material information which he had obtained to its value.
Where there has been a long relationship of trust and confidence between parties and the transaction is not readily explicable by the nature of the relationship. Example between husband and wife or where the one party has been accustomed to rely for guidance and advice on the other.
Legal Consequences
If undue influence is established, the contract is voidable at the option of the influenced party (Section 19 of LCA). This means the influenced party can choose to either:
- Rescind (cancel) the contract, restoring both parties to their positions before the contract was made, or
- Affirm the contract if they believe it is in their interest to do so.
Fraud
In contract law, fraud is a significant vitiating factor that can invalidate a contract. Fraud occurs when one party intentionally deceives another, resulting in the other party entering into the contract based on false information.
Section 17 of LCA defines Fraud as a false representation which is made knowingly or without belief in its truth or reckless whether it is true or false.
Elements of Fraud
For an action to be considered fraudulent, the following elements typically need to be present:
- False Representation:
- There must be a false statement of fact. This can be a misrepresentation of past or present facts, and in some cases, the omission of critical information can also be considered fraud if there is a duty to disclose it.
- Knowledge of Falsity:
- The party making the false statement must know that it is false or must be reckless as to its truth.
- Intent to Deceive:
- The false statement must be made with the intent to deceive the other party. This means the party making the statement aims to induce the other party to enter into the contract based on the misrepresentation.
- Reliance:
- The deceived party must have relied on the false statement when deciding to enter into the contract. If the deceived party did not rely on the statement, or if they knew it was false, then fraud cannot be claimed.
- Resulting Damage:
- The deceived party must suffer some form of damage or loss as a result of relying on the false statement. This can be financial loss, legal detriment, or other harm.
Fraud cases
Derry v Peek (1889) 14 App Cas 337
Facts: In this case, a company issued a prospectus stating that it had the right to use steam-powered trams, although this right was subject to the approval of the Board of Trade. The approval was not given, and the shareholders, including Peek, who bought shares based on this statement, sued for fraud.
Ruling: The House of Lords held that for a statement to be fraudulent, it must be made with knowledge of its falsity or without belief in its truth or recklessly, without caring whether it is true or false. In this case, the directors honestly believed that the approval was a formality, so they were not found liable for fraud.
Smith v Land and House Property Corp (1884) 28 Ch D 7
Facts: The seller of a hotel described it as having a “most desirable tenant” in the sale particulars. In reality, the tenant was behind on rent and in financial difficulty. The buyer sued for misrepresentation.
Ruling: The court held that the statement about the tenant was a statement of fact, not opinion, because the seller had more knowledge of the tenant’s financial state than the buyer. Therefore, it was a misrepresentation.
Edgington v Fitzmaurice (1885) 29 Ch D 459
Facts: The directors of a company issued a prospectus stating that the funds raised would be used to expand the business. In reality, the funds were used to pay off existing debts. A shareholder who bought shares based on this prospectus sued for fraud.
Ruling: The court found that the prospectus contained a fraudulent misrepresentation because the directors never intended to use the money as stated. The directors’ false representation of their intention amounted to fraud.
Is silence means fraud?
Sometimes, if parties enter into a contract and one party remains silent about certain terms of the contract with the intent to deceive the other party, this silence can constitute fraud
- General rule: A mere silence as to the fact which is to influence the party to enter into a contract is not termed as fraud. (A mere silence doesn’t amount to fraud).
- Exception: Where silence is for the purpose of deceiving the truth of inducing a party to the contract therefore there is fraud.
So fraud may become deceptive in some certain cases as follows;
Duty to Speak
The first case is when the person keeping silent is under a duty to speak.
The duty to speak arises when one contracting party responds‟ trust and confidence in others.
Silence in some circumstances may be interpreted as fraud where there is a fiduciary relationship where one of the parties is in a position to dominate the other such as advocate and client.
The client depends on the advocates if the advocates ask questions and don’t answer for the purpose of deceiving then it amounts to fraud.
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