Vitiating Factors To vitiate means To make something

Vitiating Factors

• To vitiate means – To make something ineffective – to destroy or drastically reduce the effectiveness of something – or make it invalid

• Factors that affect the validity of a contract • Means all the 5 elements are present and all formalities observed yet it is still not valid because of a vitiating factor • Effect is that the consent of one of the parties is not a true consent • There was a defect present at the time the contract was entered into – so there was no consensus id idem between the parties • Contract will therefore be void or voidable

• Void means the courts will treat it as not existing in law and will therefore not enforce it • Voidable means it exists in law and is valid but can be set aside by one of the parties.

• • • Misrepresentation Undue influence Duress Mistake Illegality or public policy Unconscionability

Misrepresentation • A situation where one party is misled into entering into a contract on the basis of statements made by the other party • Note: a representation is a statement of past, present or existing facts. It is not a statement of intention or opinion • Misrepresentation therefore is a false statement of fact made by one party to the other which induces the other to enter into a contract

• Effect of it is to render the contract voidable • Material if it would have induced or affected the reasonable man to enter into a contractual agreement on the basis of information which is not true • Not material where the person affected knew it to be false, was ignorant of the statement or did not allow it to influence him

• It must induce the other party to enter into the contract • It must be addressed to or intended for the person affected. E. g. A says to B, there is a sales promo at shoprite this weekend. C acts on that information. The statement turns out to be false. Neither B nor C can sue A. • The person to whom the statement is made is under no obligation to enquire as to whether the statement is true or not. It is sufficient if he relies on it in deciding to enter into the contract.

• If the person the statement was made to knew it was false, he could not have been induced by it • Defence for the person who made the statement is to show that he believed or had reasonable grounds for believing the statement was true

What it is not • Opinions • Intention • Silence – A party is under no obligation to disclose information. However in certain contracts such as insurance, there may be an obligation to disclose information. • Statements by sales persons may or may not be – E. g. Omo washes as white as snow – called “mere puff” – the car can do 200 km per gallon may be because it is a verifiable fact

3 Types of Misrepresentation • Innocent - false statement made by someone who had reasonable grounds to believe it was true. Victim may not perform his obligations, rescind contract but not entitled to sue. • Negligent – false statement made by someone who had no reasonable grounds for believing it to be true. A victim may sue for damages if he has suffered loss. He may also rescind and not perform his obligations under the contract. • Fraudulent – false statement by a person knowing or believing it to be false. Has an element of dishonesty or fraud. Victim may refuse to perform his obligations under the contract, rescind it, sue for damages if he suffers any loss.

Duress • Unlawful and illegitimate pressure exerted on a person through actual or threatened violence against him/his property or persons he is responsible for, for the purpose of coercing him to enter into a contract • Mere commercial power or exercise of legitimate market power is insufficient • Renders the contract voidable

• Hemans v. Coffie: Coffie was detained by the police for 8 weeks as part of a debt collection exercise. Earlier police had detained his son for 4 days because they could not locate him. Police said they would only release him if he sold his house and paid off the debt. Coffie agreed and the police found a buyer, Ms. Hemans. After selling the house, Coffie brought an action to set aside the sale. Held: contract was procured under influence of police and there was a show of unlawful force and pressure. Acquah JSC: “the present position therefore is that to be capable of giving rise to duress, the threat must be illegitimate either because what is threatened is a legal wrong or because the treat itself is wrongful or because it is contrary to public policy. ”

Undue Influence • Where a person uses the influence which he has over another to persuade him to enter into a contract or transfer property on terms that are disadvantageous to the influenced person. • Renders a contract voidable • An equitable remedy

• Defined in Mercer v. Brempong: Edusei J: “… means any influence by which the exercise of free and deliberate judgment is excluded at a time when some interest or benefit is given to another by someone over whom such influence was exercised. ” • Exploitation can arise where there is an abuse of a particular confidence placed on a party or where that party is in a position of dominance. • It may be presumed or actual

Presumed • Certain relationships automatically presuppose the existence of undue influence – – Trustee and beneficiary Solicitor and client Doctor and patient Religious leader and disciples • Secondly, where there is no special relationship but the victim can prove the existence of a relationship in which he has placed his trust and confidence. • It has to be proved that when the victim entered into the transaction, there was a relationship of trust and confidence. E. g. husband wife, banker and client

• Lloyds Bank v. Bundy: B, was an elderly farmer whose only asset, a farm house, was used as security for his son’s company’s indebtedness to the Bank. B, his son and son’s company were all customers of the bank. When the company run into further difficulties, the new bank manager went to see B at home with completed forms for further guarantees. He told B the bank could only support the son if further guarantees were executed. B then extended the guarantee and with it the charge over his property. Eventually the son’s company failed and the bank sought to enforce the security. Held: B had placed confidence in the bank for financial advice. The bank being interested in the transaction should have advised him to seek independent advice and could not rebut the presumption of undue influence.

Actual • Where there is evidence that the decision of the victim has been so expressly influenced by another person in a way that shows that the decision cannot be his free and independent decision.

• Victim must show that the terms of the transaction are disadvantageous to him • He took the decision on the advice of the person who wields a dominating influence over him. The other party in defence must prove that: • Full disclosure of all material facts was made to the party claiming undue influence • Consideration given by him was adequate and fair • The other party was in receipt of independent and legal advice