LAW OF CONTRACT II

MODULE 7

BY NORMAN G. WILLIAMS
VITIATING FACTORS IN CONTRACTS

Introduction

VITIATING FACTORS are factors, which make an apparent contract lose its validity when
it comes to its enforcement.
A contract may be vitiated or invalidated if it is found that there are certain factors, which
negate or nullify the apparent consent of one or both of the parties.
The VITIATING FACTORS which are recognised by the Law are :
 MISTAKE
 MISREPRESENTATION
 DURESS & UNDUE INFLUENCE.
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Introduction

In Contract Law, to be mistaken is to be wrong as to a matter of fact that influences the formation or the making of
a contract.
It is important to note from the outset that the word "mistake" as used in the contract law has a more restricted
meaning than it has in ordinary parlance or common speech. The effect of mistake in law is more restricted in that
the courts will not declare a contract void simply because the parties claim to be mistaken about some fact and
would not have entered the contract if he had known the true facts.
The basic question which arises under the law on mistake is as follows:
If one or both of the parties enter into a contract under some misunderstanding or mistaken assumption, in what
circumstances will the court intervene to hold the contract void and unenforceable on grounds of the mistake?
In other words, when does mistake on the part of one or both parties have any legal effect on a concluded contract?
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Introduction

LEGAL EFFECT OF MISTAKE

A. MISTAKE MUST HAVE EXISTED AT THE TIME WHEN THE
CONTRACT WAS FORMED.
For mistake to have any effect at all on a contract, the mistake must be one, which existed at the
time the contract was concluded. i.e. the assumption made by the parties must have been
factually wrong at the time the contract was concluded.
This point is clearly illustrated in the case of : AMALGATED INVESTMENT & PROPERTY LTD. v.
JOHN WALKER
it is important to note that mistake operates differently at COMMON LAW and IN EQUITY.
 MISTAKE

EFFECT OF MISTAKE AT COMMON LAW

At common law MISTAKE operates so as to negative or in some cases to nullify consent. The legal effect of the mistake at Common
Law therefore is to render the contract void ab initio (i.e. void from the beginning).
Where a contract is said to be void, it is a complete legal nullity, i.e. it confers no rights and imposes no duties on the parties. The
courts treat a void contract as if it never existed at all.
Where a contract is deemed to be void on grounds of mistake, a third party cannot acquire a valid interest under such contract even if
he acquired the interest for value, in good faith and without notice of the fact the contract under which he derived his title was void.
Because mistake has this far reaching effect at common law the operation of the doctrine of mistake is confined within very narrow
limits. The Common Law therefore considers that is in the interest of commercial convenience that in general, apparent contracts
should be upheld and enforced.
You will find that at Common Law, the courts are most reluctant to declare a contract void on grounds of mistake and have developed
very stringent conditions which must be established before an alleged mistake will be deemed to operate to render the contract void.
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EFFECT OF MISTAKE IN EQUITY

In Equity mistake has a wider scope, but its effect is less drastic. In fact equity will give
effect to mistake in circumstances where the common law will not.
In Equity, mistake operates in the following ways:
Mistake may be a defence in an action for specific performance. (ie. Mistake may be a
reason for the refusal of a request for specific performance).
Mistake may also entitle the parties to have a written contract RECTIFIED. (Remedy of
Rectification).
Mistake may also be a ground for the rescission of a contract.
 MISTAKE

MISTAKE AT COMMON LAW.

THERE ARE THREE POSSIBLE TYPES OF MISTAKE
MUTUAL MISTAKE
UNILATERAL MISTAKE
COMMON MISTAKE
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MUTUAL MISTAKE :
This kind of mistake is sometimes referred to as mistake in the expression of contractual intention or mistake as to the terms of the contract.
Mutual mistake exists where, although to all outward appearances the parties are agreed, there is in fact no genuine consensus
between them because one party makes an offer to the other, which the other accepts in a different sense from that intended by the
offeror.
This kind of mistake arises where the two parties, unknown to each other are at CROSS PURPOSES. In other words, the parties
misunderstand each other, such that there is no genuine consensus.
For example, A offers to sell his car to B. A intends to sell his Mercedes Benz to B, who accepts the offer, thinking that A intends to sell him
his BMW car.
Question is : Is there a contract?
HERE, the argument is that there is no correspondence between the offer and the acceptance and therefore no contract must be deemed to
have been made.
COURT'S APPROACH : Generally the courts apply the objective test to determine whether an agreement can be inferred from the
facts or not
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UNILATERAL MISTAKE

This kind of mistake arises where only one party is mistaken and the other party is aware of the first party's mistake. The most common example
of this kind of mistake is the case of mistake as to the identity of a contracting party - where A contracts with B, believing that B is C.

COMMON MISTAKE

This exists where even though there is genuine agreement or consensus ad idem, the parties have both contracted in the mistaken belief
that some fact which is the basis of the contract is true when in fact it is not. HERE both parties make the same mistake about the
circumstances surrounding the transaction. In this kind of mistake, there is no question of lack of agreement between the parties. The exact offer
made by A is accepted by B.

There is correspondence between the offer and the acceptance and the parties are ad idem, but their contention is that since they both were
mistaken about some fact which is the basis of their contract, that mistake robs the contract of its efficacy and the contract must therefore be
declared void by reason of the mistake.
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Eg. A offers some pearls to B for sale, both parties wrongly believing them to be genuine pearls. B now contends that since the
agreement was based on the common mistaken belief that the pearls were real, the agreement must not be allowed to stand. [Both
parties make the same mistake about the value or quality of the subject matter of their contract]. Or/ The parties may agree on
the sale and purchase of an item which unknown to both parties has perished and therefore does not exist by the time the contract is
being concluded.

[Both parties make the same mistake about the very existence of the subject matter of the contract].

Courts' Approach? - What is the attitude that the courts adopt to such agreements which both parties enter into upon a fundamental
assumption of fact which turns out to be false? The courts generally apply the objective test to determine whether the mistake is
sufficiently fundamental as to make the contract void on grounds of mistake.
 MISTAKE

MUTUAL MISTAKE OR MISTAKE AS TO THE TERMS OF THE CONTRACT.

Generally, it follows from the essential nature of a contract that if there is no genuine
agreement between the parties, or if the parties are not ad idem, there is no contract. In other
words, if the offer does not correspond to the acceptance, no contract should ensue.
Thus if the offeree thinks that the thing being offered is something different; or that the
terms being proposed by the offeror are different from those actually proposed, and he
accepts on that MISTAKEN ASSUMPTION, it is clear there is no genuine agreement
between the parties. WHY ? Because in that case the offer which was accepted by the
offeree is not the offer that was made by the offeror.
 MISTAKE

OBJECTIVE TEST :
However, we also know that the intentions of the parties to the contract are always OBJECTIVELY determined. So a party may be deemed to have
agreed to the terms that were proposed and not the terms that existed in his innermost mind, if an agreement can be inferred from the objective facts.
In other words, the Court will determine the intentions of the parties by considering their words and conduct as they would be understood by a
reasonable man.
In SMITH v. HUGHES, Blackburn J summed up the position of the law as follows:
"If whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed
by the other party, and the other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if
he had intended to agree to the other party's terms".
If a party has exhibited all the outward signs of agreement to the proposed terms, he will be bound by the contract to which he has manifestly
expressed his assent.
If a reasonable man would have understood the contract in a certain sense then despite the party's alleged "mistake", the court will hold that he is
bound by the that contract. See : TAMPLIN v. JAMES.
 MISTAKE

SPECIFIC CASES
In spite of these restrictions, there are certain situations where, even though the parties appear
to have agreed, mutual mistake or mistake as to the terms of the contract may operate to
negate consent and render the contract void.
 MISTAKE

LATENT AMBIGUITY :
WHERE the terms of the contract suffer from such latent ambiguity that it is impossible to determine
objectively what the contract relates to, and the offer is innocently accepted in a sense different from that
which was intended by the offeror, the Court will hold the contract void on the ground that there is no
correspondence between the offer and the acceptance.
Illustration :
Two things may have the same name, and A makes an offer to B, using that name in reference to one of those
things. B accepts the offer thinking that A is referring to the other. Provided there is nothing in the terms of the
contract to establish which of the two is the subject matter of the contract, the contract will be held to be void on
grounds of mutual mistake.
See: RAFFLES v WICHELHAUS
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WHERE WORDS USED ARE PATENTLY AMBIGUOUS OR RENDERED

AMBIGUOUS BY SURROUNDING CIRCUMSTANCES.
SIMILARLY, if A makes an offer to B, which is ambiguous in its terms, or is rendered
ambiguous by the surrounding circumstances, and B innocently accepts the offer in a sense
different from that which was intended, unless an objective interpretation can be
determined, the contract will be held unenforceable on grounds of B's mistake.
See: SCRIVEN BROS. v HINDLEY & CO.
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WHERE THE PARTIES ARE AT CROSS PURPOSES, AND THE MISTAKE OF

ONE PARTY IS COMMUNICATED TO THE OTHER PARTY.
The third situation is as follows :
Where an offeror intends to contract on a particular set of terms and his offer is innocently
accepted in a different sense, and this mistake is communicated to the offeror, there is no
correspondence between the offer and the acceptance, and therefore no contract results.
See: FELTHOUSE v. BINDLEY
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WHERE THE OFFEREE KNOWS THAT THE OFFEROR'S OFFER DOES NOT
REPRESENT HIS REAL INTENTIONS AND SEEKS TO TAKE ADVANTAGE OF
THE OFFEROR'S MISTAKE
WHERE due to a mistake in the expression of the offer, the offer does not contain the real
intention of the party making it and the other party knows of this mistake and seeks to take
advantage of it, the law will not recognise that a contract has come into existence.
The law will not allow the offeree to accept an offer which he knows does not contain the
real intention of the offeror. [A party will not be allowed to "snap at the offer"].
See: HARTOG v. COLIN & SHIELDS
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FINALLY, where the parties are agreed by all outward appearances on the same terms
and on the same subject matter, even if both parties are mistaken in their innermost minds
about the quality of the subject matter, the contract remains valid.
See: ROSE v PIM
SUMMARY :
In all cases involving mutual mistake the courts will find that there is no contract,
ONLY if, upon applying the objective test, the court cannot establish any
correspondence between the offer and the acceptance.
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UNILATERAL MISTAKE - This kind of mistake arises where only one of the parties contracts under a mistake. The other party is aware of the
mistake of the other party and makes no mistake himself. The most common example of this kind of mistake is MISTAKE AS TO THE IDENTITY OF A
CONTRACTING PARTY.

MISTAKE AS TO THE IDENTITY OF A CONTRACTING PARTY

MISTAKE AS TO IDENTITY arises where one party has in mind a definite, identifiable person with whom he intends to contract,
but ends up contracting with someone else (usually through the fraud of that person).
In simple terms, A contracts with B, believing that B is C.
Will the courts enforce the resulting contract or will such a contract be deemed void on grounds of mistake as to identity?
GENERAL RULE - The starting point is the general rule that where a person makes an offer to a particular party, another
person cannot accept the offer and constitute himself a contracting party with the offeror who never intended to contract
with him.
In other words where an offer is made to a particular person, it can only be accepted by the person to whom it is addressed.
See: BOULTON v. JONES
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UNILATERAL MISTAKE - This kind of mistake arises where only one of the parties contracts under a mistake. The other party is aware of the
mistake of the other party and makes no mistake himself. The most common example of this kind of mistake is MISTAKE AS TO THE IDENTITY OF A
CONTRACTING PARTY.

 MISTAKE AS TO THE IDENTITY OF A CONTRACTING PARTY

MISTAKE AS TO IDENTITY arises where one party has in mind a definite, identifiable person with whom he intends to contract,
but ends up contracting with someone else (usually through the fraud of that person).
In simple terms, A contracts with B, believing that B is C.
Will the courts enforce the resulting contract or will such a contract be deemed void on grounds of mistake as to identity?
GENERAL RULE - The starting point is the general rule that where a person makes an offer to a particular party, another
person cannot accept the offer and constitute himself a contracting party with the offeror who never intended to contract
with him.
In other words where an offer is made to a particular person, it can only be accepted by the person to whom it is addressed.
See: BOULTON v. JONES
MISTAKE

MISTAKE AS TO IDENTITY INDUCED BY THE FRAUD OF ONE PARTY

THE TYPICAL SITUATION in which mistake as to identity arises is where a rogue induces
an owner of goods to sell them to him, by fraudulently misrepresenting his identity i.e.
impersonating some other person. The rogue does not pay for the goods but promptly resells
them to an innocent third party.
Usually the third party pays for the goods in good faith, quite unaware of the dishonest way
in which the rogue acquired them. O the owner discovers that the goods are in the possession
of T the third party and seeks to recover them from the third party.
The law has to decide which of the two parties, the original owner or the innocent third party
is entitled to the goods.
MISTAKE

In order to resolve this issue the courts need to make the following determinations :
 Contract between o and r void or voidable? - The courts need to determine whether the contract that was concluded between
the Owner and the Rogue is void on grounds of mistake as to identity or merely voidable by reason of the fraudulent
misrepresentation of the rogue.
 If contract is void the rogue acquires no title to the goods. - If it is established that there was a mistake as to identity of the
contracting party the resulting contract is deemed to be void. This means that the Rogue does not acquire any legal title or right
of ownership to the goods.
[ A void contract confers no rights or duties on the parties to it. It is a legal nullity - treated as if it never existed at all].
 According to the nemo dat quod non habet rule - third party also acquires no title to the goods. - The nemo dat quod non
habet rule is a well established principle which deals with the transfer of property. The rule provides that a person cannot
transfer to another a better title than he himself possesses. So, if the rogue acquired no title to the goods, then legally speaking
he cannot transfer any title to the innocent third party by reason of the nemo dat rule.
 The conclusion would therefore be that the third party obtained no title to the goods and O would be entitled to recover the
goods from T. (T's only remedy would be to find the rogue if he can and sue him to recover his money).
REFERENCES

These quick reference guides have been culled from the following authorities:
1. The Law of Contract in Ghana by Christine Dowuona Hammond 2011
2. Law of Contract with Special Reference to the Law of Ghana by Philip Ebow Bondzi Simpson - Second edition 2010
3. Revision Work Book – Obligations: Contract Law Third Edition by Vickneswaren Krishnan
4. Course Outline for the Law of Contract – pages 1-12