Sunday, November 25, 2012

Vitiating Factors in a Contract

If one or both parties enter into a contract under a misunderstanding of its basis, or of an important aspect of the transaction, the contract may either be completely void, or voidable.

In a voidable case, the contract is valid until it is rescinded or set aside by the mistaken party. This distinction is critical for determining third party rights. Whether a misunderstanding has the effect of rendering a contract void or voidable depends on the manner in which the issue arises.

A contract may either be completely void or voidable is at the option of the party who has suffered damage, on account of the presence of vitiating factors such as mistake, misrepresentation, undue influence and duress.


The general rule is that a party to a contract is not discharge from obligations because he is mistaken as to the terms of the contract or the relevant circumstances. The voiding of a contract as a result of a mistake is very rare. There are may aspects of the concept of mistake in vitiating a contract.

Non Est Factum
In certain situations, a party to a contract may seek to rescind an agreement by pleading that he has signed a document evidencing the contract on the mistaken belief that it was of a fundamentally different character. In other words, he plead "non est fastum", in Latin means it is not my deed.

Proofing Mistake
For the plea to succeed, the following two factors must be present:
The document signed must be significantly different from that which the signer believed it to be; and
The signer must not have been negligent when he signed the document


During negotiations leading up to a contract, many statements may be made:
Some statements become a term in the main contract and if untrue, there is a breach of contract. And some statements do not become a term of any contract are called "merely representation", and if untrue do not result in a breach of contract but a misrepresentation.

A misrepresentation is :
A false statement of a material fact; made by one party to another; and this induces the other party to enter into a contract.

A "statement of fact" is a representation must be distinguished:
From a statement of law; from a statement of opinion or intention and from mere vague "sales talk".

The effect of misrepresentation renders the contract voidable and not void i.e the contract is valid unless the innocent party on discovering the misrepresentation elects to rescind the contract. The effect of the rescission is to nullify the contract "ab initio" in Latin it means it is treated as if the contract never existed. Also, in the course of negotiations leading up to the formation of a contract, many statements of fact may be made:

Some statements may be incorporated into the contract. Others may not and if the statements are material and turn out to be untrue and there is a misrepresentation, the aggrieved party may rescind the contract or sue damages as:

Misinterpretation by a Buyer/Vendor
Fraudulent Misrepresentation
A false statement is fraudulent if it is made knowingly without belief i its truth of and recklessly, careless about whether it is true or false. The misled party may sue for damages for a tort of deceit in fraudulent misrepresentation or may rescind the contract.

Negligent Misrepresentation
This is a statement made in the belief that it is true but without reasonable grounds for belief. Misled oarty may sue in the tort of negligent or sue for damages and or rescission.

Innocent Misrepresentation
This is a statement made in the belief that it is true and with reasonable grounds for the belief. The misled party has no right to damages !!! ~ damages can be demanded in the case of fraudulent and negligent misrepresentations only! However, the misled party has the right to rescind only, but the Court has the discretion to award damages instead of rescission.

Undue Influence

This occurs when a person enters into a contract under any kind of influence, which prevents him from exercising a free independent judgement i.e influencing the mind of the other party so that he cannot arrive at an independent decision.

Undue influence exercised by one person over another in inducing the other person to enter an agreement, may be a ground for rescission of a contract.

Unconsciously use of power of authority, e.g a complainant who is relying on a plea of undue influence against party must show that:
The other had the capacity to influence the complainant. The influence was exercised. Its exercise was undue and the exercise brought about the transaction.


Physical duress
Duress is the use or threat of force of unlawful imprisonment to induce a person to enter into a contract. This is in the form of violence or threats of violence, and will render a contract voidable at the option of the injured party. Persons threatened need not be the contractin party, they may be his wife, parent or child.

Economic duress
There is also the doctrine of economic duress. In this situation, the contract may be voidable where the party to a contract has such tremendous economic power over another so as to coerce the other party into a contract. Commercial pressure exerted by one party to a contract over another will not ordinarily amount to economic duress so as to vitiate the contract.

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