A contract is a lawfully binding agreement which identifies and governs the obligations and rights of the parties to the agreement. A contract will be legally enforceable if it meets the requirement of the law, In Tanzania, those legal requirements are provided for under The Law of Contract Act.
All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void, this is provided under Section 10 of The Law of Contract Act, CAP 345 it also requires any contract to be made in writing or in the presence of witnesses or any law relating to the registration of documents.
THE ELEMENTS OF AN ENFORCEABLE CONTRACT;
In order to create a valid contract, one party must make an offer and another party must accept the offer. The one who makes the offer is known as the “offerer” while the person who receives the offer is called the “offeree.” Section 2(1)(a) of The Law of Contract Act, CAP 345 provides that when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. Section 4 (1) of The Law of Contract Act, CAP 345 states that an offer is said to be made if the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
An offerer can make an offer with just a single verbal statement, the offerer and the offeree will generally benefit from a detailed written description of the offer and its terms. An offer refers to a promise that is dependent on a certain act, promise, or forbearance given in exchange for the initial promise. It is a demonstration of the willingness to enter into an agreement and an invitation to the other party to conclude the agreement by expressing assent.
Determining whether a party has actually made an offer is a common challenge in a contract case. As a rule of thumb, the offer must be definite and reasonable enough for the receiving party to believe that it is indeed an offer. An offer should include terms such as quantity, price, quality, place and time of delivery for the court to determine that an offer was indeed made by the offerer. An offer can be revoked at any time before the communication of its acceptance is complete as against the offerer but not afterwards as stipulated under Section 5(1) of The Law of Contract Act, CAP 345. An offer can be revoked by the following grounds provided for under Section 6 of The Law of Contract Act, CAP 345
A simple price quote is generally not regarded as an offer. While an advertisement may be considered an invitation to an offer, it is not an actual offer. However, if an advertisement promises to give out an award, it may constitute an offer. A verbal offer is not enforceable against the offerer for contracts involving real estate such contracts must be written in order to be enforceable ( lock in /Lock out agreements).
Acceptance may be defined as an unconditional assent, communicated by the offeree to the offeror, to all terms of the offer, made with the intention of accepting. Whether an acceptance has in fact occurred is ascertained objectively from the behavior of the parties, including any correspondence that has passed between them. Section 2(1) (b) The Law of Contract Act, CAP 345 states that a proposal is said to be accepted when the person to whom the proposal is made signifies his assent thereto then the acceptance becomes a promise, as indicated under Section 4(2) of The Law of Contract Act, CAP 345 the communication of acceptance is said to be completed when;
An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.
Acceptance needs to be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted and if the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise, but if he fails to do so he accepts the acceptance.
An agreement must be reached fairly and without pressure this is known as “expressions of reasonable certainty”. Offers must also be accepted unconditionally. If the offeree proposes a counter offer, this makes the original offer irrelevant. Taking an example of Amazon a person is able to list an item with fixed prices (an offer) but can also sell it for the best offer made (the offeree making a counter offer). If the seller accepts the counter offer, this is a valid offer and acceptance.
It may seem obvious, but acceptance must be communicated. When the offeror receives the communication (it may not be instant and could be via post or email), then contract becomes effective. Alternatively, the offeror may demand a particular method of communication of acceptance. Such as the about bus ticket analogy, Will the passenger say that “I kindly accept the offer of a bus journey”? Taylor v Allon, 1966 and Day Morris Associate’s v Voyce, 2003 ruled that the offeror can waive the need of communication of acceptance rather the acceptance takes place by conduct.
It needs to be clear that a particular conduct was performed with the absolute intention of accepting the offer. So when a passenger takes a bus ticket from the driver, or when using the UDART card to board the Mwendokasi the conducts are the offerees accepting the offer.
Although The Post method is not instant, it has been ruled that where post is an appropriate and reasonable means of communication between the parties, a contract becomes effective from when the post is sent. The postal rule doesn’t apply when the letter hasn’t been posted properly, when it is not addressed correctly, where terms exclude post as a method of acceptance and where it is unreasonable to use the postal method.
Intention to create legal relations is part of elements in contract. Intention to create legal relations is defined as an intention to enter a legally binding agreement or contract. Intention to create legal relations is one of the necessary elements in formation of a contract. It is because intention to create legal relations consists of readiness of a party to accept the legal sequences of having entered into an agreement. Intention to create legal relations is a motion of every contracting party must have the necessary intention to enter into a legally binding contract.
Identifying intention to create legal relations
A contract is a legally binding agreement. Once an offer has been accepted, there is an agreement, but not necessarily a contract. The element that converts any agreement into a true contract is “intention to create legal relations”. There must be evidence that the parties intended the agreement to be subject to the law of contract. If evidence of intent is found, the agreement gives rise to legal obligations whereby any party in breach may be sued.
In English law, there are two judicial devices to help a court to decide whether there is intent both tests are used together in combination
The objective test
Counter intuitively, the best way of discovering whether the parties intended to contract is not to ask them, as it would give the rogue party an easy loophole to escape liability. (He would reply, “No! I did not intend to be bound”.) Instead analyze the actions, performance and activities that lead to the formation of the contract to observe if intention was established just as in Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1, The Carbolic Smoke Ball Co. made a product called the “smoke ball” and claimed it to be a cure for influenza and a number of other diseases. (The 1889–1890 flu pandemic was estimated to have killed 1 million people) The smoke ball was a rubber ball with a tube attached. It was filled with carbolic acid (or phenol). The tube would be inserted into a user’s nose and squeezed at the bottom to release the vapors. The nose would run, ostensibly flushing out viral infections.
The Company published advertisements in the Pall Mall Gazette and other newspapers on November 13 th , 1891, claiming that it would pay £100 (equivalent to £11,000 in 2018) to anyone who got sick with influenza after using its product according to the instructions provided with it.
| “ | £100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks, according to the printed directions supplied with each ball. £1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter. During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease, and in no ascertained case was the disease contracted by those using the carbolic smoke ball. One carbolic smoke ball will last a family several months, making it the cheapest remedy in the world at the price, 10s. Post free. The ball can be refilled at a cost of 5s. Address: “Carbolic Smoke Ball Company”, 27, Princes Street, Hanover Square, London. | ” |
Mrs. Louisa Elizabeth Carlill saw the advertisement, bought one of the balls and used it three times daily for nearly two months until she contracted the flu on 17 January 1892. She claimed £100 from the Carbolic Smoke Ball Company. They ignored two letters from her husband, a solicitor. On a third request for her reward, they replied with an anonymous letter that if it is used properly the company had complete confidence in the smoke ball’s efficacy, but “to protect themselves against all fraudulent claims”, they would need her to come to their office to use the ball each day and be checked by the secretary. Mrs. Carlill brought a claim to court. The barristers representing her argued that the advertisement and her reliance on it was a contract between the company and her, so the company ought to pay. The company argued it was not a serious contract.
The court held that The Carbolic Smoke Ball Company lost its argument at the Queen’s Bench. It appealed straight away. The Court of Appeal unanimously rejected the company’s arguments and held that there was a fully binding contract for £100 with Mrs. Carlill. Among the reasons given by the three judges were
The rebuttable presumption
The rebuttable presumption establishes a burden of proof; but the burden may be rebutted by evidence to the contrary. The civil standard of proof is “a balance of probabilities”, while the criminal standard of proof is “beyond reasonable doubt”. Here, different presumptions will apply, according to the class of agreement. For these purposes, there are four classes of agreement:
Family agreements
In term of general rules of family or domestic relations, there is no presumption to be legally binding. Otherwise, in term of exception the presumption is rebuttable.Case example Balfour v Balfour in year 1919,the husband brought wife to England from Sri Lanka. The husband had to return but wife stayed for medical reasons. He promised to pay her £30/month until his return. When he failed to pay, the wife sued the husband. Wife’s action failed because there is no consideration moved from her and there is no intention to create legally binding agreement found. The court stated in husband and wife cases, burden of proof is on plaintiff to prove intention to create legally binding agreement.
Social agreements
In term of general rules of social friend’s relations, there is no presumption to be legally binding. Otherwise, in term of exception the presumption is rebuttable. Case example: Simpkins .V. Pays in year 1955. The case shows mutuality. In this case .the defendant, her granddaughter and the plaintiff (paying lodger) regularly took part in newspaper competition. All contributed but entered in defendant’s name. There is no set of arrangement that state payment of postage etc. When entry of the competition is successful, defendant refused to share with plaintiff. The plaintiff sued for his share. Court ruled legally binding relationship as sufficient mutuality in the arrangements between parties.
Commercial agreements
In term of general rules of commercial or business relations, there is a presumption or intention to be legally binding. Otherwise in term of exception the presumption is rebuttable. Case example: Kleinwort Benson Ltd .V. Malaysia Mining Corporation Bhd in year 1989, the case shows the letters of comfort. In this case, the plaintiff (bank) agreed loan to MMC Metals, subsidiary of MMC. The bank asked MMC to guarantee loan. MMC said not policy to guarantee loans to subside offered letter of comfort stating: “It is our policy to ensure that the business of MMC (Metals) is at all times in a position to meet its liabilities under the arrangements”. The bank accepted but charged higher rate of interest and the market collapsed and MMC went into liquidation. The plaintiffs tried to claim balance from MMC. First instance the court found in favor of plaintiff, relying heavily on Skyways (1964) ruling overturned on appeal and the judge said Skyways case not was about promise supported by consideration so not applicable here. Hence, ruled no intention to create legally binding agreement statement was not meant to act as guarantee, stating on current position, not future intention.
Collective agreements
A collective agreement is a special type of commercial agreement, such as one negotiated through collective bargaining between management and trades unions. At common law, Ford v A.U.E.F. [1969] 2 QB 303, the courts held that collective agreements were not binding. This reflects the tradition in British industrial relations policy of legal absenteeism from workplace disputes. By contrast, in post-war Germany, employers and employees bathe in the luxurious title of “social partners“, and they are content that collective agreements are binding.
Consideration was defined aptly in the case of Currie v Misa (1874) LR 10 Ex 153 and is summed as;
“A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other.”
Consideration is something of value it can be some payment or money, it is a vital element in the law of contracts, consideration is a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration).
It is a mistake to believe that the consideration must itself transfer to form a binding agreement. A promise to transfer such consideration is often sufficient. This assertion was confirmed in Dunlop v Selfridge Ltd [1915] AC 847, where Lord Dunedin stated that promises were indeed considered enforceable.
There are three types of consideration per the Law of Contract Act, CAP 345.
By past consideration, the courts mean an act that could have served as consideration if it had been bargained for at the time but that was not the subject of a bargain. For example, Mrs. Ace’s dog fluffy escapes from her mistress’s condo at dusk. Robert finds Fluffy, sees Mrs. Ace, who is herself out looking for her pet, and gives Fluffy to her. She says, “Oh, thank you for finding my dear dog. Come by my place tomorrow morning and I’ll give you fifty dollars as a reward.” The next day Robert stops by Mrs. Ace’s condo, but she says, “Well, I don’t know. Fluffy soiled the carpet again last night. I think maybe a twenty-dollar reward would be plenty.” Robert cannot collect the fifty dollars. Even though Mrs. Ace might have a moral obligation to pay him and honor her promise, there was no consideration for it. Robert incurred no legal detriment; his contribution finding the dog was paid out before her promise, and his past consideration is invalid to support a contract. There was no bargained for exchange.
The courts have not in most times been in favor of this type of consideration. Past consideration is insufficient to form a legally binding agreement. Only consideration which is given at the time or after the promise for which it is given will be enforceable. Promises given after the consideration has been completed are unenforceable as provided in the case of Re McArdle [1951] Ch 669
Exception were given in the case of Pao On v Lau Yiu Long [1980] AC 614 whichaffirmed the judgment in Lampleigh v Braithwaite (1615) Hob 105 that stated if certain criteria are met the requested performance of the parties may be sufficient to amount to consideration, which are:-
Section 23 of The Law of Contract Act, CAP 345 provides that the consideration of an agreement is lawful, unless
In each of cases referred above the consideration or object of an agreement is said to be unlawful; and every agreement of which the object or consideration is unlawful is void and no suit shall be brought for the recovery of any money paid or thing delivered, or for compensation for anything done, under any such agreement, unless
Section 24 of The Law of Contract Act, CAP 345 states that If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void . An agreement made without consideration is void unless
An agreements made between the donor and donee, of any gift actually made to which the consent of the promisor is freely given is not void merely because the consideration is inadequate but the inadequacy of the consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given to the promisee.
There are a number of things to remember with consideration, namely the most important are:
Consideration need not be adequate
Consideration does not need to be adequate essentially means that the consideration provided by either party does not need to be equivalent to the other party’s consideration. Sometimes this means that situations arise where the consideration provided by both parties is vastly dissimilar.
In Thomas v Thomas (1842) 2 QB 851 a situation arose where a rental property was let for £1 consideration, said property’s regular rent cost could have afforded much higher rates. The courts affirmed in this case that adequate consideration is not necessary, simply some consideration.
The reason the court affirmed this decision, is due to the fact the court is unwilling to interfere with bad bargains, as parties to a contract are typically free to bargain on whatever terms they wish Chappell & Co Ltd v Nestle Co Ltd [1960] AC 97.
Consideration must have economic value
As mentioned earlier, Thomas v Thomas (1842) 2 QB 851 confirmed that although consideration need not be sufficient, it must have economic value.
In the case of White v Bluett (1853) 23 LJ Ex 36, a father waived a debt owed to him by his son, in return for his son to stop complaining about his will. When this situation was reviewed by the court it was found that this was not valid consideration. An agreement to not complain in this instance was viewed as not having any economic value.
In Chappell & Co Ltd v Nestle Co Ltd [1960] AC 97 it was found that sweet wrappers being returned to Nestle in an attempt to win a prize were considered to have economic value. In contrast however in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 it was found that casino chips did not suffice in having economic value.
The important thing to remember about the two above cases is the recipient of the consideration. In Nestle, the goods were considered by the Court to have economic value to Nestle. This should be kept in mind when considering whether or not something will be considered to have economic value. There are also numerous things that the Court has decided will not suffice to amount to consideration.
Performance of an existing duty doctrine
A principle under contract law that states that if a party to a contract is under a pre-existing duty to perform, then no consideration is given for any modification of the contract and the modification is therefore voidable, As far as contractual duties go, the general rule is that a promise to perform a pre-existing contractual duty, or the actual performance of that duty, is not consideration for a new promise. The legal duty rule is found in two different kinds of pre-existing contractual duty cases. The first kind of case is that in which one party is under a contractual duty to perform and the other party promises to pay more money for the same performance. Performance of an existing duty cannot constitute a consideration with the following exceptions;
Collins v Godefroy (1831) 1 B & Ad 950 typically stated that the performance of a legal obligation such as the jobs of the public service e.g. fireman, will not provide adequate consideration for an agreement.
Exception – Glasbrook Bros v Glamorgan County Council [1925] AC 270 the Judge held that if the obligation extends beyond that which is beyond that of ordinary duties then the obligation can amount to valid consideration. In this case a police force dedicated officers to an event for an entire day when they didn’t have the resources in return for financial remuneration. Said obligation carried out by the police force was considered sufficient for the purposes of consideration because it extended beyond what was ordinary.
Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168 stated that Performing duties already required under an existing contract is not sufficient to amount to consideration. An exemption was given in the case Hartley v Ponsonby [1857] 7 EL BL 872 which provided that extending beyond the duty required under a contract will amount to valid consideration. The exception was developed in the case of Williams v Roffey [1991] 1 QB 1 – This case provides a set of circumstances in which performance under an existing duty under a contract will amount to valid consideration.
The emphasis of this case is the concept of a “practical benefit”. It is also important to remember that this case did not overrule Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168.
This limitation of consideration is similar to that of above example, however, in this case, the duty will be owed to a third party, and not the same party. In the case of New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154 which Party A the shippers, had a contract of carriage with Party B the carriers. This contract included an exemption clause whereby the carriers would not be liable for any damage as a result of the unloading of the goods Party B then entered a contract with Party C, the stevedores, to unload the goods. Subsequently, Party A promises Party C that they can take benefit of the exemption clause they offered to party B Therefore, the general rule created is that performance of an existing duty owed to a third party may be a valid consideration if it allows the party to enforce a direct obligation against the other.
Promissory Estoppel
Promissory estoppel is an equitable remedy that prevents a party from ‘going-back on’ or rescinding a promise. Clearly the concept is not simple as just preventing the rescission of a promise.
How does promissory estoppel operate?
To determine whether promissory estoppel will apply in a situation where a promise has been rescinded the test laid out in the Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 must be examined.
The requirements of the test are:
Promissory estoppel generally only operates when there is a pre-existing relationship between the parties and will not work to create new ones, as affirmed by Lord Denning in Combe v Combe [1951] 2 KB.
The promisee must rely on the promisors’ promise in order to attempt to apply promissory estoppel. This means that by relying on the promise the actions of the promisee have changed.
This requirement has a very low threshold and although there has been argument that a detriment may be required to establish reliance both the cases of Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 and Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130, dispute this.
This is where the famous equitable maxim applies, promissory estoppel can only be used as a “shield not a sword” stated in the case Combe v Combe [1951] 2 KB.
Essentially this means promissory cannot be used as a cause if action, only a defense. This decision makes sense considering the purpose of equity.
The courts of equity are remedies which attempt to ‘fill the gap’ where the common law produces unfair results. Therefore, it would be illogical to not allow the promisor to go back on the promise where it is in fact equitable. The law of equity, unlike the common law, affords discretion to the courts to decide whether it is fair or not to impose the principles of equity.
A case which provides a good example of this is The Post Chaser [1982] 1 All ER 19, in which the promise was revoked within a few days, due to this small lapse in time, the promise would not have relied upon their promise or changed their position, therefore, it was equitable to allow the promisor to go back on the promise.
A contractual modification supported by consideration will create the effect of a permanent set of obligations for the duration of the contract. Promissory estoppel operates slightly differently, only suspending the rights where relevant. The operation of this principle is clear in High Trees. Promissory estoppel suspended the rights of Party B to claim £2,500 during the time of the war, but the right to charge the full £2,500 was reintroduced following the end of the war.
Part-payment of a debt as consideration
In the case of Foakes v Beer (1883) LR 9 App Case No. 605, it was stated that Part-Payment of a debt (alone) is never valid consideration. This is due to the ability of a party to exploit another party in a difficult financial position. Pinnel’s Case (1602) 5 Co Rep 117 does provide however for 2 exceptions to this rule.
Cases related to consideration
Case example: Haigh V Brooks in year 1839
The problem presented by this case is not a new one. Over a century ago, in England, Brooks obtained a certain document from Haigh believing that it was a guarantee, and promised to pay a certain sum of money in consideration of Haigh’s giving it up. The guarantee proved to be unenforceable. Haigh sued Brooks for the money promised. The court said that the plaintiffs were induced by the defendant’s promise to part with something which they might have kept, and the defendant obtained what he desired by means of that promise. Both being free and able to judge for themselves, how can the defendant be justified in breaking this promise, by discovering afterwards that the thing in consideration of which he gave it did not possess that value which he supposed to belong to it? It cannot be ascertained that that value was what he most regarded.
Case example: Ward V Byham in year 1956
A mother was under a statutory duty to look after her child. The ex-husband promised to pay her £1 a week if she ensured that the child was well looked after and happy. It was held that notwithstanding the statutory duty imposed on the mother, she could enforce the promise since the act of keeping the baby ‘happy’ provided additional consideration.
Case example: Glasbrook Bros Ltd v Glamorgan CC in year 1925
In this case, a colliery requested police protection during a strike, in the form of a body of officers quartered on the premises. The police only had the resources to make visiting patrols, but offered to place constables at the site for a financial contribution. After the strike the police presented the Colliery with a bill for services rendered, which the colliery refused to pay.
It was held that although performing a statutory duty could not be sufficient consideration to support an agreement, the action of the police was beyond statutory requirements, and payment could be claimed.
Case example: Stilk V Myrick in year 1809
In this case, a seaman, agreed with Myrick to sail his boat to the Baltic Sea and back for £5 per month. During the voyage, two men deserted. Myrick promised he would increase Stilk’s wages if Stilk agreed to honour his contract in light of the desertions. Stilk agreed and on return to port, Myrick refused to pay him the extra wages. It was held that Myrick’s fresh promise was not enforceable as the consideration Stilk had provided for it, the performance of a duty he already owed to Myrick under contract, was not good consideration for Myrick’s promise to increase his wages.
Case example: Hartley V Ponsonby in year 1857
In this case, the captains offered extra money if the crew carried on working; in both cases the captains refused to pay at the end of the voyage; in both cases the sailors sued for the additional wages. The difference is that in this case there were substantial desertions: only five were left of the original complement of 36. In Stilk two deserted out of eleven. The sailors won their case in Hartley, where they had failed in Stilk. Why? In both cases the sailors had a contractual obligation to work the ship back to port, so in neither case was there any fresh consideration. The difference can be accounted for like this. In Stilk the change in the sailors’ conditions was not dire: the crew should have been able to cope with two desertions. There being no fresh consideration, the captain’s agreement to increase wages was not binding.
In Hartley, there were so many desertions that the contracted parties were no longer working in the same circumstances as when the contract was formed. Hence there were entitled to consider it discharged. This makes the captain’s offer of increased wages, and acceptance by the sailors, an entirely new contract. Before the fresh promise was made, circumstances had arisen which would have entitled the promisee to refuse to carry out his obligations under his contract.
Case example: Shadwell V Shadwell in year 1860
In this case, Shadwell was under a contractual duty with a third party to marry. Shadwell’s uncle promised to pay him £150 per year after he was married. It was held that Shadwell marrying was good consideration, notwithstanding that he was obliged by a contract with a third party to marry in any event.
Case example: Pau On v Lau Yiu Long of 1974
Pao On agreed to sell shares to Fu Chip (controlled by Long) in consideration for certain shares. To protect the share value, Pao On and Fu Chip agreed that Pao On would retain 60% of the acquired shares until April 1974. However, in April 1973, Pao On refused to proceed with the contract unless long agreed to indemnify him against the value of the retained shares falling below a set level. Long agreed, but only to ensure public confidence in the company. The sale preceded a Pao On sought to enforce the indemnity.
Consent is defined under Section 13 of CAP 345 as two or more persons are said to consent when they agree upon the same thing in the same sense.
Section 14 of CAP 345 has provided on grounds of which consent is said to be free when it is not caused by
Consent is said to be not free when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake. Consent is a basic and ascertained rule of law in contract that for a contract to be valid and legally enforceable before the court of law, among other things it must be concluded with a free consent. The aforesaid rule is enshrined in the provision of section 10 of The Law of Contract Act [Cap 345 R.E 2002], this provision provides that a free consent is an essential element of any valid contract without which the contract is said to be vitiated are and more precisely void and as a consequence the parties to contract cannot legally enforce it the court of law
Section 15 of CAP 345 R.E. 2002 defines “Coercion” as an act of committing, or threatening to commit, any act forbidden by the Penal Code, or the 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.
Barton v Armstrong [1973] UKPC 27, [1976] AC 104 (5 December 1973), Privy Council (on appeal from NSW) is a Privy Council decision on coercion in Australian and a landmark case on English contract law.
Barton was the managing director of a company, whose main business was property development, its projects passing through ‘Paradise Waters (Sales) Pty Ltd’. Barton executed a deed whereby the company would pay $140,000 to Alexander Armstrong, a NSW state politician, and buy his shares for $180,000. Armstrong was the chairman of the board.
Street J found Armstrong had indeed threatened to have Barton killed. But the NSW Court of Appeal said Barton failed to discharge the onus that the threat had caused him to make the contract.
The Privy Council advised that Barton could avoid the contract for being under duress, and it did not matter that he may have agreed to the deal anyway. Lord Cross, Lord Kilbrandon and Sir Garfield Barwick held that physical duress does not need to be the main reason it must merely be one reason for entering an agreement. Lord Cross said the same rule should apply for duress as in misrepresentation, ‘that if Armstrong’s threats were ‘a’ reason for Barton’s executing the deed he is entitled to relief even though he might well have entered into the contract if Armstrong had uttered no threats to induce him to do so. Lord Wilberforce and Lord Simon, dissenting jointly, held that while in substantial agreement on the law, there was no duress on the facts, but the threats needed to be at least “a” reason for entering the contract. They held the case, involves consideration of what the law regards as voluntary or its opposite. Absence of choice does not negate consent in law unless for the pressure must be one of a kind which the law does not regard as legitimate. Thus, out of the various means by which consent may be obtained advice, persuasion, influence, inducement, representation, and commercial pressure the law had come to select some which it will not accept as a reason for voluntary action, fraud, abuse of relation of confidence, undue influence, duress or coercion. In this the law, under the influence of equity, has developed from the old common law conception of duress which is threat to life and limb and it has arrived at the modern generalization expressed by Holmes J – ‘subjected to an improper motive for action’ (Fairbanks v Snow (1887) 13 NE 596 ) who gave the three tests for physical duress to be
A contract is said to be induced by “undue influence” where the relationship subsisting between the parties are such that one of the parties are in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other as stated under section 16 of The Law of Contract Act, CAP 345. In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another
“Fraud” is defined under section 17 of The Law of Contract Act, CAP 345 to mean any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract
A mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.
Parker-Smith v. Sto Corportion (2001), 262 Va. 432, 551 S.E.2d 615
Party bringing action alleging either actual or constructive fraud must prove that representation was false whereas false advertising occurs when advertisement contains representation that, although deceptive or misleading, is not necessarily false or untrue. In this case, dealing with stucco siding, plaintiff alleged false advertising. In false advertising claim, misrepresentation does not have to relate to a statement of present or existing fact but can be just a promise. In this case, the false advertising claim was governed by the catch-all statute of limitations and was stricken as being time-barred. In determining whether catch-all limitation applies, court must look at nature of cause of action at issue. Cause of action here was false advertising and not fraud.
Constructive fraud
This is a legal fiction describing a situation where a person or entity gained an unfair advantage over another by deceitful or unfair methods. Intent does not need to be shown as in the case of actual fraud. Some unfair methods may include not telling customers about defects in a product.
Strong v. Jackson, 777 N.E. 2d 1141 (2002) stipulated the elements of constructive fraud which are:-
Actual Fraud
Actual fraud is an intentional misrepresentation without any regard of the actual facts or their suppression. It can also be a promise made without any intention to follow through with that promise. Essentially, you are straight up lying.
An example would be if an agent told a buyer that the roof of a property was completely fine when he knew full well that it was not OK at all. It would also be actual fraud for the agent to say, “Do not worry about the roof; if you buy this house I will personally fix it, you have my word,” when he did not have the ability or intention of fixing it.
Negative fraud
Negative fraud is lying through omission. This occurs when somebody does not disclose a material fact to somebody in an effort to get them to enter into a contract that would put that person in a bad situation with respect to money, damage, or even personal harm.
An example would be when if an agent was showing a home with roof problems and the client asked, “Are there any issues with the structure of the roof?” and the agent replied, “Have I shown you the basement?”
A concept of English law, a misrepresentation is an untrue or misleading statement of fact made during negotiations by one party to another or a statement that induces that other party to enter into a contract, such as in the case of Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 Ms. Curtis took a wedding dress with beads and sequins to the cleaners. They gave her a contract to sign and she asked the assistant what it was. The assistant said it merely covered risk to the beads, but in fact the contract exempted all liability. The dress was stained but the exclusion was ineffective because of the assistant’s misrepresentation, and the claim was allowed.
Section 18 of The Law of Contract Act, CAP345 defined “Misrepresentation” to mean;
To amount to a misrepresentation, the statement must be untrue or seriously misleading. A statement which is “technically true” but which gives a misleading impression is deemed an “untrue statement” , In the case of Krakowski v Eurolynx Properties Ltd[1995] HCA 68, (1995) 183 CLR 563, agreed to enter into a contract to buy a shop premises from Eurolynx as long as a ‘strong tenant’ had been organized. The contract proceeded on the grounds that such a tenant had been arranged. Not known by Krakowski, Eurolynx had entered into an additional agreement with the tenant to provide funds for the first three months rent to ensure the contract went ahead. When the tenant defaulted on the rent and subsequently vacated the premises, Krakowski found out about the additional agreement and rescinded the contract with Eurolynx. It was held that Eurolynx’s failure to disclose all material facts about the ‘strong tenant’ was enough to constitute a misrepresentation and the contract could be rescinded on these grounds.
If a misstatement is made and later the representor finds that it is false, it becomes fraudulent unless the representer updates the other party s provided in the case of Lockhart v. Osman [1981] VR 57, an agent had advertised some cattle as being “well-suited for breeding purposes”. Later on, it was discovered that the stock had been exposed to a contagious disease which affected the reproductive system. It was held that the agent had a duty to take remedial action and correct the representation. The failure by the agent to take such measures resulted in the contract being set aside.
If the statement is true at the time, but becomes untrue due to a change in circumstances, the representor must update the original statement as in the case of With v O’Flanagan [1936] Ch. 575, the plaintiff entered into a contract to purchase O’Flanagan’s medical practice. During negotiations it was said that the practice produced an income of £2000 per year. Before the contract was signed, the practice took a downward turn and lost a significant amount of value. After the contract had been entered into, the true nature of the practice was discovered and the plaintiff took action in misrepresentation. In his decision, Lord Wright said, “…a representation made as a matter of inducement to enter into a contract is to be treated as a continuing representation.”
Actionable misrepresentations must be misstatements of fact or law, misstatements of opinionor intention are not deemed statements of fact but if one party appears to have specialist knowledge of the topic, his “opinions” may be considered actionable misstatements of fact. For example, false statements made by a seller regarding the quality or nature of the property that the seller has may constitute misrepresentation.
Statements of opinion are usually insufficient to amount to a misrepresentation as it would be unreasonable to treat personal opinions as “facts”, as in Bisset v Wilkinson [1927] AC 177, In May 1919 Mr Wilkinson entered into a binding contract to sell to Mr Bisset two contiguous blocks of farmland for ₤13,260, These blocks comprised 2062 and 348 acres (1.41 km 2 ) respectively. During negotiations Wilkinson told Bissett that “with a good six horse team, his idea was that the farm would carry 2,000 sheep”. After 2 years of unsuccessful farming, Bissett concluded that the land could not support 2,000 sheep, and he brought an action for misrepresentation to cancel the contract and get his money back Giving the leading judgment, Lord Merrivale stated that important considerations were the ‘material facts of the transaction, the knowledge of the respective parties and their relative positions, the words of representation used, and the actual condition of the subject-matter spoken of …’. The judge added:
| “ | In ascertaining what meaning was conveyed to the minds of the now respondents by the appellant’s statement as to the two thousand sheep, the most material fact to be remembered is that, as both parties were aware, the appellant had not and, so far as appears, no other person had at any time carried on sheep-farming upon the unit of land in question. That land as a distinct holding had never constituted a sheep-farm. | ” |
In addition, Lord Merrivale noted that Bisset had “failed to prove that the farm (if properly managed) was incapable of being occupied by two thousand sheep”
Essentially the judge provided exceptions that can arise where opinions may be treated as “facts”:
Statements of intention do not constitute misrepresentations should they fail to come to fruition, since the time the statements were made they cannot be deemed either true or false. However, an action can be brought if the intention never actually existed, as in Edgington v Fitzmaurice (1885) 29 Ch. D. 459, company directors seeking a loan “intended to develop the business” always intended to use the cash to repay debts. The state of mind is an existing fact, therefore, a false presentation of an existing fact, so that the contract was voidable
For many years, statements of law were deemed incapable of amounting to misrepresentations because the law is “equally accessible by both parties” and is “…as much the business of the plaintiff as of [the defendants] to know what the law [is].” This view has changed, and it is now accepted that statements of law may be treated as akin to statements of fact. As stated by Lord Denning “…the distinction between law and fact is illusory in the case of Andre & Cie v Ets Michel Blanc & Fils [1979] 2 Lloyds LR 427, 430.
An action in misrepresentation can only be brought by the misled party, or “representee”. This means that only those who were an intended recipient of the representation may sue, as in Peek v Gurney (1873) LR 6 HL 377, where the plaintiff sued the directors of a company for indemnity. The action failed because it was found that the plaintiff was not a represented (an intended party to the representation) and accordingly misrepresentation could not be a protection. It is not necessary for the representation to have been received directly. It is sufficient that the representation was made to another party with the intention that it would become known to a subsequent party and ultimately acted upon by them. However, it is essential that the untruth originates from the defendant.
Inducement
The misled party must show that he relied on the misstatement and was inducted into the contract by it.
In Attwood v Small (1838) 6 Cl&F 232, the seller made false claims about the capabilities of his mines and steelworks. The buyer, Attwood, said he would verify the claims before he bought, and he employed agents who declared that Small’s claims were true. The House of Lords held that Attwood could not rescind the contract, as he did not rely on Small but instead relied on his agents. Edgington v Fitzmaurice (1885) 29 Ch D 459, confirmed further that a misrepresentation need not be the sole cause of entering a contract, for a remedy to be available, so long as it is a influence.
A party induced by a misrepresentation is not obliged to check its veracity. In Redgrave v Hurd (1881) 20 Ch D 1, Redgrave an elderly solicitor told Hurd, a potential buyer, that the practice earned £300 pa. Redgrave said Hurd could inspect the accounts to check the claim, but Hurd did not do so. Later, having signed a contract to join Redgrave as a partner, Hurd discovered the practice generated only £200 pa, and the accounts verified this figure. Lord Jessel MR held that the contract could be rescinded for misrepresentation, because Redgrave had made a misrepresentation, adding that Hurd was entitled to rely on the £300 statement.
By contrast, in Leaf v International Galleries [1950] 2 KB 86 where a gallery sold painting after wrongly saying it was a Constable, Lord Denning held that while there was neither breach of contract nor operative mistake, there WAS a misrepresentation; but, five years having passed, the buyer’s right to rescind had lapsed. This suggests that, having relied on a misrepresentation, the misled party has the onus to discover the truth “within a reasonable time”.
In Doyle v Olby1969 2 QB 158 CA, Mr Herbert Doyle bought a business from Olby (Ironmongers) Ltd at 12, Upper High Street, Epsom, Surrey. Mr Doyle was told the business was ‘all over the counter’. In reality, half the shop’s business came via their travelling sales representative, and Mr Doyle sustained heavy losses. The judge awarded £1500 in deceit, based on two and a half times the cost of employing a part-time rep at £600 p.a., as equivalent to the cost of making good the representation or the reduction in the value of the goodwill. Mr Doyle appealed. Lord Denning MR increased the damages to £5500. He said Mr Doyle could claim for all damage flowing directly from the deceit which was not rendered too remote by Mr Doyle’s own conduct, whether or not the defendants could have foreseen such consequential loss. The plaintiff’s position before the fraudulent inducement should be compared with his position at the end of the transaction. He said damages for fraud and conspiracy are differently assessed from those for breach of contract
Mistake is an erroneous belief, at contracting, that certain facts are true. It can be argued as a defense, and if raised successfully can lead to the agreement in question being found void ab initio or voidable, or alternatively an equitable remedy may be provided by the courts. Common law has identified three different types of mistake in contract: the ‘unilateral mistake’, the ‘mutual mistake’ and the ‘common mistake’. The distinction between the ‘common mistake’ and the ‘mutual mistake’ is important.
Type of Mistakes:-
Mistake of law
When a party enters into a contract, without the knowledge of the law in the country, the contract is affected by such mistakes but it is not void. The reason here is that ignorance of law is not an excuse. However, if a party is induced to enter into a contract by the mistake of law then such a contract is not valid as in the case of Kleinwort Benson Ltd. v Lincoln City Council [1999] 2 A.C. 349 . Illustration: Neema and Danny make a contract grounded on the erroneous belief that a particular debt is barred by the Indian law of Limitation; the contract is not voidable.
Mistake of Fact
Where both the parties enter into an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void, Section 20 of The Law of Contract Act, CAP345 states that where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. An erroneous opinion as to the value of the thing which forms the subject matter of the agreement is not to be deemed a mistake as to a matter of fact.
Categories of Mistakes
Unilateral mistakes
A unilateral mistake is where only one party to a contract is mistaken as to the terms or subject matter contained in a contract as provided in the case of Taylor v Johnson [1983] HCA 5, (1983) 151 CLR 422 . 22. A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact
This kind of mistake is more common than other types of mistake. One must first distinguish between mechanical calculations and business error when looking at unilateral mistake.Ordinarily, unilateral mistake does not make a contract void The Law of Contract Act, CAP345 under Section 22 that a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact. The same is held under Common Law doctrines Caveat Emptor (let the buyer beware), and Caveat Vendor (let the seller beware).
Exceptions
A contract might be voidable from unilateral mistake for any of the following:
A mutual mistake occurs when the parties to a contract are both mistaken about the same material fact within their contract. They are at cross-purposes. There is a meeting of the minds, but the parties are mistaken. Hence the contract is voidable. Collateral mistakes will not afford the right of rescission. A collateral mistake is one that ‘does not go to the heart’ of the contract. For a mutual mistake to be void, then the item the parties are mistaken about must be material (the main terms of the contract). When there is a material mistake about a material aspect of the contract, the essential purpose of the contract, there is the question of the assumption of the risk. Who has the risk contractually? Who bears the risk by custom?
This is easily confused with mutual assent cases such as Raffles v Wichelhaus(1864) 2 Hurl & C 906 In Raffles, there was an agreement to ship goods on a vessel named Peerless, but each party was referring to a different vessel. Therefore, each party had a different understanding that they did not communicate about when the goods would be shipped. In this case, both parties believed there was a “meeting of the minds,” but discovered that they were each mistaken about the other party’s different meaning. This represents not a mutual mistake but a failure of mutual assent. In this situation, no contract has been formed, since mutual assent is required in the formation stage of contract.
A common mistake is where both parties hold the same mistaken belief of the facts. The House of Lords in case of Bell v Lever Brothers Ltd[1931] UKHL 2, [1932] AC 161, House of Lords (UK) established that common mistake can void a contract only if the mistake of the subject-matter was sufficiently fundamental to render its identity different from what was contracted, making the performance of the contract impossible.
Later in Solle v Butcher [1950] 1 KB 671 is an English contract law case, concerning the right to have a contract declared voidable in equity. Mr Solle, a tenant, claimed that he should be repaid money over the statutory rent regulation for a flat he leased, and Butcher, the landlord, counterclaimed that their contract should be void because both were mistaken about rent regulation applying. Mr Charles Butcher had leased the flat in Maywood House, Beckenham, to Mr Godfrey Solle at £250 a year, believing that the Rent Acts did not apply to the property. The Increase of Rent and Mortgage Interest (Restrictions) Act 1920 sections 1 and 14 and Rent and Mortgage Interest (Restrictions) Act 1938 section 7 regulated rent rises, and gave tenants basic rights upon renewal, to prevent the housing market becoming unaffordable. Butcher was in fact in a business partner, doing real estate, with Solle. In 1947, Butcher had bought that flat, with four others, that were damaged by a land mine in the war. He spent money renovating them and leased them out. In 1939, the first flat had been leased out to a third party at the regulated rent of £140 a year. In fact, the Rent Acts did apply, so without going through statutory procedures for letting, the true rent should have been fixed at the first flat’s previous rent, of £140. Solle and Butcher’s business relationship had deteriorated, and so when Solle realized the mistake about rent regulation, he claimed the overpaid rent back (i.e. restitution) from Butcher. Butcher counterclaimed to rescind the whole contract for common mistake. Denning LJ reaffirmed a class of “equitable mistakes” in his judgment, which enabled a claimant to avoid a contract. Denning LJ said,
| “ | … a contract will be set aside if the mistake of the one party has been induced by a material misrepresentation of the other, even though it was not fraudulent or fundamental; or if one party, knowing that the other is mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him remain under his delusion and concludes a contract on the mistaken terms instead of pointing out the mistake…. A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault. | ” |
This would have essentially recognized a wider application of a duty of disclosure in most cases, triggered by actual knowledge of one party that another party was mistaken about terms. The case was doubted by a subsequent Court of Appeal case, The Great Peace and the UK Supreme Court confirmed in Pitt v Holt that mistake in equity is no longer an accepted doctrine.
The doctrine of equitable mistake was doubted by the Court of Appeal’s ruling in The Great Peace in 2002, and Lord Phillips MR formally disapproved of the Solle v Butcher judgement. Lord Phillips declared that the trial judge, Toulson J., had “reached the bold conclusion that the view of the jurisdiction of the court expressed by Denning LJ in Solle v Butcher was ‘over-broad’, by which he meant wrong”; and he went on to uphold the trial judge’s decision.
Solle v Butcher had troubled academic and practicing lawyers for decades, and there was some relief when the Great Peace”” case was decided. Nevertheless, it remains a point of contention whether mistake in equity does, and should, enable rescission for wider reasons than acknowledged in The Great Peace and its restrictive interpretation.
Great Peace Shipping Ltd v Tsavliris (International) Ltd [2002] EWCA Civ 1407 is a case on English contract law and on maritime salvage. It investigates when a common mistake within a contractual agreement will render it void. It is notable for its disapproval of Solle v Butcher, a Court of Appeal case wherein Lord Denning established a new doctrine of “equitable mistake”.
The defendants, Tsavliris, were professional salvors in the business of maritime salvage and rendering aid to ships in difficulty in the South Indian Ocean. Learning that a vessel named Cape Providence was in trouble, Tsavliris entered into a salvage agreement with the owners on LOF terms. Tsavliris used the Ocean Routes service to try to locate the nearest rescue vessel, and were Just as the doctrine of frustration only applies if the contract contains no provision that covers the situation, the same should be true of common mistake. The following elements are necessary before a common mistake will void a contract, through analogy to frustration, from the case, Blakeley v Muller & Co 19 TLR 186, per Lord Alverstone CJ, there must be a common assumption as to the existence of a state of affairs