LAW OF CONTRACT II

MODULE 8

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.
DURESS AND UNDUE INFLUENCE

Introduction
The common law doctrine of duress and the equitable principles on undue influence generally deal
with situations where the consent of a contracting party has been obtained by some form of pressure
which is considered by the law as improper.
Since a contract is based essentially on the consent of the parties, agreements obtained by coercion
or undue exertion of pressure are generally not enforceable.
Thus a party who has entered into a contract as a result of pressure may therefore be entitled to
relief either under the common law doctrine of duress or the equitable principles of undue influence.
 DURESS AND UNDUE INFLUENCE

Introduction
DURESS AT COMMON LAW - Generally, at Common Law a contract which has been obtained by
illegitimate forms of pressure or intimidation is voidable on the ground of duress.
At Common law the definition of duress was a narrow one, and only the more extreme forms of
coercion would suffice. duress was said to consist of :
 Actual or threatened violence to the person;
 Threats of imprisonment or prosecution;
 or Threats of violence or dishonour to a person's wife, husband or children.
MISREPRESENTATION

Kaufman v Gerson
The plaintiff sued on a contract made between himself and the defendant in a foreign country. It was
found that the plaintiff had coerced the defendant into signing the contract by threats of criminal
prosecution against her husband for an offence that the husband had committed. In fact the
consideration for the contract between the plaintiff and the defendant was that the plaintiff would
not prosecute her husband.
HELD: The court would not enforce the contract on the ground that the defendant consent was
obtained by duress.
DURESS AND UNDUE INFLUENCE

THREATS OF LAWFUL PROSECUTION :

 At common law a threat of lawful prosecution or imprisonment would not amount to duress. [A threat of
prosecution would only constitute duress if it is false or malicious].

 In Equity however, obtaining the consent of a party to a contract by a threat of prosecution for a criminal
offence could constitute a ground for setting aside the agreement. See Williams v Bayley

[Here the threat was to prosecute the Bayley's son for felony if he did not meet promissory notes on which the son
had forged his signature].

Mutual finance ltd v Jonh wetton. "Where the instrument of coercion is the doing of an illegal act of any
description, it may be anticipated that a contract so procured will generally be held to be invalid. But even if the
instrument of coercion is not itself illegal, as in the case of threat of prosecution, the enforcement of the contract
so procured may nevertheless be held in appropriate cases to be contrary to public policy".
DURESS AND UNDUE INFLUENCE

INDUCEMENT:
It must be established that the p/f was induced by the threats to enter into the contract which he seeks to rescind.
In other words it must be established that the threats were a reason for the p/f entering into the contract with the
maker of the threats.
However it is not required that it be shown that the threat was the only reason for entering the agreement.
See: Barton v Armstrong
FACTS: Armstrong, the former chairman of a company, threatened Barton, the Managing Director with death if the
Company did not agree to pay a large sum to Armstrong in cash and to purchase Armstrong's shares in the Company.
There was some evidence that Barton thought the proposed agreement was a satisfactory business arrangement for
the Company. The deed of agreement was executed and later Barton sought to have it rescinded on grounds of duress.
HELD: That in the case of duress if the respondent's threats were a reason for the appellant executing the deed, he was
entitled to relief, even though there were other factors which induced him to enter into the contract.
 DURESS AND UNDUE INFLUENCE

ECONOMIC DURESS - DURESS BY THREATENED BREACH OF CONTRACT :

In recent times the courts have recognized economic duress as a factor which may render a contract voidable,
provided that the conduct which constitutes such duress must always amount to a coercion of which vitiates
consent.

Principle - In cases where a party is induced to enter a contract as a result of a threat by the other party to break an
earlier contract, this may constitute economic duress and entitle the party threatened to avoid the contract made.

See: D & C BUILDERS LTD. v REES

The debtors had taken advantage of the creditors financial situation and threatened to refuse to pay at all if the
creditor did not accept the part payment in full satisfaction of the existing debt. Here the creditor's promise to
accept the part payment in full satisfaction of the debt was obtained by duress and the creditor could set the
contract aside.
DURESS AND UNDUE INFLUENCE

North ocean shipping co. V Hyundai construction co. Ltd

FACTS: The defendants, a firm of shipbuilders, had agreed to build a tanker for the plaintiff, who were ship-
owners. It was agreed that the contract price was $30 million, payable in five instalments. After the plaintiffs had
paid the first instalment the international value of the dollar fell drastically and the defendants demanded an
increase of 10% in the price and threatened not to complete the ship if it was not paid. The plaintiff had made a
profitable contract to charter the ship upon completion and so could not afford the risk of any delays. The
plaintiffs therefore, even though advised that the defendants had no legal right to claim the additional 10%, paid
the defendants the original price and the extra 10%. Some eight months later, they brought the action to recover
the additional 10% they had paid to the defendants.
HELD: Mocatta J. found that in principle this was a case of economic duress, since the threat NOT to build the
ship was both wrongful and highly coercive of the plaintiffs will. It was HELD however, that the plaintiffs had lost
their right to set the contract aside by their affirmation of the contract.
DURESS AND UNDUE INFLUENCE

B & S Contract & designs ltd. v Victor green publication ltd. [1966] 2 Q.B. 617.
FACTS: A contractor had undertaken to erect stands for an exhibition at Olympia. Less than a
week before the exhibition was due to open, the contractor told his client that the contract
would be cancelled unless the client paid an additional sum of money to meet the claims
being made against the contractor by his workmen.
The consequence of not having the stands erected in time would have been disastrous for
the client in terms of damage to his reputation and heavy claims for damages from people to
whom the stands had been let out. In these circumstances it was held that the payment had
been made under duress and that the client was entitled to recover it back.
DURESS AND UNDUE INFLUENCE

CAVEAT:
It does not follow from these decisions that ANY threat to break a contract will amount to duress. All the
circumstances must be considered, in particular the nature of the pressure applied and the nature of the
demand made in order to determine whether there was a coercion of will which vitiates consent.
In other words it must be shown that the pressure was such that the victim's consent to the contract was
not a voluntary act on his part.
 DURESS AND UNDUE INFLUENCE

Pau on v Lau yiu long

FACTS: In that case the p/fs threatened to break a contract with a company unless the d/fs, who were
shareholders in the company, gave them a guarantee against any loss resulting from the performance of
the contract. The d/fs, thinking that the risk of such loss was small, gave the guarantee to avoid the
adverse publicity which the company might suffer if the contract was not performed.
HELD : In these circumstances it was held that there was no coercion of will, so that the guarantee was
not vitiated by duress.
The court found that in this case the d/f considered the matter thoroughly, chose to avoid litigation, and
formed the opinion that the risk in giving the guarantee was more apparent than real. In short, there was
commercial pressure, but no coercion.
 DURESS AND UNDUE INFLUENCE

Lord Scarman stated :

Duress, whatever form it takes, is a coercion of the will so as to vitiate consent. In a commercial situation,
commercial pressure is not enough. There must be present some factor "which could in law be regarded as
coercion of his will so as to vitiate his consent".
To determine whether there was coercion of the will, it is material to inquire whether the person alleged to
have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the
contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether
he was independently advised; and whether after entering into the contract he took steps to avoid it.
All these factors are relevant in determining whether he acted voluntarily or not.
 DURESS AND UNDUE INFLUENCE

UNDUE INFLUENCE
The term "undue influence" is generally used to describe the equitable doctrine of coercion which
deals with forms of pressure which are usually less direct than those discussed under the doctrine of
duress.
Further, there is a presumption of undue influence where the parties stand in a relationship of
confidence to one another, which puts one party in a position to exercise over the other an influence
which is capable of being unfairly used.
Most of the cases therefore relate to gifts and easy bargains or sales at excessive or ridiculously prices.
DURESS AND UNDUE INFLUENCE

There are two main situations to which the doctrine of undue influence may apply :
Express Use of Influence - Where the party charged has actually exercised undue
influence in the sense of dominating the will of the other party.
Presumption of Undue Influence - Where there is a special relationship between the
parties which raises the presumption of undue influence.
DURESS AND UNDUE INFLUENCE

EXPRESS USE OF INFLUENCE OR DOMINATION OF THE OTHER PARTY

If it can be shown that one party exercised such domination over the mind and will of the other party
that his consent to a contract cannot be said to have been independently given, the party who was
so dominated can rescind the contract on grounds of undue influence.
Here there is no need for any special relationship to exist between the parties, even though it may exist.
Here the onus is on the part of the person seeking to rescind the contract to prove actual coercion or a
high degree of domination or control leading to the loss of independence of will or consent.
Once it is shown that there was actual exercise of domination by one party over the will of the other,
and such coercion led to his entering into the contract, the contract so made may be avoided on
grounds of undue influence.
DURESS AND UNDUE INFLUENCE

See Williams v Bayley

Mutual finance ltd. v John wetton
A guarantee was obtained from a family company under an implied threat to prosecute a member of
the family who was alleged to have forged the signature of a member of the company in a previous
guarantee. It was known to the receiver of the guarantee that it was only given because the father of
the alleged forger was in such a state of health that the shock of the prosecution of his son was likely
to endanger his life.
HELD: That the guarantee was obtained by undue influence and the guarantors were entitled to
repudiate it.

3
DURESS AND UNDUE INFLUENCE

Principle A gift made as a result of influence expressly exercised over the donor by the done may be set aside
on grounds of undue influence.
See: MORLEY v LOUGHMAN
FACTS: Loughman, a man of no means, and a member of a religious sect known as Exclusive Brethren, was
employed as a travelling companion to Morley, an epileptic of large fortune. While so employed, he converted
Morley to his own religious views, and as a result Morley left his home and took up residence with Loughman,
with whom he lived for the last seven years of his life. During this period, Morley consulted with Loughman on
spiritual matters, allowed him to regulate his diet and his medicine, and placed nearly the whole of his fortune
at Loughman's disposal. Upon Morley's death, the executors brought an action to recover the £140,000 given by
Morley to Loughman as a gift.

HELD: That the recipient of the gift had obtained the money by the actual exercise of undue influence. Here it
was not necessary to decide whether or not any special relationship existed between the parties; because
Loughman took possession, so to speak, of the whole life of the deceased (Morley) and the gifts were not the
result of the deceased's own free will, but the effect of that influence and domination.
 DURESS AND UNDUE INFLUENCE

PRESUMPTION OF UNDUE INFLUENCE WHERE THERE IS A FIDUCIARY RELATIONSHIP BETWEEN THE

PARTIES
In TATE v WILLIAMSON (1866) 2 Ch. App. 55 ; the general principle was stated as follows :
"Whenever two persons stand in such a relation that, while it continues, confidence is necessarily
reposed by one, and the influence which naturally grows out of that confidence is possessed by the
other, and this confidence is abused, or the influence is exerted to obtain an advantage at the
expense of the confiding party, the person so availing himself of his position will not be permitted to
retain the advantage, although the transaction could not have been impeached if no such
confidential relation had existed".
DURESS AND UNDUE INFLUENCE

Principle
The presumption of undue influence arises in certain kinds of relationships referred to as
confidential or fiduciary relationships.
A fiduciary relationship is one in which one party reposes confidence and trust in the other, and the
other, by reason of his position in relation to the confiding party has some influence over him which is
capable of being abused.
Presumption :
In cases where the parties are in such fiduciary or confidential relationship, the law on grounds of
public policy presumes that a transaction made between them, for the benefit of the party in whom
the confidence was reposed, was the result of undue influence unless the benefitting party can prove
the contrary.
DURESS AND UNDUE INFLUENCE

The fiduciary or confidential relationships which are recognized by the law as raising a
presumption of undue influence include the following :
Parent and Child;
Guardian and Ward;
Solicitor and Client;
Physician and Patient;
Trustee and Beneficiary;
Religious /Spiritual Advisor and follower (any person to whom he stands in that
relationship).
DURESS AND UNDUE INFLUENCE

See : Allcard v Skinner

FACTS: The plaintiff an unmarried woman of 27 years, became a member of a Church of England Sisterhood
on the introduction of her confessor, N, who was the spiritual director of the Sisterhood. While a sister and
without independent advice, she made gifts of money and stock to the Sisterhood. She left the sisterhood in
1879 and 5 years later, she claimed the return of the gifts on the ground that they were voidable by reason of
undue influence.
HELD: That at the time of the gift the pliantiff was a professed sister, and as such, bound to make absolute
submission to the defendant as a superior of the sisterhood. She had no power to obtain independent advice,
she was in such a position that she could not exercise her own will as to the disposal of her property.
It was held therefore that the gifts were voidable by reason of undue influence, but the plaintiff was not
entitled to recover by reason of undue influence
DURESS AND UNDUE INFLUENCE

OTHER SITUATIONS :
The presumption of undue influence is not confined to these relationships only. It has been
held that the courts are entitled to extend the list, and that the presumption applies
whenever the relationship between the parties is such that one of them is by reason of the
confidence reposed in him by the other party, able to take unfair advantage of the other.

All the circumstances of the case must be considered to determine whether the
relationship exists.
DURESS AND UNDUE INFLUENCE

BANKER AND CUSTOMER?

A number of cases have raised the question whether the presumption can apply between a
banker and a customer where the bank is asked to lend money on the security of the
customer's home.

In lloyds bank v bundy - a father gave his bank a guarantee of his son's business debts and
mortgaged his house to the bank as security for the guarantee.

Held: that the presumption of undue influence applied since, for the purpose of the transaction,
the father had placed himself entirely in the hands of the bank manager, and had been given no
opportunity to seek independent advice.

However, this was an exceptional case which depended on the special facts of the
case.

Normally, the banker - customer relationship of itself does not give rise to the presumption of
undue influence.
DURESS AND UNDUE INFLUENCE

Remedies for undue influence

 Rescission where undue influence can be established, the court may set aside the
particular contract or agreement in question (e.g. Setting aside a contract of sale for the
transfer of property).

 Compensation - the plaintiff may be awarded compensation for any loss or damage
suffered as a result of the undue influence exercised by the defendant.

 Account of profits .
DURESS AND UNDUE INFLUENCE

National westminster bank V Morgan :

FACTS: A wife joined her husband in mortgaging the family house to their bank, after being assured by the bank
manager that the mortgage covered no more than the amount of the original advance. This assurance was
honestly give, but it was mistaken. The mortgage in fact extended to all further liabilities of the husband to the
bank. No such further liabilities were in fact incurred; and after the husband's death.

Held: that the mortgage could not be set aside on the ground of undue influence since the bank manager had not
acquired a sufficient degree of influence over the wife; neither was the transaction unfair to her.
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