VITIATING FACTORS NOTES

The law on mistake covers a wide range of situations for which the common law and equity have each developed different remedies. At common law, if it can be shown that the contract was made because of a mistake, the contract may be treated as void. It is not that every mistake will render the contract void. In order to be actionable the mistake must be of facts and not of law. A mistake of law is no ground for avoiding the contract since ignorance of law is not an excuse.  Secondly, it must be an operative mistake, it must be fundamental, that is, it must go to the root of the contract. It is such as to affect the validity or enforceability of the contract. In cases of mistake there is no genuine or real consent and therefore the contract is void abinitio, that is, to treat the contract as completely ineffective from the start.

Take Note

  In order to be actionable the mistake must be operative, that is, it must go to the root of the contract and that it must be of fact and not of law.

For operative mistake the contract is void and has no legal effect.

 



Mistake may occur where either both or one of the parties make it. Both may make a

mistake in the following two situations. First, where an agreement has been reached, but both the parties share a common misunderstanding which is in some way material to their respective decisions to enter into the agreement. Such a mistake is referred to as Common Mistake. The second type of mistake exists where there is an outward appearance that a contract has been concluded, but the parties have never truly reached an agreement or a meeting of minds. Such mistakes are usually referred to as Mutual Mistake and Unilateral Mistake

9.3.1 Common Mistake

In this situation both parties make the same mistake.In this category there is no question of lack of agreement. Both parties entered into a contract believing something to be true which was later found not to be true.

9.3.1.1 Mistakes as to the Existence of Subject Matter

Common mistake usually occurs in cases of res extincta that is, where the parties may enter into a contract when, unknown to both of them, specific subject matter of the contract already ceased to exist. In Couturier v Hastie (1856) D purported to sell P a cargo of corn which was thought to be in transit from Salonica to London. Unknown to either party the corn became fermented and had already been sold by the master of the ship at an intermediate port even before the contract was made: Held, P was not liable for the price since the contract plainly imports that there was something to be sold and purchased at the time of contract. On that basis the contract was held to be void.

The principle applicable to a case of res extincta has been extended to the case of res sua (“the thing was already his”). In Cooper v Phibbs (1867) P agreed to take a lease of a fishery from D. unknown to both parties, the fishery already belonged to P. Held the lease was void because the object of the contract – transfer of rights from D to P was just impossible of achievement.

9.3.1.2 Mistake as to Quality

Sometimes both the parties are mistaken about a fundament fact or quality of the subject matter of the contract. At common law it will be rare for a contract to be held void for mistake as to quality. This type of mistake is not sufficient to avoid the contract. In Bell v Lever Brothers Ltd (1932) appellants were employed by Lever Brothers on five year service contracts as executive directors of one of their subsidiaries. Subsequently, the subsidiary was closed down and Lever Brothers contracted to pay them substantial compensation for the premature termination of their contracts. After they had paid the compensation amount, Lever Brothers discovered that the appellants had committed serious breaches of duty during their tenure which would have justified their dismissal without any compensation. Lever Brothers tried to recover the amount of compensation paid on the ground that the compensation agreement was void for mistake because the mistake was the belief of both parties that they were bargaining about a service contract which could only be terminated with compensation whereas infact it could have been terminated without compensation. Held, the agreements to pay compensation were valid since the circumstances of the case itself disclosed no operative mistake and that the mistake was one of the quality of the service agreement. The decision is to the effect that it would only be in the most exceptional cases that a contract could be made void at common law mistake as to quality.

But in Solle v Butcher (1950) the Court tried to give some relief from this rule of the common law by formulating the principle of equitable mistake under which if a mistake being found to be operative in equity the agreement was said to be voidable and not void. In this case P agreed to lease a flat owned by D for seven years at an annual rent of ₤ 250. Both parties acted on a mistaken assumption that the flat, having been so drastically reconstructed as to be virtually a new flat, was no longer controlled by Rent Restriction Acts. The flat was, in fact under the rent control and was subject to a maximum of ₤140 a year. After two years P discovered the mistake and sought to recover the rent he had overpaid. Held, the contract was not void ab initio and D could rescind it so that he could serve notice of his intention to raise the rent to ₤250 a year. P was given the choice between surrendering the lease or continuing in possession by paying the full amount of ₤ 250 of rent.

In this case the principle of equitable mistake was formulated under which if a mistake being found to be operative in equity the agreement was said to be voidable and not void. However, in Great Peace Shipping Ltd. V Tsavlin’s Salvage (International) Ltd. (2002) it was said that

Solle v Butcher was wrongly decided since the decision was inconsistent with Bell v Lever Brs Ltd. This means that where there is a mistake as to quality of characteristic of the subject matter there is no operative mistake and the contract therefore is neither void nor voidable.



9.3.2 Mutual Mistake

Mutual mistake occurs when both parties misunderstand each other and are at a cross – purposes, either as to the terms of the contract, or as to the subject matter.

X, forexample; intends to offer his Toyota Corolla car for sale but Y believes that offer relates to the Toyota Carina also owned by X. If the parties to an apparent contract misunderstand each other, then it can be argued that this is no agreement between them. Although one or both parties may assert that a contract exists, but on an objective interpretation it is impossible to resolve the ambiguity over what was agreed. So the only possible conclusion is that it is impossible to impute any definite agreement to the parties. In Scriven Bros and Co v Hindley and Co. (1913) an auctioneer was employed to sell both hemp and tow. A lot of tow was put up for auction for which D successfully bid at an extravagant price thinking that it was hemp. P intended to sell tow and DRaffles v Wichelhaus (1864) may also be treated as a case of mutual mistake. Here, P promised to sell and deliver to D a cargo of cotton to arrive “ex Peerless” sailing from Bombay. There were two ships called “Peerless” both sailing from Bombay with cargo of cotton. One left

Bombay in October while the other left Bombay in December. D meant the “Peerless” which left

Bombay in October whilst PD was not liable for refusal to accept cotton arrived by the December ship. intended to buy hemp. Held, there was no binding contract because of the ambiguity of circumstances and it could not be affirmed which commodity was subject of the contract. meant the “Peerless” which sailed in December containing the contract cargo. Held,

9.3.3 Unilateral Mistake

In unilateral mistake, only one of the party is mistaken. The other knows or must be taken to know, of his mistake. The situation in which unilateral mistake has most often been pleaded is that of mistake of identity. For example where X believes himself to be contracting with Y when in fact he is dealing with Z, then the contract will be void provided X‘s mistake is one without which he would not have entered into the contract and that Z was aware of X’s mistake and that X is not at fault in making the mistake. In Cundy v Lindsay (1878) a rogue had deliberately set up a business under the name of Blenkarn on the same road where a very respectable firm called Blenkiron & Co. carried on their business. The rogue tricked P into supplying him a large consignment of handkerchiefs by making his signature look as though it read Blenkiron. P were aware of the high reputation of Blenkiron & Co. but they neither knew nor took trouble to ascertain the number of the street where they did business. P sent the consignment of handkerchiefs without payment to Blenkiron & Co. at the rogue’s address. The rogue before the fraud was discovered sold them to D. P sued D in tort for conversion, that is, wrongfully handling another person’s goods. Held, the contract between P and the rogue was void for mistake as to identity of the other contracting party because P had not intended to deal with Blenkarn at all but only with the respectable firm Blankiron & Co.

This case must be contrasted with the later case of King’s Norton Metal Co. Ltd v Edridge,

Merrett & Co. Ltd (1897). In this case, a crook W, for the purpose of cheating had set up business in the name of Hallam & Co. In fact Hallam & Co. did not exist, it was simply an alias for W. P had dealt on a number of occasions with Hallam & Co. and were paid for the goods supplied on previous occasions. When P received another larger order from Hallam & Co., they without any hesitation supplied goods to them on credit. W took possession of the goods and sold them to D9.3.3 Unilateral Mistake

In unilateral mistake, only one of the party is mistaken. The other knows or must be taken to know, of his mistake. The situation in which unilateral mistake has most often been pleaded is that of mistake of identity. For example where X believes himself to be contracting with Y when in fact he is dealing with Z, then the contract will be void provided X’s mistake is one without which he would not have entered into the contract and that Z was aware of X’s mistake and that X is not at fault in making the mistake. In Cundy v Lindsay (1878) a rogue had deliberately set up a business under the name of Blenkarn on the same road where a very respectable firm called Blenkiron & Co. carried on their business. The rogue tricked P into supplying him a large consignment of handkerchiefs by making his signature look as though it read Blenkiron. P were aware of the high reputation of Blenkiron & Co. but they neither knew nor took trouble to ascertain the number of the street where they did business. P sent the consignment of handkerchiefs without payment to Blenkiron & Co. at the rogue’s address. The rogue before the fraud was discovered sold them to D. P sued D in tort for conversion, that is, wrongfully handling another person’s goods. Held, the contract between P and the rogue was void for mistake as to identity of the other contracting party because P had not intended to deal with Blenkarn at all but only with the respectable firm Blankiron & Co. 

This case must be contrasted with the later case of King’s Norton Metal Co. Ltd v Edridge, Merrett & Co. Ltd (1897). In this case, a crook W, for the purpose of cheating had set up business in the name of Hallam & Co. In fact Hallam & Co. did not exist, it was simply an alias for W. P had dealt on a number of occasions with Hallam & Co. and were paid for the goods supplied on previous occasions. When P received another larger order from Hallam & Co., they without any hesitation supplied goods to them on credit. W took possession of the goods and sold them to D, who bought in good faith. P sued D for conversion to recover damages for the loss of their property, arguing that the contract was void for mistake. Held, the contact was not void for mistaken identity because P had intended to deal with Hallam & Co. with whom they had in fact dealt. W and Hallam & Co. were the same person. The Court in this case, however, held that the contract was voidable for fraudulent misrepresentation but as it had not been avoided before the sale by W to D, the latter had obtained a good title. 

, who bought in good faith. P sued D for conversion to recover damages for the loss of their property, arguing that the contract was void for mistake. Held, the contact was not void for mistaken identity because P had intended to deal with Hallam & Co. with whom they had in fact dealt. W and Hallam & Co. were the same person. The Court in this case, however, held that the contract was voidable for fraudulent misrepresentation but as it had not been avoided before the sale by W to D, the latter had obtained a good title.

9.3.4 Mistake in Document

9.3.4.1 Rectification of Common Mistakes

Sometimes though the consent may be real, it has by common mistake been inaccurately expressed in a latter written document. If it is proved that owing to a mistake the document fails to reproduce the common intention of the parties, the court has jurisdiction not only to rectify the written contract, but also to order specific performance. We have already discussed the remedy of rectification of a simple transcript mistake in recording an oral agreement in writing in one of our earlier lectures.  

9.3.4.2 Non est Factum

The Latin maxim non est factum literally means: it is not my deed

The normal rule of the law of contract is that a person who signs a contractual document will be bound by its contents, unless the signature was obtained by fraud or misrepresentation. In Lawis v Clay (1897) P asked D to witness to a family document. He showed D some papers covered by a piece of blotting-paper with a number of holes cut in it. P‘s explanation being that the hidden document concerned a private family matter that he whished to keep a secret. D signed in spaces. In fact the documents were promissory notes made out to P. Held, D was not bound by his signature because it was obtained by fraud. If fraud or misrepresentation has taken place, the contract will be voidable and signer may rescind it. However, the contract may be void if the signer could establish the defence of non est factum.

The most important case on non est factum is the decision in Saunders v Anglia Building Society (1971) which shows the defence must be confined within narrow limits. In this case, P was an elderly widow who owned a house held on long leasehold. She handed the deeds of her house to her nephew X and his unscrupulous business partner D in order to raise money jointly on the security of the house. She made it a condition that she should remain in occupation of it until she died. A document was prepared, which assigned the house not by way of gift to X, but by way of sale to D. D took this document to P and asked her to sign it. She signed the document without reading it because she had broken her spectacles. D mortgaged the house to a building society but failed to pay installments due under the transaction. The building society sought possession of the house. P sued D and the building society for a declaration that the assignment was void. She invoked the doctrine of non est factum because she was unable to read when she signed the document as she had broken her spectacles. Held, the defence of non est factum could not succeed because:

  1. P did not establish that the assignment to D was totally different in character and nature from the one she had in mind.
  2. The defence is not available to a signer who was careless in signing. Activity 9.1
The defence of non est factum is designed to protect those persons who signed a document which has been incorrectly read to them.

Critically examine this statement.

 

Take Note

  There are three possible types of mistake: common, mutual and

unilateral.

In common mistake, both parties make the same mistake.

In mutual mistake, the parties misunderstand each other and are at a  Cross- purposes.

In unilateral mistake only one party is mistaken

 

Intext Question

  Give examples of various types of mistake

 

9.4 Misrepresentation

In negotiations leading up to a contract a number of statements or promises are made by a party in an attempt to induce the other to enter into a contract. Not all these statements become part of terms of the contract. Statements which do not become terms of any contract whether main or collateral are called “mere representations” or “non-contractual representations”. If any such representation turns out to be untrue it is called misrepresentation.

A misrepresentation may be defined as a statement of existing or past fact made by one party to the contract (the representor) to the other (the representee) which induces the other party to enter into contract but which did not form part or the term of the contract.

A contract made as a result of misrepresentation is voidable at the instance of the person to whom the misrepresentation was made.

9.4.1 Actionable Misrepresentation

In order to succeed in an action for misrepresentation plaintiff must prove at least three things. These are:

  • that a representation of fact was made by the defendant to the plaintiff at or before the time of contracting;
  • that the representation was false or misleading in some material respect; and
  • that that the plaintiff was induced to enter into the contract on the basis of that misrepresentation.

9.4.1.1 Representation of Fact

A misrepresentation must be a false statement of facts. False statements of opinion, future intentions or law will not amount to misrepresentation.

9.4.1.1.1 Statements of Opinion

As a general rule, statements of opinion will not qualify as statements of fact. In Bisset v

Wilkinson (1927) B, the vendor of two percels of land in New Zealand offered to sell them to W. During the negotiations B told W that in his opinion if properly worked the land would carry 2,000 sheep. B had not worked the land himself as a sheep farmer and W knew of this, W bought the land and found that it could not support anywhere near 2,000 sheep. Held, the statement was an honest opinion of capacity of the farm, not a representation of its actual capacity.

However, an expression of opinion may in certain circumstances constitute a representation of fact. As for instance where party making the statement does not truly hold the opinion he expresses, or he has a particular expertise, or he is in a better position to know the facts than is the other party. In Smith v Land & House Property Corp. (1884). P sold a hotel to D. The particulars of the sale documents stated that it was let to “a most desirable tenant” at a rental of £ 400 per annum. The tenant was in fact in arrears with his rent. When D discovered this they sought to rescind the contract. Held, the description “a most desirable tenant” was not a mere expression of opinion but it was a statement of fact because P knew the fact that justified his opinion that the tenant was desirable.

9.4.1.1.2 Statement of Intention and Future Events

A statement as to the future is not a representation of existing fact, and is therefore not actionable. Thus a statement of intention is not misrepresentation unless at the time of stating the intention the person did not in fact have such intention. In Edgington v Fitzmaurice(1885) a company issued a prospectus in an attempt to raise loan from the public and stated that the money was to be used for alteration and addition to premises and the extension of the business. This was untrue, since the money was needed to meet the company’s existing debts. Held, the prospectus was a fraudulent misrepresentation of fact because the company simply told a lie.

9.4.1.1.3 Statements of Law

A false statement of law cannot ordinarily constitute a misrepresentation, since everyone is presumed to know the law. But a false statement as to one’s view of the law can qualify as a statement of fact.

9.4.1.1.4 Silence as Misrepresentation

The general rule is that mere silence is not misrepresentation. In Fletcher v Krell (1873), a lady applied for a post of governess and failed to reveal the fact that she was a divorcee. At that time this fact was considered to be important. Held, there was no misrepresentation since nondisclosure could not constitute a misrepresentation.

There are, however, certain circumstances in which silence or non-disclosure does amount to misrepresentation. First, where the silence distorts positive assertion. In With v O’FlannaganD offered to sell his medical practice to P and represented to him that the practice was worth £ 2,000 a year, which at the time was quite true. D then fell ill and practice became virtually worthless. The sale took place five months after the original information was given, when D did not disclose that the income had fallen to almost nothing. Held, D‘s silence in the face of this change of circumstance was a misrepresentation. (1936),

Secondly, where the contract is of utmost good faith (ubberimae fidei) as for instance contract of insurance.

Thirdly, where a fiduciary relation exists between the contracting parties, for example relationship between principal and agent, between partners, between advocate and a client, and between promoters of a company and the public.

Finally, a party to a contract may be justified in remaining silent about some material facts, but if he ventures to make a representation upon the matter he must reveal the whole facts. Only part of the truth about something may mislead others by reason of the facts which he has omitted to mention. In Dimmock v Hallet (1886) a vendor of land represented that farms were let, but failed to reveal that the tenants have given notice to quit. Held, the failure to disclose had been a misrepresentation.

9.4.1.2 Inducing the Contract

A false statement is a misrepresentation only if it actually induces the other party to enter into a contract. It follows, therefore, that there can be no action for misrepresentation if any of the following factors is proved:

(1) The other party knew it to be false, and decided to overlook or ignore it when entering into

contract. Knowledge of the untruth of a representation is a complete bar to an action for misrepresentation, since the palaintiff cannot assert that he had been mislead by the statement.  (2) The representation had not even come to the other party’s notice. In Horsfall v Thomas (1862) the vendor of a gun concealed a dangerous fault in the barrel (misrepresentation by

conduct) before offering it to the purchaser, who purchased the gun without examining it. Held, failure to examine the gun meant that the misrepresentation never came to the purchaser’s attention, and so it did not induce the contract

(3) The other party did not rely on the representation, but relied instead upon his own knowledge

or on the advice of his own experts. In Attwood v Small (1838) the vendor offered to sell a mine and made exaggerated statements as to its earning capacities, to the prospective purchaser. The purchaser appointed experienced agents to obtain his own expert valuation before buying it. The agents reported that the statements were true, and ultimately the contract was completed. The mine proved incapable of producing as much ore as the vendor or agents had suggested. The purchaser brought an action for the recession of the contract. Held, the purchaser’s action must fail because they did not rely on vendor’s statement, but on their own investigations.



9.4.2 Types of Misrepresentation

Once an actionable misrepresentation has been established, the court must decide what type of misrepresentation was involved. The remedies depend upon the nature of misrepresentation. Misrepresentation is of three kinds:

9.4.2.1 Fraudulent Misrepresentation

Fraudulent misrepresentation was defined by the House of Lords in Derry v Peck (1989) in the following words, “fraud is proved when it is shown that a false misrepresentation has been made (1) knowingly or (2) without belief in its truth or (3) recklessly, carelessly whether it is true or false”.

More recently in Thomas Witter Ltd v TBP Industries Ltd (1996) it was stated the fraud requires a dishonest disregard for the truth. The maker of the statement (representator) must also have intended that his statement would influence the other party.

However, if the representor genuinely believed in the truth of his statement, there cannot be fraudulent misrepresentation. In Derry v Peak, a tramway company was authorised by a Special Act to run trams in a town by animal power, and with the consent of the Board of Trade by steam or mechanical power. The directors of the company, believing this consent would be given as a matter of course, issued a prospectus containing a statement that the company had the right to use steam power instead of horses. P took shares on the faith of this statement. The Board of Trade refused their consent to the use of steam power and the company was wound up. P brought an action for fraud (deceit) against the directors founded upon false statement. Held, the action against the directors claiming damages for fraudulent misrepresentation must fail since they honestly believed their statement to be true.

9.4.2.2 Negligent Misrepresentation

Before 1963, the common law made no distinction between negligent misrepresentation and innocent misrepresentation. If a misrepresentation was not fraudulent it was treated as innocent and the only remedy available was rescission of the contract and no damages could be recovered. But developments at common law since the decision of the House of Lords in Hedley Byrne & Co. Ltd v Heller & Partners Ltd (1963), have altered this position, and now there is a distinction between negligent and wholly innocent misrepresentation. The remedy of damages is available for negligent misrepresentation also.

“A negligent misrepresentation may be defined as a false statement made by a person who had no reasonable grounds for believing it to be true”. InHedley Byrne & Co. Ltd v Heller & Partners Ltd. (1963) P had been asked for credit by a company, Easipower Ltd. P therefore asked its bankers to obtain a report from D, who were Easipower’s bankers, on the financial standing of Easipower. D who had known the purpose of P’s request, had carelessly replied that Easipower were financially sound.Relying on the advice given by D, P gave credit to Easipower and suffered losses. Held, on the facts of the case that D were not liable since the reply had been given “without responsibility”.However, the importance of this case lies in the fact that for the first time the Court has recognised that there could be a liability under the tort of negligence, for negligent misstatement causing economic loss. In order to succeed in an action for tort of negligence, the plaintiff must establish that: (1) the defendant owed him a duty of care; (2) the defendant was in breach of that duty; and (3) the breach had caused him loss.

In negligent misstatement cases, contractual relationship need not be established, but the plaintiff must prove that a “special relationship’ existed between himself and the defendant. It may be noted that liability for negligent misstatement can attach not only statements of fact but also to other forms of negligent statements such as expression of opinion or statement of law.

Further cases suggest that the common law doctrine of negligent misstatement is not limited to representations which results in a contract but it also applies to pre-contractual representations which induce a contract between representator and representee (see Esso Petroleum Co. Ltd & Mardon 1976).

9.4.2.3 Innocent Misrepresentation

Innocent misrepresentations are those not covered by fraudent or negligent misrepresentation. An innocent misrepresentation is a statement which the maker honestly and reasonably believes to be true through in fact it is false.

Take Note

  Misrepresentation means pre-contractual false statement of fact. It is of three types: fraudulent, negligent and innocent.

 

9.4.3 Remedies for Misrepresentation

The remedies available for misrepresentation depend upon the type of misrepresentation. In this section, however, we shall consider the general and common features of various remedies and then discuss which remedies may be granted for each type of misrepresentation.

9.4.3.1 Rescission

A misrepresentation renders a contract voidable at the option of the innocent party. The effect of a contract being voidable is that it remains valid unless and until the innocent party elects to rescind. This means that the innocent party has an option to affirm or rescind the contract. If he chooses to proceed with the contract or does some act from which it can reasonably be inferred that he has affirmed it, the contract is valid and binding on both the parties. The innocent party, on the other hand may choose to rescind the contract. The word “rescission” or its verb “rescind” means cancellation or avoidance of a contract. It can also mean an order of the court canceling a contract.

To avoid or rescind the innocent party must give notice to the other of his decision, or alternatively do something from which an inference to rescind may be inferred. In Car and Universal Finance Co. Ltd v Caldwell (1964) C sold and delivered a car to a rogue N, in return for a cheque which proved to be worthless. C then sought to rescind the contract but N had already disappeared with the car. C at once informed the police and the Automobile Association of the deception and asked them to recover his car. N sold the car to a dealer who had notice of N‘s defective title. Eventually the car was sold to a finance company who bought it in good faith. Held, normally a party rescinding a voidable contract must communicate to the other contracting party, but in this case it was out of power of rescinding party because N had deliberately absconded with the car. Consequently C by setting the police and Automobile Association in motion had clearly indicated his intention to rescind. The contract between C and N had effectively been rescinded before the car had been sold to the finance company. The finance company, therefore, did not acquire a good title to the car.

Alternatively, the innocent party may seek an order of the court canceling a contract.

The purpose of rescission is to restore the parties to their pre-contractual position. The remedy of rescission is available for all types of misrepresentation. The effect of rescission is to render the contract void. That means to nullify the contract ab initio, that is, to treat the contract as completely ineffective from the start.

Rescission is an equitable remedy and therefore it is discretionary. The court may grant it or refuse to grant it.

9.4.3.1.1 Bar to Rescission

The right to rescind a contract is lost in the following situations:

a) Affirmation of the Contract

If the innocent party, with full knowledge of facts and of misrepresentation affirms the contract, the right to rescind is lost. Affirmation is an indication to the other party that it is intended to continue with the contract, despite the misrepresentation. Affirmation may be by express words or may be implied by conduct.

b) Lapse of Time

Where substantial period of time has passed since representation was made, any right to rescind may lapse.

c) Impossibility of Returning Parties to their Original Position

If it is impossible to restore the parties substantially to their original position, rescission cannot be enforced.

d) Third Party Rights

If before the innocent party reaches a decision a third party acquires for value an interest in the subject matter of the contract, the right of rescission is defeated.

9.4.3.2 Damages

We have seen that the principal remedy for any misrepresentation is rescission of the contract. The right to damages is not universal but depends on showing that the representor’s statement is either fraudulent or negligent in the senses set out above. It is clear that the claim for damages for fraudulent and negligent misrepresentation is a claim in tort rather than under the law of contract. The purpose of awarding damages in tort is to put the plaintiff in a position he would have been in if the misrepresentation had not been made. An action for fraudulent misrepresentation is a claim in tort of deceit. Any award of damages is therefore calculated so as to compensate the plaintiff for any actual loss he has suffered for entering into the contract in reliance on the misrepresentation. In Doyle v Olby (Ironmonger) Ltd (1969) it was held that “the defendant is bound to make reparation of all the actual damage directly flowing from the fraudulent inducement. For negligent misrepresentation liability under the principle of Hedley Byrne & Co Ltd v Heller & Partners Ltd flows from the law of tort and so the tortious rules apply.

Since deceit and negligent misstatement are separate torts, the restriction that the statement must be of fact and not of law, opinion or future intention do not apply. For this reason a claim in tort may sometimes be advantageous to the plaintiff. There is no right to damages for innocent misrepresentation, but if the right to rescission has not been lost, the court has a discretion to award damages in lien of rescission

9.4.3.3 Indemnity

Although damages are not available for innocent misrepresentation, it is possible to claim an indemnity for expenses that have been incurred in carrying out obligations under the contract.  Take Note

   

1.     Remedies available for actionable misrepresentation depend on the type of misrepresentation. For fraudulent and negligent misrepresentation the innocent party may sue for damages and/or recission of the contract. For innocent misrepresentation only remedy available is recission or avoidance of contract.

2.     There is no general right to damages for a wholly innocent misrepresentation, but the innocent party may claim indemnity for expenses.

 

 

9.5 Duress

Duress means actual or threats of violence to the person, i.e. threats calculated to produce fear of loss of life or bodily harm. A threat of unlawful imprisonment is also duress but a threat to a person’s goods is not duress. Recently the courts have developed the principle of economic duress which we shall discuss shortly.

It is controversial whether the effect of duress at common law is to make the contract void or voidable. The majority of the writers state that duress makes the contract voidable, but this has been disputed. In Barton v Armstong (1976). A, the largest shareholder in a company threatened B, the next largest shareholder with death if the company did not agree to pay a large sum in cash and to purchase A’s shares in the company. Later B executed a deed to purchase A’s shares on terms favourable to A and disastrous to the company and to B. Held, the deed was executed by B under duress and therefore the contract was void.

The courts have recently developed a new and potentially more significant doctrine of economic duress as a threat to break a contract. The effect of economic duress is to render the contract voidable, which may be set a side by a court. The doctrine of economic duress was first approved in Pao On v Lau Yiu Long (1980) where P agreed to sell a building which was under construction to D and in exchange P would receive 60 percent of the shares in D’s company for a year at a price of $1per share. D also agreed to buy back P’s shares at $2.50 per share so as to provide security against fluctuating prices. P later realised that there was a possibility that D would earn huge profit if the value of the shares went up. So P threatened to break the contract unless the security arrangements were cancelled and replaced by indemnity contract. Fearing delays, and a loss of confidence in their company, D agreed to P‘s demands. In fact share prices slumped and D refused to honour the agreement. P sued on the indemnity contract. D pleaded duress. Held, D took a commercial decision that the risk to their company of non-performance was greater than the risk of the need to pay an indemnity. This did not constitute duress.

The doctrine of economic duress was recognized by the Kenya Court of Appeal in Kenya

Commercial Bank Ltd v Samuel Kamau Macharia (2008). In that case, Madhupaper

International Ltd. borrowed various amounts of money from Kenya Commercial Bank and other lenders. The company executed a debenture charging all its assets and property in favour of the lenders. It defaulted on the loan repayments and was placed under receivership. After some litigation the company entered into an agreement under which it paid Kshs 54 million in settlement of the loan. However, one week later the payment was returned and the receivership was restored because the company had imposed conditions unacceptable to the debenture holders. Eventually, the company executed a deed binding itself to pay Kshs110 million to the debenture holders in full and final settlement of the loan. Subsequently, the company brought a suit against the debenture holders claiming Kshs56 million allegedly extracted from them. The case was partly based on the doctrine of economic duress. Held, the doctrine of economic duress was not applicable because there was no pressure or duress illegitimate or otherwise applied to induce the company to pay.

There are two factors which must be established before the contract is voidable for economic duress:

  • That there was illegitimate or unlawful economic threat
  • That the party threatened had no reasonable alternative but to agree to the contract in question.

It is worth noting that economic duress must be distinguished from mere commercial pressure, which is an everyday incident of the hard-nosed bargaining which goes on in the business world. Commercial pressure is legitimate in the eye of law.

Take Note

  Duress is of two types :

Physical duress which means actual or threat of violence to the person, and Economic duress which occurs when commercial threats or forms of pressure, not associated with threats to person, is applied.

For physical duress the contract is void whereas for economic duress it is voidable

 

 



9.6 Undue Influence

The common law doctrine of duress was rigid and was initially confined solely to physical threats. As a result equity developed a separate doctrine of undue influence. Equity recognized that consent may be affected by influences other than physical ones. A contract may be induced by undue influence where one party had exerted influence over the other and thus procured a contract that would otherwise not have been made. The effect of undue influence is to make the contract voidable. Contracts which may be set aside for undue influence fall into two categories:

9.6.1 Actual or Express Undue Influence

Actual undue influence does not depend on any particular form of relationship between the parties to the contract. The party seeking to avoid the contract must prove that as a result of improper pressure by the other party, he felt compelled to enter into the contract. In Williams v BayleyCIBC Mortgages plc v Pitt (1993). In this case a husband (H) and Wife (W) jointly owned a family home. The only encumbrance on it was a mortgage in favour of a building society. H induced W to sign a second mortgage and a legal charge on the family home as a security for loan obtained from P. W did not want to go ahead but gave in after being put under pressure by H. The proceeds of the loan after the existing mortgage was paid off, were used by HH was unable to keep up the mortgage payments and P applied for an order for possession of the family home. Held, W had established actual undue influence by H and therefore was entitled as of right to have it set aside. In this case H was considered as an agent of the bank in procuring the transaction by means of undue influence. The decision is of importance in that in cases of actual undue influence, it is not necessary for the victim to prove in addition that he suffered manifest disadvantage because of the transaction induced by undue influence. (1866) a son gave to his bank several promissory notes upon which he had forged the endorsements of his father. At a meeting between the son, father and bankers, the bankers made it clear that unless some arrangements were made, the son would be prosecuted. The father thereupon agreed to mortgage his property to the bank. Held, the agreement was invalid, since the bank had clearly exploited the fears of the father for the safety of his son. Accordingly, the agreement was set a side on the ground that undue pressure had been exerted. A more recent example of this category of undue influence is to be found in for share purchases. When the market crashed,

9.6.2 Presumed Undue Influence

Presumed undue influence arises from the existence of a relationship between the parties. This category consists of to sub-categories. The first consists well known relationships which the law will treat as relationships of trust and confidence. The second consists of other relationships where the person wronged establishes that he was accustomed to place trust and confidence in the wrongdoer.

9.6.2.1 Relationships Automatically Giving Rise to the Presumption of the Undue Influence

There are certain types of relationship which automatically give rise to a presumption of undue influence. Only a few relationships fall into this category, notably those of parent and child, guardian and ward, trustee and beneficiary, advocate and client, doctor and patient, and religious advisor and disciple. The relationship of husband and wife does not fall into this category.

Where such a relationship is exploited and abused to gain an unfair advantage, the courts will intervene and set aside the contract. The manner in which the relationship is exploited may be either domination of one party by the other or abuse of a particular duty of confidence owed by one party to the other. In Ottoman Bank v Mawani (1966) a son entered into a contract of guarantee with a bank in favour a firm of which his parents were the proprietors. When sued on the guarantee he pleaded that he was induced to sign the contract of guarantee by undue influence of his father. Held, the son was not liable on guarantee since although he was of full age he was under the authority of his father.

9.6.2.2. Where a Relationship of Trust and Confidence is Proved to Exist

If a relationship does not fall within the category described above, the alleged victim of undue influence may still prove the existence of relationship under which he generally reposed trust and confidence in the wrongdoer. Such relationships give rise to a presumption of undue influence but do not automatically do so. From the decided cases it can be said that there are certain relationships such as between husband and wife, between cohabitants whether married or not, between close friends, between junior employee and employer and between an old man and his secretary companion. Where, there is no automatic presumption of undue influence, but such a presumption may arise if there is evidence to show that one party was accustomed to place trust and confidence in the other.

In Credit Lyonnais Bank v Burch (1997) a junior employee was prevailed upon by her employer to mortgage her flat as security for an increase in company’s overdraft. Held, there was a presumption of undue influence because the evidence showed that the employer had assumed dominance over the employee.

In cases of presumed undue influence, the victim must prove in addition that he suffered “manifest disadvantage” as a result of the undue influence.

9.6.2.3. Rebutting the Presumption

The presumption of undue influence is, however, rebuttable if it can be shown that the alleged victim entered into the contract after full, free and informed consideration.

9.6.3 Effect of Undue Influence

A contract tainted with undue influence is voidable. This means that the victim must bring an action for rescission to avoid it. The right to rescind is subject to bars to rescission discussed earlier in this lecture.

9.7 Illegality

The law will clearly refuse to give effect to contracts which are tainted with illegality. The notion of illegality covers a number of factors which have been said to deprive contracts of legal force. It is difficult to classify such contracts within coherent pattern but for our purposes the following classification will be used.

9.7.1 Contracts Prohibited by Statute

Contracts expressly or implicitly prohibited by statute are illegal and therefore void. Included in this category are contracts to commit a crime or do an act forbidden by a statute. A criminal conspiracy involves an agreement, but it can never be an enforceable contract. Similarly, if X agreed to pay YY’s promise to murder Z, or to smuggle prohibited drugs for him, or to rent out his house for prostitution, then the contract is illegal and void, i.e., it has no legal effect at all and obviously neither party can sue the other for breach of contract. In Re Mahamoud and Ispahani (1921) P had a licence to sell linseed oil to other licensed dealers. A statutory order prohibited buying and selling of linseed oil without a licence. D mis-represented to P that he had a licence, thereupon P agreed to sell linseed oil to him. D then refused to accept delivery. Held, P kshs. 1000,000 in return for could not sue for breach of contract because the contract was void for illegality in absence of the licence.

 

9.7.2 Contracts Illegal at Common Law

The following contracts are considered by the courts as patently reprehensible, contrary to public policy and therefore termed as illegal.

9.7.2.1 Contracts to Commit a Tort or other Civil Wrong

A contract to commit a tort or other civil wrong is illegal and therefore void.

9.7.2.2 Contracts Promoting Sexual Immorality

An agreement to promote sexual immorality may be declared illegal at common law. Thus, in Benyon v Nettlefold (1850) a promise of payment in order to induce a woman to become one’s mistress was held to be illegal at common law and therefore unenforceable.

Similarly, contracts ancillary to immoral purposes are equally affected. For example, In Pearce v

Brooks (1866) a contract to hire out a carraige to a prostitute for the purposes of her profession was held to be illegal. However, in modern time views on sexual morality have changed and the law is less severe than once it was, particularly on unmarried couples.

9.7.2.3 Contracts Prejudicial to the Administration of Justice

Any contract having tendency to affect the administration of justice, is illegal and void. Agreements by which a party promises to withdraw a prosecution, promises to give false evidence, or promises not to apply to court for maintenance fall into this category.

9.7.2.4 Contracts to Defraud the Revenue

Any contract where the design of one or both parties is to defraud the revenue, whether national or local is contrary to public policy and therefore illegal.

9.7.2.5 Contracts that tend to Corrupt the Public Life

A familiar example of this principle is a contract for buying, selling or procuring public offices.

In Garforth v Fearon (1787). X and Y enter into a contract whereby it was agreed that if by Y’s influence X was appointed as customs officer, he would appoint Y‘s nominees as his deputies and would hold the office of profit in trust for Y. Held, as the contract was contrary to public policy it was illegal and therefore no action lay against X for breach of contract.

9.7.2.6 Contracts Prejudicial to Foreign Relations

Contracts which tend either to benefit an enemy country or to disturb good relations with friendly countries fall into this category. So also, trading contracts with enemy.

 

9.7.2.7 Consequences of Illegality

A contract that is illegal as formed is void ab initio and is treated by law as if it had not been made at all. Neither party to an illegal agreement can enforce the agreement against the other. Also money or property transferred under illegal contract is not recoverable. Thus in case of an illegal contract for the sale of goods, the buyer even if he has paid the price, cannot sue for nondelivery or the seller who has made delivery of the goods cannot recover the price. Similarly, in case of an illegal lease, the landlord cannot recover the rent or damages for the breach of any other covenant. Further more, any subsequent agreement or collateral contract which is based upon the illegal transaction will also be affected by initial illegality and will also be unenforceable.

There are two exceptions to the general rule:

  1. Where the parties are not in pari delicto (not equally guilty) and
  2. Where the plaintiff withdraws before the contract has been perfomed.
9.7.2.8 Severance

If severance is possible, it will enable an otherwise illegal contract to be enforceable by the parties once the void part is removed.

Severance means separating the void part of the contract from the valid part  Intext Question

  1. Discuss various contracts which are illegal at the common law.

 

9.7.3 Contracts Void at Common Law on grounds of Public Policy

Contracts falling under this head are not that reprehensible but are rather inexpedient. Such contracts have been treated with comparative leniency by the courts. They include the following contracts:

9.7.3.1 Contracts to Oust Jurisdiction of the Court

A contract which purports to destroy the right of one or both of the parties to submit questions of law to the courts is contrary to public policy and therefore void.

9.7.3.2 Contracts Prejudicial to the Status of Marriage

A contract which attempt to restrict a person’s right to marry or an agreement of marriage brokerage, by which one party is to procure the marriage of another for a fee are void as contrary to the public policy. Similarly, a contract for future separation between husband and wife is void. On the other hand, a contract between husband and wife for immediate separation is valid and enforceable. Also, a contract by a married man to marry another woman at some future date is void on grounds of public policy.

9.8 Contracts rendered Void by Statute

There are several contracts rendered void by statute, but shall discuss two only in this section.

 

9.8.1 Wagering Contracts

A wagering contract is a contract under which two persons, professing to hold opposite views, mutually agree that upon the happening of some uncertain, and normally future event the looser shall pay to the winner, a sum of money or other stake. An example of a wager is betting on the result of a horse race or a football match, or an election result. It may, however, be noted that wagering may also concern some past or present fact or event. For example, two persons may differ on a past event whether in 2004 olympic games Kenya won the gold medal in marathon race or not and they bet on it. Gaming and wagering contracts have been declared null and void by the Gaming Act 1845 of England which is applicable in Kenya by virtue of section 3(1) of the Judicature Act as a “statute of general application”.

It s important to note that gambling is not in itself illegal, but void and no rights can be conferred upon either party to such a contract. That means the law gives no assistance to enforce it. If the looser fails to pay, recovery cannot be enforced by action for the amount of bet.

9.8.2 Contracts in Restraint of Trade

A contract in restraint of trade is one in which a party agrees with the other party to restrict his liberty in future to carry on trade with other persons not parties to the contract in such manner as he chooses.

This is a good working definition provided it is applied rationally and not too literally.

Interpreted too literary, any supply contract could be said to be a contract in restraint of trade, for if X agrees to sell goods to Y, he precludes himself from selling them to anybody else. Hence a distinction has to be made between contracts in restraint of trade and contracts which are really necessary for carrying on a business.Contracts in restraint of trade in Kenya are governed by a statutory law, the Contracts in Restraint of Trade Act (1932). Section 2 of this Act provides that:

“Any agreement or contract which contains any provision or covenant whereby any party thereto is restrained from exercising any lawful profession, trade, business or occupation shall not be void only on the ground that such provision or covenant is therein contained provided that:The High Court shall have power to declare such provision or covenant to be void, where the court is satisfied that having regard to the nature of the profession, trade, business or occupation concerned, and the period of time and the area within which it is expressed to apply, and to all circumstances of the case, such provision or covenant is not reasonable either in the interests of the parties in as much as it affords more than adequate protection to the party in whose favour it is imposed against something against which he is entitled to be protected, and in the interest of the public, in as much as such provision or covenant is injurious to the public interest.”

Thus, unlike in England, contracts in restraint of trade in Kenya are prima facie valid, but High Court has power to declare them void if it can be shown that:

  1. The restraint is not reasonable as between the parties to the agreement, that is, it affords more than adequate protection to the party in whose favour it is imposed; and
  2. The restraint is not reasonable in the interests of the public, that is, it is injurious to the public interest.

The doctrine of restraint of trade contained in the provisions of the Contracts in RestraintTrade Act is applicable to all types of restraint, but the doctrine is traditionally applied to four major kinds of restraints.

9.8.2.1 Employment Contracts

Under employment contracts an employer may put constraints upon his employee’s freedom of trade, business or profession during the continuance of the employment, or after the period of employment has terminated; Constraints during the period of employment are usually allowed but restraints after the termination of employment are subject to the doctrine contracts in restraint of trade. They may be declared void if found to be unreasonable by the High Court.

A restraint imposed on an employer will be held unreasonable if there is some proprietary interest of the employer which requires protection. The matters in which he would be held to have such interests are his trade secrets, if any, his business connections, and in retaining his workforce and preventing it from being poached. The court in deciding the question of unreasonableness will also consider any time limits imposed by restraint and/or the geographical area it covers. In Leontarisis v Nigerian Textile Mills Ltd (1967) the respondent company entered into an agreement with the appellant, their employee, which prohibited him from taking any interest, either directly or indirectly, in any other business during the continuance of his employment (which was for two years), and precluded him from entering into any business similar to or competing with the respondent, any where within Nigeria, for two years after leaving their employment. While on leave, the appellant found employment with a rival firm.The parties appointed an arbitrator to resolve the disputes which arose under the agreement. The arbitrator awarded an injunction and directed that the appellant could not be employed by the rival firm. The award was upheld by the High Court of Lagos. In the course of judgment, the Court observed that in deciding the question of reasonableness the court must have regard to the nature of the business, trade or occupation, the area over which the restraint is to be imposed and the length of time for which it is to continue. The Court further explained that a master is entitled to protect himself against the disclosure or use by the servant of trade secrets, names of customers and other information confidentially obtained and a reasonable restraint imposed for this purpose is valid.

9.8.2.2 Sale of a Business

On the sale of a business with its goodwill, the vendor usually agrees not to compete with the purchaser in that business, for a specified time and within a specified area. Such covenants are prime facie valid and will not be unreasonable if the restriction does not go beyond what is necessary to enable the purchaser to enjoy what he has bought. In I.A. Dias v R.X. Sout (1960) concerned an agreement for sale of a grocer’s business in Zanzibar along with its good will. The business specialized in merchandise for expatriate community. The agreement contained a clause under which the vendor was restrained for five years from carrying on similar business within the then Zanzibar Protectorate. The vendor opened a similar business in Pemba which was a part of Zanzibar Protectorate. In an action initiated by the purchaser, it was argued on behalf of the vendor that the clause was void because the area covered was unlimited and unreasonable and was more than was necessary for the protection of the purchaser. Held, the restraint was not unreasonable, since it was possible that in a specialized line of trade, the vendor could injure the purchaser’s commercial position.

9.8.2.3 Horizontal Agreements

Horizontal agreements or cartels are agreements between competing undertakings at the same level in commercial chain, such as agreements between manufacturers or between wholesalers or between retailers. The object of such agreements is to fix prices, restrict output, divide market, etc. Such agreement were generally looked on more favourable by the common law courts for the simple reason that in commercial agreements of this kind parties themselves are the best judge of their own interests. In the A.G. of Australia v Adelaid Streamship Co. Ltd (1913) it was held that the cartels are not injurious to the public. In Rawlings v General Trading Co (1921) P and D in order to avoid competition agreed that P would not bid at an auction sale against D and that any goods purchased were to be divided equally between them. P sued D to recover his shares of the goods. Held, the agreement was enforceable as it was clearly in the interests of the parties and any injury to the public interest was so speculative that clear evidence of it would be needed.

9.8.2.4 Vertical Agreements

These are agreements between persons at different levels in the commercial chain. Any agreement between a manufacturer and wholesaler, or between a wholesaler and retailer is a vertical agreement. InEsso Petrolium Co Ltd v Harper’s Garage Ltd (1968) solus agreements, whereby a garage owner binds himself to buy all his petrol from an oil company, were envolved. In this case, the parties entered into a contract under which the garage company which owned two garages agreed to buy all its petrol only from Esso. The agreement in respect of one garage was to operate for four years and five months and in return the garage owners received a discount on the price of petrol supplied to them. In the case of a second garage the agreement was to operate for twenty one years, and in return the garage owners received a mortgage loan of £ 7,000. The mortgage in respect of this garage was not redeemable before the end of the twenty one years. Held, both agreements were within the ambit of the doctrine of restraint of trade but the restriction of four years and five months was reasonable, as it was not in the circumstances longer than necessary to afford protection to the oil company. However a tie of twenty one years in relation to the other garage was held excessive and declared void.

The last two types of agreements are known as restrictive trading agreements which are now regulated by the Restrictive Trade Practices, Monopolies and Price Control Act, 1988.

9.9 Summary Summary

  In this lecture we have discussed factors that vitiate contracts. They are mistake, misrepresentation, duress, undue influence and illegality.

A mistake renders a contract void, provided it actually induces the contract.

However, in order to be actionable the mistake must be of fact and not of law. Also, it must be an operative mistake going to the root of the contract. Mistake is of three types. First common mistake, where both parties make the same mistake, second, mutual mistake, which occurs when both parties misunderstand each other and are at cross-purposes. Finally, unilateral mistake, where only one party is mistaken. However, mistake as to quality is not considered as an operative mistake.

A person is bound by the terms of any document he signs but he can avail himself the plea of non est factum (this is not my act) where he signed a document under a mistake induced by false statement as to the nature of the document. But if both the parties sign a document mistakenly, the courts have power to rectify the document.

A contract may also be vitiated by misrepresentation, i.e., pre-contractual false statement which induces the other party to enter into the contract. The effect of misrepresentation is to render the contract voidable at the option of the innocent or injured party. If the innocent party wish to continue with the contract it is valid and binding. If he avoids it, the contract becomes void and therefore has no legal effect. In order to be actionable the statement must be of fact not of law, opinion, or intention. There are three types of misrepresentation: fraudulent, negligent and innocent.

A statement is assumed to be made fraudulently, when it is made knowingly to be false, or made without belief in its truth, or recklessly, not caring whether it is true or false.

A negligent misrepresentation occurs when a false statement is made by a person

  who had no reasonable grounds for believing it to be true.

An innocent misrepresentation is made where the maker of the statement honestly and reasonably believes it to be true, though infact it is false

The remedy of rescission is available for all types of misrepresentation. The remedy of damages is granted only for fraudulent and negligent misrepresentations. A claim for damages for fraudulent and negligent misrepresentations can be made under the law of tort. For innocent

misrepresentation on the remedy of damages is not available but in appropriate circumstances the innocent party may claim indemnity.

A contract may also be rendered defective, if one party has put improper pressure on the other in the form of duress. Duress is of two kinds: physical duress and economic duress. Physical duress means actual violence or threats of physical violence to one of the parties to the contract. Where physical duress is proved to exist the contract is void. However, where economic threats are used to coerce the other party to enter into a contract, the contract is voidable at the option of the party against whom the duress was directed.

Improper pressure may also be put by means of undue influence. Undue influence may be exercised where there is some relationship between the parties which has been exploited and abused to gain unfair advantage. Undue influence is of two types: actual and presumed undue influence. Actual undue influence occurs as a result of improper pressure exerted by one party  over the other, which complels the other party to enter into contract.  Presumed undue influence is again sub-divided into two categories, first, where certain relationships such as parent and child, doctor and patient, which automatically give rise to a presumption of undue influence. Second, where undue influence is required to be proved to exist in case of other relationships. A contract procured by undue influence is voidable and can be set aside.

Illegality may also render a contract defective. Contracts are illegal because they are prohibited by statute or common law. Also certain contracts may be declared void and unforceable by the courts where, although not illegal in the above sense are perceived to be contrary to public policy. Furthermore, certain contracts, although not illegal, are void and unenforceable because statute expressly so provide. The most important of these are contracts in unreasonable restraint of trade.

 

Activity 9.2

  1.     In what circumstances will mistake prevent the formation of a valid contract? Discuss various types of mistakes and the effect of each type of mistake on the contract.

2.     What is an actionable misrepresentation? What are its requirements

3.     Discuss various types of misrepresentation and the remedies provided for each of them.

4.     What do you understand by contracts in restraint of trade? Discuss how the doctrine of contracts in restraint of trade operates in relation to various types of restraints.

5.     What do you understand by duress?. What amounts to an economic duress?

6.     What do you understand by undue influence? Discuss various types of undue influence and their consequences.

7.     Onyango and Ouma entered into a contract for sale of Ouma’s house for Shs. 5 million. Unknown to both of them the house was already destroyed in a fire before the contract was made. Onyango sues Ouma for breach of contract. Advise Ouma

8.     Kindiki in the negotiations for the sale of his restaurant business in central business district in Nairobi to Kaima represented that his income from the business was Shs. 5 million per year and produced some papers in support of it. Kaima  relying on Kindiki’s statement bought the business without examining the papers. Kindiki’s statement of income was found to be false and Kaima sued for rescission of the contract.  Advise Kindiki

Will your answer be different if Kaima had examined the papers.

 

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