CAVENDISH UNIVERSITY – ZAMBIA

ASSIGNMENT BRIEF AND FEEDBACK FORM

108-886
STUDENT NO
MODULE: Law of Contract

LECTURER: Mrs Michelle Manda

MODULE CODE: CUZL212

ASSIGNMENT NUMBER: 1
DATE HANDED OUT: 18 March 2023
DATE DUE IN
3 April 2023
DAY/EVE/DL: Distance Learning
ASSIGNMENT BRIEF

Details for the Assignment

Question 1
Various factors have the effect of crippling or invalidating a contract, explain the impact of duress
and illegality in a contract.
This assignment is intended to assess the student’s knowledge in all of the following areas.
However, greater emphasis should be given to those item marked with a

(Tutor: - please tick as applicable)

SL ASSESSMENT SKILLS Please Tick
No
1 Good and adequate interpretation of the question

2 Knowledge and application of the relevant theories

3 Use of relevant and practical examples to back up theories

4 Ability to transfer and relate subject topic to each other

5 Application and use of appropriate models

6 Evidence of library research

7 Knowledge of theories

8 Written business English communication skills

9 Use of visual (graphs) communication

10 Self assessed ‘time management’

11 Evidence of field research

Tutor’s Marks contribution

(Administrative only)

LECTURER’S FEEDBACK
1.0 INTRODUCTION

1.0 INTRODUCTION

To constitute a valid contract there must be an agreement between separate and existing parties.
The parties must intend to create legal relations of their agreement and the promise made by each
party must be supported by consideration or by some other factors that the law considers
sufficient1. The agreement will create rights and obligations that courts may enforce. However,
there are situations where the parties have reached an agreement but the question arises whether
the existence or non-existence of some fact or the occurrence or non-occurrence of some event
destroys the basis upon which that agreement was reached so that the agreement is discharged or
in some other way vitiated2. The question will focus on the following vitiating factors, duress,
and illegality and their impacts on the contract.

1.2 WHAT IS DURESS

Duress is illegitimate pressure exerted by a dominant party to consent to a contract against that
party’s will. In other words, the weaker party does not have real freedom to choose whether or
not to enter into the contract3. Duress consists of several factors as laid down in the case of
Regina vs Hasan4. The court laid down the following factors:

 The threat must be to cause death or serious injury.

 The threat must be against the person whose consent has been gained or any person in
his/her family or a person close to such person.

 The threat cannot be pleaded as a defence in the cases of murder and treason.

 The tests relating to duress must be objective and regard the reasonableness of the
defendant’s perceptions and conduct.

 The defence of duress only extends to the point where the threats caused were direct and
only such threats can be relied upon.
1
Halsbery’s Laws of England 5th Edition at Paragraph 203 page 118.
2
https://www.lawteacher.net/free-law-essays/contract-law/five-vitiating-factors-that-undermine-a-contract-
contract-law-essay.php accessed on 25 March 2023 at 10 :24 AM
3
Geoff Monahan “Essential Contract Law” 2001, 2nd ED Cavendish Publishing at page 107.
4
2005
  Where the person whose consent has been obtained by duress had no option to avoid such
duress.

 The defendant must not voluntarily have laid himself or herself open to the duress relied
upon.

There are three types of duress namely; duress to the person, duress of goods, and economic
duress. It should be noted that a contract entered under duress is voidable at the option of the
coerced party. The three mentioned types will be illustrated below.

1.2.3 DURESS OF GOODS

Duress of goods involves a situation where one party unlawfully seizes detains damages or
destroys the goods of the weaker party or threatens to do so. Thus, in Maskell v. Hoerner5 tolls
were levied on the plaintiff under a threat of seizure of goods. The tolls were in fact unlawfully
demanded. The payment was held to be recoverable, as it had been made to avoid the seizure of
goods. Similarly in Occidental Worldwide Investments Corp v Skibs A/S Avanti (The
Sibeon and the sibotre)6 (QB) kerr J state that if a weaker party …..: “ Should be compelled to
sign a contract for a nominal but legally sufficient consideration under an imminent threat
of having (his) house burnt down or a valuable picture slashed, though without any threat
of physical violence to anyone, I do not think that the law would uphold that agreement. If
the contract is void the consideration would be recoverable in quasi-contract (that is
restitution) if it is voidable equity could rescind the contract and order the return of the
consideration”

1.2.3 ECONOMIC DURESS

Economic duress involves a situation where a threat was made by the dominant party to
prejudice the innocent party’s economic interests. The dominant party’s, threat was made to
procure a contract with the innocent party if proven this form of duress will render the contract
voidable at the option of the innocent party, provided that party’s free will to resist the threat was

5
[1915] 3 K. B. 106
6
1976 QB
impaired7 . In North Ocean Shipping Co. Ltd v. Hyundai Construction Co. Ltd 8 The
defendant shipbuilders forced the plaintiff for whom they were building a ship to an extra 10 per
cent over and above the agreed cost of the ship by threatening to abandon the construction of the
ship midway, knowing that the plaintiffs had already concluded a lucrative contract to lease the
ship to a third party on completion of the construction. The court held that the action of the
defendant constituted economic duress.

1.2.4 DURESS TO THE PERSON

Duress to the person involves actual or threatened violence to or actual or threatened

confinement of the innocent party coerced or a close relation or associate of the innocent party.
In other words, the act or threat must be both unlawful and directed towards obtaining the
innocent party’s assent to a contract in Barton v. Armstrong 9the trial judge was satisfied that
the defendant had on a number of occasions threatened to kill or injure both the plaintiff and
members of the plaintiff’s family. Nevertheless, the trial judge was also satisfied that the plaintiff
had entered into several contracts with the defendants for business reasons. In addition to the
threats, one of the plaintiff’s arguments on appeal was that it was sufficient that the threats had
been one reason for the contract, rather than the sole reason. The Privy Council agreed ad
decided that duress would operate if the threats were a contributing factor to entering the
contract. The onus falls upon the party accused to demonstrate that duress was not a contributing
factor in the innocent party’s assent.

1.2.4 CIRCUMSTANCES IN WHICH DURESS IS LAWFUL

It has been established in CTN Cash and Carry Ltd v Gallagher Ltd10 that duress may be
lawful under certain circumstances, despite the unreasonableness of the demands. In this case,
CTN contracted with Gallagher for some goods. Unfortunately, CTN delivered the goods to the
wrong place of business. Gallagher attempted to remedy this, but the goods were stolen before
they could do so. CTN mistakenly believed the goods were at risk of Gallagher, as they believed
they had delivered them properly. CTN, therefore, invoiced Gallagher for the goods, with a

7
Supra note 3 at page 109
8
[1979] Q. B. 705,
9
1976 PC
10
[1994] 4 All ER 714
threat of removal of credit facilities if the price was not paid. Gallagher opted to pay for the
goods and attempted the reclaim the money based on duress.

The courts held there was no duress, because of these three reasons:

 The parties dealt with each other at ‘arm’s length

 The threat was lawful

 CTN legitimately believed they were entitled to the money, there was no intention to put
pressure on Gallagher

From the above requirements, it will be difficult to meet, when parties are dealing as commerce,
they will rarely be dealing at ‘arm’s length’. Nevertheless, this approach was confirmed
in Progress Bulk Carriers Limited v Tube City IMS LLC 11 where it was held that it had to be
seen in the light of their repudiatory breach and subsequent conduct. This conduct included their
deliberate refusal to comply with the assurances they had previously given about providing a
substitute vessel and paying full compensation in respect of that breach. This amounted to
illegitimate pressure for economic duress. Similarly withdrawing the credit agreement was
confirmed as a lawful threat12.

The consideration of Good faith on the part of the party pressuring the other party seems to be
relevant for proving a lawful threat and falls under the ambit of lawful duress in CTN Cash and
Carry Ltd v Gallagher Ltd13 it was stated that the good faith element was that they were
unaware the risk in the property had not passed due to their incorrect delivery address.

About illegitimate threats, dealing in good faith seems of less relevance. Although it was
confirmed that dealing in bad faith makes it more likely that the actions are considered
illegitimate and it does not bear much significance, the act itself will be focused on in Kolmar
Group AG v Traxpo Enterprises Pvt Ltd 14The Court found in favour of Kolmar. Economic
pressure is capable of amounting to duress if it is illegitimate and induces the claimant to enter

11
[2012] EWHC 273

12
Bank of Scotland plc v Cohen, unreported, 16 January 2013
13
Supra note 9
14
[2010] EWHC 113)
into a contract on a “but-for” basis, i.e. by offering no alternative. Kolmar did not have any other
choice but to agree to Traxpo’s amended letter of credit. Furthermore, threats (like Traxpo’s) to
back away from the contract would generally be seen as illegitimate, especially if the maker of
the threat knows that implementation of the threat would breach the contract. The Court was of
the view that whether the claimant had any “realistic alternative” was a relevant consideration.
Finally, while the presence or absence of protest is relevant, the absence of protest would not
necessarily mean that payment was voluntarily made.

1.2.5 REMEDIES FOR DURESS

Under the established contract jurisprudence, no such remedies are available for duress except
for rescission. Rescission is a remedy made available when the underlying basis for
making a contract is fundamentally tainted. Some conduct on behalf of a contracting
party undermines the very reason that the other party made the contract in the first
place 15 .

The contract can be rescinded, at the option of the affected party. The remedy of
rescission means that an entire contract is set aside

1.2.6 BAR TO DURESS CLAIMS

It should be noted that the bars to rescission could apply to claims for duress. The following bar
claims in duress; Laspe of time and affirmation.

a. Lapse of time states that any delay in seeking recession is relevant in either of the
following situations. (a) An introduction period elapses between the making of the
statement and the purported rescission or after becoming aware of the misrepresentation,
the representee wastes considerable time before seeking to rescind in Leaf v
International Galleries16 it was held that the plaintiff had ample time to have the
painting examined for its authenticity.

15
https://blog.ipleaders.in/duress-how-would-one-go-about-setting-aside-a-contract-based-on-duress/
#:~:text=Under%20the%20established%20contract%20jurisprudence,a%20party%20to%20a%20contract accessed
on 25 March 2023 at 14:52pm
16
(1950) (CA
 b. Affirmation If a representee elects to affirm a contract, with full knowledge of the facts,
the representee cannot subsequently seek to avoid it. In other words, the affirmation once
made, cannot be altered. While the affirmation may be expressed or implied by conduct,
it must be found to have taken place in Long v Lloyd17 in this case the court held that
while the test drive did not amount to an affirmation by the plaintiff of the contract, his
subsequent conduct (that is accepting the defendant's offer to contribute to the repair
costs, etc) extinguished any right of rescission.

1.2.7 CONCLUSION

In conclusion, the question has illustrated that duress is consent that is not out of the will of a
person but the fear an individual possesses due to threats of actions made by the other dominant
party to the contract.

2.0 WHAT IS ILLEGALITY

Illegality is an agreement to do an illegal act that is void. This is founded on the common law
that is embedded in the Latin maxim; ex turpi causa non-oritur actio, which states that no action
can lie to an illegal act18. When parties agree to do an act that is prohibited by the statute such as
the sale of prohibited drugs, the contract is said to be illegal as formed. However, when the
subject matter of the contract is lawful but the parties agree to perform the contract unlawfully,
the contract is said to be illegal as performed.

This question will first explore the two different types of illegality; statutory illegality and
common law illegality and later will explore the consequences of a contract that is found to be
illegal.

2.1 ILLEGAL CONTRACTS UNDER COMMON LAW

The common law has a long tradition of invalidating certain contracts that are believed to be
contrary to the social or economic interests of the community. Public policy or the public interest
will vary over time, given changes in community standards 19. Various categories of contracts are
illegal and unenforceable at common law on the grounds of public policy, the question will only
17
(1958) (CA)
18
Supra note 3 at page 119
19
Supra note 3
focus on the following; contracts to commit crimes, contracts to promote corruption in public
life, and contracts to promote sexual immorality.

2.1.1 Contracts to commit crimes

In resolving the issue, the courts will analyze the central purpose of the contract and the
seriousness of the wrongdoing. The central purpose must be to commit a crime in Bigos v
Bousted20 Pritchard J said that there was a difference between withdrawing due to repentance
and withdrawing simply because the contract was frustrated before it was carried out. Here,
bousted had not repented and withdrawn. The contract had simply been frustrated by the
plaintiff's refusal to carry it out. Consequently, Bousted could not recover his share certificate
under the contract.

2.1.2 Contracts Promoting Sexual Immorality

Sexual immoral contracts refer to those relating to contracts for sexual acts or services. For
example, contracts involving prosecution are usually held illegal and unenforceable in Upfill v
Wright21 The plaintiff rented a flat to the defendant knowing that it was going to be used for
prostitution. A later action to recover arrears of rent failed because the court held that the
contract was illegal and unenforceable.

2.1.3 Contracts promoting Corruption

These contracts are invalid because they involve corruption and a common example of such
contracts is contracted for public office or honuors in Wilkinson v Osborne22 the court held that
the payment was not recoverable as it was based on illegality

2.1.4 CONTRACTS ILLEGAL BY STATUTE

Contracts that are prohibited by the Statute are illegal and unenforceable. The courts usually
assess the seriousness of the contravention of the statute and in particular, whether the
contravention is central or merely incidental to the performance of the contract. Illegality may be
expressed or implied in the statute

20
[1951] 1 All ER 92,
21
(1911) (KB)
22
(1915) (HC)
2.4.1 Express Prohibition

Statutory prohibition expressly prohibits a type of contract; there is no question as to the

illegality of the contract. Neither party will enforce the contract, irrespective of the innocence of
either or both parties in the case of Re Mahmoud and Ispahani23 it was stated that the purchaser
of the oil claimed he had a license to purchase the oil, but in fact, did not. When the sellers
delivered the oil, the purchaser refused the delivery, explaining he did not have a license. Despite
the fact the seller of the oil was completely innocent, the contract could not be enforced due to
the statutory provision

1.4.2. Implied Prohibition

Several factors may influence the decision of a court. These include ascertaining and analyzing
the

(a) the primary aim of the Statute and the penalty imposed for contravention

(b) Innocence of the parties

(c) commercial consequences of finding a contract illegal and unenforceable, and in doing so
whether the contravention was central or collateral to the performance of the contract.

(a) Primary aim of Statute

The primary purpose of the legislation is public safety or the public interest, a contravention is
likely to render the contract illegal and enforceable, in Anderson ltd v Daniel24 this case
provides a clear example of this. In this case, a landlord failed to provide a tenant with a rent
book, which was a statutory requirement. The landlord could not claim any rent under the
contract if the general rule was applied. The statutory purpose of the provision was not to allow
the tenant to avoid paying rent, it was to ensure he had a rent book; therefore, the landlord was
able to claim rent.

(b) Innocence of the parties

23
[1921] 2 KB 716
24
[1924] 1 KB 138
The enforceability of the contract will be influenced if there is evidence that one or both of the
parties were aware of the contravention at the time they entered into the contract in Buckland v
Massey25The court held that as the contract was unlawful from its inception, it was illegal and
unenforceable. Carter J stated that a contract the performance of which contemplates an express
prohibition contained in that scheme is impliedly prohibited by the Statute and is unenforceable.

(c) Commercial Convenience

The performance of an illegal contract will be subject to a statutory penalty. The courts have held
that where the penalty is proportionate and sufficient to the breach, the contract is enforceable by
either party In St Johns Shipping Corporation v Joseph Rank26 the statutory breach in
question was the overloading of a ship. There was a fine imposed for this breach, but the
defendants attempted to withhold the goods as it was an illegal contract. It was held the fine was
sufficient punishment, and the contract would be enforceable

2.2 CONSEQUENCES OF AN ILLEGAL CONTRACT

When a contract is found to be illegal at common law or by Statute, it is unenforceable.

However, it may be possible for the innocent party to seek relief by an independent cause of
action.

In collateral contracts, it involves a situation where one party has guaranteed that a contract will
be performed legally and the other party entered into the contract in consideration of that
guarantee in Strongman (1945) ltd v Sincok27it was held that the collateral contract was
unaffected by the illegality

Contracts may be declared void by Statute rather than illegal and unenforceable in Delfina v
Kenny28 the plaintiff a licensed bookmaker took a wager from the defendant. As the wager had
not been documented in the manner required by the statute, the defendant argued that the betting
contract was null and void. The court agreed and noted that any winnings would not be
recoverable.

25
(1985) (Qld)
26
[1957] 1 QB 267
27
(1955) (CA)
28
(1946) (HC)
2.3 CONCLUSION

The illegality of the contract renders it unenforceable by Statute law and common law.

BIBLIOGRAPHY

Maskell v. Hoerner [1915] 3 K. B. 106

Occidental Worldwide Investments Corp v Skibs A/S Avanti (The Sibeon and the sibotre) 1976
QB

North Ocean Shipping Co. Ltd v. Hyundai Construction Co. Ltd [1979] Q. B. 705,

Barton v. Armstrong, 1976 PC

CTN Cash and Carry Ltd v Gallagher Ltd [1994] 4 All ER 714

Progress Bulk Carriers Limited v Tube City IMS LLC [2012] EWHC 273

Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] EWHC 113)

Leaf v International Galleries (1950) (CA

Long v Lloyd (1958) (CA)

Bigos v Bousted [1951] 1 All ER 92,

Upfill v Wright (1911) (KB)

Wilkinson v Osborne (1915) (HC)

Re Mahmoud and Ispahani [1921] 2 KB 716

Anderson ltd v Daniel [1924] 1 KB 138

Buckland v Massey (1985) (Qld)

St Johns Shipping Corporation v Joseph Rank [1957] 1 QB 267

Strongman (1945) ltd v Sincok (1955) (CA)

Delfina v Kenny (1946) (HC)

Regina vs Hasan 2005

Halsbery’s Laws of England 5th Edition at Paragraph 203 page 118.

https://www.lawteacher.net/free-law-essays/contract-law/five-vitiating-factors-that-undermine-a-
contract-contract-law-essay.php accessed on 25 March 2023 at 10:24 AM

Geoff Monahan (2001) “Essential Contract Law”, 2nd ED Cavendish Publishing at page 107.
https://blog.ipleaders.in/duress-how-would-one-go-about-setting-aside-a-contract-based-on-duress/
#:~:text=Under%20the%20established%20contract%20jurisprudence,a%20party%20to%20a%20contract accessed
on 25 March 2023 at 2:52 pm