LESSON 1

VITIATING ELEMENTS OF A CONTRACT

GENERAL INTRODUCTION
The basis of a contract is the consent of the parties. The general rule is that there must
be a consensus ad idem, that is the meeting of the minds. Thus, in Olanlege v. Afro
Contractor Co. (Nig) Ltd (1996) 7 NWLR (pt. 458) 29 CA, the judge stated that one of the
fundamental principles of the law contract is that the parties must reach a consensus ad
idem, in respect of the terms, otherwise, the contract cannot be regarded as legally
binding and enforceable.

MISTAKE
INTRODUCTION
Mistake, where it is operative, negate consent. In order to be operative, the mistake
must be fundamental and must relate to a fact, which existed at the contract was
entered into. What amounts to consent is however determined by the parties and what
they have both concluded at the time of the contract. Esin v. Matzen and Timms (Nig)
Ltd (1966) NCLR 299.

Meaning of Legal Mistake

In the law of contract, the word ‘mistake’ has a narrower meaning than in its colloquial
use. In other words, it bears a more restricted meaning in law than in every day speech.
In popular speech, every case of obvious misunderstanding in which one or both of the
parties to a contract would not have entered into the contract, if they had realized the
true facts, would be regarded as a mistake. Thus, a layman may think that any
agreement based on such misunderstanding will not be enforceable. However, legal
mistake operates within very narrow limits. It applies only to facts, and even so, only
within the narrow area of mistakes of fact which are fundamental. A mistake of law is
ineffective as every person is presumed to know the law (ignorantia non haud excusat).
Therefore, for mistake to be operative, it must be one of fact, not of law. Where a legal
mistake operates at all, its effect at common law is to make contract absolutely void. In
the words of Lord Akin, in Bell v. Level Brothers Ltd (1932) AC 161, at p.217 ‘if mistake
operates at all, it operates to negate or in some cases to nullify consent’. A mistake
which produces this effect is called an operative mistake.
TYPES OF MISTAKES

Unilateral Mistake: This occurs where a party is mistaken as to the subject matter or the
terms of the agreement. This could be a mistake as to the terms, or a mistake as to
identity. Where there is a mistake as to identity, it could happen where the parties are
not physically seeing one another e.g. where they deal by correspondence, in this case,
the mistaken party must be able to show that there is an identifiable third-party with
whom he intended to contract with and that such mistake is as to identity and not
attributes; or where parties contract face to face, in this case, it must be shown that he
intended to deal with someone different, that the party he contracted with is aware of
it, that the person’s identity is of importance, and reasonable steps was taken to
confirm the identity of the person. See: Phillips v. Brooks (1919) 2 KB 243.

Common Mistake: This occurs where it is alleged that there has been a common
mistake, in that both parties to the contract concluded it under the same (common)
mistake or misrepresentation, about some fact which lies at the basis of the agreement.
Both parties acted in the erroneous belief that a certain state of facts was in existence at
the time the agreement was reached. This mistake was therefore ‘common’ in a double
sense:
i. they were both mistaken,
ii. about the same thing.
For example, if X and Y entered into a contract under a common mistake, it means that
although X and Y perfectly understood each other and their respective intentions, X and
Y were mistaken about some underlying and fundamental fact, e.g., that the thing which
is the subject-matter of their contract does not exist or has ceased to exist ( a case of res
extinct); or that the thing which X contracted to sell to Y belong to Y (a case of res sua)
or that the painting which X contracting to sell to Y as Michelangelo’s work was in fact
the work of an inferior artist. In the case of a common mistake, the presence of
agreement or consensus is not in dispute, for, as stated above the parties perfectly
understand each other had their respective intentions. But what is urged is that because
of a common error as to some fundamental fact, the agreement or consensus in
nullified. See Nassar and Sons (Nig.) Ltd v. Lagos Executive Development Board (1959) 4
FSC 242.
Common mistake has operated to this effect only in the narrow areas of:
(1) res extrincta and
(2) Res sua
Res Extincta: Non-existence of the subject-matter of the contract. Where the parties’
contract under the mistaken belief of the existence of a subject-matter which, in fact,
unknown to them had perished at the time the contract was concluded, the apparent
consent of the parties is void. Thus, in Couturier v. Hastie (1956) 5 H.L Cas. 673, a man
bought a cargo of corn which he and the seller thought at the time of the contract to be
in transit from Salonica to England, but unknown to them, had fermented and had
already been sold by the master of the ship to a purchaser at Tunis in order to prevent
complete loss. The plaintiff nevertheless sued the defendant for the contract price. It
was held that, the claim failed, because the contract proceeded on the assumption that
the corn was in existence at the time the contract was concluded. In other words, the
contract was void for mistake; therefore, the buyer was not liable for the price of the
cargo. The Lord Chancellor (Lord Cranworth) reading the unanimous judgment of the
House of Lords Stated:
The contract plainly imports that there was something which was to
be sold at the time of the contract and something to be purchased. No
such thing existing; I think the court of Exchequer has come to the
only reasonable conclusion upon it…
The above rule received statutory blessing in Section 6 of the Sale of Goods
Act, 1893, which provides that:
Where there is a contract for the sale of specific goods without the
knowledge of the seller have perished at the time when the contract
is made, the contract is void.
In other words, the effect will be the same if the contract is for the sale of specific goods
that have already perished.
However, if on the true construction of the contract, the seller contracted upon the
terms that he warranted the existence of the subject-matter, the principle in Couturier
v. Hastie (Supra) will not apply. Although such situations are in practice, the Australian
case of Mr. Rae v. Commonwealth Disposal Commission (1950) 84 CLR 337, affords a
way very good example. There, the Commission contracted to sell to the plaintiff a
wrecked oil tanker described as lying on Jourmaund Reef, 100 miles north of Samarai. In
fact, there was no tanker lying anywhere near the latitude and longitude stated, and
indeed there was no place known as Jourmaund Reef. The High Court of Australia
awarded the plaintiff damages for breach of contract on the ground that the only proper
construction of the contract was that it included a promise by the Commission that
there was a tanker that there was a tanker in the position specified.
It is necessary to note that cases of res extincta have operated also in areas other than
those of buying and selling of articles. Thus, in Scott v. Coulson (1903) 2 Ch. 249 X
agreed to assign to Y a policy of assurance upon the life of Z. Unknown to both X and Y,
Z was already dead before the contract was made. It was held that, the contract was
void.
Similarly, in Strickland v. Turner (1852) 7 Ex. 208, the plaintiff brought and paid for an
annuity on the life of a man, who unknown to parties, was already dead. He was allowed
to recover the purchase money as the annuity had ceased to exist at the time of sale.
Again, in Galloway v. Galloway (1914) 30 TLR 531, a man and woman entered into a
separation deed, on the false (but fundamental) assumption that there was a valid
marriage between them. In other words, they erroneously believed they were lawfully
married as husband and wife, when in fact; the marriage between them was void. It was
held that, the separation deed was a nullity.
In Griffith v. Brymer (1903) 19 TLR 434, an agreement to hire a room for the purpose of
watching coronation ceremony of King Edward the seventh was held to be void, because
unknown to the parties, the ceremony had been cancelled at the time the contract was
concluded.
Finally, in Norwich Union Insurance Society Ltd. v. W.H. Price Ltd. (1934) AC 455, the
Privy Council decided that where an insurance company paid its insured the value of a
cargo of lemons which, the company believed, was destroyed by reason of an accident
to the vessel, which was an insured risk, whereas the damage had been caused by over-
ripening, an uninsured risk, the company could recover the amount paid.

Res Sua: Absence of Title in the Seller of the Subject-Matter. Where the parties contract
in circumstances in which unknown to them the subject-matter of the transaction
belonged to the purchaser, the contract would be void for mistake. For both parties
must have accepted in their minds, an as essential and integral element of the contract,
that the seller had a right to sell and the purchaser could purchase the subject-matter of
the contract. Thus, in Copper v. Phibbs (1867) LR 2 HL 149, X agreed to take a lease of a
fishery from Y, though contrary to the belief of both parties at that time, X was the real
owner of the fishery and Y had no title to it at all.
It was held by the House of Lords that the agreement should be set aside for having
been concluded on the basis of a common mistake.
Also in Abraham (on behalf of the Grand United Order of Oddfellows, Faith Lodge) v.
Chief Oluwa (1944) 17 NLR 123, the Oddfellows Faith Lodge, on whose behalf the
plaintiff brought this action, bought a piece of land from one Savage in 1917. Savage
himself had earlier bought it in 1883 from the holder of a ‘Crown grant’ without any
deed of conveyance being executed. In 1943, the defendant, who was a judgment
creditor of one Oloto, wrongly thought the property belonged to Oloto and attached it
under a write of fi.fa (fiery facias), and the sale of the land was advertised. The plaintiff
put up a caution notice, warning all persons against purchasing the land which he
claimed belonged to the Lodge. Furthermore, the plaintiff, fearing that it either had a
defective title or no title at all, bid for the property when it was auctioned by the
defendant, and bought it for £68. Consequently, on confirming that its title had all the
time been valid, the plaintiff brought an action for the agreement to be set aside, and
the purchase money refunded to it, on the ground of ‘mutual’ mistake. It was held that,
in the circumstances, the contract was void.

Common Mistake as to Quantity, Types or Characteristics of the Subject-Matter:

Apart from cases falling within Res Extrincta and Res Sua, there are other common
mistakes as to quantity, type or characteristics of the subject-matter. In this regard,
mistake will only be operative where it is affirmatively proved that the subject-matter of
the contract, by reason of the mistake, is essentially different in quality from what the
parties had bargained for.
In fact, the common law rule is that apart from cases falling within Res Extrincta and Res
Sua, a contract is not void merely because the parties have made the same mistake,
however fundamental the mistake may be. The doctrine of common mistake relating to
the foundation of the contract is interpreted, restricted and applies only if in the words
of Lord Atkin in Bell v. Lever Brother Ltd. (1932) A.C 161., for example, there was no
mistake when the contract was made but facts subsequently come to light which,
though important, do not destroy the identity of the subject-matter as it was when the
contract was made, the contract is not void.
This was clearly enunciated in Bell v. Lever Brother Ltd. (Supra), in which the lever
brother company, which had a controlling interest in the Niger Company, in 1923
appointed Bell, Chairman, and Snelling, Vice-Chairman, of the Board of the Niger
Company, at salaries of £8, 000 and £6, 000 per annum respectively. In 1926 the
arrangement renewed for another five years. During their period in office, Bell and
Snelling violated their conditions of employment by dealing in the private capacities in
the company’s business. This would normally have entitled the company to determine
their appointment without any entitlement. In 1929, as a result of the amalgamation of
the Niger Company with another company, the positions of Bell and Snelling became
redundant. Totally unaware that Bell and Snelling had been guilty of conduct which
could have resulted in their dismissal without compensation (i.e., making secret profits),
the company offered Bell £30, 000 and Snelling £20, 000 as compensation for the
termination of their services. Both men accepted the compensation.
On discovering the violation of their agreement by the two men, the Company instituted
this suit, alleging fraudulent misrepresentation and claiming recession of the
agreements and repayment of money paid under a mistake of fact. The jury found that
if the Lever Company had been aware of the breaches of duty by the defendants, they
would have terminated their agreements and dismissed them from office without
compensation; but that when entering into the compensation agreement, the
defendants did not fraudulently conceal their breaches of duty. Rather, the breaches
were not present in their minds at the relevant time. Having been found liable to refund
the compensation fee on the ground of mistake both at the High Court and the Court of
Appeal levels, Bell appealed to the House of Lords.
The House of Lords held, by a majority of three to two, that there has been no mistake
at law to render the contract void. The main judgment was given by Lord Atkin. Having
held that a mistake as to the identity of the contracting parties or the existence of the
subject will operate to negative or nullify consent, Lord Atkin then went on to consider a
mistake as to quality. According to the learned Lord:
In such a case, mistake will not affect assent unless it is the mistake of both
parties, and is as to the existence of some quality which makes the thing
without the quality essentially different from the thing as it was believed to
be. (1932) AC 161 at p. 218.
Relying on the principles laid down in earlier authorities like Kennedy v. Panama Royal
Mail Co. (1867) LR 2 QB 580 and Smith v. Hyghes (1871) LR 6 QB 597, the court came to
the conclusion that the mistake made by Lever Brother was one of the quality and not
of the substance of the subject-matter of the contract, and that a mistake as quality
cannot invalidate a contract. If a purchaser buys an article in the belief that it possesses
a particular quality, he is bound by the contract even if it turns out that the article does
not possess that quality, unless the seller had made the presence of the quality a part of
the bargain.
If any party is mistaken as to the quality of the subject-matter, the mistake is not
operative and, therefore, the contract is valid at common law in spite of the mistake.
The mistaken party is then bound by the contract unless there is illegality or fraud. The
case of Leaf v. International Galleries (1950) 2 KB 86 affords a good illustration. There,
the parties entered into a contract in 1944 for the sale of a picture which both of them
thought had been painted by a famous artist called Constable. In 1949, L found that the
picture was in fact not painted by Constable, and sought to repudiate the contract and
recover his money. It was held that, the buyer had got the picture he paid for, and that
the mistake was only as to quality and so did not make the contract void. In other
words, the contention was rejected by the court on the ground that the identity of the
picture was not destroyed by the mistake in relation to the artist. However, the point
was made in this case if the mistake is one of substance, and not merely the quality of
the subject-matter, the contract will be void for mistake.
Denning, L.J.: At the present day, since the fusion of common law and equity, the
position appears to be that when parties to a contract are at all outwards appearances
in full and certain agreement, neither of them can set up his own mistake or the mistake
of both of them, so as to make the contract a nullity from the beginning.

Mutual Mistake: There is a similarity between mutual mistake and common mistake in
one important respect, namely, that they both involve a mistake of both parties. But
whereas both parties make the same mistake in common mistake, in mutual mistake,
they make different mistakes, Cf. Nassar and Sons (Nig.) Ltd v. L.E.D.B. (1959) 4 FSC
242. Both parties misunderstood each other. In other words, each party is mistaken as
to the other’s intention, though each does not know that their respective promises have
been misunderstood. Here the subject-matter is in existence, but the parties are not
negotiating to the same end. If two persons contract for the sale of an article, and
believed themselves to be in agreement whereas in fact they were not, there is no
contract as the mistake avoids the contract, because there is no consensus ad idem. In
other words, the parties are at cross-purposes. Examples are:
i. X offers to sell his 10-years-old horse to Y, but Y believes that the offers relate
to X’s 7-years-old horse.
ii. X intends to offer, and in fact offers, to sell a video set to Y, but Y accepts the
offer in the honest belief that it relates to a radio set. X does not know of Y’s
mistake.
In both examples the parties are to cross-purposes, and the real legal posed is one of
offer and acceptance. Has there been a real correspondence of offer and acceptance? In
other words, have the parties reached an agreement or not? Unlike in the case of a
common mistake, where there is a correspondence of offer and acceptance between
the parties, the real contention of the plaintiff in the case of mutual mistake is that the
mistake complained of negatives or precludes the existence of consensus. The test
applied by the courts in attempting to determine whether a contract exists or not is an
objective one. They would pose the question: What would a reasonable third party infer
from the words and circumstances of the contract? If the inference thus determine is in
favour of the plaintiff’s contention, then it’s a nullity; if is not, the contract is valid at
common law, though in equity, as we shall presently see, it may be set aside.
From decided cases, it is evident that the courts have usually upheld the plaintiff’s
contention in cases where the mutual mistake affects the very essence or character of
the subject-matter of the contract. Thus, in Scriven v. Hindly (1913) 3 KB 564, a man
made a bid at an auction sale thinking that he was bidding for hemp. In fact, the bales in
question contained tow, which is very different. The conduct of each party had in some
measure contributed to the error. The plaintiff sued the defendant for the amount of
the bid. It was held that, the parties were never ad idem as to the subject-matter of the
proposed sale, and that the contract was therefore void. In other words, the action
failed because the plaintiff knew he was selling tow while the defendant thought he was
buying hemp, and it was a reasonable mistake by the defendant due to an ambiguity in
the auction particulars.
On the other hand, in Wood v. Scarth (1858) 1 F and F 293, the defendant wanted a
premium of £500 (i.e, an extra /lump sum payment) from anyone who could rent his
house for £63 per annum. He expected his clerk to make this clear. The plaintiff had a
conversation about it with the defendant’s clerk and then accepted the offer, by letter,
thinking that what he had to pay was only £63 a year. It was held that, the contract was
valid, and the plaintiff was awarded damages for its breach.
Also, in Smith v. Hughes (1871) LR 6 QB 597, the defendant was shown samples of oats
by the plaintiff and he bought them, thinking that he was buying old oats (which was
what he wanted). They were in fact new oats which were useless for the defendant. It
was held that, the contract was valid because, although the parties are at cross-
purposes, they are not in agreement at all. For a mistake as to quality will only negative
consent if it is a mistake as to a fundamental quality by which the thing is identifiable.
According to Cockbum, C.J:
Both parties were agreed as to the sale and particular parcel of oats. The defendant
believed the oats to be old and was thus induced to buy them, but he omitted to make
their age a condition of the contract. All that can be said is that the two minds were not
ad idem as to the age of the oats; they certainly were ad idem as to the sale and
purchase of them.
In cases where it is impossible for the court to infer an agreement, as where the
agreement is vague, the court will declare that no contract has been made. Thus, in
Raffles v. Wichelaus (1864) 2 H. and C. 906, the plaintiff sold to the defendant 125 bales
of cotton which was to arrive ex peerless from Bombay. In actual fact, two ships called
Peerless sailed from Bombay at about the same time, one in October and other in
December; the buyer meant the one sailing in October and the plaintiff had in mind the
one sailing in December. The plaintiff tendered cotton which arrived aboard the Peerless
which sailing from Bombay in December. The defendant refused to accept the goods on
the grounds that he had intended to buy cotton from the peerless which left Bombay in
October.
The suit was dismissed. And although it was not actually stated that the contract was
void for mistake, this would appear an inevitable conclusion if no clear evidence could
be adduced that both parties were in their contract referring to either the October
Peerless or the December Peerless, See also Falck v. Williams (1900) A.C. 176.
The above shows that whenever there is a clear ambiguity about the terms of the offer
and acceptance, there will be no binding contract. The same conclusion was reached in
Scriven Brothers v. Hindley and Co. (1913) 3 KB 564, where as we have seen, the
defendant bade for tow believing it to be hemp, thereby paying more than they should.
The plaintiff sends for the price. It was held that, there was no binding contract in the
absence of a coincidence of offer and acceptance. Both parties misunderstood each
other. In other words, each party is mistaken as to the other’s intention, though each
does not know that their respective promises have been misunderstood. Here the
subject-matter is in existence, but the parties are not negotiating to the same end.. The
offer he made was made to a deferent person and not to the person who purported to
accept it.
English law on this matter is somewhat complicated and involves subtle distinctions, not
necessarily apparent at first sight. And the application of the above four conditions have
proved very troublesome for the courts. The third condition has been particularly much
more difficult to satisfy where the parties are contracting in each other’s presence (inter
praesentes) e.g., in a shop, than where they are contracting away from each other (inter
absentes), e.g., by post.
Before illustrating the application of this third condition with some cases, it is necessary
to note that there is a difference between mistake as to the identity of a person and
mistake as to the attributes of a person. While the former makes the contract void
because the identity is material, the latter only makes the contract voidable. An example
of the former is a case of X intending to contract with Y, but unknown to him, he was in
fact contracting with Z. In the latter case, X intends to contract with Y who comes before
him; it is only that he has been deceived that Y is creditworthy whereas Y is not. This
distinction is not always easy to make in practice. In King’s North Metal Co. Ltd. v.
Edridge, Merrett and Co. Ltd (1897) 14 TLR 98, X received a letter purporting to come
from Hallam and Co. in Sheffield asking for quotations in respect of metal wire. On the
letter head was a photograph of a large factory and a list of overseas depots. X replied
and Y ordered for the wire. But the order came from a fraudulent man called Wallis,
who sold it to Z. In fact, Hallam and Co. never existed. X now sued Z for the recovery of
the proceeds of the goods on the ground that the contract with Y was void for mistaken
identify. It was held that, the contract was void but voidable only, and that, therefore, a
bona fide purchaser for value had acquired a good title to the goods.
Also, in Philips v. Brooks Ltd. (1919) 2 KB243, a rogue whose name was North entered
the plaintiff’s jewellery shop and selected pearls worth £2, 550 and a ring worth £450.
He produced a cheque book and wrote out a cheque for £450. He produced a cheque
book and wrote out a cheque for £3, 000. When singing it, he said ‘you see whom I am, I
am Sir Bullough’ (of St. James Square, a wealthy man the plaintiff had heard of), and
then he gave Sir Goerge Bullough’s address. The plaintiff, upon consulting a directory
found that he lived at the address given. He then allowed North to take away the ring in
exchange for the cheque of £3, 000. The vogue’s cheque bounced. North later pawned
the ring for £350 with the defendant, a pawnbroker, who had no notice of the fraud.
North was found guilty of obtaining the ring by false pretences. The plaintiff jeweler
brought an action to recover the goods from the pawnbroker, arguing that there was
never any contract between himself and North, and therefore North had no title to the
ring; consequently, he could not transfer a valid title to the defendant.

It was held, by Horridge, J., that the defendant obtained a good title to the jewellery,
because the plaintiff intended to contract with the person who transacted face to face
with him in his shop. According to the learned judge:
The plaintiff had contracted to sell and deliver the ring to the person who came
into his shop…who obtained the sale and delivery by means of the false
pretence that he was Sir George Bullough… His intention was to sell to the
person present and identified by sight and hearing.
Horridge, J., further said:
I think the seller intended to contract with person present and there was no
error as to the person with whom he contracted, although the plaintiff would
not have made the contract if there had not been a fraudulent
misrepresentation.
Here the sale between the plaintiff and the rogue was only voidable, but as a third
party, i.e., the pawnbroker, had bona fide acquired interest in the ring for value, it could
not be rescinded. It follows that where the identity of the party is not material, it will
only make the contract voidable, and a third party may acquire a good title under the
contract if he is bona fide purchaser without notice.

In the following two cases the courts held that the contracts were void because the
identities of the parties were material to the contracts. In Lake v. Simmons (1927) AC
487, a jeweller was insured against loss by theft, with the exception of jewellery
entrusted to a customer. One Ellison, posing as a wife of a wealthy customer – Van der
Borgh – induced the plaintiff to let her have the possession of two pearl necklets so that
she could show them to her husband and another fictitious person for approval with a
view to purchase them. The question was whether the loss was covered by the
insurance policy.
It was held that, the loss was so covered, on the ground that the plaintiff had not
entrusted the necklets to Ellison as there was lacked of consent. Also, in Ingram v. Little
(1961) 1 AB 31, there plaintiff who were joint owners of a car, advertised if sale for. A
rogue, introducing himself as Hutchinson, offered to buy it. When he brought out his
cheque book to pay for it, the first plaintiff told him that they wanted cash and that,
therefore, the proposed sale was cancelled. At this juncture, the rogue said he was PGM
Hutchinson, a reputable businessman living at an address in Caterham and having
business interests in Guildord. The plaintiff had never heard of P.G.M. Hutchinson, but
one of them went to the local post office nearby to ascertain from a telephone directory
which recorded the existence of such a person. Consequently, the plaintiffs believed the
rogue was P.G.M. Hutchinson, and decided to accept his cheque which was later
dishonoured. Soon afterwards, he sold the car to a third party, i.e., the defendant, who
acted bona fide. The plaintiffs sued the defendant for the value of the car or its release.
The court of Appeal held that, the defendant was obliged to restore the car to the
plaintiffs or to pay its value, because the contract between the plaintiffs and the rogue
was void, and the rogue not having acquired any title to the car was himself
incompetent to confer title to the defendant. In other words, the contract was void for
mistake as to identify, and the car was still the plaintiff’s property. The above case
demonstrates that, in the case of acquisition of title, the principle of memo dat quod
non habet will apply, and the fact that the goods have been sold to a third party will not
prevent their being recovered by the original owner. Surely, this is very hard on the
innocent third party.
Thus, in Cundy v. Lindsay (1878) 3 App. Cas. 459, the leading character in the drama
was yet another rogue. The rogue, named Blenkarn, writing from ’37 Wood Street,
Cheapside’ offered to buy large quantities of handkerchiefs from the plaintiffs, Lindsay
and Co. He signed his name in the letter to look liked ‘Blenkiron and Co’ a responsible
firm, known by reputation to the plaintiffs and carrying out business at 124 Wood
Street. The plaintiffs dispatched the goods to ‘Blenkiron and Co., 37 Wood Street, and
Cheapside’. In that way, Blenkarn got possession of the handkerchiefs. He did not pay
for them, and he sold 2500 dozen of them to the defendants, Cundy, who purchased the
goods without knowledge of the fraud. The plaintiffs subsequently brought an action
against the innocent defendants, who were the appellants in this case, for conversion.
It was held by the House of Lords that, there was no contract between the plaintiffs and
Blenkiron, as the plaintiffs had no intention of dealing with him but with someone else.
As there was no contract with Blenkiron, he got no title to the goods and so would pass
none to the defendants, who were therefore liable for conversion.
Similar decision was reached in Hadman v. Booth (1863) 1 H and C. 803, where Eldward
Gandell represented himself to be Thomas Gandell and received goods which he pledge
to a third party. Also, in K. Challaram and Sons Ltd. v. Messrs. Costain (West Africa )
Ltd. (1957) 2 ERLR 10, the defendants used to obtain goods from the plaintiffs on credit.
An unidentified person obtained goods from the plaintiffs by using the defendants’
order forms and by forging the signature of the defendants’ accountant. The plaintiff
company brought an action for goods sold and delivered, but the defendants denied
liability, saying that they neither ordered the goods nor received them. It was held that,
the defendants were not liable, as this was a case of mistaken identity. The plaintiffs
thought that they were dealing with the defendant but, in fact they were dealing with
some individual who used the defendants’ headed order forms.
It is clear, from the above discussion, that mistake arising inter praesentes present some
difficulty. It is suggested that the conclusion in each case will largely turn to the
evaluation of the facts placed before the court. Thus, where the factual situation shows
that the fraud perpetrated by the imposter only renders the contract voidable, a third
party bona fide purchaser for value is protected, whereas in Ingram v. Little (supra), if
the actual situation of the fraud renders the contract void, a bona fide purchaser from
the impostor is not protected. Ingram v. Little may be distinguished from Phillips v.
Brooks Ltd (supra), on the ground that the woman in Ingram v. Little had never heard of
PGM Hutchinson before, while the plaintiff in Phillips v. Brooks Ltd., knew that there
was a person as Sir George Bullough.
It is also evident that the mere fact that there is a ‘face to face transaction’ does not
necessarily follow that the parties transacting inter praesentes intended to transact
between themselves. In the light of the above statement, the Federal Court of Appeal
decision in Lewis v. Averay (1972) 1 QB 198; (1971) 3 All ER 907 is interesting for it
shows that where the parties contracted face to face and the other contracting party
misrepresented his identify, this has no effect to render the contract void but only
voidable on the ground of fraudulent misrepresentation. The facts of the case are as
follows: a rogue posing as Richard Green, a well-known actor, called on the plaintiff who
had advertised his car for sale and offered to buy it for the advertised price of £450. He
then signed a cheque ‘R.A. Green’ and was allowed to take the car away after producing
a false identity card, showing that he was indeed Richard Green. The cheque proved
worthless and the buyer was of course not Richard Green. He sold the car to Averay,
who bought it in good faith.
The Court of Appeal, following Phillips v. Brooks, and disapproving of Ingram v. Little
held that, despite his mistake, the plaintiff had concluded a contract with the rogue.
Although the contract was voidable for fraud, it could not now be avoided since the car
had come into hands of an innocent purchaser for value. Referring to Lord Devlin’s
dissenting judgment in Ingram v. Little which he approved of, Lord Denning, M.R. stated
as follows:
When dealing is between a seller like Mr. Lewis and a person who is actually
there, present before him, then the presumption of the law is that there is
contract, even though there is a fraudulent impersonation by the buyer
representing himself as a different man than he is. There is a contract made
with the very person there, who is present in person. It is liable no doubt to be
voided for fraud, but it is still a good contract under which title pass unless and
until it is avoided. (1971) 3 All ER 907 at p. 911.
It would thus appear that the trend is towards an almost irresistible presumption that
where both parties to a contract are physically present together, when the contract is
made, such a contract cannot be rendered void for mistake as to identity. Thus, if an
innocent party has to bear the loss, it should be the party whose negligence made it
possible for the rogue to successfully practice his fraud in the first place, i.e., the original
owner of the goods. As Lord Denning stated in Lewis v. Averay; …I very much regret
that either of these good and reliable gentlemen (Lewis and Averay) should suffer, in
my judgment it is Mr. Lewis who should do so. Ibid., at p.912.
An alternative suggestion is that the loss should be apportioned between two such
innocent people. It is necessary to note that the decision in the above case based largely
on the provisions of the Misrepresentation Act, 1967. It is therefore suggested that the
case is of no relevance, and should not even have a persuasive authority, in the present
state of our law.

Effects of Mistake in Equity

From the foregoing, it clear that English common law gives a somewhat narrow scope to
the doctrine of mistake. However, the fact that mistake may not render a contract a
nullity does not mean that there is no relief at all, for in all cases of mistake, whether
common, mutual or unilateral, equity has sometimes intervened in order to reduce
hardship. Equity may come to the plaintiff’s rescue in the following ways:
1. By Rectification: This applies where the agreement has been put into writing, but
fails to express the intention of the parties accurately. In other words, equity will
rectify a written agreement which because of a mistake does not accurately
express the parties’ intention. Thus in Oyadiran v. Baggett (1962) LLR 96, a case
that involved a mutual mistake, a convenant which had been agreed between the
lessor and the sublessee was omitted in the dead of lease.
Ballamy, J. ordered a rectification in order to give effect to the common intention
of the parties. A similar remedy was granted in Joscelyne v. Nissen (1870) 2 QB
 86. There, a father had agreed that his daughter should take over his car hire
business upon the condition that the daughter paid certain household expenses
such as gas, electricity and coal bills. By mistake, the written agreement failed to
put these responsibilities on the daughter. The court ordered a rectification to
agreement.
But before rectification can be obtained, the following conditions must be satisfied.
I. There must have been a prior, complete and certain agreement between the
parties on all the terms of the contract.
II. The intention of the parties must continue unchanged up to the time the
agreement was reduced into writing.
III. The existence of such mistake must be clear. In other words, the written
agreement did not express what the parties had already agreed upon. iv. Only
literal faults can be rectified to enable the parties to achieve their common
intention.
2. By setting aside the Agreement: A party whose contract is affected by operative
mistake may be granted a rescission of the contract. Although the mistake may not
be void at common law because it is not sufficiently fundamental, the Court will
nevertheless set it aside if it will be unfair, or create undue hardship, or it one of the
parties (the party requesting enforcement of the contract) ought to have known the
other was mistaken. Thus, in Cooper v. Phibbs (1867) LR 2 HL 149, the Court set
aside a contract where the plaintiff bought what he already owned. Also in Sodipo v.
Coker (1931) 11 NLR 138, the plaintiff bought at an auction sale of piece of land
described as ‘about 50 acres’, which was later discovered to be only 22acres. The
contract was set aside. Again in Lawrence v. Lexcourt Holdings Ltd. 1978) 1 WLR
1128, 9(2) Stud. LR 29, the plaintiffs let business premises to the defendants for
15years on the mistaken belief, shared by both parties, that the plaintiffs had an
unlimited planning permission. In fact, the plaintiff’s planning permission was only
two years. The plaintiffs sued for a specific performance of this agreement, to which
the defendant counter-claimed for rescission of the lease on the ground of common
fundamental mistake. The court dismissed the plaintiff’s suit, and granted rescission
to the defendants. In Solle v. Butcher (1950) 1 KB 671, both parties believed
erroneously that as a result of structural alterations, the flat was to subject to rent
control. The tenant claimed a declaration that the lease was under rent control, and
the landlord counterclaimed for rescission of the lease on the ground of common
fundamental mistake. It was held that, the lease was subject to rent control: the
common mistake of the parties was one of fact and not of law; the lease, was
therefore, voidable at the instance of the landlord.
Finally, in Grist v. Bailey (1966) 3 WLR 618, G. bought a house from B for £850. Both
parties believed that a tenant who was in occupation of the house was a statutory
tenant, whereas he was not protect and could have been compelled to quite on
notice. The value of the house with vacant possession was £2, 250. It was held that
the parties were under a common mistake of a fundamental nature. While at
common law, the contract was not void, equity would grant relief and treat the
contract as voidable. The seller was therefore, entitled to rescind the contract.
3. By Refusal to Grant Specific Performance: The court may refuse to order specific
performance of the contract. For example, X and Y enter into a contract and X
later discovers he has made a mistake. If Y tries to enforces the contract by
applying to the court for the decree of specific performance, the court will decide
whether or not it is equitable to enforce the contract. If the mistake is insufficient
to avoid the contract, X will pray the court refuse the decree. Thus, in Webster v.
Cecil (1861) 30 Beav 62, the defendant by mistake offered in writing one of his
plots of land to the plaintiff for £1, 250 instead of £2, 250, when he had earlier
rejected an offer of £2, 200 from the plaintiff.
The plaintiff was refused a decree of specific performance. It must, however, be
noted that equitable remedies are discretionary in nature. Consequently, equity
may decline to come to the aid of the disadvantage party if the circumstances are
such that it may occasion hardship on the contracting party or on an innocent
third party.
 LESSON 2
MISREPRESENTATION
INTRODUCTION
There must be a meeting of the mind or consensus ad idem; otherwise, a
misrepresentation by one of the parties destroys a contract. This can happen in so many
ways: e.g., when the parties enter into an agreement in which they are mistaken as to
what vessel they intended to use (Raffles v Wichelhaus), or when a party has
misrepresented the sales volume of a petrol station (Esso v Mardon), (1975)6 QB 81
(1976) 2 AER 203 and Afegha v A.G. Edo State (2001) NWLR (Pt 733) 405 .
Misrepresentation then creates what may be described as a defective contract.

MEANING OF MISREPRESENTATION
This is a statement made by one party to the other with regard to some existing fact or
to some past event which is one of the causes that induces the main of the contract,
such a misrepresentation must not be a statement of a law or a promise as to the future
nor a statement of intention to a statement of opinion nor mere puffing.
Misrepresentation is an untrue statement of a fact which materially induced a party to
enter into a contract. Generally, mere silence is not a misrepresentation.
TYPES OF MISREPRESENTATION
There are three kinds of misrepresentation.
1. Innocent misrepresentation
2. Fraudulent misrepresentation
3. Negligent misrepresentation
The result in all the cases is to make the contract voidable at the option of the innocent
party.

Innocent Misrepresentation
An innocent misrepresentation occurs where the maker of a statement honestly
believes his statement to be true though in fact it is false. At common law, unless the
representation forms a term of the contract, the representee (i.e. the injured party) has
no claim in damages against the representor. See Lamare v. Dixon (1873) LR 6 HL 414.
In equity, the party misled by the misrepresentation can obtain an order for the
rescission of the contract affected by innocent misrepresentation, but this must be
made within a reasonable time, or else the plaintiff’s equitable right of rescission will be
lost. This right may also be lost if plaintiff affirms the contract. In application of the
equitable doctrine of rescission to an innocent misrepresentation, the aim is to restore
the parties to the status quo ante. Hence no damages are awarded to the parties in
such a case. There can be restoration of property or the payment of some indemnity to
the plaintiff for any obligation which he may have performed under the contract.
As already stated, a representation which is true when made but, to the knowledge of
the party making it, becomes untrue before the contract is entered into must be
corrected. If it is not, the contract can be rescinded. Thus, in With v. O’Flanagan (Supra)
in negotiating a sale of a medical practice in January, X represented the taking to be the
rate of £2, 000 a year. In May, when the contract was signed, the takings had, owning to
X’s illness, fallen to £5 a week. It was held that, the contract could be rescinded owing to
X’s failure to disclose the fall in the takings.

Fraudulent Misrepresentation
This is a false statement made by a party who knows it to be untrue or does not believe
it to be true; or a statement made recklessly, not caring whether it is true or false.
Briefly stated, it is a false statement which, when, the maker (the representor) did not
honestly believe to be true. It was defined by Lord Herschell in Derry v. Peek (1889) 14
App. CAS. 337 as a false statement made.
1. Knowing, or
2. Without belief in its truth, or
3. Recklessly, careless whether it be true or false.
If the representor honestly believes that what he is saying is true, the misrepresentation
is not fraudulent. It follows, therefore, that the representation must be made with the
intention that it should be acted upon by the party misled, and actually misleads that
party if it is to form the grounds for avoiding a contract. In Peek v. Gurney, the plaintiff
brought an action for false statements in a company prospectus. It was held that,
because the prospectus was issued only to mislead the public into being original
subscribers of shares of the company, as the plaintiff had bought shares in the market,
he could not succeed in his action as it was not the intention of those responsible for
the issue of the prospectus to mislead purchaser of shares in the market. Also, in Derry
v. Peek (supra), a tram company had statutory powers to run trams by animal power,
and with the consent of the board of Trade, by steam power. A prospectus was issued
inviting the public to apply for shares and stating that the company had the right to use
steam power. The Board of Trade refused its consent to the use of steam power, and
the company was wound up. It was held that as the directors honestly believed the
statement in the prospectus, they were not guilty of fraud.
For the ascertainment of fraud, the best of honest belief is purely subjective, the
question is not whether the belief that the statement was true could be reasonably
entertained on an objective consideration of its truth or falsity, but the test is whether
the person who made the statement believed it to be true in the sense in which he
understood it albeit erroneously when it was made. In Akerhielm v. De Mare (1959) AC
789, the defendants induced the plaintiffs by a false statement to subscribe to a
company in Kenya. The company was a failure and the plaintiff who had lost their
money claimed damages for fraudulent misrepresentation. It was held that there was
no fraudulent misrepresentation as the defendant honestly believed the statement to
be true in the sense in which they made them.
However, absence of reasonable grounds for belief in the truth of a fact may tend to
show that in fact the belief was not held. If the representation is made knowing it to be
false, the fact that it was made from an honest motive will not prevent it from being a
fraud. Where, therefore X accepted without authority a bill of exchange drawn on Y,
honestly believing that Y would confirm his act, he was held liable for fraud. Polhill v.
Walter (1832) 3 B and Ald. 114
A Nigerian case on the question of fraudulent misrepresentation is the of Abba v.
Mandilas andKalabaris Ltd. (1966) 2 LLR 241. There the plaintiff wished to sell her car
and buy a new one. She claimed that she was only interested in buying a Volkswagen
Karman Chia 1500 convertible and that the defendant garage led her to believe the car
she wanted was available, and they would take her own car as agreed, but the new car
was not delivered. When the plaintiff went to see the defendants, they told her for the
first time that the car she wanted was not in production and offered her another type.
She refused and brought an action against the defendants for deceit, alleging that the
defendant’s representation that they would sell a particular type of car was false. She
also claimed that she had been induced by this representation to sell her own car and
thereby suffered damage. The defendants denied her allegations, claiming that they had
understood that the plaintiff primarily wished to sell her own car and had not decided
what to buy in its. It was held by Omololu, J., that on the evidence before the court,
there had been no representation at all, and that an official of the defendant company
had no a personal basis merely helped the plaintiff to find a buyer for her car. There was
no promise to sell her another car in place of her own at all.
The learned judge stated that to enable the plaintiff to recover damages, the
misrepresentation must be proved to be fraudulent. According to him, until 1843, it
used to be thought that to be false or fraudulent, the misrepresentation must be
dishonest. But after the case of Taylor v. Ashton, followed by the case of Derry v. Peek,
it is now established that mere non-belief in the truth was also indicative of fraud. He
therefore disbelieved the plaintiff’s story. It was difficult, in his own opinion, that a
reputable firm like the defendant’s would set on the defendant’s trail, three or four of
their senior officers to deceive her with a view merely to make her purchase a motor car
worth about £1,000 at such a great risk. The learned Judge, elaborated further on the
definition of fraudulent misrepresentation, declaring that mere non-belief in the truth
was an indicative of fraudulent as positive dishonesty. He also adopted the following
passage from Halsbury’s Laws of England, 3rd edition, p. 845. …it may now be taken as
established beyond all question that, whenever a man makes a false statement which
he does not actually and honestly believe to be true, that statement is, for purpose of
civil liability, as fraudulent as if he had stated that which he did not know to be true,
or knew or believe to be false. Proof of absence of actual and dishonest belief is all
that is necessary to satisfy the requirements of the law, whether the representation
has been made recklessly or deliberately; indifference or recklessness on the part of
the representor as to the truth or falsity of the representation affords merely an
instance of absence of such a belief. Overall, the learned judge found that the plaintiff
had not proved her claim, and therefore dismissed it, awarding costs of the action to the
defendants.

Negligent Misrepresentation
A negligent misrepresentation is one made carelessly, or without reasonable grounds
for believing it to be true. Misrepresentation cannot be regarded as negligent and
therefore as giving rise to liability on the part of the representor, unless the representor
owes a duty of care to the representee. Such a duty of care has long recognized as
existing between two people in a fiduciary relationship- moving from the person in
whom trust is reposed to the person who is reposing the trust.
Thus, in Nocton v. Ashburton (1914) AC 932, a mortgage sued his solicitor, alleging that
by improper advice, the solicitor had induced him to release part of the security for the
mortgage and that the remaining security had become insufficient. He also alleged that
the solicitor was fully aware of this fact but had nevertheless given the advice because
he stood to benefit from the action. It was held that although fraud in the sense defined
in Derry v. Peek had not been proved against the solicitor, the mortgage was
nevertheless entitled to the relief sought, for the solicitor had committed a breach of
the duty imposed on him by the relationship in which he stood to the client.
However, with regard to negligent statement outside the area of fiduciary relationship,
which cause economic loss as against physical damage or injury to the person acting on
it, it was not until 1963, in the case of Hedley Byrne and Co. Ltd. v. Heller and Partners
Ltd., (1964) AC 465, (1963) 2 All ER 575, that a special duty of care moving from the
maker of the statement to some categories of person acting on it, was given
recognition. Before then, it was thought to be impracticable to grant relief t everybody
who suffered damage through the carelessness of another in speech or writing. In fact,
prior to 1963, the phrase ‘innocent misrepresentation’ was used to describe all
misrepresentations which were not fraudulent. However, in 1963, it was stated by the
House of Lords in Hedley Byrne case that, the duty of care, which is the foundation of
the tort negligence, can extend to careless statement where a ‘special relationship’
exists between the parties. A misrepresentation is thus negligent where a special
relationship exists between the representor and the representee made the statement
carelessly ad in a breach of a duty imposed on him by that special relationship to take
reasonable care that the representation is true. Any special relationship is enough; it
need not be fiduciary in nature, although more often than not it is fiduciary.
The reason for the divergence between the law of negligence in words and that of
negligence in action were explained by Lord Pearce in Hedley Byrne case as Follows:
Negligence in words creates problems different from negligence in act. Words are
more volatile than deeds. They travel fast and far afield. They are used without being
expended and take effect in combination with innumerable facts and other words. Yet
they are dangerous and can cause vast financial damage. (1964) AC 465, at p.534.
The test of negligence is the objective one of reasonableness. A person of unusual
simplicity of mind who makes a statement which he believes to be true but which any
reasonable man would not make without investigation of the fact, is liable for negligent
misrepresentation.

REMEDIES FOR MISREPRESENTATION

1. Where the Misrepresentation is Not a Term of the Contract
Fraudulent Misrepresentation: Where there is misrepresentation is fraudulent, it will
render the contract voidable both at law and in equity. Consequently, the aggrieved
party may take one of the followings.
a. He may sue for rescission: However, since the aim of rescission is to restore the
parties to the status quo ante, he can only do so if he is still in a position to make
full restoration or restitution. In other words, he can only do so if restitution in
integrum is still possible. In Sodipo v. Coker, Deputy Sheriff and Amor (1923) 11
NLR 138, where the land advertised to be sold in an auction sale was described as
‘about 50 acres’, but subsequently discovered to be only 22 acres, and although
the purchaser was taken round the ground, the court held that, the sale must be
set aside on the ground of the auctioneer’s material misdescription of the land,
and that the purchase money must be refunded.
b. He may repudiate the contract and plead the fraudulent misrepresentation as a
defence if the representee sues him for specific performance. He may also sue for
 damages in tort on the ground of deceit, since fraud is a tort, and this context it is
known as a deceit.
Innocent Misrepresentation: Although there is no remedy, at common law, for innocent
misrepresentation, in equity, such a contract is voidable. But since the administration of
common law and equity is now fused, the aggrieved party in a contract induced by
innocent misrepresentation may now either: -
a. Sue for rescission, if restitution in integrum is still possible; or
b. Repudiate the contract and plead the misrepresentation as a defence if the
representor sues him for specific performance.
Negligent Misrepresentation: The aggrieved party in a contract induced by negligent
misrepresentation can only bring an action in tort for damages resulting from such
misrepresentation.

2. Where the Misrepresentation Has Been Made a Term of the Contract

Since in this case is then a breach of the contract, the aggrieved party can, in addition to
the remedies stated above, sue in contract for damages, whether the misrepresentation
is fraudulent, innocent or negligent.

Limits to Rescission
Although, as we have seen, the right of restitution is possible, whether the
misrepresentation is innocent or fraudulent, such a right may be refused or lost under
the following five circumstances:
1. If He Has Affirmed the Contract: Where the injured representee on becoming
aware of the misrepresentation affirms the contract, the rights of rescission are
lost. The intention to affirm may be stated expressly or may be implied from the
conduct of the party. Thus, in Seddon v. North Eastern Salt co. (1905) 1 Ch. 326,
a shareholder’s right to claim rescission for misrepresentation was held that to
have been lost when after discovering the misrepresentation, he continued to
carry on the business of which the shares gave him control. Also, a person who
induced by misrepresentation to subscribe to shares in a company, cannot
rescind of after discovering the truth, he accepts dividend rates at a meeting, or
tries to sell the shares. Western Band of Scotland v. Addie (1867) LT 1 Sc. And
Div. 145. The same applies to a person who, having been induced to take lease of
premises by misrepresentation, nevertheless continues to pay the rent on the
premises after discovering the truth. Kennard v. Ashmar (1864) 10 TLR 213.
2. Lapse of Time: Where there has been a considerable lapse of time between the
date of the conclusion of the contract and the date of the commencement of the
action for rescission, the latter will not be granted. This is particularly so in cases
 of sale and allotment of shares in a company, where the utmost promptness is
said to be essential.
3. Where restitution is impossible: The right of rescission is also lost where it is
impossible to restore the parties to their original position. Thus, where for
example, Sabukwe bought food items under certain misrepresentations and the
said items have either been consumed or put to such use that it is impossible for
them to be restored to their original position, the court will refuse to grant
rescission of the contract. Oluwo and Anor v. Adewal (1964) NMLR 17.
4. Third Party Rights: The right of rescission is lost if a third party has acquired
rights in the subject-matter of the contract for value and without notice of the
misrepresentation. In other words, the right to rescission by the representee may
be refused by the court where a third patty purchaser for value acquires some
interest in the subject-matter of the contract, Before it is rescinded, provided the
third party had no notice of the misrepresentation. For example, a person who
has been induced by fraud to sell goods cannot rescind the contract of sale after
the goods have been bought by an innocent third party. Thus, in White v. Green
(1851) 10 CB 919, X bought iron from Y and issued Y a false bill of exchange.
Meanwhile, X sold the iron to Z. Y on discovering X’s fraud seized the iron from Z.
it was held that Y was liable in damages for conversion because the title in the
iron had already passed to Z.
On the same principle, a person cannot rescind an allotment of shares in a
company after the company has gone into liquidation. At that point, the rights of
third parties intervene in that assets of the company have be collected for
distribution amongst the company’s creditors.
5. Executed Contracts: It is also settled law that, in cases of innocent
misrepresentation, the representee cannot exercise the right of rescission, after
the contract has been performed or executed. This popularly referred to as rule
in Angel v. jay (1911) 1 KB 666. There, a lessor innocently misrepresented during
negotiations for a lease that the drains were in good order. The lease for a term
of three years was executed and the tenant occupied the premises for six
months. He then discovered the falsity of the representation and sought to
rescind the lease. It was held that he could not do so, because the right to rescind
the contract for the lease terminated on the execution of the lease. Earlier in
1905, the courts had, in the case of Seddon v. North Eastern salt Co. (1905) 1 Ch.
326, adopted a similar principle as in Angel v. jay, by taking the stand an executed
contract for the sale of shares would not be rescinded for innocent
misrepresentation. This is known as the rule in Seddon’s case. In this case, X
agreed to sell the controlling shares in a company to Y. He told Y that the loses of
the company up to a certain period were £250, while in fact they were £900.
However, Y continued to operate for three months, at a profit, after the discovery
of the representation; he finally brought an action to rescind the contract. It was
held that, the contract had been executed and rescission was no longer possible.
But the decision in the above case could equally have been explained on the
ground that Y had affirmed the contract.
It is necessary to note that the Rule in Angel v. Jay or Seddon’s case does not
apply to cases of fraud, breach neither of fiduciary duty nor presumably to
negligent misrepresentation. The principle of the Rule of Angel v. Jay was
generally understood to be confirmed in its application to conveyance of land or
disposition of interests in land. Obviously, the rule worked some hardship in
situations where the injured party had no opportunity of making his own
dependent examination of the subject-matter of the contract, but relied entirely
on the innocent misrepresentation of the party. However, in practice, in
transactions involving land or interest in land, the prospective purchaser usually
conducts his private examination of the subject-matter of the contract before
concluding the contract. In any case, since such examinations are exceptional
with regard to other types of contract, it seems unreasonable and unjustifiable
that the principle in Angel v. jay should be extended to every type of contract.

CONTRACTS UBERRIMAE FIDEI

Generally, in contracts, there is no duty placed on a contracting party to disclose
material facts which he knows will influence the other contracting party in
coming to a decision about the contract. In contracts for the sale of goods, the
maxim is caveat emptor, which means ‘let the buyer beware’. There is a duty on
each party to inform himself of all the materials facts, which he requires before
entering into a contract. What is important to note, therefore is that silence does
not generally amount to misrepresentation consequently, a party to a contract
need not disclose material facts within his knowledge to the other party.
However, there are exceptions to the caveat emptor rule, and in the case of
certain contracts, the law casts upon the seller a duty to disclose material fact to
the other party. In other words, there are certain situations in which the
circumstances are such that only one of the parties to the contract is peculiarly
possessed of some material facts, and the law imposes a duty on him to disclose
these facts with the utmost good faith, i.e., uberrima fidei. It follows that in such
contracts, a higher duty is imposed than mere abstinence from innocent
misrepresentation or fraud. It is said, therefore, that in such cases, uberrima fidei
is demanded and the contracts are designated contracts uberrimae fidei (of the
utmost good faith), and failure to disclose any material fasts constitute
constructive fraud, and that will be a valid ground to rescind the contract. In
these contracts, the duty of disclosure is imposed, not because of any particular
relation between the parties, but because of the nature of the contract.
 Referring to this class of contracts in Davies v. London and provincial Marine
Insurance Co. (1878) 8 Ch. D. 469, at p.475, Foy, J. said:
Very little said which ought not to have been said and very little not said which
ought to have been said, would be sufficient to prevent the contract being valid.
The following contracts come under uberrimae fidei principle, and can be
rescinded unless there has been a full disclosure of material facts:
1. Contracts of insurance
2. Contracts to purchase shares in companies
3. Contracts of family arrangement
4. Contracts of sale of land
5. Contracts in which a fiduciary relationship exists between the parties.

Contracts of insurance
Contracts of insurance provide an outstanding example of contracts uberrimae fidei. All
insurance contracts, whether marine, fire, life, motor vehicle or burglary, are contracts
uberrimae fidei. It is a common law rule that every contract of insurance requires full
disclosure of material facts to the insurer, as are known to the assured, so that the
insurer may be acquainted with the exact character of the risk which he is accepting.
What this means is that the assured should not keep back any information which might
influence a prudent insurer in determining whether to accept or reject the risk because
the insurer undertakes to insure a person or thing only after all material facts have been
disclosed. A fact is, therefore deemed to be materials if it will influence the judgment of
a prudent insurer in fixing the premium or in determining whether or not to take the
risk.
Generally, the insurance company gives that prospective assured a proposal form to fill
and assured later signs a declaration vouching the veracity of the statements he has
stated, and further agrees that they be incorporated as terms of the insurance contract.
Failure to disclose a material fact renders the contract voidable at the instance of the
insurer. It is upon the disclosure material facts that the insurer fixes the premium and or
determines whether he will take the risk or not. The assured cannot escape liability by
arguing that he did not consider, or believe that the facts were material. In a proper
case, it is the duty of the court to decide whether the facts in issue are material or not.
The right if the insurer to avoid the contract for non-disclosure of material facts is not
affected by the fact that the insured has no intention to conceal the facts. Thus, in
Akpata and Anor. v. African Alliance Insurance Co. Ltd. (1969) FNLR 111, the deceased
failed to disclose in the proposal form that he was previously insured. It was held that
the non-disclosure was sufficient ground for the avoidance of the contract by the
insurance defendant company.

Contract to Purchase Shares in Companies

If a company issues a prospectus inviting the public to buy shares in the company, such
prospectus must contain a full disclosure of the material circumstances of the company.
It should be accompanied by, and is in fact usually accompanied by statements of the
company’s financial position, the value of their assets, the state of the company’s
business, the profits and the dividends declared, etc. Thus, all the material facts which
can help the public in deciding whether or not to buy a share are peculiarly within the
knowledge of the company’s board and officials. It is therefore imperative that the
company should disclose all relevant facts, if the public is not to be defrauded,
particularly by promoters who set up new companies. Venezuela Railway v. Kisch
(1867) LR 2. HL 99, at p.113.
Statutory intervention has however strengthened and added clarity and precision to this
law. Under the Companies Act, 1968, the promoters of a company who invite people to
take shares in the company under a prospectus are under a duty to make full disclosure
in their prospectus of material facts which will influence the decision of a subscriber to
purchase the shares of the company. The Act also provides civil and criminal remedies
for untrue statements in the prospectus including rescission of the contract for a
misstatement as well as the payment of compensation by those who authorize the issue
of such prospectus.

Contracts of Family Arrangement

When members of a family make arrangement for the settlement of the family
property, for example, as regards inheritance and succession, each member of the
family must make full disclosure of every material fact within his knowledge. Thus, in
Gordon v. Gordon (1917) 3 Swanst. 400, two brothers entered into an arrangement for
the division of the family property, on the mistaken assumption that the eldest son had
been born before his parents were married and was illegitimate. It was discovered 19
years later that the younger son had withheld knowledge of a marriage ceremony that
had taken place between his parents before the birth of the eldest son; which meant
that the eldest son had been legitimated all along. It was held that the agreement could
be set aside upon the discovery of the elder brother of the true state of affairs, as the
younger brother should have disclosed the true facts at the time the agreement was
entered into.
However in the more recent case of Wales v. Wadham (1977)1 WLR 199 a wife was
negotiating a financial settlement with her husband after divorce, and she failed to
disclose the fact that she intended to remarry. It was held that she was under no duty to
disclose this fact. The above decision seems to have created some uncertainty in the
status of family arrangement as an exception to the non-disclosure rule. This may
perhaps be explained by the particular circumstances of this case, in that the parties had
been negotiating a compromise on the basis that neither party was required to make a
full disclosure.
Contracts for the Sale of Land
Generally, contract for the sale of land is governed by the principle of caveat emptor (let
the buyer beware). The vendor owes no duty to disclose latent defects to the purchaser.
But in one sense, contract for the sale of land is categorized under contract uberrimae
fidei, to the extent that the vendor is under a duty to disclosure all defects in title. In
other words, although contracts for the sale of land are not strictly ones requiring
uberrimae fidei (the vendor does not have to disclose all material facts), in certain
circumstances, the vendor is obliged to disclose, for example, when the title is defective.
If there is a misdescription of the vendor’s interest in the land or the extent of the land
being offered for sale, the purchaser can avoid the contract. Thus in the Nigerian case of
Bamgbala v. Deputy Sheriff of Lagos and CFAO, Suit No. LD/568/85 of 11th April, 1967
(unreported), the plaintiff bought a piece of land in a public auction conducted by the
first defendant. The property was sold in order to satisfy the money owed by one A.A.
Oshodi, a judgment debtor in Suit No. LD/4/1956, in which CFAO was the second
defendant. At the auction sale, representatives of the Oshodi family cried out against
the sale and warned against the futility of such sale. The plaintiff was however declared
the purchaser by the auctioneer on payment of £1,050 but he was unable to prevail on
the Registrar of Titles in Lagos to register the certificate of purchase and the Deed of
Ratification. The plaintiff brought this action claiming an order rescission and refund of
the purchase price alleging that there was misrepresentation as to the quantum of the
estate pt out for sale. The defendant resisted the action and submitted that the doctrine
of caveat emptor should be invoked against the plaintiff. The court rejected the
defendant’s submission and gave judgment for the plaintiff.

Contract in which a Fiduciary Relationship Exists Between the Parties

Utmost good faith is imposed in equity on the parties to a contract where one person
stands in a fiduciary or confidential relationship with another in the sense that the party
in whom confidence is reposed is obliged to make full disclosure of all materials facts
and also employ reasonable care in relation to the affairs of the other party. In other
words, uberrimae fidei is also required to be shown in certain cases in which a fiduciary
relationship exists between the parties.
In all cases of fiduciary relationship, the law assumes that one person is in a superior
position to the other, and the trust and confidence of the other person is reposed in
him. The party in the superior position is therefore in a position to take advantage of the
other party in a contract between the two. The court will declare the contract voidable
and therefore susceptible to rescission by the other party id the terms are regarded by
the court as being unfair to him. Thus, in cases of contracts between partners, principal
and agent, sureties, solicitor and client, a guardian and his ward, trustee and cestui que
trust (beneficiary) physician and patient, and various other cases which are not possible
to enumerate, the most frank disclosure must be made by the partners, the agent, the
creditor, the solicitor, the guardian, the trustee, the patient or other person in a
fiduciary position.
An instance of the fiduciary duty is offered by the case of London General Omnibus Co.
v. Holloway (1912) 2 KB 72. In that case, Holloway entered into a ‘fidelity bond’ to acts
as surety for the proper discharge of the duties of an employee of the plaintiff company.
Although the company was aware that the employee had previously been guilty of
dishonesty, they did not inform Holloway of this fact. The employee was subsequently
guilty of theft, and the company sued Holloway upon the bond. It was held that,
Holloway could avoid his liability, as the company should have disclosed the previous
dishonesty of the employee.
It should be noted that tin all cases of fiduciary relationships, an absence of honesty is
not essential. Failure to disclose a material fact, which would have been favourable to
the second party is sufficient. Thus, in Tate v. Williamson (1886) LR 2 Ch. App. 55 and
oxford undergraduate finding himself in financial difficulties, sought the advice of his
tutor. The tutor advised him to sell some land belonging to him, and offered to buy it
himself. He (the tutor) failed to disclose to the student that the land contained some
minerals, which would have considerably enhanced its market value, and so bought it
for half the price it would otherwise have fetched. After the infant had drunk himself to
death at the age of 24, his executors brought an action, to challenge the validity of the
agreement. It was held that, the tutor was guilty of constructive fraud, and that the
agreement was voidable at the instance of the infant’s executors.
Finally, it may be added that although certain relationships in the business world, for
example, principal and agent, partners, a company and its promoters, come within the
class of those that involve fiduciary relationships, the fiduciary duty in these cases is not
so stringent and does not go beyond the duty to disclose.
 LESSON 3
DURESS
INTRODUCTION
In contractual agreement, some form of pressure, which the law regards as improper,
may obtain consent of the parties. A victim of such circumstance is entitled to relief
under common law of duress and equitable rules of undue influence. In contract book,
the classical rulebook understanding of duress is that it is a variety of procedural
unfairness, which prevents a valid agreement from being reached due largely to the
overborne will theory. Duress is the compulsion under which a person acts through fear
of personal suffering from injury to the body or from confinement, actual or threatened.
In the absence of a fiduciary relationship between an employee and his employer, the
employee is under no duty to disclose to the employer facts which would disqualify him
or render him eligible for the employment.

MEANING OF DURESS
Both at law and equity, it a person enters into a contract under duress or as a result of
undue influence exercised over him at the material time, it will be deemed that the
person has not voluntarily consented to the transaction; consequently, the contract will
be voidable at his option. The justification for this rule is that contracts falls in the realm
of private law, the basis of which must be the free consent of the parties.

TYPES OF DURESS
There are two types of duress namely:
Duress at Common Law
Duress, which is a common law doctrine, means any actual or threatened violence
imprisonment or restraint of personal liberty of a person, his wife, child, parent or
relatives which induces him to enter into a contract against his will. Duress renders the
contracts voidable at the instance of the party who was forced to enter into the
contract. But, the violence or threats of violence must be to the person on the
contracting party. Therefore threats to one’s property will not amount to duress. Thus,
in Skeate v. Beale (1841) 11 Ad. And El. 983, it was held that a landlord’s threat to sell
the goods of his tenant was not duress.
But, in Friedeberg-Seeley v. Klass (1957) Current Law Year Book 1482, the plaintiff was
alone in her flat. There was a knock at the door, the defendants entered and refused to
leave, they physically forced her to sign a receipt for jewel case and its contents which
they took away. When they had gone, she found on the table a cheque of £90. It was
held that, the receipt was obtained by duress, and the transaction was, therefore, set
aside.
As already mentioned, duress makes the contract voidable at the option of the party
who has suffered it when there is:
1. Actual or threatened Physical Violence or Imprisonment: In Cummng v. Ince
(1847) 11 QB 112, X was taken to a private asylum and an inquisition under a
commission of lunacy was held upon her. Before the verdict was given, it was
agreed X should be released and should give up certain deeds she possessed. It
was held that, as the agreement to give up the deeds was made under fear of
confinement in the asylum, it was not binding upon X.
2. Threatened Criminal Proceedings: The person threatened need not be the
actual
contracting party, but may be the husband or wife or near relative of the party.
Thus, in Kaufman v. Gerson (1904) 1 KB 591, G. misappropriated his employer’s
money. K the employer threatened G’s wife that if she did not promise to make
good the money out of her own property, he would prosecute her husband.
Consequently, G’s wife agreed to do so, provided that there would be no
prosecution. It was held that, such an agreement could be forced against her as it
had been induced by moral coercion (i.e, duress)
3. Implied Threat of Criminal Proceedings: In Mutual Finance Ltd. v. John Wetton
and Sons (1937) 2 KB 389, W’s son forged the company’s signature to a
guarantee.
In exchange for a forged guarantee, m obtained a valid guarantee from the
company, because, as M knew, W’s state of health was such that the prosecution
of his son would be likely to endanger his life. The company was W’s family
company. No actual threat of prosecution was made. It was held that, the
guarantee was obtained by undue influence and was voidable.
 4. Wrongly Detention or Threatened Seizure of Property: In Maskell v. Horner
(1915) 3 KB 106, H owned a market and claimed tolls from M, a produce dealer.
M
refused to pay, and H seized his goods, where upon M paid and continued to pay
yearly under protest. H’s right to tolls was subsequently declared illegal. Held, M
could recover the payments made.
Economic Duress
The widening scope of duress at common law can be illustrated by the recognition being
given the concept of economic duress. Thus in North Ocean Shipping Co. Ltdx v. Hyundai
Construction Co. Ltd. (1979) QB 709; (1978) 3 All ER 1170, the defendant ship builders
forced the plaintiffs for whom they were building a ship to pay an extra 10 percent, over
and above the agreed cost of the 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. It was held, by Mocatta J.,
that the action of the defendant constituted economics duress.

UNDUE INFLUENCE
This arises when a party obtains benefit from the other, whether under a contract or by
means of a gift, by exerting an influence over the latter which prevents him from
exercising an independent judgment. Undue influence is a doctrine of duress as too
narrow. Accordingly, the doctrine was developed to cope with situations of constructive
fraud in which contracts or dispositions of property were made without free or genuine
consent. The allegation of undue influence ids therefore based on the fact that the
complainant entered into the contract ( or made a gift of property) without free
consent, in that the other party exerted an influence over him, which prevented him
from exercising an independent judgment in the matter. And, for influence to be
regarded as undue within the meaning of the rule of law which will be sufficient to
vitiate a will, it must be an influence exercised by coercion or fraud. Boyse v.
Rossborough 10 ER 1211.
The presumption of undue influence may arises in the cases:-
1. Where there exists a special fiduciary relationship between the contracting parties,
and
2. Where no special fiduciary relationship exists between the parties.
Where there exists a special fiduciary between the parties, for example, relationship of
solicitor and client, doctor and patient, spiritual adviser and disciple, trustee and
beneficiary, parent and child, guardian (i.e. person in loco parentis) and ward, the
existence of undue influence in relation to the contract or exchange of gifts between
such parties is presume, and need not be proved as a fact, but place the burden of proof
on the party in whom confidence was reposed to established that the transaction was
not procured by undue influence. It is evident from that the transaction was not
procedure by undue influence. It is evident from the list of special fiduciary relationships
enumerated above that the relationship arises in any situation where one person
occupies a position of dominance over the other. In such a case, equity imposes on the
dominant person a duty to be faithful to the confidence that is reposed in him by the
other.
Where a presumption of undue influence exists, the presumption can be rebutted if the
dominant person can show that in fact he exerted no influence for the purpose of
obtaining the contract or gift; in other words, that the contract was the result of the free
exercise of the independent will of the plaintiff. The privy Council held in Johnson v.
Williams (1935) 2 WACA 248 at p.255, that:
The most obvious way is by establishing that gift was made after the nature and effect
of the transaction had been fully explained to the donor by some independent and
qualified person so completely as to satisfy the court that the donor was acting
independently of any influence from the done and with the full appreciation of what
he was doing.

It follows from the above statement of the Privy Council that the presumption of undue
influence is rebuttable by the party in whom confidence was reposed, by showing that
there was no abuse of the special fiduciary relationship, and that the transaction was
fair. The fairness of the transaction is often established by showing that the ‘weaker’
independent advice is not enough. It must also be shown that the advice was taken, or
that the advice must be given with a knowledge on the part of the adviser of all relevant
circumstances and must be such as a competent and honest adviser would give if acting
solely in the interest of the donor, Johnson v. Williams (1935) 2 WACA 248, at p.256. In
Taylor v. Brew (1942) 8 WACA 201, the settlor, Mrs. Taylor, inherited a considerable
fortune on attaining 21 under the will of her maternal grandmother. Her father, who
was also her solicitor and for whom she had an intense dislike persuaded to make a
settlement of her property by a trust deed. A clause was inserted without the
instruction or knowledge of the settler. This clause vested the whole property in the
father, should the daughter die intestate. It was held that the trust deed was null and
void on the ground of undue influence exercised by the father over his deceased
daughter.
The above case is similar to the English case of Lancashire Loans Ltd. v. Black (1934) 1 KB
3880. There a daughter married at the age of 18 and thereupon left her parental home
and lived with her husband. Her mother was very extravagant and frequently borrowed
money from money lenders. When the daughter came of age she, at her mother’s
request, raised £2, 000 on her reversionary interest under her father’s will in order to
pay off her mother’s debts to moneylenders. The mother continued to borrow money
from moneylenders, and a year later she asked the daughter to sign a document so that
she (the mother) might be able to borrow some more money. The mother and the
daughter signed a joint and several promissory note for £775 at 85 per cent interest.
The daughter, who did not understand the transaction, signed document at the request
of her mother. The only advice the daughter received was that of a solicitor who also
prepared the documents.
In an action by the moneylenders on the promissory note against both the mother and
daughter, it was held that, the daughter was under the influence of her mother when
she entered into the transaction in question, and also that she had no independent
advice, and that as the moneylenders had notice of the facts which constituted undue
influence on the part of the mother, they were in no better position than the mother.
The transaction was, therefore, set aside, so far as the daughter was concerned.
According to the Court:
There is no rule of law that the marriage of a daughter, coupled with her departure
from the parental home, necessarily puts an end to the domination f her parents.
Whether or not the parental dominion has completely ceased is a question of fact
depending on the particular circumstances of each case.
However, as was established in the Privy Council case of Inche Noriah v. Shaik Allie Bin
Omar, (supra), independent advice is not the only way in which the presumption can be
rebutted. In other words, it does not necessarily follow that there must be an
independent advice in all cases in order to rebut the allegation of undue influence. The
defendant is entitled to show by other means that the contract was made I the
existence of the free will of the other party. Moreover, where the independent advice
has been given, the failure of the plaintiff to take it, does not affect the validity of the
agreement. The important fact is that the advice was indeed given. Again, even where
there is an independent advice, this will not be effective unless given the legal adviser
had full knowledge of all the relevant circumstances. In Inche Noriah case Supra, a
Malay woman of great age and wholly illiterate made a deed of gift of valuable property
in Singapore to her nephew, who managed her affairs. She was advised by her lawyer,
who did not know that the gift constituted practically the whole of her property and did
not tell her that she could equally benefit her nephew by will. It was held that the gift
could be set aside on the ground of undue influence.
There is no presumption of undue influence between an engaged couples Zanet v.
Hyman (1961) 1 WLR 1442, or between husband and wife, Ilowes v. Bishop (1909) 2 KB
390. Undue influence may, however be proved to exist in fact in this as in other cases,
and when it is proved, the contract is voidable.
Even where there is no special fiduciary relationship between the parties, yet the court
may hold that the circumstances were such that one of the parties to the contract
exerted undue influence over the other party to the contract. The term, undue
influence, is regarded as any conduct on the part of one of the parties which affects the
contract between them and makes it unconscionable to allow the parties to be bound
by the contract concluded under such circumstances. Therefore, once it is found that
there are some elements of domination by one over the other, in the agreement, the
court will set aside the agreement, but only if it can be shown that the will of the other
party was so overborne as to prevent is exercise of an independent judgment. Even
then, it is not sufficient to establish that a person has a power to overbear the will of the
other; it must be proved as a fact that in the particular case that power was exercised. In
other words, in the absence of any special fiduciary relationship between the parties,
the burden lies on the party alleging undue influence to prove same as the contract
presumed to be avoid. For example, there is undue influence by X over Y if X presses Y
to pay or promise him some money by a threat of criminal prosecution against Y or
against Y’s spouse or close relative, Williams v. Bayley (1866) LR 1 HL 20, or by a threat
of destruction of Y’s property, or leakage of Y’s secret. The onus of proving pressure lies
on the complainant.

LESSON 4
PRIVTIY OF CONTRACT
INTRODUCTION
Privity is the relationship that exists between parties to a contract. The rules states that
a person who is not a party to a contract cannot enjoy the benefits nor suffer the
burdens of that contracts; that is, a stranger (non-party) to a contract cannot sue or be
sued on it.
The general rule is that only party to a contract may sue on it. In Dunlop v. Selfridge
(1915) A.C. 847. A sold tyres to B & Co. on terms that B & Co. could not resell, B & Co.
resold to Selfridge, S below stated prices. A (Dunlop) sued for a breach.
It was held that Dunlop was a stranger and could therefore not sue on it. Similar
decisions were reached in the following cases: Chuba Ikpeazu v. A.C.B Ltd. (1965)NMLR.
374, R.T. Briscoe v. Universal insurance Co. (1966) 2 A.L.R. Comm. 263 and Tweedle v.
Atkinson (supra). In Chuba Ikpeazu v. A.C.B. Ltd. (supra) where the respondent sued a
debtor and joined the appellant o the assumption that he was a trading partner and a
guarantor to the overdraft in question, it was held by the Supreme Court (in reversing
the Lower Court’s Judgment) that a contract cannot be enforced by a person who is not
a party, even if the contract is made for his benefit and purports to give him the right to
sue upon it.

NATURE OF PRIVITY
A contract cannot confer enforceable rights or impose obligations arising under it o any
person, except parties to it. Thus, only parties to a contract can sue on it. It also follows
that only those who has furnished consideration toward the formation of the contract
can bring an action on it. The classical exposition of the principle is contained in the Lord
Haldene’s judgment in Dunlop v. Selfridge (1915) AC 847, at p. 853.
My lords, in the law of England, certain principle are fundamental. One is that
only a person who is party to a contract can sue on it. Our law knows nothing of
a jus qua estitum tertio arising by way of contract. Such a right may be
conferred by way of property, as for example, under a trust, but it cannot be
conferred on a stranger, to a contract as a right in personam to enforce the
contract.
Thus, the doctrine of privity is to the effect that a contract cannot confer enforceable
rights or impose obligations under it on any person except parties to it. Accordingly,
only those who has furnished consideration towards the formation of a contract can
institute an action on it.
However, it does not follow that a contract can not affect the legal rights of a third party
to it indirectly. Therefore, the non-party may have some other cause of action (e.g. in
tort) arising from the contract. For example, such a contract may operate as a license to
the third party to be on the premises, hereby raising a duty of care in tort between him
and them.

In Driver v. William Wilet Contractors Limited (1969) 1 All ER 655, in the case, a safety
consultant employed by X was to held to owe a duty of care to X’s servant.
Also, this common law rule does not indicate that a third party cannot by his action
benefit either of the parties to a contract. For instance, if a owes money to B and C pays
off the debt, C a non-party has by his benefit one of the contracting parties, A. The
doctrine can be summarized as follows:
a. A person cannot enforce right under a contract to which he is not a party.
b. A person who is not a party to a contract cannot have contractual liabilities
imposed on him.
c. Contractual remedies are designed to compensate parties to a contract, not
third parties.
It should be noted from the above that the scope of the doctrine is to prevent the third
party from being entitled to enforce rights or rely on defenses which arise only under a
contract between two parties. Also, the privity doctrine prevents a contract from being
enforced in favour of, or against someone who is not privity to it.

HISTORICAL DEVELOPMENT OF THE DOCTRINE

English legal system was first to adopt the Doctrine of Privity of Contract. In the middle
of 19th century, the common law judges came to a decisive conclusion on the scope of
contract can sue it. Accordingly, this was not the case in the earlier common law, the
principle was not accepted universally. As a matter of fact, in the middle ages the action
for debt and account was readily available to third parties who wished to reap the
benefit of an arrangement made by others on their behalf. And so it happened that
there, the Doctrine of Privity was established in it present form, there was as conflict of
authority on the question whether a person could enforce a Contract to which he was
not a party. In some cases decided in the 17th and 18th centries such as Crow v. Roggers
(1754) 1 STR 592. In the case, Hardy owed Crow £70. By an agreement between Hardy
and Roggers, roggers promised to discharge his debt in return for Hardy undertaking to
convey a house to him. Crow sued Roggers on his promise and failed. It should be
observed that the reason why the court gave judgment against the plaintiff was because
he was a privity to the contract.

However, it should be noted that this doctrine is not closed to this circumstances, there
are some case where judgment was given in favour of third party.
In Dutton v. Poole (1677) 2 LEV 201, in this case. A father wanted to sell his property to
generate money for his kids, but his eldest child promise to pay £1,000 each to the
younger kind and asked is father not to sell his belongings. He default and one of these
children sued. And the suit was allowed. However, in 19th century. The principle of
privity was properly laid down in 1915 in the landmark case of Dunlop v. Selfridge (1915)
AC 847 and the doctrine of privity became firmly established.
 LESSON 5
DOCTRINE OF PRIVITY
INTRODUCTION
As earlier pointed out, the doctrine of privity of contract is to the effect that an
individual cannot acquire benefit or be subjected to the burden arising out of a contract
to which he is a stranger. In other words, a person cannot obtain rights or subjected to
liabilities of contract to which he is not a party. Going by the above, if A promises B to
pay the debt incurred by B to C, the doctrine of privity will prevent C from suing A for
the debt.

OPERATION AND APPLICATION OF THE DOCTRINE In Tweddle v. Atkinson (1861) All ER

369, the plaintiff’s father was promised a sum by the defendant if the plaintiff married
his daughter. He did but the defendant refused to pay the sum to the plaintiff’s father.
The plaintiff sued, the House of Lords held he could not enforce the promise because he
was not a party to the contract.
However, in as much as the nature and operation of the doctrine recognizes that
performance by a third party may discharge one of the contracting parties from his
obligation on his behalf. However, the case of Price v. Easton (1833) 4 B. & Ad. 433.
Illustrates, this point Easton promised A that if he worked for him, he would help him to
discharge his debt to price, price’s action to get Easton to fulfill his promise failed, the
reason being that he was a stranger to the contract. Again, if a contract between the
original parties t it, contain a term purporting to impose a liability upon a third party,
the privity doctrine will operate to prevent either of the contracting parties from relying
on that term.
In classical case of Dunlop v. Selfridge (1915) AC 847, in the case the plaintiffs sold tyres
to certain dealer on the understanding that he would not resell below a certain price
and that in the event of a sale to customers the dealer would extract the same promise
from him. The dealer sold tyres to Selfridge who agreed to observe the restrictions and
pay Dunlop 5 pounds for each type they sold below the restricted price. Selfridge sold
some tyres below the restricted price to a customer and Dunlop brought this action to
enforce the promise to pay 5 pounds tyre, for the breach. It was held that while
Selfridge had committed a breach a breach of the contract him and the dealer, the
Dunlop company was not a party to this contract and had finished no consideration for
the defendant’s promise. The principle of privity of contract has been affirmed in many
cases in Nigeria. Thus, in Chuba Ikpeazu v. African Continental Bank (o1965) NMLR 374.
The appellant entered into an agreement with one Emodi, who was a debtor to the
respondent bank under which the appellant was to run Emodi’s business with the
intention that all the proceeds should be paid into the bank until Emodi’s debt was
completely liquidated. The appellant manage the business for sometimes and
transferred back the business under a new agreement without the knowledge of the
bank. The bank sued the appellant as the guarantor of Emodi’s debt. It was revealed
that the terms and content of the document was between Emodi and the appellant
only. It was held that bank, not being a party could not acquire rights under the deed.
Also, I Etco Nig. V. Estern Nigeria Development Corporation (WNDC) Suit No. 1/30/69
delivered on June 8, 1970 (unreported). In the case, the plaintiff company claimed from
the defendant corporation the sum of 2,213 pounds 19 shillings 11 pence. Eing cost of
the work done by them for the defendant at the premier hotel, Ibadan, sometimes in
1966, the fact of the case disclosed that although the hotel was owned by the
defendant, they had awarded the contract for its constructions to Nigersol Construction
Company, and it was the later company that commissioned the work to the plaintiff. The
counsel for the defendant submitted that there was no contract between the plaintiffs
and the defendant cannot confer rights or impose obligations arising under it n any
party, except parties to it.
In more recent cases, although the facts have been more complex, the principle of
privity of contract has been consistently applied. Thus, in Shuwa v. Chad Basin Authority
(CBA) (1991) 7NWLR (pt. 205) p. 550. It was held that by the court of Appeal that not
being a party to the contract between Akam and CBA, the appellant could not challenge
it validity or implementation.
The same principle was applied by the court of appeal (Benin Division) in Unon Bank of
Nigeria (UBN) Plc. V. Sparkling Brewaries Ltd. & ORS (1997) 5 NWLR (pt. 505) 344 at 373.
The court of appeal held that, the respondent had no locus stand to institute the action
because the appellant was not involved in the arrangement between the respondent
and the four other companies and was not a party to it. It could therefore, not e sued by
the respondent. In other words there was no privity of contract between the
respondent and the appellant.
It should emphasized that since a person who was a party to a contract cannot bring an
action to enforce it, so too can he not be made liable under the contract only the parties
to the contract can enforce it or have it enforced against them. Thus, in Ilesa Local
Planning Authority (LPA) v. Olayide (1994) 5 NWLR (pt. 342) 91. The respondent was
appointed by the governor of Oyo State, under an enabling law as the chairman of athe
appellant authority. Under the relevant law, the authority could not appoint or dismiss
its chairman. This power was vested in the governor, acting on behalf of the
government of the state. When subsequently the governor relieved the respondent of
his appointment, he turned round to sue the authority for breach of contract and areas
salaries unpaid after his removal. The action was declared invalid by the court of appeal.
Although the respondent was party to a contract of employment, the other party to it
was the government of Oyo State and not the appellant authority. The latter not being
privy to the contract of employment between the respondent and Oyo state
government. It could be sued and made liable for its breach.
A contract cannot be enforced by a person who is not a party, even if the contract is
made for his benefit and purports to give him a right to sue upon it. The scope of the
doctrine of privity means that a person cannot acquire rights or be subjected to
liabilities arising from a contract to which he is not a party.

RATIONALE, APPRAISAL AND REFORM OF THE DOCTRINE

RATIONALE BEHIND THE DOCTRINE
The main reason for the principle is that only a person who is a party to a contract can
sue and be sued on it. That is, the parties to the contract and they are always free to
vary it or discharge it by agreement.
The two fundamental principle of the doctrine of privity are:
i. No one except a party to a contract can acquire rights under it;
ii. No one can be subjected to liability under the contract to which he is not privy
As a general rule, a person should not be imposed with contractual obligations without
his consent or without his general knowledge and understanding. However, the
following are the rational behind the doctrine.
i. It is the parties to contract that are always free to vary or discharge it by
consent. The creation of a third party right will delay this freedom unless an
 agreement for such third party involvement has been made part of the
agreement.
ii. It would not be just to allow a person to sue on a contract or derive benefit
from a contract in which he would not be sued.

Appraisal of the Doctrine

The following are the argument against the doctrine which are:
i. The application of the doctrine could sometimes lead to injustice.
ii. The doctrine failed to give effect to the express intention of the parties as was
pointed out in Tweedle v. Alkinson (1861) 1 B&S 398.
iii. The doctrine is commercially inconvenient and only stand to defeat the
legitimate expectations of the third party.
It should be noted that all these criticisms have led to the development of
exceptions to the general rule of the doctrine of privity which will be discussed in
chapter four of this work.

REFORM OF THE DOCTRINE

The doctrine of privity of contract illustrate that someone who is not a party to the
contract is unable to enforce the benefit created or subjected to liabilities imposed
under the contract made between two others parties. To some extent, rights may be
conferred on a third party, and also liabilities may be imposed under a contract
depending upon the nature of the agreement.
In a modern day, accordingly, the law has recognized that with the current complex
world of commerce, there must be some changes to accommodate certain
exceptions to the general rule and guarantee restitution to the aggrieved subject to
certain extent. The doctrine of privity gives rise to considerable injustice and
inconveniences.
Many exceptions have been developed to ameliorate the harshness of the doctrine
in the province of law and equity. However, the fact that a number of established
common law and statutory exceptions to the doctrine were resorted to by the court,
to prevent injustice in many cases, has not served as a doctrine of covering the field
in commercial transactions. The law reform commission considered this aspect for
reform of the general rule which has been preventing a person from enforcing a right
under a contract to which he is not privy even when such contract is for his benefit.
In its reports, contract for the benefit of third parties law No. 242(1996) supported
the reform of the third and recommended that the contracting parties are to provide
for enforceable third party rights without to the various evasions which had
developed to circumvent the privity rule.
 LESSON 6
PRIVITY OF CAPACITY
INTRODUCTION
The law would not permit a contract to impose a duty or confer a benefit on a
person who is not a party to it. The reason is that agreement or a bargain is private
to parties to it. The doctrine of privity of contract is not about what may be
necessary to form a contract nor is it concerned about the contents of a contract. Its
concern is “who can enforce a contract”. In the law of contract, certain principles are
fundamental. One is that only a person who is a party to a contract can sue on it. Our
law knows nothing of a jus quaesitium tertio arising by way of contract. It has no
room for a busy body. Another is that only the parties to a contract can derive rights
and obligations from their contract. These two principles constitute the doctrine of
privity of contract.

PRIVITY OF CONTRACT
The doctrine of privity is simple: X and Y enter into an agreement in which they
confer benefits or obligations upon Z, a stranger to the agreement. Can Z receive the
benefits or incur the obligation? The doctrine of privity says “No”, and that is it. You
should by now have grasped the complexities of consideration and be capable of
analyzing whether or not it exists in certain situations raised in the cases you have
read. Normally,but not always, the contractual process involves two parties and with
respect to consideration, the promisee will provide that to the promisor. However,
what if the promisor directs that the promisee’s undertaking should be received by
someone else? Say, A promises to pay B provided B will perform a service for C. Can
B, by performing that service to C, guarantee that he will be entitled to recover from
A? Here, the answer is 'yes', because in law, when a promisee furnishes
consideration, it need not move to the promisor, provided the consideration moves
at the promisor’s request, as in the example above with A, B and C.
These concepts form the foundation of the doctrine of privity of contract that the
legal relationship between the parties to a contract is exclusive to them and only
those who are privy (the parties) can sue or be sued, thereby participating in the
benefits of the contract and being subject to its burdens. A and B agree that A will
pay C N2 million if B agrees to pay C (B’s son) N1 million. C to marry A’s daughter. In
writing, it was further agreed that C could recover from A and B in the courts upon
default, which there was. C sued A. C’s action failed as there was, in the agreement,
no consideration between A and C regarding A’s promise to pay the N2 million,
(Tweddle V. Alkinson (1861). Note how this principle was applied by the House of
Lords in Beswick V Beswick (1968).

If Isah buys a new BMW from Globe Motors Ltd. and the car is defective, Isah will be
unsuccessful if he sues the manufacturer as there is no privity between them; his
remedy lies with Globe Motors Ltd.
This simple example raises two points.
- First, that in practice, manufacturers give warranties which would protect Isah
- secondly, and more importantly, the relationship between the three parties (Isah,
BMW and Globe Motors Ltd) embraces aspects of the Common Law concept of
agency, which is a critical factor in Commercial and Corporate Law. It should be
obvious to you by now that the doctrine of privity conflicts with and seeks to defeat
the intentions of the parties to a contract. In some cases it may probably cause also
some substantial injustice.

EXCEPTIONS TO THE PRIVITY RULE

The legal principles which you encounter in this course, provide the basis for your
understanding of the law; however, as you have already learned, they are not
necessarily etched in stone, and what appears to be a solid principle is often subject
to exceptions. Take privity of contract as an example: you have just seen that
basically only the parties to a particular contract have any rights or obligations to it.
But there are exceptions or modifications to this concept, for example”
- in the equitable concept of trust, where A holds legal title of the property or land of
B but is holding it as trustee for the beneficial or real owner, C. Ultimately, if A
refuses to honour the trust and hand the property to C, C can proceed against A.
- in insurance matters, a person who contracts with an insurer to pay the proceeds to
the family of the insured when he/she dies and third parties (not privy to the
insurance contract between the insurer and the insured) can also sue on a fire
insurance policy (Conveyancing and Property Law).
- In the assignment or transfer of contractual rights and obligations to a third party.
A’s receipt of monies on a debt owed him by B does not need B’s consent if he
chooses to transfer the payments to his wife. But B’s obligation to pay A would
require A’s consent if B suddenly wants C to pay his debt to A.
- Negotiable instruments (Bills of Exchange, cheques and promissory notes)
constitute an important part of the world of commerce, of which only passing
reference can be made in this course. Consider these exceptions of the privity to
contract rule before considering the concept of agency, which has long occupied a
place of vital importance in the business world. We can only introduce you to this,
yet another vast body of common law. A detailed examination of the law of agency is
beyond the scope of this course but it is important to business in both common law
and civil jurisdictions. In Nigeria, for example, the employment of an intermediary or
agent (comprador) has been standard practice for many years in almost any
transaction of significance (including the arrangement of marriages). However, we
will mention it very briefly:

AGENCY
Strictly speaking, agency is not an exception to the privity of contract rule. As one
who negotiates a contract with a third party on behalf of a principal an agent creats
rights and liabilities that exist solely between the third party and the principal. In
other words, once the contract is in place, the agent ‘drops out’, the agent’s work on
that particular contract being over.
A ‘true legal agency’ is an individual, which the law recognizes as being capable of
creating a contract which is binding on a principal and the third party with whom the
agent has dealt. This is the essence of ‘pure’ agency, a point which is made to
distinguish it from other forms of agency, which do not attain the same status in the
eyes of the law.
These are often referred to as ‘commercial agents’ and include:
- An automobile agency or dealership – not a true legal agency partly because there
is no privity of contract between a car buyer and the car manufacturer. The dealer
does not act as ‘agent’ for either the manufacturer or the customer.
- An advertising agency – also not a true legal agency as it places, say, advertising
space on behalf of its clients and for which it is reimbursed.
- A travel agent – this raises complex and interesting concepts as it has varying
degrees of responsibility to its customers but also to the tour operators with whom it
may deal, often in faraway destinations. The Judicial Committee of the Privity Council
examined the complexities of both contract law and negligence in case of Wong Mee
Wan v. Kwan Kin Travel services Ltd and other cases. In that case a Hong Kong
schoolgirl was fatally injured in a boating accident on a lake in the PRC. The Privy
Council held that the Hong Kong tour operator be held responsible for the two PRC
defendants, which acted as its agents in the operation of the tour; that is, it had a
duty to use reasonable skill and care in selecting its agents.
These and other ‘agents’, then (including insurance brokers and agents, and sole
agents) who buy goods from the manufacturer for re-sale to the customer, within
the provisions of the Sale of Goods Act, are not true agents. A true agent must:
- follow its principal’s instructions strictly; - avoid conflicts of interest; - maintain
confidentiality of its principal’s business affairs and not disclose that information to
the principal’s competitors; - maintain proper accounting records;
- disclose to his/her principal any personal interest which might influence his/her
decision-making.
Carefully bear in mind these five aspects of an agent’s obligations to his/her principal
as you will later learn their applicability, among other things, in his/her fiduciary (or
good faith) duties and in relation to ratification (approval) of a contract and apparent
authority.

CAPACITY
Capacity is the right recognized by law wherein a person may enter into a binding
agreement You have already considered in unit 1 the importance of 'freedom of
contract'. An adult with full mental capacibility has capacity to enter into a contract.
However, in some cases, this important doctrine may not exist; say, when there is a
large discrepancy in the bargaining power of the parties. Another potential threat to
this principle is that certain persons may be exploited if they lack maturity or
competent understanding. Once again legal capacity is a creature of both Common
Law and Statute; and both have prima-facie excluded certain persons from having
full contractual capacity. For example, a person who is considered a minor (often
referred to as an ‘infant’) lacks that requisite capacity whilst under the age of 18.
Over the years, the Common Law has protected people of unsound mind and
drunkards who enter into contracts. Individuals who fall into any of these categories
lack full capacity to enter into a legally binding agreement. But what if an infant, or a
mentally ill person or drunkard does enter into a contract? This raises some
interesting concepts: the difference between void, voidable and unenforceable
contracts, and the extent to which such arrangements may be binding on the
individual who lacks legal capacity.
As we proceed in the unit, you should pay particular attention to issues of
- Contracts for necessaries
- Beneficial contracts of service
- void, voidable and unenforceable contracts particularly voidable contracts
- Money had and received pursuant to non-binding contract
- Effects of the infants Relief Act. We have noted that every ‘Legal person’ may enter
a contract but certain circumstances may deprive the following either wholly or
partly of the capacity to enter into contract:
Infants
Married women
Persons of unsound mind
Drunken persons
Aliens
Foreign Heads of Government and their Representatives
Corporations.

VOID, VOIDABLE, ENFORCEABLE CONTRACT

Let us return to the important concepts of Void, Voidable and Unenforceable
Contracts. We turn first to the distinction between a void and voidable contract. This
is quite crucial to your study of Contract law, particularly when you study
misrepresentation and other aspects which some legal textbooks describe as
‘vitiating’ factors or flaws in the contracting process.
a) Void Contracts State simply, a void contract is not a contract; it does not exist.
Strictly speaking then, this is a contradiction in terms or a ‘paradox; in truth there
is no contract at all. See Faircett V. Star Car Sales Ltd, (1960). For that reason it is
often referred to as void ab initio, or from the beginning. There can be no rights
or obligations flowing from a void contract. However, as you will learn later,
special considerations may be applied by the courts, depending on the
circumstances by which a ‘contract’ is to be void.
b) Voidable Contract On the other hand, a voidable contract has an ‘optional’
quality in that the contract is valid and stays that way unless one or both parties
decide to rescind or avoid the contract. In other words a voidable contract exists,
but which one party has a right to set aside or render void. Rescission is an
equitable remedy. For example, if A and B have agreed to buy and sell a flat on
January 15 and the flat is totally destroyed on January 14, then the contract is
void as its subject matter no longer exists. However, if there is insurance available
whereby there is sufficient money to restore it, then the parties may therefore
mutually agree to complete the contract on July 15, when the restoration work is
finished. In other words, the contract is voidable at the parties option.
c) UnEnforceale Contract Finally, in addition to these key elements of void and
voidable contracts, there are also contracts which are deemed to be
unenforceable. These are contracts which are not void or voidable. In fact, they
are perfectly ‘good’ but the courts will not help either party to sue on them or
seek a remedy under the judicial process. A contract of guarantee need not
necessarily be in writing, but it will not be enforceable in court if the terms of the
guarantee have not been expressly written by the guarantor or his/her agent.

Briefly, the courts will not enforce agreements which are:

- void by statute or ordinance;
- unenforceable by some statute or ordinance;
- against public policy;
- illegal;
- entered into under duress or undue influence or some other vitiating
circumstance.

PARTIES LACKING LEGAL CAPACITY

Turning our attention once more to contracts entered into between parties who
lack legal capacity: An infant (or minor) who agrees with a department store to
buy N10,000 worth of computer software is legally in an interesting position. Is
the contract valid, void, voidable or unenforceable?
At Common Law, he/she would only be obliged to pay for the software if they are
deemed ‘necessaries’. The textbooks reveal dozens of cases which attempt to
define what is a ‘necessary’. The problem is that what may be a necessary to one
person may not be a ‘necessary’ to another. Sale of Goods Act provides as
follows:
Where necessaries are sold and delivered to an infant or minor, or to a
person who, by reason of mental capacity or drunkenness, is
incompetent to contract, he must pay a reasonable price therefore. See
Nash V. Inmam (1908). Also Peters V. Fleming (1840) on the effect of the
minors condition in life.
Sales of Goods Act provided the law but sadly neglected to define the term
“necessary”
Hence, if the goods – or services – in question are ‘necessary to theinfant’s
condition in life’ then the department store can obtain a reasonable price for the
software, but not N10,000: Nash V. Inmam (1908). Hence the agreement
between the infant (or mentally ill person or drunkard) and the store starts off
being void, remains voidable to the extent that the infant can choose to pay what
is due under the contract and, if they are necessaries, it is enforceable by the
store to the extent of a reasonable price.

‘NECESSARY’ TO LIFE?
Distinguish between ‘necessaries’ and ‘necessities’. We are concerned with
necessaries – i.e. goods which are suitable to the minor’s condition in life and his
actual requirement.
The rule regarding necessaries is also applicable to contracts entered into in
which the person lacking legal capacity contracts to purchase certain personal
and beneficial services: medical attention or apprenticeships and education or
training, to name a few. In assessing whether the nature of these contracts is
beneficial to the infant, the courts would examine the entire contract as distinct
from deciding that certain clauses do not appear to be so. (See Doyle V. White
City Stadium Ltd. (1938). We will examine the significance of an ‘entire’ contract
in due course.
Necessaries include services: Beneficial contracts of services may be, in certain
cases, another form of necessaries. See Roberts Raray (1913).
You will recall when you studied ‘consideration’ that there are execute contracts
(an infant marches into the store and collects the software, promising to pay
within a week) and executory contracts (where he/she merely orders the
software for delivery in one week). In the latter instance, he/she can, being an
infant, change his/her mind and repudiate (reject) the contract and the store will
have no recourse against him/her. However, if the subject matter is a contract for
services, he/she may not be so lucky and the store may successfully proceed
against him/her. In one case, an infant contracted to go on a world tour with a
professional billiards player in order to improve his game. He repudiated the
agreement before the left on the tour. The professional successfully obtained
damages from him. (Roberts V. Gray (1913)
In Common Law, there was little distinction between infants on the one hand and
mentally ill and drunken (intoxicated) or drugged person on the other, in terms of
their overall capacity to contract. In the latter, the contract is voidable on their
part but the onus is on them to show that at the time the contract was made
they were not aware of what they were doing and the other contracting party
must have realized that. In an Australian case (Blomley V. Ryan (1956) the
Plaintiff sought to enforce the sale of a farm in which the Defendant, who was
drunk at the time the contract was made, agreed on a price that was well under
the market value. The action failed as it was shown that the Defendant, to the
Plaintiff’s knowledge, was incapable of forming a rational decision although he
was aware of the general nature of the transaction.
Sales of necessaries to the mentally incompetent or drunken or drugged persons
are covered in the same way as infants in the Sales of Goods Act. In addition, the
Mental Health Act may formally deprive a person of his or her contractual
capacity. Other individuals and bodies corporate, who similarly lose this right to a
greater or lesser degree, are bankrupts; company directors acting ultra vires
(outside their power, a concept you will study in company Law); aliens (foreign
nationals in a time of war); and prisoners.
Finally, we should note that at Common Law, married women lacked contractual
capacity and upon marriage, all property vested in the husband, (Eastwood V.
Jenyon (1840). Happily (for women), statutory enactments have eliminated this
discrimination. Now a married woman has the power to contract on her own
responsibility in all respects as if she was a fame sole, and may hold property on
her own, sue and be sued independently of her husband both in contract and in
tort.