Vitiation of Contractual Consent

Peter MacDonald Eggers

• Publisher: Informa Law from Routledge
• Year: 2016
• Print ISBN: 9781843118145
• eBook ISBN: 9781317657811
• Topic: Law
• Subtopic: Commercial Law
• Index: Law

The validity of a contract can be undermined by factors affecting contractual consent. Issues of contractual validity frequently arise for consideration in all types of litigation, not least commercial disputes. This book provides practitioners and academics with an invaluable reference tool, which will enable them to navigate the complex issues of vitiation of contract.

When contractual disputes arise, there are a variety of vitiating factors which may be relied on to undermine a contract's validity. This book provides a comprehensive examination of all the factors vitiating contractual consent from fraud, misrepresentation, non-disclosure, and mistake, to duress, undue influence, unconscionable bargains, and includes chapters on incapacity and unfairness. Each chapter gives a thorough account of the law on each of these vitiating factors, together with an overview of the remedies available. The book's introduction considers the theoretical foundations of the law in this area.

The book will be an invaluable reference tool for lawyers involved in all types of contractual disputes. It will also be a useful reference for academics and postgraduate students of commercial law.

Chapter 1
Contracts, consent and vitiation

1.1 The basis of the obligation to keep promises

A contract imposes rights and duties upon the parties to the contract by reason of the parties’ voluntary commitment to the contract. The rights and obligations thus created generally involve the acquisition of a right or the abrogation of a preexisting right on the part of at least one of the contracting parties. Underlying this evident truth is a moral recognition that promises, once made, should be adhered to – pacta sunt servanda. Hobbes said in Leviathan that there is a law of nature:¹

“That men performe their Covenants made : without which, Covenants are in vain, and but Empty words; and the Right of all men to all things remaining, wee are still in the condition of Warre. And in this law of Nature, consisteth the Fountain and Originall of Justice. For where no Covenant hath preceded, there hath no Right been transferred, and every man has right to every thing; and consequently, no action can be Unjust. But when a Covenant is made, then to break it is Unjust : And the definition of INJUSTICE, is no other than the not Performance of Covenant . And whatsoever is not Unjust, is Just … Therefore before the names of Just, and Unjust can have place, there must be some coercive Power, to compel men equally to the performance of their Covenants, by the terrour of some punishment, greater than the benefit they expect by the breach of their Covenant; and to make good that Propriety, which by mutually Contract men acquire, in recompence of the universall Right they abandon: and such power there is none before the erection of a Common-wealth. And this is also to be gathered out of the ordinary definition of Justice in the Schooles: For they say, that Justice is the constant Will of giving to every man his own . And therefore where there is no Own, that is, no Propriety, there is no Injustice; and where there is no coercive Power erected, that is, where there is no Common-wealth, there is no Propriety; all men having Right to all things; Therefore where there is no Common-wealth, there nothing is Unjust. So that the nature of Justice, consisteth in keeping of valid Covenants…”.

The moral duty compelling performance of promises has been recognised as so obvious as requiring no further explanation or clarification. Thus, in Bell v Lever Brothers Ltd,² Lord Atkin reiterated the truism of morality and law by reference to a case where a seller benefits from a contract of sale to the buyer of defective goods in circumstances where there has been no vitiating factor:

“All these cases involve hardship on A [the buyer] and benefit B [the seller], as most people would say, unjustly. They can be supported on the ground that it is of paramount importance that contracts should be observed, and that if parties honestly comply with the essentials of the formation of contracts – i.e., agree in the same terms on the same subject-matter – they are bound, and must rely on the stipulations of the contract for protection from the effect of facts unknown to them.”

This recognition has resulted in the relegation of the moral and legal injunctions to keep promises to the realm of natural law or social convention. There have been attempts to explain the morality underpinning the legal rule. There is no satisfactory explanation, other than the social truth that promises that give rise to a reasonable expectation that they will be fulfilled impose, by convention, an obligation to perform the promises.³ Where the promise fits specified legal requirements, the obligation becomes a legally enforceable obligation. It is striking that the law is more astute in awarding compensation for breach of promises than for instances of deceit in that the former will protect both the expectation and reliance interests, whereas the latter protects only or principally the reliance interest, and compensation is available for a mere breach of promise, whether innocent or deliberate, whereas actions in deceit do not result in compensation for the mere untrue statements but only for such statements that are known to be untrue and intended to deceive.⁴

The source of the obligation to adhere to promises is identified by reference to various concepts, all or many of which are found wanting in supplying a complete and adequate explanation for the obligation to comply with promises. One explanation is a variation of the “golden rule” and the importance of reciprocity in our legal and moral relationships.⁵ If A promises B to do or refrain from doing something in exchange for a promise by B with an equivalent or near-equivalent value, A is morally obliged to comply with his promise because A is entitled reasonably to expect that B would likewise comply with his promise. The same reciprocity underlies unilateral promises in that A would expect B to live up to his unilateral promise made on another occasion. Yet, the unilateral promise does not attract the same degree of legal protection and obligation as the bilateral promise.⁶ The stronger bond or degree of reciprocity present in a bilateral promise is likely to be the rationale for the legal duty supporting the moral obligation. This reciprocity and the co-operation inherent in such arrangements have been described as a social convention, which is the source of the sense of obligation to comply with promises solemnly made.⁷

The fact that the commitment to a promise is made by consent is also said to give rise to a natural law obligation to comply with the promise.⁸ The mere existence of such consent is on its own not a sufficient explanation of the binding force of a promise in that many promises are made voluntarily that do not give rise to either moral or legal obligations.⁹ Indeed, it may be difficult to explain why a promise underwritten by a promisor’s consent should be respected other than by reason of social convention, matters of virtue or questions of utility or justice.¹⁰

Nonetheless, it may be said that, without anticipating any reasonable argument in reply, the parties’ consent or autonomous will to enter into a contractual or promissory transaction is a necessary, even though insufficient, requirement of the obligation to comply with promises.¹¹ The existence of such consent presupposes the voluntary acceptance of a party to be responsible for keeping the promise made and that voluntary acceptance must itself be the product of a rational mind, or at least a mind capable of operating rationally. This implies that the relevant party is aware, or has the opportunity of being apprised, of the critical features of the promise or transaction to which he is committing himself. In other words, the party must know what he is doing and provide his consent with the benefit of such knowledge.¹² In short, as Lord Westbury described it, a party who undertakes contractual obligations must do so as a “free and voluntary agent”,¹³ and must exercise that autonomy and will independently.¹⁴ In The Countess of Portsmouth v The Earl of Portsmouth,¹⁵ Sir John Nicholl sitting in the Arches Court referred to “the essential ingredient to render the contract valid – the consent of a free and rational agent”. In Edwards v Brown,¹⁶ Bayley, B said that “Every argument which can apply to a case where fraud is the defence, apply equally where threats or duress are the defence. The party is equally deprived of his free agency and uncontrolled judgment in either case.” In Manches v Trimborn,¹⁷ Hallett, J quoted from Halsbury’s Laws of England: “The general theory of the law in regard to acts done and contracts made by parties affecting their rights and interests is that in all cases there must be a free and full consent to bind the parties.”

The responsibility voluntarily assumed by the promisor is one that benefits the promisee.¹⁸ The promise therefore creates a relationship with the promisee. This relationship arises as the result of a communication between the parties by which the promisee is informed that a promise has been made by the promisor. A promise made by a human agent to a non-human being, whether it be an animal or a thing, will not be treated as binding. Accordingly, the fact that the promisee is a human agent is relevant because the social convention to respect agreements is one that arises in a society of human agents and because the promise, if rational and voluntary, will engender a reasonable expectation on the part of the promisee that the promise will be kept. This reasonable expectation translates to the promisee’s expectation of acquiring a benefit or the promisee’s reliance on the promise by undertaking a course of action or incurring an expense in the process.¹⁹ If there is something in connection with the nature of the promise (e.g. a promise to do something patently impossible)²⁰ or the identity or characteristics of the promisee (e.g. if the promisee is a new-born baby), which would not reasonably give rise to such an expectation, the promise may well not be regarded as creating a binding obligation.

Drawing these threads together, there is a social convention that imbues the making of a contractual promise with a sense of obligation on the part of the promisor. That sense of obligation could arise from the fear of discredit or public shame or economic harm if the promise is not fulfilled by the promisor or it could arise from a sense that, unless such promises are complied with, the social cooperation required to enable society to function effectively would be undermined. In order to invoke that social convention, there are essentially two requirements. The first is that a promise is made in circumstances that are sufficiently formal or solemn so as to create a reasonable expectation on the part of the promisee that the promise will be complied with. An essential aspect of this first requirement is that the promise is communicated to the promisee, and for the purposes of a contract the promisee’s acceptance of the promise and the attendant social obligation to perform the promise is likewise communicated to the promisor. The second requirement is that the promise is given by the promisor with his or her free and autonomous consent. Such consent is the promisor’s commitment to perform the promise. If either of these requirements is lacking – the properly made promise or the consent underlying the promise – the social sense of obligation attaching to the promise does not or should not arise. This book is concerned with those situations with the second of these requirements, that is where free consent is lacking. However, in order to assess the impact of vitiated consent, the contribution of consent to the conclusion of a valid and enforceable contract should be considered.

1.2 Consent, consensus and the elements of a binding contract

A contract, at least under English law, represents a commitment by each of the parties to an existing or future course of action (or inaction) based on an objectively viewed consensus between the parties, that is consensus is judged by reference to the external evidence or “outward manifestations” of the parties’ intentions, not what the parties subjectively intended.²¹ It does not necessarily follow that the contract will be legally enforced or enforceable, but valid contracts conform with this description. In particular, there is an enforceable contract where:

1. A promise is made by at least one of the parties as to a past or existing state of affairs or as to a future course of action or event. Where the promise is open for acceptance by a party by warranting a state of affairs or undertaking certain conduct at the latter’s discretion, the contract is said to be a unilateral contract. Where both or all of the parties each make promises, there is a bilateral or multilateral contract.
2. The promise made by one party is accepted by the other party and that acceptance is communicated to the promisor.²² Communication is important because an internal exercise of a party’s autonomous will cannot give rise to obligations. “An external manifestation of th...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• DETAILED CONTENTS
• Foreword
• Preface
• Table of cases
• Table of statutes
• Table of statutory instruments
• Table of European legislation
• CHAPTER 1 CONTRACTS, CONSENT AND VITIATION
• CHAPTER 2 INCAPACITY
• CHAPTER 3 DURESS
• CHAPTER 4 UNDUE INFLUENCE
• CHAPTER 5 CONTRACTS WITH PARTIES IN A WEAKER POSITION
• CHAPTER 6 MISTAKE
• CHAPTER 7 MISREPRESENTATION AND DECEIT
• CHAPTER 8 PRE-CONTRACTUAL NON-DISCLOSURE
• Index