Contract: Mistake

Mistake

General Principles

Relevant Mistakes

The law is generally not concerned with the subjective intentions and beliefs of the parties. Rather, the defence of mistake only applies to mistakes which can be objectively inferred from how to parties behaved: Centrovincial Estates plc v Merchant Investors Assurance Company Ltd [1983] Com LR 158. The exception is where the other party is aware of the mistake.

The Effect of Mistake

Mistake automatically renders the contract or transaction void ab initio without the parties needing to do anything.

A contract which is void ab initio is treated as never existing. This means that neither party is entitled to rely on the contract’s terms.


Unilateral Mistake

What is a Unilateral Mistake?

It might be the case that only one of the parties is mistaken as to some aspect of the contract. This is referred to as a ‘unilateral mistake’.

When Will Unilateral Mistake Void the Contract?

There are two conditions which must be met before a contract is void for unilateral mistake:

  1. The innocent party must have been mistaken over a vital term of the contract: Shogun Finance v Hudson [2003] 3 WLR 1371;
  2. The other party must have known that the innocent party had made that mistake, or ought reasonably to have known: Hartog v Colin & Shields [1939] 3 All ER 566.
‘Vital’ Terms

A vital term is a term which is objectively central to the contract, such as the price of the goods: Hartog v Colin & Shields [1939] 3 All ER 566. Secondary terms, such as those relating to the quality of the goods, are not vital: Shogun Finance v Hudson [2003] 3 WLR 1371.

Mistaken Identity Cases

The distinction between vital and non-vital terms of the contract leads to issues where the defendant pretends to be someone else. For mistaken identity to void the contract, the defendant’s identity must be a core term of the contract. It cannot merely be an extraneous factor.

The courts have generally said that if the defendant’s fake identity is only really relevant to his apparent creditworthiness or other commercial qualities, it will not be a vital term of the contract: Shogun Finance v Hudson [2003] 3 WLR 1371. The courts have created various presumptions determining when a claimant is taken to only be concerned with the defendant’s attributes:

Face-to-Face Contracts
face to fact contract signing

If the parties are contracting face to face, there is a presumption that each intends to contract with the person in front of them – whoever that might turn out to be in actuality: Phillips v Brooks [1919] 2 KB 243. The only way to rebut this presumption is to show that the claimant would only have transacted with a particular individual: Ingram v Little [1961] 1 QB 31; Hardman v Booth (1863) 1 H & C 803. This means that regardless of who the defendant is pretending to be, his identity will not normally be a vital term of the contract: Lewis v Avery [1971] 3 WLR 603.

Distance Contracts
contracting over the phone

If the parties are not contracting face-to-face, such as by telephone or internet, the defendant’s identity is only a core term of the contract if the claimant intended to contract with an identified, real person who the defendant was pretending to be: Cundy v Lindsey (1878) 3 App Cas 459. If the defendant creates an entirely fake identity, the the claimant is taken to be solely concerned with their attributes and mistake will not be available: Kings Norton Metal v Edridge, Merrett (1897) 14 TLR 98.

Exception: Impact of the Parol Evidence Rule

The parol evidence rule is a presumption that extraneous evidence cannot be admitted to add to, vary or contradict the terms in a written contract: Jacobs v Batavia and General Plantations Trust [1924] 1 Ch 287. 

The parol evidence rule can avoid the presumption that the claimant was mistaken only as to the defendant’s attributes. It means that if the written contract identifies the parties by name, then the claimant is taken to have contracted with that named individual. As a result, the defendant cannot admit evidence that the named individual is really them: Shogun Finance v Hudson [2003] 3 WLR 1371 (Lord Hobhouse).


Mutual Mistake

What is a Mutual Mistake?

A mutual mistake arises when both parties are mistaken as to what the other intends to be the contract’s core elements. A good example is Raffles v Wichelhaus (1864) 2 H & C 906. In that case, a ship the parties intended to use sailed at two different times: October and December. One party thought they were contracting for a October sailing. The other thought they were contracting for a December sailing. There was nothing in the contract which allowed the court to objectively say which was correct. This was a mutual mistake.

When will Mutual Mistake Void a Contract?

The law is only normally concerned with what it objectively appears the parties contracted for. For this reason, it normally does not matter that the parties were subjectively mistaken as to each other’s intentions. The court will ask what a reasonable person would understand the parties to mean, and that will be the contract. However, in some mutual mistake cases the facts are completely ambiguous: a reasonable person cannot determine what was meant. In these cases, the contract is void for mutual mistake: Raffles v Wichelhaus (1864) 2 H & C 906; Scriven Bros and Co v Hindley and Co [1913] 3 KB 564.


Common Mistake

What is a Common Mistake?

A common mistake arises when both parties have made the same mistake. For example, they might contract to sell a particular object thinking that it exists, when in reality it was previously destroyed.

When is a Contract Void for Common Mistake?

Only particular kinds of common mistake can render a contract void for mistake. The rules applicable depend on the kind of term which is the subject of the mistake:

Res Extincta
destruction, fireball

If the parties mistakenly believe (at the time of contracting) that the subject matter of the contract exists when it does not (or for some other reason it is impossible to perform), the contract is normally void for common mistake: Couturier v Hastie [1856] 5 HL Cas 673. The same is true if perishable goods perished prior to contracting: Sale of Goods act 1979, s 6. This is probably not the case if one party contracted to assume the risk of non-existence.

Res Sua
ownership, apples

If a party mistakenly tries to buy a property interest in an object which they already possess (for example if they already own the goods), the contract is void for common mistake: Cooper v Phibbs (1867) LR 2 HL 149.

Quality Mistakes
quality fabric

Mere mistakes as to the quality of the goods or services bought are not normally enough to make the contract void for mistake: Bell v Lever bros [1932] AC 161. A quality mistake may render the contract void if it makes the subject matter of the contract an essentially different kind of thing than was intended: Great Peace Shipping v Tsavliris International [2003] QB 679. Mere differences in value normally do no suffice: Leaf v Int Galleries [1950] 2 KB 86.


Non Es Factum

Establishing Non Es Factum

Non es factum is a rarely-applied doctrine which allows the claimant to escape a contract which they have signed. It only applies if the claimant shows he was reasonably mistaken as to the fundamental nature of the document: Foster v Mackinnon (1869) LR 4 CP 704. The mistake must be reasonable, meaning the claimant must not have been negligent.

For example, non es factum might apply if the defendant told the claimant he was signing a contract of sale when it was actually a will. It would not apply if the claimant knew he was signing a sale contract but was mistaken on the precise terms.


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Contract Defences Quiz

Test yourself on the principles governing when a party to a contract has a defence.

1 / 52

When dealing with the defence of undue influence in a case where a presumption of influence has been raised, can the defendant rebut the presumption?

 

2 / 52

Maisy enters into a contract with a man falsely claiming to be her long-lost cousin, John, while they are catching up at a restaurant. The contract is in writing and signed, and the man signed his name as 'John'. Maisy later seeks to argue that she should not be bound by the contract, because she would not have entered into the contract had she known the man was not John. Can Maisy rely on the defence of mistake in relation to the man's identity?

3 / 52

David offers to sell Mary a house, representing that it has a conservatory. Mary relies on this representation when deciding to buy the house. Prior to the sale, there is a fire, and the conservatory burns down. David does not tell Mary. Can Mary rely on the defence of misrepresentation?

 

4 / 52

David induces Mary to enter into a contract to buy a car by promising that he will service the car before he gives it to her. He has no intention of doing so. Is this an actionable misrepresentation?

 

5 / 52

When establishing that the defendant's influence was undue for the purposes of the defence of undue influence, the claimant must show that the transaction was manifestly to their disadvantage. True or false?

 

6 / 52

In what two scenarios are the courts likely to refuse to rescind a contract which has been rendered voidable by misrepresentation?

7 / 52

What are the two requirements of the defence of misrepresentation?

8 / 52

Maisy enters into a contract with a man falsely claiming to be her long-lost cousin, John, while they are catching up at a restaurant. Maisy later seeks to argue that she should not be bound by the contract, because she would not have entered into the contract had she known the man was not John. Is the man's identity a vital term of the contract?

9 / 52

Marcus has shown that he reposed a large amount of trust in his partner, Adrian, when it comes to financial affairs. He also shows that his decision to transfer his inheritance to Adrian is a transaction which calls for explanation. To avoid the transfer being affected by the defence of undue influence, what must Adrian do to show that the influence was not undue?

10 / 52

When establishing the defence of undue influence, how does the claimant demonstrate 'Type 2B' presumed influence?

11 / 52

If a contract is voidable, can either party rely on its terms?

12 / 52

Katie and Andrew enter into a contract which states that Andrew will deliver Thompson apples to Katie. The parties are not aware that there are actually two kinds of Thompson apples - Virginia Thompson apples and Alabama Thompson apples. The two types of apple taste very different and have very different uses. Andrew intends to ship Virginia Thompson apples, while Katie is expecting to receive Alabama Thompson apples. Is the contract void for mutual mistake?

13 / 52

Complete this sentence: The defence of economic duress renders the contract...

14 / 52

Does a defence of duress to property exist?

 

15 / 52

Hannah is applying for a loan for the family business. Her girlfriend Celestine tells the bank that she will act as surety for the loan. The money is to be advanced to a company which Hannah and Celestine hold joint shares in. The bank is aware that Celestine is Hannah's girlfriend and that she has shares in the company, but they are not aware that Hannah has unduly influenced Celestine. They grant the loan. Can Celestine rely on the defence of undue influence against the bank?

16 / 52

Can undue influence be demonstrated in cases where the parties had no relationship prior to the transaction?

17 / 52

Complete this sentence: The defence of undue influence renders the contract...

18 / 52

Does the claimant need to establish that but for the threat, they would not have entered into the contract if they are trying to prove duress to the person?

 

19 / 52

When will the defence of illegality bar a claim?

20 / 52

What must a third-party bank do to rid themselves of constructive notice of undue influence?

21 / 52

Maisy enters into a contract over the phone with a man falsely claiming to be her long-lost cousin, John. In reality, Maisy does not have a long-lost cousin named John. Maisy later seeks to argue that she should not be bound by the contract, because she would not have entered into the contract had she known the man was not her cousin. Is the man's identity a vital term of the contract?

22 / 52

Julie is applying for an overdraft on a joint account controlled by herself and her husband Johan at ABC Bank. Her husband Johan offers to act as surety. The bank is unaware of the fact that Johan has been unduly influenced by Julie, but knows that the two are married. The overdraft is granted. Does the bank have constructive notice of the undue influence?

 

23 / 52

When establishing the defence of undue influence, how does the claimant demonstrate actual influence?

24 / 52

Celestine is an elderly woman whose eye-sight is failing. Her niece, Laura, persuades her to sign a document claiming that it will authorise Laura to remove £50 for Celestine's bank account to enable her to pay Celestine's bills. In reality, it is a contract transferring Celestine's house to Laura. Celestine did not bother to read it as she trusts Laura (who has helped her out with bills before) and her eyesight makes reading very difficult. Can Celestine rely on the defence of non es factum?

 

25 / 52

Can a person rely on any of the three categories of presumed influence when trying to establish undue influence to challenge the will of a deceased person?

 

26 / 52

What three elements must an innocent party show to establish the defence of economic duress?

27 / 52

Joanie has established that a neighbour of hers, Richard, pressured her into selling her house to him. To establish undue influence, what does she need to do to show that the influence was undue?

28 / 52

Complete this sentence: The defence of illegality renders the contract...

29 / 52

When determining if the defence of misrepresentation applies, the courts will presume, in the absence of contrary evidence, that the claimant relied on the statement if a reasonable person would have relied on it. True or false?

 

30 / 52

What two conditions must be met before a transaction is void for unilateral mistake?

31 / 52

Joanie has established a presumption that her lawyer, Richard, influenced her when she sold her house to him. To establish undue influence, what does she need to do to show that the influence was undue?

32 / 52

Complete this sentence: The defence of misrepresentation renders the contract...

33 / 52

When establishing the defence of undue influence, how does the claimant demonstrate 'Type 2A' presumed influence?

34 / 52

ABC Bank is advancing money to a debtor. An individual tells the bank that they wish to act as a guarantor or surety for that debt. The debtor has unduly influenced this individual. When is the bank taken to have constructive notice of the presence of undue influence in the transaction?

35 / 52

Richard offers to sell Michael a book. Richard knows that Michael believes that the book is signed by the author. Richard did nothing to make him believe this, but nor does he correct Michael. Michael relies on his belief that the book is signed when deciding to buy it. Can Michael rely on the defence of misrepresentation?

 

36 / 52

For the purposes of the defence of duress, what factors are relevant to whether the innocent party has a practical choice? (Three answers)

37 / 52

Can the innocent party prove that a misrepresentation caused them to enter the contract if they had the opportunity to verify the statement, but did not?

 

38 / 52

In which of the three following circumstances would the defence of common mistake apply?

39 / 52

When are damages in deceit available for a misrepresentation?

40 / 52

If a contract is void ab initio, can either party rely on its terms?

41 / 52

For the purposes of the defence of economic duress, can a lawful threat be illegitimate?

 

42 / 52

Complete this sentence: The defence of duress to the person renders the contract...

43 / 52

Can the innocent party prove that a misrepresentation caused them to enter the contract if they used their own resources to verify whether the statement was true?

 

44 / 52

Maisy enters into a contract over the phone with a man falsely claiming to be her estranged cousin, John. Maisy later seeks to argue that she should not be bound by the contract, because she would not have entered into the contract had she known the man was not John. Is the man's identity a vital term of the contract?

45 / 52

Can silence be an actionable misrepresentation?

46 / 52

When are damages available for innocent misrepresentation?

47 / 52

When establishing the defence of undue influence, how does the claimant demonstrate the category of presumed influence established in Malik (Deceased) v Shiekh?

48 / 52

Complete this sentence: The defence of mistake renders the contract...

49 / 52

For the purposes of the defence of unilateral mistake, when can a term as to the quality of the goods be considered 'vital'?

50 / 52

Xavier is a busy taxi driver who purchases a new car from Dodgy Dealers Inc. He signs their standard term car-purchase contract without reading it, not realising that it contains an onerous clause requiring him to pay a penalty fee if he gets the car serviced by anyone else within the first year. Can Xavier rely on the defence of non es factum to get out of the contract?

 

51 / 52

For the purposes of unilateral mistake, when is a term 'vital' to the contract?

52 / 52

In which two scenarios can a person rely on the defence of undue influence against a third-party?

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