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:
- The innocent party must have been mistaken over a vital term of the contract: Shogun Finance v Hudson [2003] 3 WLR 1371;
- 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. 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
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
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
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
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
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 International 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.
