Mistake in Contract Law
Where parties enter an agreement as a result of a mistake, it can be said there is no true agreement. In some instances the courts will recognise that a mistake results in no contractual relationship between the parties. English contract law recognises three types of mistake:
Common mistake - Where both parties make the same mistake
Mutual mistake - Where the parties are at cross purposes
Unilateral mistake - Where only one party is mistaken
Where the courts make a finding of mistake this will generally render the contract void ab initio (from the beginning) so it is as if the contract never existed. This represents an important distinction from voidable contracts. Where a contract is voidable, the contract exists and is valid until such time as the innocent party takes action to set the contract aside. Thus where there is a voidable contract a person acquiring goods under a contract will obtain good title to those goods. If a contract is void, no title passes. This distinction is most relevant where the goods have been sold on to a third party. A purchaser of the goods will acquire good title if the original contract was voidable, but will not obtain title if the contract is void.
1. Common mistake
Common mistakes exist where both parties to the contract make the same mistake. Three categories have emerged as giving rise to a cause of action:
Res extincta - the subject matter of the contract no longer exists
Res sua - where the goods already belong to the purchaser
Mistake as to quality - only available in very narrow limits
Res extincta
Res extincta will apply where both parties enter a contract with the belief that the subject matter exists when in fact it does not exist. The contract will be held to be void for mistake:
Scott v Coulson [1903] 2 Ch 439 Case summary
Couturier v Hastie [1856] 5 HL Cas 673 Case summary
Statutory provision is also available in contracts for the sale of goods where the goods have perished:
S.6 Sale of Goods Act 1979
Res sua
This applies where a party contracts to buy something which in fact belongs to him. This will generally render the contract void. Although if the action is based in equity this will render the contract voidable:
Cooper v Phibbs (1867) LR 2 HL 149 Case Summary
Where a contract is found to be voidable rather then void, the remedy is rescission:
Mistake as to quality
A mistake as to quality is only capable of rendering a contract void where the mistake is as to the existence of some quality which renders the subject matter of the contract essentially different to that what it was believed to be:
Bell v Lever Bros [1932] AC 161 Case summary
Leaf v Int Galleries [1950] 2 KB 86 Case summary
Great Peace Shipping v Tsavliris (International) Ltd [2003] QB 679 Case summary
2. Mutual mistake
A mutual mistake is one where the parties are at cross purposes. The courts apply an objective test to see if the contract can be saved. Ie would a reasonable person looking at the correspondence between the parties have understood the contract to have a single meaning. If yes the contract is valid on that meaning. If a reasonable person could not determine the meaning then the contract will be void for mistake:
Raffles v Wichelhaus (1864) 2 H & C 906 Case summary
3. Unilateral mistake
In unilateral mistakes only one of the parties is mistaken. There are two categories within unilateral mistakes: mistakes relating to the terms of the contract and mistakes as to identity.
Mistake as to the terms of the contract
Hartog v Colin & Shields [1939] 3 All ER 566 Case summary
Smith v Hughes (1871) LR 6 Case summary
Mistake as to identity
Mistakes as to identity are generally induced by fraud in that one of the parties is claiming to be someone who they are not. There is thus an overlap with misrepresentation. A claim based in mistake is more favourable to one based in misrepresentation as the affect of a finding of mistake is that the contract is void as oppose to voidable. This is important where a rogue has acquired goods and sold them on to a third party. If the contract is void the rogue will never receive title to goods and will not be able to pass title when selling the goods. However, if the contract is voidable the contract exists and title passes. If the goods are sold before the innocent party rescinds the contract, the purchaser acquires good title to the goods. In determining whether a contract will be held void for mistake the courts draw a distinction between contracts made inter absentes (at a distance) and contracts made inter praesentes (face to face transactions).
Inter absentes
Where the parties are not physically present when the contract is made, eg where the contract is made through dealings through the post, telephone or over the internet, the courts will only make a finding of mistake if the claimant can demonstrate an identifiable person or business with whom they intended to deal with. A mistake as to their attributes will not suffice:
Cundy v Lindsay (1878) 3 App Cas 459 Case summary
King's Norton Metal Co Ltd v Edridge; Merrett & Co Ltd (1897) 14 TLR 98 Case summary
Shogun Finance v Hudson [2003] 3 WLR 1371 Case summary
Inter praesentes
Where the parties contract in a face to face transaction the law raises a presumption that the parties intend to deal with the person in front of them:
Phillips v Brooks [1919] 2 KB 243 Case summary
Ingram v Little [1961] 1 QB 31 Case summary
Lewis v Avery [1971] 3 WLR 603 Case summary
Mistakes relating to signed documents - non est factum
If one of the parties signs a document under the complete misapprehension as to its affects a plea of non est factum (it is not my deed) may be raised. However, this is rarely successful. It applies only where the document signed is fundamentally different to what was believed to be signed and only where the party was not careless in signing.
Saunders v Anglia Building Society (Gallie v Lee) [1970] AC 1004 Case summary