Mistake in English contract law

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The law of mistake comprises a group of separate rules in English contract law. If the law deems a mistake to be sufficiently grave, then a contract entered into on the grounds of the mistake may be void. A mistake is an incorrect understanding by one or more parties to a contract. There are essentially three types of mistakes in contract,

Contents

Common mistake

Res Sua , there is a mistake as to the title/name of an involved party (where the subject matter already belongs to oneself for example)

Res Extincta , where subject matter does not exist

Mutual mistake

Unilateral mistake to identity

Mistake as to identity occurs when one party – usually deceived by a "rogue" – believes themselves to be bargaining with another, uninvolved, third party. [5] [6] In a typical situation of this kind, the contract will either be void for mistake, or voidable for fraud. Such a distinction depends on the manner in which the contract was made. There are two types: (1) Contract made inter absentes, when the parties do not meet face-to-face, e.g. through correspondence; and (2) Contract made inter praesentes—when the parties meet face-to-face [7] [8] One commentator states "'[t]here are few more vexed areas of contract law' than mistake of identity." [9] The English approach provides less protection to the purchaser from a rogue than American law. [10]

Inter absentes

A Contract made inter absentes occurs when the parties do not meet face-to-face, e.g. through correspondence. [11] [12]

Cases:

In this leading case, Lindsay & Co sold handkerchiefs to a rogue pretending to be an existent and reputable firm Blenkiron & Co (they were dealing by correspondence). The contract was held to be void for mistake because Lindsay & Co had intended to contract with Blenkiron & Co, not the rogue. Lindsay & Co were able to recover the handkerchiefs from a third party who had purchased them from the rogue (as the rogue did not have good title to pass on to them).

In similar situation similar to the preceding case, except that rogue used the name of a non-existent company. The seller could not claim they had intended to contract with the non-existent company, so the contract was merely voidable for fraud, and the third party obtained good title to the goods.

Although Cundy v Lindsay and Phillips v Brooks have had a difficult co-existence which has led to confusion (e.g. Ingram v Little , [15] ) the principle was upheld by a 3:2 majority in the House of Lords decision of Shogun Finance Ltd v Hudson . [16] The minority of Lord Nicholls and Lord Millett argued strongly for the abandonment of Cundy v Lindsay and in favour of the principle that all mistakes for identity merely render a contract voidable; for instance, Lord Nicholls argued that the loss should be borne by the seller, "who takes the risks inherent in parting with his goods without receiving payment", rather than by the innocent third party.

Inter praesentes

A contract made inter praesentes occurs when the parties meet face-to-face. Cases:

In a contract was made face to face, the court presumed that the seller intended to contract with the person in front of them, so the contract was not void for mistake to identity.

A rogue impersonating one Richard Greene, a popular actor, told the plaintiff who had advertised to the sale of his car and offered to buy it for the advertised price, 450 pounds. Subsequently, the rogue appended his signature that clearly displayed "R. A. Green" on a cheque which he presented to the seller; as a result, he was granted the chance of taking away the car. The cheque bounced and the buyer was indeed not Richard Green. He sold the car to one Averay, a third party who purchased the car in honesty. In an action brought against Averay for conversion, the Court of Appeal, following Phillips v. Brooks and disregarding Ingram v. Little held that despite his mistake, the plaintiff had completed a contract with the rogue.

Unilateral mistake as to terms

Non Est Factum

Rectification

See also

Notes

  1. ↑ Smith v Hughes [1871]
  2. ↑ Lewis v Averay [1971] 3 All ER 907
  3. ↑ Raffles v Wichelhaus (1864) 2 Hurl. & C. 906.
  4. ↑ Bell v Lever Brothers Ltd [1931] All ER 1, [1932] AC 161
  5. ↑ "Mistake Law | Contract Law". www.lawteacher.net. Archived from the original on 15 February 2015.
  6. ↑ "Contract: Mistake".
  7. ↑ "Mistake Law | Contract Law". www.lawteacher.net. Archived from the original on 15 February 2015.
  8. ↑ "Contract: Mistake".
  9. ↑ with reference: "MacMillan [2005] CLJ 711. See also Goodhart (1941) 57 LQR 228."
  10. ↑ "Archived copy" (PDF). Archived from the original (PDF) on 20 April 2017. Retrieved 19 April 2017.{{cite web}}: CS1 maint: archived copy as title (link)
  11. ↑ "Mistake Law | Contract Law". www.lawteacher.net. Archived from the original on 15 February 2015.
  12. ↑ "Contract: Mistake".
  13. ↑ "King's Norton Metal Co Ltd v Edridge Merrett and Co LTD: CA 1879". 27 November 2020.
  14. ↑ "Kings Norton v Edridge".
  15. ↑ [1961] 1 QB 31
  16. ↑ [2004] 1 AC 919

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<i>Smith v Hughes</i> English contract law case

Smith v Hughes (1871) LR 6 QB 597 is an English contract law case. In it, Blackburn J set out his classic statement of the objective interpretation of people's conduct when entering into a contract. The case regarded a mistake made by Mr. Hughes, a horse trainer, who bought a quantity of oats that were the same as a sample he had been shown. However, Hughes had misidentified the kind of oats: his horse could not eat them, and refused to pay for them. Smith, the oat supplier, sued for Hughes to complete the sale as agreed. The court sided with Smith, as he provided the oats Hughes agreed to buy. That Hughes made a mistake was his own fault, as he had not been misled by Smith. Since Smith had made no fault, there was no mutual mistake, and the sale contract was still valid.

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<i>Shogun Finance Ltd v Hudson</i>

Shogun Finance Ltd v Hudson [2003] UKHL 62 is an English contract law case decided in the House of Lords, on the subject of mistaken identity as a basis for rescission of a contract. The case has been the subject of much criticism in failing to effectively clarify the area of mistake to identity.

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Intention to create legal relations', otherwise an "intention to be legally bound", is a doctrine used in contract law, particularly English contract law and related common law jurisdictions.

<i>Cundy v Lindsay</i>

Cundy v Lindsay (1877–78) LR 3 App Cas 459 is an English contract law case on the subject of mistake, introducing the concept that contracts could be automatically void for mistake as to identity, where it is of crucial importance. Some lawyers argue that such a rule is at odds with subsequent cases of mistake as to identity, such as Phillips v Brooks, where parties contracting face to face are merely voidable for fraud, protecting a third party buyer. However, the ultimate question is whether the identity of the other contracting party was crucial to the contract. The problem for the courts was essentially which of the two innocent parties should bear the loss of the goods.

<i>Phillips v Brooks Ltd</i>

Phillips v Brooks Ltd [1919] 2 KB 243 is an English contract law case concerning mistake. It held that a person is deemed to contract with the person in front of them unless they can substantially prove that they instead intended to deal with someone else.

Illegality in English law is a potential ground in English contract law, tort, trusts or UK company law for a court to refuse to enforce an obligation. The illegality of a transaction, either because of public policy under the common law, or because of legislation, potentially means no action directly concerning the deal will be heard by the courts. The doctrine is reminiscent of the Latin phrase "Ex turpi causa non oritur actio", meaning "no cause of action arises from a wrong". The primary problem arising when courts refuse to enforce an agreement is the extent to which an innocent party may recover any property already conveyed through the transaction. Hence, illegality raises important questions for English unjust enrichment law.

Certainty in English law sets out rules for how judges will interpret, sever or put contracts, trusts and other voluntary obligations into effect.

<i>Solle v Butcher</i>

Solle v Butcher [1950] 1 KB 671 is an English contract law case, concerning the right to have a contract declared voidable in equity. Denning LJ reaffirmed a class of "equitable mistakes" in his judgment, which enabled a claimant to avoid a contract. Denning LJ said,

... a contract will be set aside if the mistake of the one party has been induced by a material misrepresentation of the other, even though it was not fraudulent or fundamental; or if one party, knowing that the other is mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him remain under his delusion and concludes a contract on the mistaken terms instead of pointing out the mistake.... A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.

<i>Lewis v Averay</i>

Lewis v Averay [1972] 1 QB 198 is a case in English contract law on fraudulent misrepresentation or "mistake" about identity.

References

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