The Law of Mistake in the UK

Introduction

Mistakes at law may affect the validity of the formation of a contract.

The effect of a mistake on the validity of a contract depends on the type and nature of the mistake made. The general rule is that where a mistake has been made by the parties, at common law the contract may be deemed void, as if the contract had never existed. Equity takes a more flexible approach in that contracts containing certain mistakes may be treated as voidable, where either party can terminate the contract. However, a fundamental mistake, often referred to as an ‘operative’ mistake, may render a contract void.

1. Common Mistakes

Where a common mistake occurs, the parties appear to be in agreement, but have entered into the contract under the same misapprehension. Where such a mistake is fundamental to the contract, it may be ‘void ab initio’ (void from the very beginning). In the case of Bell v Lever Bros (1932), it was held that for a common mistake to be operative the mistake ‘must go to the root of the contract’.

(i) Mistake as to the existence of the subject matter

Where the subject matter of the contract does not exist or ceases to exist, it may be void at common law. In the case of Couturier v Hastie (1856), a buyer bought a cargo of corn which both parties believed to be at sea. The cargo had to be disposed of and the court held that the contract was void as the subject matter ceased to exist.

(ii) Mistake as to title

Where there is an agreement to transfer property from one person to another, but the buyer already owns the property and neither party is aware of this, the contract will be void at common law.

(iii) Mistake as to quality

A mistake as to the quality of the subject matter will not render a contract void at common law. In Leaf v International Galleries (1950), both parties mistakenly believed that a painting was by Constable. The court held that the contract was still valid.

(iv) Mistake as to the possibility of performing the contract

Where the obligations under the contract are impossible to perform, the contract will be deemed void. In Sheik Bros Ltd v Ochsner (1957), the land was not capable of the growing the crops contracted for, so the contract was held to be void.

(v) Mistake in equity

Where a contract is void on the grounds of common mistake, the court will either refuse specific performance in equity or it can grant rescission and impose terms if necessary.

If it is a mistake as to quality, even though the contract may be valid at common law, it may still be deemed voidable in equity. In the case of Solle v Butcher (1950), the Court of Appeal set the contract aside in equity, even though it was valid at common law and imposed terms to do justice.

2. Mutual Mistakes

Where a mutual mistake occurs, there is a misunderstanding between the parties as to each other’s intentions and they are said to be at cross-purposes. A mutual mistake negates consent and therefore no agreement is said to have been formed at all.

3. Unilateral Mistakes

A unilateral mistake is where only one party is mistaken and the other party knows about it and takes advantage of the error. A unilateral mistake also negates consent and the existence of an agreement.

(i) Unilateral mistake as to the terms of the contract

For a unilateral mistake to be operative, it must relate to the terms of the contract. This type of mistake occurs where one party is aware of the mistake and takes advantage of the other party’s error. Such a mistake will render the contract void.

(ii) Unilateral mistake in equity

Where a contract is void on the grounds of unilateral mistake, the court will refuse specific performance in equity and if necessary, rescind the contract.

4. Mistake as to identity

Where a mistake as to the identity of the other party to the contract is made, the contract will be deemed void if the identity of that person is central to the contract. However, where the parties negotiate in person, there is a presumption that there is an intention to do business with the person in their presence, in which case it is unlikely that a contract will be void.