VITIATING FACTORS OF A CONTRACT

The essence of a contract is that it has been entered into freely and voluntarily. Therefore if one
party has been forced into the contact, the validity of such contract may be affected. Vitiating
factors are factors which render an otherwise valid contract void. They include:

1. Mistake;
2. Duress and undue influence;
3. Illegality;
4. Misrepresentation;
5. Frustration.

1. MISTAKE

Mistake operates to negative or in some cases, nullify consent. Mistake negatives consent where
it puts the parties at cross purposes so as to prevent them from reaching agreement mainly
because they intend to contract about different things. Mistake nullifies consent where the parties
reach an agreement which is based on a fundamental mistaken assumption made by both parties.

There must be operative mistake. Operative mistakes are those which may affect the validity of a
contract i.e. a number of special mistakes. Usually, the mere fact that a party has made a mistake
will not render a contract void, however, if it is an operative mistake, this renders the contract
void.

Generally, a mistake does not render a contract void. Whether or not a contract can be avoided
depends on the nature and seriousness of the mistake – i.e. is the mistake fundamental? In order
to affect the validity of the agreement, the mistake must have occurred before the contract was
made and the mistake must have induced the mistaken party to enter into the contract, i.e. the
contract should have been concluded basing on the mistaken information. Note: Mistake and
frustration should not be confused as mistake preceeds the contract while frustration occurs after
the conclusion of the contract.

See: SOVIRIVAN BREENERS CO. HINDLEY & CO. [1913] 3 KB 564

The general rule is caveat emptor.

Classification of mistake

(i) Common/ Mutual/ Bilateral mistake;

a. Mistake as to the existence of the subject matter
b. Mistake as to the identity of the subject matter;
c. Mistakes over quality;
d. Mistakes over quantity;

(ii) Unilateral Mistake

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 a. Mistake as to the identity of the other party;
b. Documents mistakenly signed.
(i) COMMON/ MUTUAL/ BILATERALMISTAKE

These various terms are used interchangeably.

Bilateral mistake is when both parties to a contract are mistaken. It may be common / identical
or mutual /non identical.Common / Identical mistake is where both parties have reached an
agreement but both have made an identical mistake as to some fundamental fact concerning the
contract, i.e. the mistake is common to both parties. Both parties are mistaken about the same
thing.It renders the contract imperfect and the mistake must exist at the time the contract was
made.

Mutual mistakeis also referred to as cross-purpose mistake or non identical Mistake. It occurs
where the parties are both mistaken as to a fundamental fact concerning the contract, but each
party has made a different mistake. This may prevent the existence of a contract because of
defective offer and acceptance and may result from the negligence of a third party.

HENKEL V PAPE

Facts: The parties had been negotiating for the sale of certain rifles. No contract was made but
later, the purchaser ordered 3 rifles by telegram. Owing to the telegraph clerk’s negligence, the
message was transmitted as “the” rifles which, according to previous negotiations, was
understood to mean 50 rifles. They were dispatched.

Held: There was no contract between the parties.

SCRIVEN BROTHERS V HINDLEY & CO. (1913)

Facts: The defendants bid at an auction for what they thought was hemp. However, the seller
had misdescribed the goods which were in fact tow, an inferior product. Both products were
fibres used in making ropes.

Held: There was no agreement between the parties and the contract was void for mistake.

RAFFLES V WICHELHAUS (1846)

Facts: W agreed to buy from R 125 bales of cotton ‘to arrive in Liverpool ex Peerless from
Bombay’. W meant a Peerless which sailed in October while R understood a Peerless which
sailed in December.

Held: There was no contract as the parties were at cross-purposes.

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In SCOTT v COULSON [1903], A contracted with and insurance broker to insure the life of B,
unaware that B was dead, both parties were under the same misapprehension and were both
wrong.

Another example is where a contract is made between 2 parties to paint a portrait of someone
who, unknown to either party, has just died.

SOLLE V BUTCHER (1949) 2 ALLER 1107

Held: Lord Denning held that Bell’s case is important in dealing with issues of mistake. Lord
Atkin observed, “If Mistake operates at all, it operates so as to negative or in some cases, to
nullify consent, the parties may be mistaken as to the identity of the contracting parties or in the
existence of the subject matter of the contract...or in the quality of the subject matter... These
mistakes may be by one party or both and the legal effect may depend on the class of mistake.”

In Bell v Lever Brothers (1932) AC 161, it was a mistake that went further than quality of
contract.
AMALGAMATED INVESTMENT & PROPERTY CO. LTD V JOHN WALKER LTD.

Facts: The defendants sold a ware house to the plaintiffs. Both parties knew that planning
permission would be required for the development. They signed a contract of sale later, authority
informed the defendants that the warehouse was listed as being of special architectural/historic
interest therefore development was not possible without a listed building consent, which would
be hard to get. Without it, the value would be less. The plaintiffs claimed to rescind the contract
on the grounds of common mistake or that the contract had been frustrated.

Held: There was no doubt as to there being common mistake, however, the mistake should have
existed at the time of the contract, and therefore it was still good.

COCHRANE V WILLIS

Facts: Joseph Willis was the tenant for life of certain estates and if he died, Daniel Willis was to
take it over. Joseph had the right to cut timber, which right had been threatened to be cut off for
the creditors. Daniel and another beneficiary wished to preserve the timber, therefore agreed with
Cochrane, the trustee in bankruptcy, to prevent it. Joseph died, therefore, Daniel had the life
interest. The trustee brought an action to enforce the agreement.

Held: Daniel was making a contract to preserve what was already his, therefore, considering res
sua, the agreement between him and the trustee-in-bankruptcy was void for common mistake.

Elements which must be present if a contract is to be held void for common mistake:

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THE GREAT PEACE [2003] QB 679

Held:

1. There must be a common assumption as to the existence of a state of affairs;

2. There must be no warranty by either party that state of affairs exists;

3. The non existence of the state of affairs must render the performance of the contract
impossible;

4. The state of affairs may be the existence or a vital attribute of the consideration to be
provided or the circumstances which must subsist if performance of the contract is to be
possible.

a. Mistake as to the existence of the subject matter

Performance becomes impossible because both parties are mistaken as to the existence of the
subject matter. The effect of this is that it renders the contract void.

Examples:

GALLOWAY V GALLOWAY (1914) 30 TLR 531

Held: A separation deed between a man and a woman who mistakenly thought that they were
married to each other was void as it purported to deal with a marriage which did not exist.

COUTURIER V HASTIE

Facts: Hastie dispatched and sent a charter party and bill to their agents to sell the corn to
Callendar. However, unknown to both parties, it had already been sold therefore Callendar
repudiated the contract and sued Couturier since he was an agent.

Held: The claim against Couturier failed because the contract presupposed that the goods were
in existence at the time of sale to Callendar. The contract was void.

b. Mistake as to the identity of the subject matter

Both parties are mistaken but about different things. Both parties think they are dealing with one
thing yet in fact, they are dealing with another.

c. Mistakes over quality

Usually, mistakes about the quality or quantity of goods or money paid will not amount to
common mistake. Courts take the view that the parties should reach their own agreement and so

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if one of the parties had made a bad bargain, the courts will not interfere. Bell v Lever Brothers.
In the Great Peace (2002), Phillips MR held that for a contract to be void, the non existence of
the state of affairs must render the performance of the contract impossible.
d. Mistake as to quantity

This may render a contract void.Examples:

COX V PRENTICE (1815) 3 M. & S. 344

Facts: A silver barwas sold under a mistake as to its weight.

Held: The buyer (who was prejudiced by the mistake) obtained a verdict for damages for the
difference between the weight of the bar as it was and as it was believed to be. Court further
held that the buyer could have recovered the price he had paid for the bar by treating the
contract as void for mistake.

BARROW, LANE & BALLARD LTD V PHILLIPS & CO. LTD [1929] 1 K.B. 574

Facts: The parties entered into contract for the sale of an ‘indivisible parcel’ of 700 bags of
nuts, however, unknown to both parties, only 591 bags were in existence.

Held: The contract was held to be void since only 591 bags were in existence.

(ii) UNILATERAL MISTAKE

Here, one of the parties may be mistaken, e.g. about the identity of the other party and as
such the two contracting parties are at cross purposes. The mistake must be fundamental and
operative for the contract to be made void.

a. Mistake as to the identity of the other party

Here, a rogue pretends to be someone else so as to persuade the owner of goods to sell them and
part with possession. The rogue then sells the goods to a 3 rd party and disappears. Usually when
the owner of the goods realises that he has been duped and tries to recover the goods, he cannot
do so from the rogue because he has usually disappeared, therefore he tries to recover from the
third party. This occurs when one party to the contract is mistaken as to some fundamental fact
concerning the contract and the other party knows or ought to know this.

Whether or not the goods will be successfully reclaimed from the 3 rd party depends on whether
the contract is void for mistake or voidable for fraud. If the contract is void, it means it’s non-
existent and that title to the goods doesn’t pass to the rogue, who cannot therefore transfer title to
the third party.

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What must one prove in order to argue that a contract is void for mistake?

a) That the identity of the party they’re contracting with is of crucial importance to the
contract;

b) That the rogue knows he is not the person the claimants intend to contract with;

c) That the claimant has taken reasonable steps to verify the identity of the person they are
contracting with.

Where the parties are face to face

There is a presumption that you intend to deal with the person in front of you unless there is clear
evidence to the contrary.

PHILLIPS V BROOKS

Facts: A fraudster selected goods worth £3000 pounds from the plaintiff’s jewellery shop and
asked to take a ring for his wife’s birthday, claiming to be a ‘Sir George Bullough’ giving a false
address (which the plaintiff checked in the address book, matched the name). The plaintiff
accepted a cheque for payment. This fraudster later sold the ring to the defendants at a price. The
fraudster was convicted of obtaining the ring by false pretences. The plaintiff claimed that he
was mistaken in his contract with the fraudster and since the contract was void, the property had
not yet passed. The plaintiff claimed the return of the ring or that he is paid its value.

Held: The contract between the plaintiff and the fraudster was not void for mistake and the third
party obtained a good title to the ring. The representation of a false name by the fraudster only
affected the taking away of the ring and the acceptance by the plaintiff of the cheque. By the
time of the sale and so far as the sale was concerned, the identity of the purchaser was fairly
unimportant to the plaintiff.

Is this a fair position of the law? Does it make sense?

LEWIS V AVERAY [1972] 1 QB 198

Facts: Lewis agreed to sell his car to a rogue without knowing so, as the rogue had spoken
knowledgeably on various issues, signed a cheque for £450 pounds under the false name of
Green.

Held: Lewis had effectively contracted to sell the car to the rogue and could not recover it for
damages from Averay, a student who had bought it from the rogue. The contract between Lewis
and the rogue was voidable for fraud but not void for unilateral mistake.

Establishing that the mistake was material is easier when the parties are not dealing face to face
e.g. contracting by letter as in the case of:

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CUNDY V LINDSAY (1876) 1 QBD 348/ (1878) 3 App Cas 459

Facts: A fraudster wrote to the respondents ordering a quantity of hankies, but gave a wrong
address. He sold them to the appellants who were later convicted and sentenced for the fraud.
They sued claiming that the contract they had made with the fraudster was void for mistake.

Held: The respondents succeeded; there was an operative mistake as to the party with whom
they were contracting.

See: LEGAL & GENERAL ASSURANCE SOCIETY LTD. V GENERAL METAL

AGENCIES; HIGGINS V NORTHAMPTON CORPORATION;SHOGUN FINANCE V
HUDSON [2002] 4 ALLER 572

b. Documents mistakenly signed

General rule: A mistake about the nature of a contract does not render the contract void.

Exception: As an exception, however, it may be possible to get out of the contract by arguing
that it was not his deed i.e. non est factum. If a person signs a contract in the mistaken belief that
he is signing a document of a different nature, there will be a mistake which avoids the contract,
therefore he can plead non est factum. However, the plaintiff must prove that s/he has not been
negligent.

Non est factum

General rule: A person who signs an agreement is usually bound to its terms even if s/he
has not read it. Refer to L’Estrange v Graucob case.

Exception: Non est factum, which means ‘it’s not my deed’ can render a contract void if one
proves the following: (See Saunders Case below)

a) The contract is completely different from the contract the claimant thought was
signed;
b) The contract was induced by fraud;
c) The signatory was not negligent.

FOSTER V MACKINON

Facts: The plaintiff was entitled to receive a payment on a bill of exchange for £3000 pounds
and the defendant, an endorser of the bill was prima facie, liable on it. Evidence showed that the
defendant was an old man of feeble sight and had signed it mistaking it for a guarantee.

Held: The defendant was not negligent in the circumstances and his plea of mistake was
successful therefore he was not liable, i.e. one must show that they were not negligent.

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SAUNDERS V ANGLIA BUILDING SOCIETY

Facts: A widow (78) signed a document on the direction that it was a deed of gift of her house to
her nephew. She did not read it but delivered what she had been told yet it was actually a transfer
assignment of her property to the man who had directed her.

Issue: Whether the plea of non est factum was available to the widow?

Held: The plea could not stand as it was not proved in court.

This plea is rarely available to literate adults with full contractual capacity. However, the courts
will allow the plea where a person has been tricked into entering the contract. Or where it is an
illiterate person or someone suffering from an incapacity which renders them unable to
appreciate what they are signing.

See: LLOYDS BANK V WATERHOUSE (1990)

Effect of Unilateral mistake

A contract may be void if one makes a contract with some person, thinking it another person and
also if one party knows the other is under that misapprehension. Proof of the party’s knowledge
is essential but since in most cases the other party is a fraudulent person, it is not difficult.

The effects of unilateral mistake go to the question of whether the parties have reached
agreement. A mistake as to the person is do fundamental that consent is negatived if one party is
mistaken as to the identity of the other.

Note: It is important that there should exist in the mind of the party who has been misled, some
other person/entity with whom the contract should have been made. However, even where there
are two entities, the court may still find, on the facts of the case, that the contract is not void for
mistake. Why do the Courts hold differently in the following cases? Distinguish the following
cases: PHILLIPS V BROOKS; CUNDY V LINDSAY; LEWIS V AVERAY, and:

INGRAM & OTHERS V LITTLE [1961] 1 QB 31

Facts: The plaintiffs (3 women) were joint owners of a car. They advertised it for sale and a
fraudster introducing himself as Hutchinson offered to buy it and offered £717 pounds. He told
more lies as to his identity and they accepted payment by cheque. Later, the cheque was
dishonoured and the rogue had sold the car and disappeared. The plaintiffs sued for the return of
the car or damages claiming that the contract was void for mistake so the property had not yet
passed. Held: The Court of Appeal held that the contract was void for mistake.

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REMEDIES FOR MISTAKE

1. Rescission

Where the mistake is not so fundamental as to make the contract void, the court can apply the
equitable remedy of rescission and allow the mistaken party to set aside the contract. However,
as this is an equitable remedy, the party seeking it must demonstrate that there is no fault on his
part and that the court can impose other conditions, e.g. compensation.

2. Rectification

This allows a written contract to be corrected if by mistake it does not accurately reflect what the
parties have orally agreed. This may be under orders of Court. This is an equitable remedy and
therefore at the discretion of Court. This remedy is available where there has been a mistake in
the recording not making of the contract

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