Invalidation by Mistake

The law seeks to uphold bargains. It does not readily allow a party to a contract to avoid legal obligations, on the basis of some mistaken private assumption.  A limited category of mistake only will avoid a contract.

If an objective person looking at the circumstances of an agreement would think that each party has agreed to the terms of the contract, then the fact that one party or the other was mistaken is not generally sufficient to enable the contract to be avoided.

Contracts are about risk allocation. If a party to the contract expressly or impliedly takes the risks in respect of particular unknown facts or matters, he is not entitled to avoid the contract. Contract obligations are usually in unconditional terms so that each party is presumed to undertake an absolute obligation.

Most Mistakes Do Not Affect Contracts

The fact that one party has made a “mistake” in entering a contract is not usually an excuse for the non-performance of obligations. Contracts are about risk sharing and the fact that the agreement looks foolish or mistaken in hindsight is irrelevant. The law upholds bargains and promises which are freely made.

The general principle is that parties to a contract are not obliged to disclose their superior state of knowledge, such as the value of the item in the sale.  As long as there is no misrepresentation, the law enforces the agreement.

Generally, where one party is under a private misapprehension that is not induced by the other, then he will still be bound to a contract which a reasonable person would believe he has entered. It is often said that whatever a person’s real intention if a reasonable person would believe he was assenting to the proposal or conducting himself in a way that he would be or was bound, a contract will be generally upheld.

No Contract Formed

Various facts and circumstances may negate or invalidate what would otherwise be a legally binding contract. Where such circumstances exist, one or both parties may be excused from their obligations which would otherwise apply.

Sometimes the courts determine that there is no contract because the mistake is such that no agreement has been entered. Where the mistake is such that there was never a contract in the first place then it is deemed void.

In other cases, where there is a mistake common to both parties about a fundamental assumption or regarding the fundamental nature of the subject matter, there may be no contract at all.

Mistake by Misrepresentation

There may be no proper consent or consent may have been induced by erroneous assumptions. A mistake may be caused/induced by the other party’s misrepresentation. This may be a spoken or written statement or it may be implied in some way.

If a representation is not correct and it induces the other party to enter the contract, legal consequences follow. The representation may become an express or implied term of the contract. It may be legally effective to negate the contract, even where it is not a term of the contract.

The law on mispresentation is dealt with in separate articles. This article focuses on other types of mistake which negate a contract.

Mistakes which Negate Contracts

Mistakes are often divided into three categories in law.

  • Common mistakes; each party is mistaken about some fundamental matter.
  • Mutual mistakes; both parties are mistaken, but do not share the same mistake – they are cross purposes. Questions may arise as to whether there is a contract at all.
  • Unilateral mistake; One person is mistaken and the other party knows it
  • Non est factum; a party signs a document of legal significance, believing that it is something else. However, this doctrine is very narrow in scope and available only in wholly exceptional circumstances.

These categories are not rigid.

Common mistake

Where both parties make a mistake about a fundamental matter, the contract may be avoided. A mistake which invalidates apparent consent to contract may arise where there is a fundamental difference in understanding between the parties as to what is being contracted for. Where both parties make a mistake in this sense, there is no contract because the parties are contracting about different things.

A mistake may be so fundamental that there is no genuine consent to a contract. If both parties have a false and fundamental assumption as to something basic, such as what they are contracting about, there may be no effective agreement. A mistake as to a basic assumption, such as the existence of the goods in sale, will generally be enough to negate a contract

It is often said that a mistake as to the quality of goods does not invalidate a contract, but that a mistake as to the nature of the goods, may do so. There is no contract where a party reasonably thinks that he is buying apples, while the other party reasonably believes that he is selling oranges.

This not a matter of the thing’s quality or value, but rather a fundamental difference between what one party believed and what the other party believed about the nature of the contract’s subject matter. Different assumptions about risk and value are not sufficient. The mistake must relate to the fundamental nature of the thing concerned and not some aspect of it.

Nature of Mistake Required I

The mistake must have existed at the time the contract was made. A fundamental mistake in this context is usually one that relates to the existence or fundamental nature of the thing contracted for. In this case, the contract is void and of no effect.  A mistake about the quality of an item, as opposed to its fundamental nature, does not usually have a legal consequence. It is not operative.

Where the matter contract for, no longer exists, the contract may be capable of being avoided. However, in some cases, there might be an implied obligation on one party or the other to take the risk that this is not the case. In this case, that party takes the risk and is liable for breach of contract.

The Sale of Goods Act provides that where, before the contract, the goods perish before the risk passes to the buyer, the contract may be avoided. Therefore, if at the time of the sale of specific goods, they have already perished, the contract is void.

Nature of Mistake Require II

The circumstances or state of affairs must be unexpected and exceptional. The mistake must be shared by both parties and relate to facts existing at the time.  The mistake about the matter concerned must be such that the contract is radically different to that which the parties believed to exist.

It must be a false and fundamental assumption going to the basis of the contract.  It must not relate to a belief held by one party without a reasonable basis.

The mistake may concern an extraneous fact or state of affairs, rather than the thing itself. The parties must make a fundamental assumption that is basic to their agreement. It may be that the particular thing concerned no longer exists. It may be some other basic assumptions about the state of affairs, which is the basis of the contract such that its non-existence can be said to invalidate consent to contract.

Mutual Mistake / Cross Purposes

A mutual mistake may negate a contract, where the parties are at cross purposes. The court effectively decides that there is no contract, because, for example, the parties are contracting about different things. One party may believe he is buying one type of product, while the other believes he is buying a different type of product. It is not necessary to show sharp practice.

If people conduct themselves in a manner in which a reasonable man would believe they are agreeing to the same matter, then they will be bound to a contract. Where for example, a builder’s plan showed a bigger house in error than he intended to build and there was no reason to believe the builder may have been mistaken, he will be held to his undertaking to build.

Errors in motive or mistakes as to the quality of the subject matter will not generally be enough to avoid a contract. The parties differing assessment of the suitability or quality of an item does not negate a contract. One person may believe that an item is suitable for a particular purpose, while the other does not. This does not prevent a contract. This is the case even if this fact is known to the other party, provided that the other has not misled him.

Where a person seeks specific performance, this may be denied on the basis of mistake, even if the contract would not be void at law, if there is sharp practice or inequitable conduct.

Unilateral Mistake

Another distinct type of mistake arises where one party, makes an obvious mistake, which is known or should have been known to the other party. This might be an error or slip involving the quotation of an obviously erroneous price or quantity.

Where one party is mistaken as to the contents of an offer of contract terms, and the other party is aware of this mistake, and deliberately sets out to take advantage of it, then the mistaken party may be able to avoid the contract. The classic example is when one person offers a price, which the other person knows is obviously mistaken, and that other person purports to accept the offer.

The mistake must be a serious mistake regarding a fundamental matter. This principle may not be invoked simply to avoid a bad bargain. This is particularly so if the contract expressly or impliedly involves an allocation of risk in relation to the matters concerned.

Not My Deed or Document

Generally, a person cannot avoid a contract which he has signed. The general rule is that a party signing a document is bound by whatever it provides, even if he did not read it, or if he did read it and did not understand or wholly misunderstood it.

There is a limited exception. It is available only in very limited circumstances. It is not enough that the person is mistaken about the content of the document. He must believe that he is signing another type of document entirely (e.g. a cheque and not a contract).

Provided that a document has not been signed carelessly, then if the person who has signed it, has made a wholly fundamental mistake about the nature of the document, then he may not be bound by it.

The person who seeks to challenge a signed document must show the complete absence of consent.  There must be a very fundamental error not relating to the contents of the contract, but in relation to its very nature and essence.

The plea / claim  may apply where the person did not know or intend that he executed a legal document at where the document is wholly different in character to that which he has believed he has signed. For example, the plea may succeed, where a person signs a guarantee when he believes that he is simply signing an order form.

Nature of Mistake for Non est factum

The courts, for obvious reasons, keep the defence of non est factum within very narrow bounds.  Generally, if a person signs a document knowing it to be a legal document, he is bound by its contents irrespective of whether he has read it or not.

Mistakes as to the legal effect of the document will almost never suffice. The person relying on the plea must show that he was not careless/ negligent.  He must have taken reasonable care in the circumstances.

A person who signs a document without reading it will find it difficult to show that this is the case. Where the other party is a fiduciary or a person who owes duties to the person concerned, he will have a greater obligation to explain the document so that non est factum may be more readily found.

Non est factum does not necessarily imply fraud or even fault on the part of the other party.  It is enough that there is a radical and fundamental difference between what the person signed and what he thought he was signing.  The mistake must be in relation to the character of the document as opposed to its effect.

Not my Deed Examples

The principle of “non est factum / not my deed” applies within very narrow bounds only. The courts do not readily allow parties to avoid document they have signed.  People must take responsibility for what they sign.

The plea is available principally to someone under a disability, blindness or illiteracy or someone who has been misled. It is not necessary that fraud be shown, though this will be the case, in many instances.

It is highly exceptional for a person of full capacity to be able to rely on the plea.  Such a party bears a heavy burden to prove that he took all necessary precautions in the circumstances.  If he is careless enough not to scrutinise what he is has signed, he is generally bound.

The claim/ plea of non est factum may be readily available to a person who is blind or illiterate and trusts a person who does not correctly communicates its contents.

Non est factum may be available where for example, a person with poor eyesight is shown a particular document and believes (with or without a misrepresentation) that it is another type of document entirely.

Some cases have involved a person being told that he is signing a receipt or form when he is, in fact, signing a more significant document such as a guarantee. There must be a radical difference between what was signed and what believed he was signing. There must generally be a mistake as to the character of the document as opposed to its legal effect. That must be a lack of negligence and a person must have taken all care.

References and Sources

Irish Textbooks and Casebooks

Clark, R. Contract Law in Ireland 8th Ed. (2016)

Friel, R. The Law of Contract 2nd Ed, (2000)

McDermott, P.  Contract Law (2001) 2nd Ed (2017)

Enright, M. Principles of Irish Contract Law (2007)

Clark and Clarke Contract Cases and Materials 4th Ed (2008)

English Textbooks and Casebooks

Poole, J. Casebook on contract law. (2014) 12th edition

Stone and Devenney, The Modern Law of Contract 10th Ed (2015)

McKendrick, Contract Law 10th Ed (2013)

Chen-Wishart, Contract Law 5th Ed (2015)

Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)

Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.

Chen-Wishart, M. (2015) Contract law. 5th Ed.

Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.

Duxbury, Robert (2011) Contract law. 2nd Ed.

Halson, Roger (2012) Contract law. 2nd Ed.

Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)

O’Sullivan, Hilliard, The law of contract. 6th Ed. (2014)

Peel, and Treitel, The law of contract. 13th Ed. (2011).

Poole, J.Casebook on contract law. 12th Ed. (2014).

Poole, J.  Textbook on contract law. 12th Ed. (2014)

Richards, P Law of contract. 10th Ed. (2011)

Stone, R.  The Modern law of Contract. 10th Ed. (2013)

Treitel, G. H.  An outline of the law of contract. 6th Ed (2014).

Turner, C Unlocking contract law. 4th Ed. (2014).

Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).

UK Casebooks

Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)

McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)

Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)

Burrows, A. S.  A Casebook on Contract. 4th Ed.

Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)

Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)

UK Practitioners Texts

Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)

The above are not necessarily the latest edition.