Learning Outcomes
After studying this article, you will be able to identify and distinguish the main types of mistake in contract law—common, mutual, and unilateral mistake. You will understand the legal consequences of each, the requirements for a mistake to render a contract void or voidable, and the circumstances in which equity may intervene. You will also be able to apply key case law to SQE1-style scenarios and advise on appropriate remedies.
SQE1 Syllabus
For SQE1, you are required to understand the law relating to mistake as a vitiating factor in contract formation. This includes the ability to:
- Identify and distinguish between common, mutual, and unilateral mistake.
- Recognise when a mistake will render a contract void or voidable.
- Apply the relevant legal principles and leading cases to factual scenarios.
- Advise on the availability of equitable remedies such as rectification and rescission.
- Understand the impact of mistake on third party rights and the limits of equitable intervention.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the difference between a common mistake and a mutual mistake in contract law?
- In which circumstances will a unilateral mistake render a contract void?
- Which case established the modern test for common mistake in English law?
- What is the effect of a mistake as to identity in a face-to-face contract?
- What equitable remedies may be available where a contract fails to reflect the parties’ true agreement?
Introduction
Mistake is a vitiating element in contract law that may affect the validity of an agreement. A mistake can arise where one or both parties enter into a contract under a fundamental error about a fact or assumption. The law distinguishes between different types of mistake, each with specific requirements and consequences. Not all mistakes will affect the enforceability of a contract—only those that go to the root of the agreement may render it void or voidable. Understanding the types of mistake and their legal effects is essential for SQE1.
Types of Mistake
Common Mistake
A common mistake occurs when both parties share the same erroneous belief about a fundamental fact at the time the contract is made. The mistake must be so serious that it makes performance of the contract impossible or the subject matter essentially different from what was intended.
Key Term: common mistake
A shared error by both parties about a fundamental fact existing at the time of contract, which may render the contract void if it is sufficiently fundamental.
The leading authority is Bell v Lever Bros Ltd [1932] AC 161. The House of Lords held that only a mistake that destroys the identity of the subject matter—not merely its quality—will render a contract void. This principle was clarified in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407, which set out the following requirements:
- There must be a common assumption as to the existence of a state of affairs.
- Neither party must have warranted that state of affairs.
- The non-existence of the state of affairs must not be due to the fault of either party.
- The non-existence must render performance impossible.
- The state of affairs must be essential to the contract.
Worked Example 1.1
Scenario: A agrees to sell B a specific car, but unknown to both, the car was destroyed in a fire the day before the contract.
Answer: This is a common mistake as to the existence of the subject matter. The contract is void because the car no longer exists, making performance impossible.
Mutual Mistake
A mutual mistake arises when both parties are at cross-purposes about a fundamental term, so there is no true "meeting of the minds." If the misunderstanding is so significant that a reasonable person could not say there was agreement, the contract is void.
Key Term: mutual mistake
A situation where both parties misunderstand each other, so that there is no true agreement on the terms or subject matter of the contract.
The classic case is Raffles v Wichelhaus (1864) 2 H&C 906, where a contract referred to a ship named "Peerless," but there were two ships with that name sailing at different times. Each party had a different ship in mind, so there was no contract.
Worked Example 1.2
Scenario: X agrees to buy "the green car" from Y, believing it is a sports car, while Y thinks it is a family hatchback. Both have different cars in mind.
Answer: This is a mutual mistake. There is no contract because there is no agreement on the subject matter.
Unilateral Mistake
A unilateral mistake occurs when only one party is mistaken about a fundamental aspect of the contract, and the other party knows or ought to know of the mistake. In limited circumstances, such a mistake can render the contract void.
Key Term: unilateral mistake
An error by one party about a fundamental term or the identity of the other party, which may render the contract void if the other party knew or should have known of the mistake.
Mistake as to Terms
If one party is mistaken about a term and the other party knows or ought to know of the mistake, the contract may be void. This is especially relevant where the mistake is obvious or the non-mistaken party seeks to "snap up" an offer they know was made in error.
Key Term: mistake as to terms
A situation where one party is mistaken about a fundamental term of the contract, and the other party knows or should know of the mistake.
Mistake as to Identity
A mistake as to identity may render a contract void if the mistaken party intended to contract only with a specific person and the other party knew this. The law distinguishes between written contracts and face-to-face contracts:
- Written contracts: If the written document identifies a specific person, and a fraudster impersonates that person, the contract may be void (Shogun Finance Ltd v Hudson [2003] UKHL 62).
- Face-to-face contracts: There is a strong presumption that a party intends to contract with the person present, so the contract is usually only voidable, not void.
Worked Example 1.3
Scenario: C sells a car to a person who claims to be "Mr Smith" and presents ID. The seller checks the ID and believes he is dealing with Mr Smith, but it is actually a fraudster.
Answer: If the contract is in writing and the seller intended to contract only with Mr Smith, the contract may be void for mistake as to identity.
Equity and Mistake
Rectification
Where a written contract fails to reflect the parties’ true agreement due to a mutual mistake, the court may order rectification so that the document matches the actual agreement.
Key Term: rectification
An equitable remedy allowing the court to amend a written contract to reflect the parties’ true agreement where there was a mutual mistake in recording it.
Rescission
Rescission is an equitable remedy that sets aside a contract and restores the parties to their pre-contractual positions. It may be available where a contract is voidable for mistake, misrepresentation, or other vitiating factors.
Key Term: rescission
The setting aside of a contract and restoration of the parties to their pre-contractual positions, usually available where the contract is voidable.
Limits and Consequences
Not all mistakes will affect a contract’s validity. Only mistakes that go to the root of the contract—such as the existence or identity of the subject matter, or a fundamental term—may render a contract void. Mistakes as to quality, value, or attributes are rarely sufficient.
Where a contract is void for mistake, it is treated as if it never existed. If it is voidable, it remains valid until set aside. The distinction is important for third party rights: a void contract cannot transfer title, but a voidable contract may do so until rescinded.
Exam Warning
Be careful to distinguish between void and voidable contracts in mistake scenarios. This affects third party rights and remedies available.
Key Point Checklist
This article has covered the following key knowledge points:
- The three main types of mistake: common, mutual, and unilateral.
- The requirements for a mistake to render a contract void or voidable.
- The distinction between mistakes as to terms and mistakes as to identity.
- The effect of mistake on the validity of a contract and third party rights.
- The availability of equitable remedies such as rectification and rescission.
Key Terms and Concepts
- common mistake
- mutual mistake
- unilateral mistake
- mistake as to terms
- rectification
- rescission
