MISTAKE AS A LIMIT TO CONTRACTUAL CONSENT

Introduction  

A contract is an agreement enforceable by law. For the contract to be valid it should be made  with free consent of parties with capacity to contract, for a lawful consideration and a lawful  object with intention to be legally bound. Before contract is established there should be an  agreement. 

The idea of an agreement has been closely associated with the doctrine of freedom of contract,  which dominated trade and commerce in the nineteenth century. Under this doctrine, contracting  parties were viewed as free and equal agents capable of protecting their own interests and  entering into agreements on terms of their choosing. The law therefore placed great emphasis on  enforcing contracts as made, in order to promote certainty and commercial stability. 

However parties may enter contracts under errors or misunderstandings, raising the question of  whether consent is truly genuine. For a contract to be valid, the parties must consent freely and  knowingly. Consent can be express, implied, informed or mutual consent. Where a mistake  affects the basis upon which consent was given, the law may intervene to prevent injustice. This  article examines how mistakes can act as a limit to contractual consent and evaluates  whether the law adequately addresses such situations. 

Meaning and Nature of Mistake 

In contract law, a mistake refers to an erroneous belief held by one or both parties at the time the  contract is formed, which relates to a fundamental aspect of the agreement. Unlike  misrepresentation, mistake does not involve any inducement by the other party, but rather arises  from a misunderstanding or error that affects the parties’ consent. The legal significance of  mistake lies in the fact that it may undermine the existence of a true agreement, thereby limiting  contractual consent. 

The effect of mistake on a contract depends on its nature and severity. In some cases, a mistake  may render a contract void, meaning that no binding agreement ever came into existence. In  other situations, particularly where equity intervenes, a contract may be voidable at the option of  the mistaken party. The law of mistake therefore reflects an attempt to strike a balance between upholding agreements and preventing unfairness where consent has been fundamentally  compromised. Mistake has traditionally been classified into three categories, namely;  

Common mistake 

A common mistake occurs where both parties share the same erroneous assumption about a  fundamental fact relating to the contract. This is the type of mistake that arises in cases of res  extincta or res sua. Res extincta is a mistake as to the existence of the subject matter of the  contract. Here, both parties wrongly believe that the subject matter of the contract exists, yet it  had ceased to exist at the time the contract was made. 

Similarly, res sua refers to a situation where a party contracts to buy something which in fact  belongs to him or her. Both res extincta and res sua generally render a contract void. However, if  the action is based in equity, res sua will render the contract voidable. For example, in Cooper v  Phibbs1a nephew leased a fishery from his uncle who died. When the lease was due for renewal,  the nephew did so with his aunt. It later transpired that the uncle had given the nephew a life  tenancy in his will. It was held that the lease was voidable for mistake since the nephew already  had a beneficial ownership right to the fishery. This case demonstrates the willingness of equity  to intervene where strict adherence to contractual certainty would produce an unjust outcome,  thereby recognizing mistake as a limitation on genuine consent. 

Mutual Mistake 

This type of mistake occurs where the parties are at cross purposes as to the identity of the  subject matter of the contract. In such a situation, the contract is void because there is no meeting  of minds. This principle was clearly illustrated in Raffles v Wichelhaus2there was a contract for  the sale of 125 bales of cotton ‘to arrive ex Peerless from Bombay’. There were two ships named  Peerless leaving Bombay at about the same time. The buyer meant one whilst the seller meant  the other. It was held that the contract was void for a fundamental mistake of fact that had  prevented the formation of agreement. The decision reflects the importance of genuine  agreement and shows that where mutual mistake prevents consensus, contractual consent cannot  be said to exist. This occurs where offer and acceptance of the parties have failed to coincide.  

The party seeking to rely on a mutual mistake has to show that there was a degree of ambiguity  that it is impossible, on applying the objective test of a reasonable man to determine which set of  terms the parties intended to be bound by.  

Unilateral mistake 

A unilateral mistake occurs where one party is mistaken and the other party knows, or ought  reasonably to know, of that mistake. In such cases, the law is reluctant to enforce the contract  because doing so would amount to taking unfair advantage of the mistaken party. For a unilateral  mistake to operate, the mistake must relate to a fundamental aspect of the contract, such as the  terms or the identity of the contracting party. 

In Hartog v Colin & Shields3, the defendants made an offer in writing to sell to the plaintiff  30,000 Argentinian hare skins, the price being quoted in pence per pound. Immediately before  this offer, the parties had negotiated in terms of pence per piece, that is, pence per skin, as was  

usual practice in the trade. The offer was accepted before the defendants discovered that they had  made a mistake in expressing the offer. The defendants refused to deliver the skins, claiming that  there was no binding contract. The plaintiff sued for breach of contract. The court held that there  

was no contract since the buyer must be taken to have known the mistake made by the sellers in  the formulation of their offer. The case demonstrates the law’s concern with fairness and  reinforces the principle that consent obtained through a known mistake cannot be regarded as  genuine. 

A unilateral mistake may also occur where a party is mistaken as to the identity of the person  contracted with and the other party is aware of that mistake. In order for the mistake to operate,  the identity of the other party must be of fundamental importance to the innocent party. Whether  the identity of the other party is fundamental or not is a question of fact. 

The person alleging a mistake of identity must prove a number of things. In the first instance, he  or she must show that there was an intention to contract with some other person rather than the  rogue and that the latter knew of this intention, the identity of the person he or she was dealing  with was of fundamental importance to him or her this was shown in the case of Cundy v  Lindsay4, a rogue established a business by the name of Blenkarn at 37 Wood Street and sent an  order for goods to the plaintiffs. The order was signed by the rogue in such a way that it looked  like their name Blenkiron and Co., which traded at 123 Wood Street, a firm which the plaintiffs  knew to be highly respectable. The plaintiffs accepted the order and dispatched the goods to  ‘Messrs Blenkiron and Co., 37 Wood Street’. The rogue, having received the goods, sold them to  the defendants, who took them in good faith. The plaintiffs attempted to recover the goods from  the defendants. The House of Lords held that their claim would succeed since they had intended  only to contract with Blenkiron and Co. and nobody else. The court stated that the identity of the  person they were to contract with was of fundamental and crucial importance at the time of  entering the contract. This illustrates how mistake as to identity can negate contractual consent  altogether. 

Conclusion 

This article has examined mistake as a significant limitation to contractual consent. While  contract law is founded on the principle of freedom of contract, this freedom depends on the  existence of genuine and informed consent. As demonstrated through the various categories of  mistake, consent may be undermined where parties act under fundamental errors relating to the  subject matter, terms, or identity involved in the contract, making enforcement potentially unjust. 

The courts have adopted a cautious approach to the doctrine of mistake, intervening only where  the mistake is fundamental and directly affects the existence of consensus ad idem. This reflects  an attempt to balance contractual certainty with fairness. Ultimately, mistake operates as a  narrow but important limit to contractual consent, reminding us that enforceability depends not  only on agreement, but also on the quality of the consent given. 

Reference(S):

1(1867) LR 2 HL 149 

2(1864) 2 H & C 906.

3[1939] 3 All ER 566

4(1878) 3 App Cas 459