Vitiating factors operate to prevent a contract being fully binding where one party has not given genuine consent, of their own free will. It therefore appears obvious that where one or both parties is mistaken about some aspect of the contract being entered into, that party cannot be said to be consenting to it – they think the consent is to something different. However, the common law rules of contract take a rather restrictive view of the sort of mistake which negatives consent, and there are many types of mistake which, to the ordinary person, would suggest that one party was not truly agreeing to the contract, but which would not in law prevent the contract from being legally binding.
The common law rules on mistake can operate rather harshly, but they are mitigated to some extent by the fact that the courts have developed parallel rules in equity: where a mistake will not make a contract void under common law, it will sometimes make it voidable in equity.
General Principles Applicable to Mistake in Contracts
- Objective principle: When deciding whether or not there has been a mistake sufficient to make the contract void, the courts will look at the facts objectively. They do not ask what the parties themselves believed they were agreeing to, but what an onlooker would have thought each was agreeing. The Smith v Hughes (1871) case is illustrative of this position.
- The mistake must precede the contract: In order for a contract to be void, a mistake must be made before the contract is completed. This was the position held by the Court of Appeal in the case of Amalgamated Investment & Property Co Ltd v John Walker & Sons Ltd (1977).
- The mistake must induce the contract: A mistake can only negate consent if it induced the mistaken party to enter into the contract. If a party thinks there is a possibility that they may be mistaken, but takes the risk, or is indifferent about that particular matter, the validity of the contract will not be affected.
- Mistake of fact or law: In the past, only a mistake of fact could affect the validity of a contract, a mistake of law was not sufficient. Thus if you made a mistake as to the cost of an item in a shop you might expect the shop to refund the excess amount when you discovered the mistake.However, the House of Lords held that the remedy of restitution would now be available where there had been a mistake of law in the case of Kleinwort Benson Ltd v Lincoln City Council (1998).