Lecture notes
LAWS10078 Contract ERROR- seminar 6
- Module
- LAWS10078
- Institution
- The University Of Edinburgh (ED)
LAWS10078 Contract ERROR- seminar 6
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ERRORIf one, or both, parties to a contract enter into it under some misapprehension of fact, can
the contract be declared invalid on the basis that the agreement would never have been
made if the true situation had been known? This is the basic question to be discussed
under the heading of error, which is one of the most difficult chapters in the whole of
contract.
To be legally relevant, errors must be about facts, or the state of things as they are or have
been, or about the law itself. Mere mis-predictions of the future – for example, buying
shares because I believe that their value will rise in the future given the way I think the
market is going – will not be enough. To make this mistake a legally relevant error so that I
can get out of the contract to buy the shares, I will have to show that I had held wrong
information about the company – how much money it had in the bank, who its directors and
employees were, who it had contracts with, for example. I will then also have to show that
the error caused me to contract and moreover was not my own responsibility. Then, and
only then, can I get out of the contract. In other words, there must be “error plus”, and
mere unilateral error is insufficient for reduction or avoidance of the contract. The law’s
requirements are meant to make it tough to use error to get out of a contract – if it was not
tough, the plea would be all too easy to make, and the stability of contracts would be
seriously undermined.
Stair stated that: “Those who err in the substantials of what is done, contract not.” (Inst I 10
3). But later on he narrowed the compass of this passage considerably:
“But the exception upon error is seldom relevant, because it depends upon the knowledge
of the person erring, which he can hardly prove.” (Inst IV 40 24)
So what was clear was that while difficult to prove, error in the substantials would render a
contract void (see e.g. Sword v Sinclair (1771) Mor 14241). It remained to lay down with
more precision what constituted error in the substantials, or, as it was sometimes known,
essential error. Bell’s formulation was expressly adopted by Lord Watson in the House of
Lords, and is generally regarded as the locus classicus.
“I concur ... as to the accuracy of the general doctrine laid down by Professor Bell [Principles
para 11] to the effect that error in substantials such as will invalidate consent given to a
contract or obligation must be in relation to either (1) its subject-matter; (2) the persons
undertaking or to whom it is undertaken; (3) the price or consideration; (4) the quality of
the thing engaged for; if expressly or tacitly essential; or (5) the nature of the contract or
engagement supposed to be entered into. I believe that these five categories will be found
to embrace all the forms of essential error which, either per se or when induced by the
other party to the contract give the person labouring under such error a right to rescind it.”
[Stewart v Kennedy (1890) 17 R (HL) 25, 28]
,Examples
(1) Subject-matter - A thinks he is buying wheat from B, B thinks he is selling barley to A.
(2) Identity - A thinks he is contracting with B, whereas he is contracting with C
(3) Price - A thinks the price is £1,000, B thinks it is $1,000.
(4) Quality - A thinks he is buying a stallion, when in fact the beast is a gelding.
(5) Nature of Contract - A thinks he is signing a lease, whereas in fact the document is a
guarantee.
But these five categories, while explaining the factors that are required to make an error
‘essential’ and therefore legally relevant, do not distinguish between the situation where
only one party is in error, and the situation where both parties are in error. Nor do they
mention error as to either the law or the legal effect of a contract, which was the principal
issue in reported Scottish cases in the 19th century.
Another classification, taking account of these elements as well, is therefore required.
(a) Common or shared error - a mistaken, shared assumption about the state of affairs on
which the contract is based (note that this does NOT include the case where one party
misrepresents a fact to the other party, deliberately, negligently or innocently).
e.g. In a contract for the sale of a painting, both parties think the painting is in existence
whereas it has been destroyed.
Couturier v Hastie (1856) 5 HLC 673 (agent sells goods thought to be at sea on a ship; in fact,
the master of the ship had already sold the goods to someone else) See also Sale of Goods
Act 1979, s 6 (goods sold no longer exist). Or the person for whom an annuity is purchased
or whose life insurance policy is assigned is already dead (e.g. Scott v Coulson [1903] 2 Ch
249).
Or where both parties misunderstand what is owned by the seller (e.g. Hamilton v Western
Bank (1861) 23 D 1033 (sale of land which both parties thought the seller owned – but he
didn’t).
The contract is generally void (null), unless the existence of the subject matter or the right
was a risk which the parties were speculating about.
(b) Mutual error - misapprehension as to each other’s intention resulting in parties being at
cross purposes.
e.g. X believes that he is selling the 1628 “Madonna and Child”, Y that he is buying the
1630 version which X also owns. i.e. two clashing assumptions, not a shared assumption.
, Here there is no consensus (or agreement), but rather dissensus (misunderstanding).
Normally such errors afford a remedy only where there is some irresoluble latent ambiguity:
Raffles v Wichelhaus (1864) 2 H & C 906 Two ships called “Peerless”; unclear which one
was meant by contract; contract void.
*Stuart v Kennedy (1885) 13 R 221 Sale of stone coping, price stated “1/9d per foot”. S
believed price to be per superficial foot, K per lineal foot. Held contract void.
Otherwise the error is usually treated as irrelevant. If objectively the court can determine
the meaning of the contract (as in Muirhead & Turnbull v Dickson (1905) 7 F 686 – contract
for sale with payment by instalments or hire purchase?), that meaning will be enforced.
The overall approach to unilateral error outlined above has been the subject of severe
academic criticism, however, partly because it departs from older Scottish authority and
follows the English approach, based on concepts of mistake and misrepresentation.
In some cases, however, unilateral error without misrepresentation has led to reduction of
the contract if the situation is one where the other party not only knew of the error on the
other side, but also took unfair advantage of it. Steuart’s Trs v Hart (1875) 3 R 192 (never
over-ruled) has been explained on this basis:
Sale of land which was part of a larger plot. Seller thought that the feu-duty on the lesser
part was £9,15/- per annum; in fact that was the feu-duty for the whole plot, and the lesser
part was due to pay only 3/- per annum. The higher figure was however given in the
contract for the sale; the buyer knew this was a mistake, but kept quiet. Held the contract
was voidable and fell to be reduced.
See however Gloag, p 438:
“It is doubtful how far the principle of these cases – that A is not entitled to accept B’s offer
if he knows B made it owing to a mistake – would be carried. When a book is exposed for
sale in a bookstall it is generally supposed that a collector may buy it at the price asked,
though he knows that it is rare and valuable, and must know that the bookseller is unaware
of its value, and yet, in all essential points, such a case is on all fours with Steuart’s Trs v
Hart.”
(c) Unilateral error - one party only is mistaken as to some element of the contract, and the
other party is aware of the mistake (if he is not aware, the parties are necessarily at cross-
purposes and so it is a case of mutual error).
E.g. X believes the painting he is buying is an original by Ernst, the seller Y knows it is a copy
and knows of X’s mistaken belief.
In general, a unilateral error will not lead to reduction of the contract. The “error plus”
approach requires the error to result from a misrepresentation by the other party (which
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