Mistakes of fact which render a contract void

1. Mistakes concerning the subject-matter of the contract, for example the property sold, can render the contract void if sufficiently serious. A mere mistake as to the nature or value of the subject-matter will not be enough (see above).

A mutual mistake as to the identity of the subject-matter will render the contract void. A mutual mistake will occur where the parties are, unknown to each other, thinking about different things. Neither is right, neither wrong; they are simply at cross purposes, and have never really agreed.

In Raffles v. Wichelhaus (1864), a cargo of cotton was described as being on the SS Peerless from Bombay. There were in fact two ships of that name sailing from Bombay with an interval of three months between them. The seller intended to put the cargo on the second ship, while the buyer expected it on the first. The contract was held void.

A fundamental common mistake about the subject-matter may, exceptionally, also render the contract void. A common mistake occurs where both parties are under the same misapprehension: both are wrong. The clearest instance of this is where, unknown to both parties, the subject-matter does not exist.

In Associated Japanese Bank Ltd v. Credit du Nord S.A. (1988), Mr В fraudulently 'sold' some machinery to Associated Japanese Bank ('AJB') and leased it back. Credit du Nord ('CZW) contracted with AJB to guarantee that Mr В would pay the rent. In fact, unknown to both AJB and CDN, there was no machinery. The contract of guarantee was held void for common mistake.

In Couturier v. Hastie (1856), the action was based on a contract to sell a cargo of wheat which, unknown to both seller and buyer, no longer existed. The action failed.

Similarly, in Galloway v. Galloway (1914), a separation agreement between 'husband' and 'wife', disposing of property between them, was held void when it was discovered that they had never legally been married.

In Bell v. Lever Brothers Ltd (1932), however, the common mistake was not sufficiently fundamental. Agreements to make large severance payments to senior employees who were losing their jobs were made on the assumption by all parties that the men were entitled to some payment. In fact, they could have been sacked for misconduct and without compensation. Nevertheless the compensation agreements were held valid. The mistake only affected the value of the old contracts of employment.

2. Mistaken signing of written documents may, exceptionally, be a nullity. Three elements must be present if the contract is to be void: the signing must have been fraudulently induced, the mistake must be fundamental, and the signer must prove that he or she has not been negligent. A person attempting to avoid liability under a contract on these grounds is said to plead non est factum (it is not my act).

In Foster v. Mackinnon (1869), a rogue induced Mackinnon, an old gentleman with weak sight, to sign a document which Mackinnon thought to be a guarantee. In fact he was indorsing a bill of exchange for £ 3000 thereby incurring personal liability for this amount. It was held that, so long as he had not been negligent, he was not liable on the bill.

Conversely, in Sounders v. Anglia Building Society (1971), a Mrs Gallic intended to assign the lease of her house so as to enable her nephew to borrow money. The assignment was prepared fraudulently by a rogue, Lee, who had promised to arrange the loan. The document which she signed transferred the lease to Lee himself, who mortgaged it to the building society and departed with the proceeds. Mrs Gallie and her nephew received nothing. Mrs Gallie claimed that the original assignment was void for mistake; she had not read it because her glasses were broken, and she had not realized its effect. Her plea failed. She had intended to assign her lease, and her mistake as to the way in which she was assigning it was not so fundamental as to avoid the contract.

3. A mistake by one party as to the identity of the other may sometimes invalidate the contract. If A contracts with В under the impression that he is really dealing with C, the contract will be void if A can prove that his mistake was material; he intended to deal with С and would not have dealt with anyone else. It may be exceptionally difficult for A to prove this, particularly where the parties dealt with each other face to face.

In Phillips v. Brooks (1919), a rogue bought a ring in a jeweller's shop. He then persuaded the jeweller that he was Sir George Bullough, and was, therefore, allowed to take away the ring in return for a cheque. The cheque was dishonoured, and the ring was eventually traced to a pawnbroker. The jeweller claimed that his contract with the rogue was void for mistake, but his claim failed. The jeweller had dealt with the man facing him; the question of identity was only raised when it came to payment.

Again, in Lewis v. Averay (1972), Lewis sold and parted with his car to a rogue who pretended to be Richard Greene, the film actor. The rogue paid by cheque which was dishonoured, and then re-sold the car to Averay. The contract between Lewis and the rogue was not void; Lewis could not prove that he was willing to sell only to Richard Greene and to no one else.

Where the parties did not deal with each other face to face, it may be easier for A to prove that the mistake was material.

In Cundy v. Lindsay (1878), a rogue called Blenkarn ordered linen by post from Lindsay & Co. by pretending to be Blenkiron, a reputable dealer. Blenkarn re-sold the linen to Cundy. Lindsay & Co. were able to recover it (or its value) because the contract with Blenkarn was void. They satisfied the court that they intended to deal only with Blenkiron.

In King's Norton Metal Co. Ltdv. Edridge, Merret & Co. Ltd (1897), on the other hand, the claimants sold goods to a firm called 'Hallam & Co.' which placed an order by post. Hallam & Co. turned out to be a complete fiction; the real buyer was a rogue called Wallis. The contract was not void. If the claimants were willing to deal with an unknown company, without checking, then the identity of the buyer was clearly not sufficiently material.

It will be apparent that most of the cases on mistake of identity are actions between two innocent parties. A will have parted with the goods to a rogue, who will have re-sold to X and departed with the proceeds. If the contract between A and the rogue was void for mistake, A can recover the goods or their value from X by an action for the tort of conversion; otherwise X will normally be entitled to keep the property.