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Sub-section (8).-- Reality of Consensus. The reality of the consensus of the parties to an agreement may be vitiated by the following circumstances, i.e. (A) Mistake; (B) Misrepresentation, either innocent or amounting to Fraud ; (c) Duress ; and (D) Undue influence. It will be necessary to consider in detail the nature of each of these circumstances, and its precise legal effect upon an agreement.
(A) Mistake.—The principles upon which mistake is held to vitiate a contract, are somewhat difficult in their application. It is necessary in the first place to observe, that inistake must be distinguished from mere forgetfulness, which is not a ground for relief (t). In the next place, mistake affecting the agreement itself must be distinguished from mistake in the expression of the terms of the agreement. In the latter case, no relief, generally speaking, is given unless the mistake was mutual. Cases of this kind usually arise where an agreement has been reduced to writing, and the writing, by clerical error or otherwise, does not properly express the common intention of the parties. In this case, equity will rectify the written con-tract (u). True mistake must also be distinguished from cases of fraud or misrepresentation by the other party to the contract. Such cases come under the heads dealt with later on. Further, a careful distinction must be drawn between mistakes of fact' and of law. Mistake of law is usually not a ground upon which a party can be relieved from a contract. Ignorantia juris non excusat (a). So, money paid under mistake of law, or by compulsion of
legal proceedings, cannot, as a rule, be recovered (y). There are, however, a few exceptions in which relief is given, i.e. (1) mistake as to matters of private right or title (2) ; (2) mistake as to foreign law, which is regarded as a fact (a); (3) mistake of law caused by the other party to the contract, though the limits of this exception are somewhat doubtful (1); and (4) the case of money paid by mistake of law to an officer of the court, such as a receiver, trustee in bankruptcy, or official liquidator (C).
Coming then to mistakes of fact with reference to the agreement itself, as distinguished from the cases hitherto mentioned, the rule is that a contract induced by such mistake may be avoided in the following classes of cases : (1) Where the mistake is as to the very nature of the contract itself, e.g., if A. signs a promissory note thinking that he is merely attesting a deed or other document (d). But such cases are not relievable unless the belief of the mistaken party is not attributable to his own negligence, and therefore can seldom or never arise, except where the mistake has been induced by the fraud of the other contractor or of a third party. (2) Where the mistake is as to the identity of the person contracted with, e.g., where A. agrees to sell goods to B., believing him to be C. (e). Here again, however, relief would probably not be granted, except where B. acted fraudulently in the matter, or knew that A. believed he was contracting with C. and not with B. himself. (3) Where there is a common mistake as to the identity of the subject matter of the contract, e.g., where
(y) Moore v. Fulham Vestry,  1 Q B. 399; Rogers v. Ingham (1876), 3 Ch. D. 351 ; Ward v. Wallis,  1 Q. B. 675.
(z) Cooper v. Phibbs (1867), L. R. 2 H. L. 170; Daniel v. Sinclair (1881), L. R. 6 App. Ca. 181.
(a) Leslie v. Baillie (1837), 2 Y. & C. 91.
(9) Stewart v. Kennedy, supra.
there is a contract for sale of a cargo “ to arrive ex ‘Peerless' from Bombay," and, there being two ships answering that description, the buyer means one and the seller the other (f). (1) Where there is a common mistake as to the existence of the subject matter of the contract, e.g., where A. contracts to sell to B. a cargo of corn, which, in fact, has, at the date of the sale, ceased to exist (g). (5) Where the mistake is as to the intention of the other party and is known to such other party, e.g., if A. agrees to buy from B. certain goods, desiring goods of a particular kind, and believing that B. is promising to sell him goods of that particular kind, and B. knows that. A. has such a belief, though the goods are not, in fact, of the kind in question (h).
On the other hand, it must be remembered that, except in the above cases, a unilateral mistake on the part of one contractor, whether it arises from negligence or ignorance or otherwise, does not entitle him to avoid the contract. So, if A. bids at an auction for a specified lot, thinking that it comprises different property from what it in fact comprises, he is bound; or if A. buys an old edition of Shak-pere from B., believing, in reliance on his own knowledge and without any representation from B., that it is a first folio, he cannot get off his bargain, even though B. was perfectly aware that the book was not a first folio (i). But, even in unilateral mistakes such as these, if the other party seeks equitable relief in the shape of specific performance of the contract, the court will, on equitable considerations of great hardship or otherwise, sometimes refuse to enforce the contract, though the mistake would be no answer to a claim at common law (k).
(T) Rafflesv. Wichelhaus (1863), 2 H. & C. 906.
(9) Couturier v. Hastie (1850), 5 H. L. C. 673.
(h) Smith v. Hughes (1871), L. R. Q. B. 597.
(c) Tamplin v. James (1880), 15 Ch. D. 215 ; Turner v. Green,  2 Ch. 205 ; but see Van Praagh v. Ereridge,  2 Ch. 266 ; reversed on appeal, W. N.,  p. 25.
(1) Malins v. Freeman (1838),
(B) Misrepresentation and fraud.—Where one party to a contract induces the other to enter into it by an untrue representation, the contract is voidable at the option of the party who has been misled. In certain cases, indeed, i.e., where the misrepresentation goes to the root of the contract, it may have the effect of rendering it void ab initio (1), Cases of the latter kind, are, in effect, cases of relievable mistake, and have already been dealt with.
Misrepresentation may be either innocent or fraudulent. Innocent misrepresentation by one party entitles the other party to rescind a contract, and to recover only such damages as will compensate him for out-of-pocket loss, so as to restore him as far as possible, to his status quo (m). In a few exceptional cases, however, damages for loss of bargain may also be obtained even in the case of innocent misrepresentation ; for instance, where a person honestly represents himself as being the authorised agent of another person, when, in fact, he has no such authority (n), and where directors honestly, but on unreasonable grounds, make untrue statements in a company prospectus (o).
Where, however, a misrepresentation amounts to fraud, in addition to a right to rescission, the defrauded party has an " action of deceit,” by which he can recover full damages for loss of bargain or other damage sustained ().
The essential elements, common to both innocent and fraudulent misrepresentation are as follows. (1) There must be an untrue representation of fact, and not merely of
(1888), 13 A. C. 308 ; Hart v. Swain (1877), 7 Ch. D. 42.
(n) Firbankv. Humphreys(1886), 18 Q. B. D. 51.
(0) Directors' Liability Act, 1890, s. 3; Companies Act, 1900, s. 9.
(p) Peek v. Gurney (1873), L. R. 6 H. L. 377; Burrous v. Rhodes,  1 Q. B. 816.
law, or intention, or opinion (9). (2) It must be a definite representation, and not mere “puffing” or general commendation of the subject matter of the contract (-). (3) It must be in a material particular, and calculated to act as an inducement to the contract (s). (1) The other party must be actually misled by it, and induced to enter into the contract in reliance upon it, and must suffer prejudice in consequence (t).
In cases of fraud, a further element is necessary, i.e., the false representation must be made - (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false ; ” in other words, the party making the misstatement must do so without any honest belief in the truth of it. This was finally established by the House of Lords in the great case of Derry v. Peek (u), where the old theory of a supposed distinction between “ legal” and “moral” fraud was exploded, and it was settled, that a misrepresentation honestly believed in is not fraudulent merely because the belief was based on unreasonable grounds (x).
In one class of cases, i.e., representations as to the “ character, conduct, credit, ability, trade, or dealings of any other person, to the intent that such other person may obtain credit," an action does not lie unless the representation was made in writing signed by the party to be charged (y). It should also be remembered, that a
(9) Beattiev. Ebury (1872), L. R. 7 H. L. 102; Ex parte Burrell (1876), 1 Ch. 1). 552 ; New Brunswick Rail. Co. v. Conybeare (1861), 9 H. L. C. 711.
(r) Scott v. Hanson (1826), 1 Sim. 13; out distinguish Smith v. Land Corporation (1884), 28 Ch. D. 7.
(*) Smith v. Chadwick (1884), L. R. 9 App. Ca. 196.
(t) Arkwright v. Newbold (1881), 17 Ch. D. 301 ; Smith v. Chadwick,
supra ; Redgrare v. Hurd (1881), 20 Ch. D. 1; Lagunas Nitrate Co. v. Lagunas Syndicate,  2 Ch. 392.
(u) Derry v. Peek (1889), L. R. 14 App. Ca. 337.
(2) Angus v. Clifford,  2 Ch. 449; Le Lierre v. Gould,  1 Q. B. 491.
(y) The Statute of Frauds Amendment Act, 1828 (Lord Tenterden's Act), s. 6; Clydesdale