Mistakes in Contract Formation

Denny v Hancock (1870)

The plaintiffs had put the property in question up for sale via auction. The defendant had inspected the property before purchasing it and had discovered a fence which contained ‘three magnificent trees’ at its periphery. He had assumed that they were part of the property and therefore bid on it. The trees were actually part of an adjoining property, which was not adequately illustrated in the plan provided by the plaintiffs which was described as ‘conspicuous’ in its nature. The defendant did not wish to purchase the property if it did not include the aforementioned trees, therefore the plaintiffs sought a specific performance order.

In court, it was held that the trees constituted a material element in the value of the property. It was noted that, although the defendant had made a mistake by failing to notice that the trees were not featured in the plans provided by the plaintiffs, that the vendors were not entitled to a specific performance order. This was due to the fact that their conduct had misled the defendant. Ultimately, there is no consensus ad idem, as there is a clear misalignment as to what the parties thought the contract actually includes. It was determined that a reasonable individual in the position of the defendant would have most likely noticed the physical boundary on the ground, represented by the iron fence, and would have assumed that this was the edge of the property for sale. Sir W.M. James LJ also noted that there was ‘crassa negligentia’ by the vendors, due to the nature of the information that they had provided around the sale. Therefore, it would not be possible to enforce a specific performance order.

Tamplin v James (1880)

This is an example of unilateral mistake. The defendant attended an auction in which The Ship Inn was for sale. The particulars of the sale were set out in the auction particulars, which the defendant had failed to examine. The property was not sold at the auction but afterwards the defendant and plaintiff came to an agreement. Before exchanging money the defendant becomes aware of his mistake, he had assumed that the property included two additional plots of land when this was not actually the case. The auctioneers had previously made the boundaries of the property clear at auction. The plaintiffs subsequently sought a specific performance order.

It was held that the defendant would have to go through with purchasing the property despite the fact that there was no consensus ad idem. This illustrates the ‘general rule’ that a party responsible for making an unreasonable mistake will be held to their contractual obligations. Both in first instance and at the Court of Appeal it was held that the vendors were entitled to a specific performance order, as unlike in the case of Denny v Hancock, they were not responsible for inducing the defendant’s mistake in any form. 

Scriven Brothers & Co v Hindley & Co (1913) 

An auctioneers had put a lot up for sale, which comprised of an item called tow. Hindley, the defendant, had bid on the product believing mistakenly that it was hemp. Hemp has a significantly higher value than the actual tow product. As his bid was not matched by anyone else the defendant won at auction. Hindley then refused to go through with the contract due to his mistake. The plaintiffs brought an action to recover the price of the tow.

As the tow had the same shipping marks as another lot which contained hemp, the courts held that this would mislead a reasonable man in the position of the defendant as to what was actually being sold. Furthermore, as the jury found that the auctioned had realised that the purchaser believed that the product was hemp he had actively contributed to his mistake. Due to these factors, the plaintiffs were not entitled to recover the cost of the tow. 

How are these cases associated and how do they differ?

Denny and Scriven: both illustrate mistake on the part of the seller.

Tamplin: evidences general rules where the buyer it at fault.

Denny and Tamplin: sought specific performance orders.

Scriven: sought damages to recover the cost of the product.

Specific performance order: discretionary remedy, just because a SPO is not granted it does not mean that a contract has not been concluded. Whereas, in order to award damages the courts must first determine whether a contract has come into existence.

Crassa negligentia: ‘gross mistake implying negligence’ (http://www.oxfordreference.com/view/10.1093/oi/authority.20110803095646863).

Unilateral mistake: where one party is mistaken as to the contract matter.

Invitations to Treat

   An invitation to treat is a 'mere declaration of willingness to enter into negotiations', it does not represent an 'offer' therefore does not amount to the creation of a binding contract. We will typically be faced with invitations to treat in the negotiation stage of contract development, as often such invitations are a prerequisite to a formalised contract. The reason that invitations to treat do not give rise to contracts is simply due to the fact that there is no intent to establish a legal relationship. Often we will be required to identify where the negotiations process terminates and where a definitive offer is made, the most effective way to do this is to examine the correspondence between the parties.

The best exemplar of case law for this is Gibson v Manchester City Council (1979). Gibson had been invited to make a 'formal application' to purchase his council house after the administration had changed over and adopted a policy of privatisation. The claimant, Gibson, had received a form stipulating that the council 'may be prepared to sell' and requesting that he fill out a form if he wished to apply to buy the house. He did so and believed that he had accepted the council's 'offer'. However, the Labour party came back to power and ceased the selling of council houses before he was able to buy his own. Gibson brought a claim against the council, asserting that a binding contract had been created and that their refusal to sell would amount to a breach.

It was held that the language used by the council, specifically that they 'may be prepared to sell' was not clear enough to constitute an offer. There was also no indication that they intended to be bound to the agreement legally due to the ambiguity in language. Subsequently, the House of Lords found that there was no offer in the first place- meaning that there was nothing for the claimant to accept to give rise to a binding contract. If the council had responded accepting Gibson's 'formal application' then it could be the case that there was indeed a contract. More on this case can be found here: http://www.lawschoolcasebriefs.net/2012/12/gibson-v-manchester-city-council-case.html.

The Origins of Contract Law

   One of the main definitions of a 'contract' engaged with by law students in the United Kingdom is indisputably Treitel's interpretation. This can be found in his book 'The Law of Contract'. He states that a contract is 'An agreement giving rise to obligations which are enforced by law'. However, this statement is met with a series of important qualifications, which serve to highlight why it is so difficult to provide your typified, one sentence long, definition to the word. In English law, there is no set definition of what a contract actually is, perhaps because the law is continually evolving and more heavily based upon the precedent gathered from cases in the past and various works by jurists.

Qualifications to Treitel's definition: 

1. The law focuses strongly on objectivity, as opposed to drawing attention to the actual agreement. 

2. Parties to contracts are expected to conform to certain standards of behaviour, terms can be implied as a matter of law.

3. There must be a qualification based on the principles of the freedom of contract. McKendrick in 'Contract Law' provides an example of this in Parliament's attempts to protect the weaker parties within contracts. The party that can better tolerate the loss should always be the one that procures the greater inconvenience, as this will provide a more efficient and quickly produced resolution.

Why don't we need a clear definition of a contract?

Contract law in the United Kingdom developed from the 'action of the assumpsit', a form of action at common law. This focused on procedural considerations rather than substantive ones. Forms of action were then abolished in 1852 via the Common Law Procedure Act 1854 (http://www.legislation.gov.uk/ukpga/Vict/17-18/125/introduction/enacted). This change in the law coincides with an increase in academic thought around the area of contract, as scholars sought to provide clear principles for existing contract cases. This meant that the procedural components of contract law began to take a backseat as focus turned to the substance of claims.

How can we identify a contract without one?

1. Agreement

The typical approach to contract identification is determining whether there has been an acceptance. The orthodox approach to agreement is noting when an offer has been made and when it has been accepted. This can be considered via assessing whether there are set terms and finality within the supposed contract. There must also be an 'expression of willingness to contract on specified terms' (Treitel). Both parties must also assent to the same terms, otherwise there will not be a contract due to the absence of 'consensus ad idem' (or a 'meeting of the minds'). It would be unfair and inequitable to enforce a contractual relationship without consensus ad idem, as an agreement would be enforced whereby one party may not have even realised what they were consenting to.

2. Consideration

Consideration is 'anything given or exchanged or forborne in return for the promise or undertaking of another'. Ultimately, it serves to protect parties to contracts by ensuring that there is an element of mutual exchange as a guiding principle of contract law is that individuals should not be able to 'get something for nothing'. Contracts can also be identified by determining whether the consideration requirement has been fulfilled. In bilateral contracts, ie. agreements in which both parties exchange mutual promises, each promise is regarded as valid consideration for the other. In unilateral contracts, where an agreement is entered into by one party in exchange for the other party's promise to act, the promise is consideration for the performance and the performance provides consideration for the promise. However, it is key to remember that the need for consideration can be removed when promissory estoppel can be applied, therefore may not be an intrinsic or core counterpart of ALL contracts.

3. Intent to create legal relations

The law takes the stance that people should only be forced to adhere to the contracts that they may have generated when they actually intended to be held to the terms under the law. It would be unfair to force someone who had joked about making a payment of a million pounds when they had not made the statement seriously. This need for intent also serves to maintain efficiency in the courts by ensuring that only serious claims are brought forward.