Mistake, Duress, Undue Influence and Illegality — SQE1 FLK1 Contract Law

A man walks into your client's car showroom and gives the name of a local businessman your client recognises. Business card, driving licence, both false. Your client takes a cheque for £60,000 and hands over the car. A week later the cheque bounces, the man has gone, and the car has been sold for cash to a private buyer who knew nothing. Does your client get it back? No.

One word decides that, and almost everything else here. Void, or voidable. This is Mistake, Duress, Undue Influence and Illegality: the vitiating factors. Four ways a contract that looks perfectly formed can come apart, because consent was flawed. Keep your client and his missing car in mind. We are coming back for them.

Here is the route. Mistake first, in three shapes: common, mutual and unilateral. Then the plea about a signature, non est factum. Then duress, in its three categories. Then undue influence, and the bank that lends against the family home. And finally illegality: statutory, common law, restraint of trade and severance.

Start with the distinction that decides everything here. A void contract is a nullity. It never existed, so no title passes through it, and nobody down the chain takes anything. A voidable contract is real and binding until the innocent party rescinds it. Title passes. If it reaches a good-faith buyer before rescission, that buyer keeps the goods.

Duress and undue influence always make a contract voidable. Illegality makes it unenforceable. Mistake is the one to watch, because an operative mistake makes a contract void, and most mistakes are not operative. Every question here walks down one side of that fork.

Common mistake, or shared mistake, is where both parties make the same mistake about an existing fact. They agree with each other, and both are wrong. Three categories. Res extincta: the subject matter does not exist. Corn sold after it had perished, and the contract void. s 6 of the Sale of Goods Act 1979 says the same for specific goods that perish without the seller knowing.

Res sua: you contract to buy what you already own. In one leading case a man took a lease of a fishery that, unknown to everybody, was already his in equity. And third, the one that gets litigated: mistake as to quality. The thing exists. Both parties are wrong about it.

This case sets the bar. Bell v Lever Bros, 1932. A company paid a director £30,000 to walk away from his contract, not knowing it could have dismissed him for nothing. Thirty thousand pounds for something available free. Void for mistake? No. Lord Atkin said the mistake must make the subject matter essentially and radically different from what the parties believed.

That threshold is brutal. The test is not whether the parties would have bargained differently had they known. It is whether the mistake made the thing different in kind. Very few claims survive. The modern lead came from the Court of Appeal in 2002, on a vessel hired for a rescue on the assumption it lay close to the casualty. In fact, 410 miles away.

That court set out four requirements. A common assumption that a state of affairs exists. No warranty by either party that it does. No fault on either side. And the limb that decides most cases: performance must be impossible, or essentially and radically different.

It also closed a back door. A 1950 decision had let equity set a contract aside on terms where the mistake fell short of voiding it. That was overruled. There is no middle ground. If an option offers equitable rescission for common mistake, it is wrong.

Mutual mistake is the cousin. Both parties are mistaken, but each in a different way. Cotton sold as arriving on the ship Peerless, and there were two ships called Peerless. No consensus ad idem, no contract. But the test is objective: if a reasonable reader can pin the words to one meaning, that is the contract.

Unilateral mistake now. One party is mistaken and the other knows, or ought to know, it. Two flavours: identity and terms. Identity first, and here is your showroom owner again. Everything turns on whether his contract with the rogue was void or voidable.

Face to face, there is a strong presumption that you intend to deal with the person in front of you, whatever name he gives. Lewis v Averay, 1972. A rogue posing as the actor Richard Greene bought a car with a bad cheque and sold it on. Voidable for fraud, not void for mistake. The third party kept the car. Your showroom owner loses.

Now change one fact. Take the parties apart and put them on paper. Cundy v Lindsay, 1878. A rogue called Blenkarn wrote to a firm of manufacturers, dressing his name and address up to resemble Blenkiron and Company, a business they trusted. They sent the goods. He sold them on. The contract was void, no title passed, and the buyer handed the goods back.

A third variation, from 2003. A rogue signed a written hire-purchase agreement in another man's name, using a stolen driving licence. The House of Lords held it void, by three to two, because the written document named one specific person.

Which brings the real distinction into view, the hardest line here. Identity, or attributes. For a contract to be void, the mistaken party must have meant to deal with one identified person, and identity must have mattered. A mistake about what someone is like, his solvency, his standing, goes to attributes. Fraud, and voidable.

Try one. A supplier sells a machine on credit to a real company whose director produced forged accounts. The company resells it for cash before the fraud comes out. Void, or voidable? Voidable. The supplier dealt with the very company it meant to deal with. The cash buyer keeps the machine.

Mistake as to terms is quicker. A seller quoted hare skins per pound instead of per piece, roughly three times cheaper, and the buyer snapped it up without a word. No contract. You cannot accept an offer you know is mistaken.

Then non est factum, which means this is not my deed. The plea that a signed document was fundamentally different from what you believed, and if it works it is void. Three requirements: a disability that stopped you understanding it, a document radically different in kind, and no carelessness.

Duress. Illegitimate pressure that causes a party to contract when they otherwise would not. The contract is voidable, so the victim can rescind. Three categories. Duress to the person. Duress to goods, the same idea aimed at property, rarely examined. And economic duress, which is not.

Barton v Armstrong, 1976. A company chairman threatened to have a director killed unless the director agreed to buy his shares. Voidable. Here is the rule worth carrying. The threat need not be the sole reason, or even the main one. One of the reasons is enough, and the burden shifts to the threatener to prove it had no effect.

Economic duress is illegitimate commercial pressure used to force the other party into terms. It was recognised where a trade union blacked a ship in port until the owners paid into a welfare fund. That payment came back. Four requirements. First, illegitimate pressure, beyond ordinary commercial bargaining; a threat to breach the contract in bad faith usually qualifies.

No reasonable alternative: could the victim have found another supplier, gone to court, or simply refused? Causation: the pressure must be a significant cause, though not the only one. Protest is evidence, not a requirement. And the emphasis is on illegitimate pressure, not coercion of the will.

Can a threat to do something lawful be duress? In 1994 the Court of Appeal said no, where a supplier threatened to withdraw a credit facility it was entitled to withdraw. Between commercial parties of equal standing, that was not illegitimate. The Supreme Court confirmed in 2021 that lawful act duress exists but is very narrow.

Undue influence is equity's contribution, and it works differently. Duress asks about pressure. Undue influence asks about the relationship, and about trust and confidence abused. The contract or gift is voidable. The House of Lords restated it in 2001 and split it into two classes.

Class one is actual undue influence: you prove on the evidence that it was exerted. No trust and confidence to establish, no disadvantage to show. It is hard to prove, so most claimants go the other way.

Class 2A is the automatic list, where the law presumes the influence irrebuttably. Parent and child. Solicitor and client. Doctor and patient. Religious adviser and follower. Guardian and ward. Trustee and beneficiary. What is irrebuttable is the influence, not its abuse, so the claimant must still show a transaction calling for explanation.

And now the trap. Husband and wife is not on that list. Neither is bank and customer. Class 2B is how you get there instead. Prove a relationship of trust and confidence on the facts, and a transaction that calls for explanation. Then the burden shifts to the other side.

That phrase replaced the older language of manifest disadvantage, from a 1985 decision. The question is whether this is a transaction you would not ordinarily expect. A wife guaranteeing her husband's business debts by charging the matrimonial home is the standard example. It need not be unfair, just unexpected. Rebutting the presumption usually means independent legal advice, but advice is not a magic word. The court asks whether it was competent, and whether she understood and acted on it.

Which takes us to the scenario the examiners love. A wife charges the family home for her husband's business borrowing. Can she set that charge aside against the bank? It turns on whether the bank was put on inquiry. Royal Bank of Scotland v Etridge, 2001.

A lender is put on inquiry whenever a wife stands surety for her husband's debts, and wherever the relationship between surety and debtor is non-commercial. Husbands. Cohabitants. Partners of either sex. An adult child charging property for a parent. It must then take reasonable steps to satisfy itself that consent was properly obtained.

The steps are a checklist. The bank writes to the surety directly, saying it needs a solicitor's confirmation that she has been independently advised. It gives that solicitor full financial information. He meets her alone, without the debtor, explains the documents and the risks, and confirms in writing. Do that, and the bank is protected even if the husband did exert undue influence.

Illegality last, with two roots: statute and the common law. Where a statute expressly prohibits a type of contract, it is void and unenforceable. But most statutes are not so direct. They penalise conduct and say nothing about contracts, so ask what Parliament was aiming at. Prohibition, or regulation?

Test yourself. A statute makes it an offence, punishable by a fine, to do building work without a licence. An unlicensed builder finishes a job and sues for the price. Does he recover? Yes. A licensing requirement backed by a fine regulates who does the work, not the bargains they make.

At common law some contracts are illegal in themselves. Contracts to commit a crime. Contracts to defraud HMRC. Contracts that corrupt public life, like buying a public office. Contracts prejudicial to the administration of justice. And restraint of trade, which earns its own minute.

A clause restricting someone's freedom to carry on their trade is prima facie void. It is enforceable only if the party relying on it shows it is reasonable between the parties and in the public interest. Context decides how hard that is.

Employer against departing employee: protect trade secrets, customer connections, workforce stability, and the clause is read strictly against the employer. No wider than reasonably necessary in scope, geography and duration. Sale of a business is judged more generously, because the buyer paid for the goodwill.

Now the reform that changed illegality. Patel v Mirza, 2016. Patel paid Mirza £620,000 to bet on shares using inside information, a criminal offence. The bets were never placed. He wanted his money back, and the Supreme Court let him have it.

What that swept away was a rigid rule. A claimant who had to rely on his own illegality used simply to lose, and the outcome turned on how the claim was pleaded. Now the court weighs a range of factors, asking whether allowing the claim would harm the integrity of the legal system.

Three factors. The purpose of the prohibition broken, and whether denying the claim would serve it. Any other public policy that allowing it would weaken. And proportionality, since punishment belongs to the criminal courts. Seriousness, centrality and intention all feed in.

One more distinction on effect. A contract illegal as formed, both parties knowing the purpose, is unenforceable by either. Lawful as formed but performed illegally, and the innocent party may still enforce. And where only part of a contract is illegal, the court may cut out the bad part and enforce the rest. That is the blue pencil test: the court deletes words, but never rewrites the clause.

A word on how SQE1 tests this. You will not be asked to recall case names or section numbers. You get a scenario, five answers, and one instruction: pick the best. Learn the rules. The names in this episode are memory pegs, nothing more.

If you keep only three. Bell v Lever Bros, for the £30,000 that bought nothing, and the threshold no mistake as to quality gets over. Cundy v Lindsay set against Lewis v Averay, because that pair decides who keeps the goods. And Royal Bank of Scotland v Etridge, for the checklist a lender must follow.

Four traps. One: identity or attributes. A mistake about who you are dealing with can void a contract. A mistake about what they are like, their solvency, their standing, cannot. It makes the contract voidable, and an innocent buyer who gets in first keeps the goods.

Two: voidable means you must act. Duress and undue influence both make a contract voidable. Affirm once the pressure lifts, by performing or taking benefits without complaint, and the right to rescind is gone. In one case duress was proved and the claimant still lost, having waited eight months after delivery.

Three: non est factum almost never succeeds, and carelessness is usually why. Four: husband and wife is not a Class 2A relationship, and neither is bank and customer. And a habit for the exam: name the factor, say void, voidable or unenforceable, apply the test, then ask what it means for the third party.

Quick check. Your client has been married twenty years and always left money matters to her husband, signing whatever he puts in front of her. His restaurant is failing. He asks her to sign a guarantee of its borrowing and a charge over the house they own together. She signs both without reading. The bank deals only with him, never writes to her, and asks nobody to confirm the documents were explained. The restaurant closes, and the bank wants possession.

Three candidate answers. One: non est factum, because she signed documents she had not read. Two: undue influence, because her deference and this charge raise a presumption the bank ignored. Three: nothing, because a lender owes no duty to a spouse who signs without reading. Pause here if you want a moment.

The answer is two. Marriage is not on the automatic list, but twenty years of leaving every money matter to her husband proves trust and confidence. Charging the family home for a failing business calls for explanation. The presumption arises against him.

It bites the bank because a lender is put on inquiry the moment a surety in a non-commercial relationship charges her property for the debtor's debts. This bank took none of the steps. Option one fails because that plea needs a document radically different in kind, and a signer who was not careless. Option three fails because being put on inquiry is what creates the duty.

Five things to take away. One: void or voidable is the spine. Void means no title ever passed. Voidable means title passed, and a good-faith buyer who bought before rescission keeps the goods. Two: for common mistake, essentially and radically different, or nothing. No equitable safety net.

Three: your showroom owner lost because he dealt with the man in front of him, so the contract was voidable, not void. On paper, dealing with a real named firm, it would have been void. Four: duress and undue influence are voidable, so act promptly, and for a lender the Etridge steps are the whole answer.

Five: illegality has no rigid rule any more. The court weighs a range of factors, asking whether allowing the claim would harm the integrity of the legal system. Next time, Discharge of Contract.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.