Even when a contract appears to have all the essential ingredients - offer, acceptance, consideration and intention - it can still be set aside if the parties' consent was flawed. These flaws are called 'vitiating factors'. This topic covers four major vitiating factors: mistake, duress, undue influence, and illegality. Understanding whether a contract is void (never existed) or voidable (valid until set aside) is critical for SQE1.
Always distinguish between VOID and VOIDABLE. A void contract is a nullity - it never existed, so no title can pass through it. A voidable contract is valid and enforceable until the innocent party chooses to rescind it. Mistake makes a contract void; duress and undue influence make it voidable. This distinction has huge practical consequences, especially for third-party rights.
A common mistake (also called 'shared mistake') arises where both parties make the same fundamental mistake about an existing fact at the time of contracting. Both parties are in agreement, but their shared assumption is wrong. The key question is whether the mistake is sufficiently fundamental to render the contract void at common law.
Bell v Lever Bros [1932] AC 161 (HL): The company paid £30,000 compensation to terminate a director's contract, not knowing it could have terminated for free due to the director's breach. The House of Lords held the contract was NOT void for mistake - the mistake as to quality was not sufficiently fundamental. Lord Atkin said the mistake must render the subject matter 'essentially and radically' different from what the parties believed it to be.
Bell v Lever Bros sets an extremely high threshold. Even though the company paid £30,000 for something it could have got for free, the mistake was not fundamental enough. The test is not whether the parties would have contracted on those terms had they known the truth, but whether the mistake made the subject matter essentially different in kind. Very few claims succeed under this test.
Great Peace Shipping v Tsavliris Salvage [2002] EWCA Civ 1407 (CA): This is the modern leading authority. A vessel was hired for a rescue operation on the assumption it was close to the casualty. In fact, it was 410 miles away. The Court of Appeal held: (1) common mistake at common law renders a contract void, not voidable; (2) there is no separate equitable doctrine of common mistake allowing the court to set aside the contract on more flexible terms; and (3) the test from Bell v Lever Bros remains the law - the mistake must render performance essentially different from what the parties contemplated.
Great Peace Shipping overruled the earlier case of Solle v Butcher [1950], which had allowed equitable relief for common mistake even where the mistake was not fundamental enough to make the contract void at common law. After Great Peace, the position is: either the mistake is fundamental enough to make the contract void at common law, or there is no relief. There is no middle ground of equitable rescission for mistake.
A mutual mistake arises where both parties are mistaken, but each makes a different mistake - they are at cross-purposes. Neither party is aware of the other's intention. The question is whether, viewed objectively, a reasonable person would find that the parties were in agreement.
The classic case of mutual mistake. A contract was made for the sale of cotton arriving on the ship 'Peerless' from Bombay. Unknown to the parties, there were two ships called Peerless - one sailing in October and one in December. The buyer meant one ship, the seller meant the other. The court held there was no binding contract because there was no consensus ad idem - applying the objective test, a reasonable person could not determine which ship was intended.
Where a mutual mistake is established, the contract is void because there was never a true agreement. However, the courts apply an objective test: if, despite the cross-purposes, a reasonable person would have understood the contract in a particular way, the contract will be binding in that sense. Mutual mistake only negates the contract where the ambiguity is genuinely unresolvable on objective analysis.
A unilateral mistake arises where only one party is mistaken, and the other party knows or ought to know of the mistake. There are two main categories examined in SQE1: mistake as to identity and mistake as to terms.
Mistake as to identity typically arises in fraud cases: a rogue pretends to be someone else, obtains goods, and sells them to an innocent third party. The original owner wants the goods back. If the contract between the owner and the rogue is void for mistake, no title passed to the rogue, so the third party gets nothing (nemo dat quod non habet). If the contract is merely voidable for fraud, title passed to the rogue and could pass to the innocent third party before rescission.
| Scenario | Presumption | Key Case | Outcome |
|---|---|---|---|
| Face-to-face dealing | Presumption: intend to deal with person present | Lewis v Averay [1972] | Contract voidable for fraud, not void for mistake - third party keeps goods |
| Face-to-face dealing | Presumption: intend to deal with person present | Shogun Finance v Hudson [2003] (HL, 3-2) | Distinguished: written hire-purchase agreement named specific person - contract void |
| Distance dealing (correspondence) | Identity crucial - can only intend to deal with named person | Cundy v Lindsay (1878) | Contract void for mistake - no title passed to rogue or third party |
A rogue called Blenkarn wrote letters to Lindsay, deliberately making his name and address look like the reputable firm Blenkiron & Co. Lindsay dispatched goods to Blenkarn, who sold them to Cundy. The House of Lords held the contract was void for unilateral mistake as to identity. Lindsay intended to deal with Blenkiron & Co, not Blenkarn. Since the contract was void, no title ever passed, and Cundy had to return the goods.
A rogue, posing as the actor Richard Greene, bought a car face-to-face from Lewis and paid with a bad cheque. The rogue then sold the car to Averay. The Court of Appeal held the contract was voidable for fraud, not void for mistake. When dealing face-to-face, there is a strong presumption that you intend to deal with the person physically present, regardless of what name they give. The third party (Averay) kept the car.
A rogue used a stolen driving licence to enter a hire-purchase agreement at a car dealer. The written HP agreement was between Shogun Finance and the person named on the licence (Mr Patel). The HL held (3-2) the contract was void - Shogun intended to contract with Mr Patel, not the rogue. The majority focused on the written document which named a specific person. The dissenting Lords (Nicholls and Millett) argued the face-to-face presumption should apply. This remains a controversial decision.
For a mistake as to identity to make a contract void, the mistaken party must show they intended to deal with a specific identified person, and that identity was crucial to the contract. A mistake merely about a person's attributes (e.g., their creditworthiness) is not enough - that makes the contract voidable for misrepresentation/fraud, not void for mistake. The distinction between identity and attributes is notoriously difficult.
The defendants mistakenly offered to sell hare skins at a price per pound instead of per piece (the industry standard was per piece, and per pound was roughly three times cheaper). The buyer snapped up the offer. The court held the contract was void. The buyer must have known of the seller's mistake because the price was so far below what had been discussed in negotiations. Where one party knows the other is mistaken about a term of the contract, the contract is void.
Non est factum ('this is not my deed') is a plea that a signed document is fundamentally different from what the signer believed it to be. If successful, the document is void. The leading case is Saunders v Anglia Building Society [1971] (also known as Gallie v Lee).
The plea almost never succeeds in practice. In Saunders itself, an elderly widow with broken glasses signed a document transferring her house (she thought it was a gift to her nephew). The HL refused the plea because the document was not fundamentally different in character - it was still a transfer of the house. She was also careless in signing without reading. For SQE1, remember the three strict requirements.
Duress is pressure that is illegitimate and which causes a party to enter into a contract they would not otherwise have entered. A contract entered into under duress is voidable - the victim can choose to rescind it. There are three recognised categories: duress to the person, duress to goods, and economic duress.
Duress to the person involves actual or threatened violence. This is the oldest and most straightforward form. In Barton v Armstrong [1976] (PC), a company chairman threatened to have a director killed unless the director agreed to buy his shares. The Privy Council held the contract was voidable. Importantly, the threat need not be the sole or even the main reason for entering the contract - it is sufficient that the threat was one of the reasons. The burden of proof shifts to the party who made the threat to show it had no effect.
Duress to goods involves threats to seize, damage, or withhold goods unless the other party agrees to certain terms. For example, threatening to destroy someone's property unless they sign a contract. This category is less commonly examined but is recognised as a ground for making a contract voidable.
Economic duress is the most important and commonly examined category. It arises where one party uses illegitimate economic or commercial pressure to compel the other to agree to terms. The concept was recognised in The Universe Sentinel [1983] (HL), where a trade union blacked a ship in port and demanded payment to a welfare fund. The payment was recoverable as made under economic duress.
Dyson J set out a comprehensive summary of economic duress principles. He emphasised that the key question is whether the pressure was 'illegitimate' rather than simply whether there was 'coercion of the will'. Factors to consider include: whether the person protested, whether they had a reasonable alternative, whether they were independently advised, and whether they took steps to avoid the contract after entering it.
Can a threat to do something lawful amount to duress? In CTN Cash and Carry v Gallaher [1994] (CA), a supplier threatened to withdraw a customer's credit facility (which it was lawfully entitled to do) unless the customer paid for goods lost in transit. The Court of Appeal held this was NOT duress - the threat of a lawful act in a commercial context between parties of equal bargaining power is not illegitimate. However, the court left open the possibility that a lawful act could amount to duress in exceptional circumstances (e.g., bad faith or exploitation of a vulnerable party).
| Type | Nature of Threat | Key Case | Effect |
|---|---|---|---|
| Duress to the person | Violence or threats of violence | Barton v Armstrong [1976] | Voidable; threat need only be a reason |
| Duress to goods | Seizure/damage/withholding of property | Astley v Reynolds (1731) | Voidable |
| Economic duress | Illegitimate commercial pressure | The Universe Sentinel [1983]; DSND Subsea [2000] | Voidable; must show illegitimate pressure, no alternative, causation |
| Lawful act duress | Threat to do something lawful | CTN Cash and Carry v Gallaher [1994] | Generally not duress in commercial context |
Because duress makes a contract voidable (not void), the victim must act promptly to rescind. If the victim affirms the contract after the duress ceases - for example by continuing to perform or accepting benefits without complaint - they lose the right to rescind. In North Ocean Shipping v Hyundai (The Atlantic Baron) [1979], economic duress was found but rescission was barred because the claimant waited eight months after delivery before complaining.
Undue influence is an equitable doctrine that allows a contract or gift to be set aside where one party has exercised influence over the other to an unacceptable degree. Unlike duress, which focuses on illegitimate pressure, undue influence focuses on the relationship between the parties and the abuse of trust or confidence. A contract entered under undue influence is voidable.
The House of Lords in RBS v Etridge (No.2) [2001] comprehensively restated the law of undue influence. Lord Nicholls identified two classes: (1) Actual undue influence (Class 1) - where the claimant proves on evidence that the other party actually exerted undue influence; and (2) Presumed undue influence (Class 2) - where the relationship and transaction raise a presumption of undue influence that the defendant must rebut.
Actual undue influence requires direct proof that the defendant used undue influence to procure the transaction. There is no need to show a relationship of trust and confidence or that the transaction was disadvantageous. The claimant simply proves, on the balance of probabilities, that the other party exercised improper pressure or influence. This can be difficult to prove, so most cases rely on the presumption.
In certain relationships, the law automatically presumes that one party has influence over the other. The claimant does not need to prove a relationship of trust and confidence - it is irrebuttably presumed from the nature of the relationship. However, the claimant must still show a transaction calling for explanation.
Class 2B applies to any relationship where the claimant can prove two things: (1) a relationship of trust and confidence existed between the parties, and (2) the transaction calls for explanation (i.e., it cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship). If both elements are established, the burden shifts to the defendant to rebut the presumption of undue influence.
Lord Nicholls in Etridge explained that a 'transaction calling for explanation' replaces the old language of 'manifest disadvantage' (from National Westminster Bank v Morgan [1985]). The question is whether the transaction is one that would not ordinarily be expected - e.g., a wife guaranteeing her husband's business debts by charging the matrimonial home. It does not need to be obviously unfair, just one that raises questions.
| Class | Description | What Claimant Must Prove |
|---|---|---|
| Class 1 (Actual) | Direct proof of undue influence | Evidence that the defendant actually exercised undue influence over the claimant |
| Class 2A (Automatic presumption) | Relationship automatically gives rise to presumption | The existence of a recognised relationship (e.g., solicitor/client) + transaction calling for explanation |
| Class 2B (Proven presumption) | Claimant proves relationship of trust and confidence | A relationship of trust and confidence + transaction calling for explanation |
Once the presumption of undue influence arises (Class 2A or 2B), the defendant must rebut it. The most common way is to show that the claimant received independent legal advice. However, independent advice is not conclusive - the court looks at whether the advice was competent and whether the claimant understood and acted on it. The ultimate question is whether the claimant exercised a free and informed choice.
The most commonly examined scenario involves a wife who charges the matrimonial home to guarantee her husband's business debts. The husband exercises undue influence over the wife. Can the wife set aside the charge against the bank? The answer depends on whether the bank was 'put on inquiry' about the possibility of undue influence.
The House of Lords held that a bank is put on inquiry whenever a wife (or cohabitant) stands as surety for her husband's debts. Once put on inquiry, the bank must take reasonable steps to satisfy itself that the wife's consent was properly obtained. The bank should insist that the wife attend a private meeting with a solicitor (not the husband's solicitor) who explains the transaction, its risks, and that she has a choice. If the bank follows the Etridge guidelines and the solicitor confirms the wife has been advised, the bank is generally protected even if undue influence later turns out to have occurred.
SQE1 frequently tests whether a bank can enforce a charge where undue influence is alleged. Always check: (1) Was the bank put on inquiry? (2) Did the bank follow the Etridge guidelines? (3) Did the wife receive proper independent advice? If the bank took reasonable steps, the charge is enforceable even if the husband did exercise undue influence. If the bank failed to take steps, the charge is voidable at the wife's election.
A contract may be unenforceable if it involves illegality - either because it is prohibited by statute, or because it is illegal at common law. The law of illegality underwent major reform with the Supreme Court decision in Patel v Mirza [2016].
A contract may be expressly or impliedly prohibited by statute. Where a statute expressly prohibits a type of contract, it is void and unenforceable. Where a statute does not expressly prohibit the contract but imposes penalties for certain conduct, the court must determine whether the statute was intended to prohibit contracts of that kind, or merely to regulate the activity. If the statute only aims to regulate (e.g., by requiring a licence), the contract may still be enforceable.
A restraint of trade clause restricts a person's freedom to carry on their trade, business, or profession. Such clauses are prima facie void, but may be enforceable if the party relying on the restraint can show it is reasonable in the interests of the parties and reasonable in the public interest.
| Context | Protectable Interest | Standard of Reasonableness |
|---|---|---|
| Employer/Employee | Trade secrets, customer connections, workforce stability | Strictly construed against the employer - must be no wider than reasonably necessary in scope, geography, and duration |
| Sale of business | Goodwill of the business sold | More generously construed - buyer paid for goodwill and deserves protection; wider restrictions may be reasonable |
| Between businesses (e.g., solus agreements) | Varies | Assessed on the facts; exclusive dealing restrictions must be reasonable in duration and scope |
When answering SQE1 questions on restraint of trade: (1) Identify the type of restraint (employer/employee or sale of business); (2) Identify the protectable interest; (3) Assess whether the restraint goes no further than reasonably necessary (scope, geography, duration); (4) Remember that an employer/employee restraint is scrutinised more strictly than a sale of business restraint.
Patel v Mirza [2016] UKSC 42 is the landmark Supreme Court case that reformed the law on the effect of illegality on contractual claims. Patel paid Mirza £620,000 to place bets on RBS shares based on insider information (a criminal offence). The insider information never materialised and the bets were never placed. Patel sought to recover his money. The Supreme Court allowed recovery, departing from the old 'reliance principle' in Tinsley v Milligan.
Before Patel v Mirza, the law applied rigid rules: if a claimant had to 'rely on' the illegality to make their claim, they would fail (Tinsley v Milligan [1994]). This produced arbitrary results depending on how the claim was pleaded. The range of factors approach in Patel v Mirza is now the governing test. However, Lord Toulson's majority approach was criticised by the minority (Lord Sumption) as being too uncertain. Examiners may test awareness of both approaches.
Where only part of a contract is illegal, the court may sever the illegal part and enforce the rest. This is particularly relevant for restraint of trade clauses. The 'blue pencil' test allows the court to strike out the offending words if doing so leaves a meaningful and enforceable remainder without altering the nature of the contract. The court will not rewrite the clause - it can only delete words. If the clause cannot be severed, the entire restraint is void.
| Vitiating Factor | Effect | Key Cases |
|---|---|---|
| Common mistake (fundamental) | Void | Bell v Lever Bros; Great Peace Shipping |
| Mutual mistake (unresolvable) | Void | Raffles v Wichelhaus |
| Unilateral mistake (identity - distance) | Void | Cundy v Lindsay |
| Unilateral mistake (identity - face-to-face) | Voidable (for fraud) | Lewis v Averay |
| Unilateral mistake (terms - other party knew) | Void | Hartog v Colin & Shields |
| Non est factum | Void | Saunders v Anglia BS |
| Duress (all types) | Voidable | Barton v Armstrong; The Universe Sentinel |
| Undue influence | Voidable | RBS v Etridge (No.2) |
| Illegality | Unenforceable (range of factors) | Patel v Mirza |
When facing an SQE1 question on vitiating factors: (1) Identify which vitiating factor is in play; (2) State whether the contract is void, voidable, or unenforceable; (3) Apply the relevant test from the key case; (4) Consider third-party implications - if the contract is void, no title passes; if voidable, title passes until rescission. This is where most marks are won or lost.