by Lorna Richardson, Senior Lecturer in Commercial Law, University of Edinburgh
Introduction
Error is often described as one of the most complex parts of the law of contract. The reason for this is the clash between two opposing interests. On the one hand, a will-based theory of contract focuses on the parties being bound by having, of their own will, chosen to enter into the contract. As such, subjective will is significant. If, due to an error, a party entered into a contract believing something about the contract to be true which was not, she did not intend to be bound to the contract she ultimately entered into. On a will-based approach then, the party in error should not be bound by the contract. On the other hand, however, is the need to uphold contracts that have objectively been entered into. This is important for reasons of certainty. Parties need to be able to arrange their affairs on the basis of what the contract seems to require. It also protects the interests of the party who was not in error in entering into the contract. In framing and shaping the rules on error a legal system must thus seek to balance both positions and to adequately protect the interests of both parties.
In most legal systems it is not any error that can be used as a basis to challenge the validity of a contract. The error must generally relate to something important in relation to the contract. [1] For instance, the DCFR provides for avoidance where, but for the mistake, the mistaken party would not have concluded the contract, or would have done so only on fundamentally different terms (Art II-7:201). Many legal systems provide that an error by one party is not of itself enough to challenge the contract and they require something more, such as the mistake being shared or caused by the other party to the contract.[2] In order to protect the interests of both parties some systems, such as Germany and Greece, allow a party in error to avoid the contract but require her to pay damages to the other for losses caused due to the latter’s reliance on the contract.[3] There is therefore a spectrum between requiring full subjective consent to a contract for it to be upheld, on the one hand, and upholding all contracts objectively entered into, on the other.
Error in Scots Law
In an article recently published in the Edinburgh Law Review [4] I argue that error in Scots contract law is in an unsatisfactory state and make suggestions as to how the law should develop going forward. The article shows that difficulties in this already complicated area of law were exacerbated in Scots law by the importation, in 1890, of the doctrine of innocent misrepresentation from English law, on the back of an expanded notion of essential error. In English law mistake and misrepresentation are separate doctrines, yet when innocent misrepresentation was introduced to Scots law it was as part of the law of error. In two Scottish appeals to the House of Lords the court opined that to be operative an essential error had to be induced by the misrepresentation of the other party to the contract. The misrepresentation need not be fraudulent and any error that induced the party to contract was relevant. This resulted in confusion, which lasted for decades, as to the meaning of ‘essential error’, such an error being a pre-requisite to challenge the validity of a contract. During this time it was unclear whether an uninduced unilateral error (that is an error of one party only, which has not been caused by the other party to the contract or someone acting on her behalf) could ever be a basis on which to challenge a contract. Indeed, in the mid-1950s TB Smith concluded that,
At present, it is altogether impossible to reconcile conflicting statements contained in the decided cases and in the writings of leading authors … As matters stand, there is considerable doubt … as to when a contract is rendered void or voidable in consequence of error; as to when unilateral error may be operative; and as to the definition of ‘essential error’.[5]
In the early 2000s, it became clear that an uninduced unilateral error could not, without more, be the basis of challenge. Dubbed ‘error plus’ by McBryde[6] there needs to be more than simply the mistake of one of the parties to the contract. In this way, Scots law favours the protection of the party not in error, upholding contracts, and furthering legal certainty. In the article I consider the five established instances of error plus: (1) where the error is shared by both parties; (2) where the error is induced by the other party to the contract (misrepresentation); (3) where the party not in error does not induce it in the other party but knows that the other is in error and takes advantage of it in entering into the contract (so-called ‘snatching at a bargain’); (4) where the contract relates to gratuitous obligations; and (5) where the parties make different mistakes such that it prevents consenus in idem, sometimes referred to as ‘mutual error’.
How the Scots law of error should develop
In the article I argue that instances (2) and (5) should not be categorised within the law of error. In relation to (2), that is misrepresentation, while initially introduced to Scots law as part of the law of error, it has developed into a separate, stand alone, basis for challenging a contract in Scots law, with its own well-developed legal rules. There is therefore no need for it to continue to be tied to the law of uninduced error. Indeed, given the different focus of misrepresentation, with the emphasis on what the misrepresentor has said or done and whether that induced the other party to enter into the contract, rather than on whether the misrepresentee was in error its connection to the law of error falls away. In my view, instance (5), mutual error, is not a situation of error but of a failure to reach consensus and thus should more properly be dealt with as part of the law on formation of contracts.
That leaves a ‘pared down’ law of error in Scots law limited to instances (1), (3) and (4). In relation to (1) shared error, the legal rules are fairly uncontroversial and well understood. Where the parties make the same mistake about an essential element of the contract, it is void. Regarding (3) the article suggests that the basis for snatching at a bargain is good faith and that, going forward, it should operate by considering whether a reasonable person in party A’s position could be said to know of party B’s error. This could be as a result of negotiations between the parties in the run up to contract formation[7] but could also arise where the error is obvious, either in general or to someone working in the same market or industry as A. While this makes the availability of challenge for this category of error wider than as previously conceptualised, it is suggested that this rationale encapsulates all cases currently involving snatching at a bargain, and that this remains within acceptable limits given the error must be one that goes to the root of the contract (as to which see below) and the error must be obvious, not simply suspected.
In relation to (4) gratuitous obligations, the error of the grantor of the obligation alone has been held as enough to challenge the validity of a contract. However, I argue that the focus on the grantor’s error or consent fails to give adequate consideration to the position of the grantee, whose position might be adversely affected if she has relied on the gratuitous obligation.[8] The fact that the contract is gratuitous for the grantee is not necessarily a reason against protecting her interests. This is especially important in Scots law which recognises the validity of unilateral promises and rights in favour of a third party. Drawing on the rules governing those obligations, I argue that a mistaken granter should be able to challenge the contract but that consideration should be given to her knowledge of, or reasonably foreseeable reliance by, the grantee, who would be adversely affected to a material extent were the contract to be avoided.
A unifying basis for the law of error
The article also seeks to identify a unifying basis for the law of error. While, as noted above, consent plays an important role, it can be seen that good faith has a strong influence also. This has more recently become apparent following clarification that snatching at a bargain remains a basis upon which a contract can be challenged.[9] In that situation, the party knowing of the other’s mistake and using it to her advantage in entering the contract, is not considered to be acting in good faith. Furthermore, based on my analysis of the treatment of gratuitous obligations, I suggest that reasonable reliance ought to play a role also. Protecting reasonable reliance is evident in other parts of the law of contract, such as the rules on formation and interpretation of contracts where a largely objective approach is utilised. Thus, consent, good faith and reasonable reliance together ought to be the factors that shape the law of error, and any emerging error plus categories, in the future.
What errors suffice?
As noted above, it is generally not any error that can be used as a basis to challenge the validity of a contract. In Scots law it was said that there needed to be an essential error. Yet, given the difficulties noted above regarding the meaning of essential error, I suggest that that phrase should no longer be used and instead argue that we should ask whether the mistake goes to the root of the contract.[10] This approach has a number of benefits. Firstly, it discards the baggage associated with ‘essential error’. Secondly, it prevents the need to shoehorn a mistake into Bell’s five categories of error in substantials (subject of the contract; party with whom one is contracting, when personal identity is essential; price; quality of the subject, if expressly or tacitly essential to the bargain; and the nature of the contract). Finally, asking whether something goes to the root of a contract is familiar to contract lawyers, who ask the question in respect of breach to determine whether the remedy of rescission (termination) is available.
Effect of error on the contract
Finally, the article considers the effect of unilateral uninduced error on the contract – is it void or voidable? On this matter there are conflicting views. Until the mid-20th century the weight of opinion was that an essential error rendered the contract void. After that time it became more doubtful, with it being said:
In theory unilateral error in substantials should, by excluding consent of the party in error, render an agreement void, whether or not that error has been induced by misrepresentations of the other party, but the authorities on this matter seem to be so confused.[11]
I suggest that the effect should be that the contract is voidable rather than void. This helps protect the certainty of commercial transactions, with voidable contracts being valid until challenged. To hold a contract void due to uninduced unilateral error arguably goes too far in protecting the party in error and does not do enough to recognise the position of the other party. Indeed, it is anomalous to hold that in a case of snatching at a bargain the contract is void where party A did not cause but knew of B’s error when entering into the contract, whereas if A had caused B’s error by misrepresentations the contract would be merely voidable. Finally, the contract being voidable accords with the rule found in the DCFR and many European and Nordic jurisdictions.
Conclusion
Given the very real difficulties in simply understanding what the Scots law of error was for most of the 20th century, there has been no analysis of what the law of error ought to be. My recent article seeks to fill that gap in order that error can develop in a theoretically and doctrinally sound manner, to deliver a concept fit for the 21st century.
[1] See the comparative notes to Art II.-7:201 (especially note II) in the full edition of the DCFR, C von Bar and E Clive (eds), Principles, Definitions and Model Rules of European Private Law, Draft Common Frame of Reference (DCFR), 2009, p 464 – 477.
[2] See the comparative notes to Art II.-7:201 (especially notes III and IV) in the full edition of the DCFR, C von Bar and E Clive (eds), Principles, Definitions and Model Rules of European Private Law, Draft Common Frame of Reference (DCFR), 2009, p 464 – 477.
[3] §122 BGB and Art 145 Greek Civil Code.
[4] L Richardson, ‘Error in the Law of Contract: Shaping a Doctrine Fit for the 21st Century’ (2025) 29 Edin LR 1.
[5] TB Smith, ‘Error in the Scots Law of Contract’ (1955) 71 LQR 507 at 507.
[6] WW McBryde, ‘Error’ in K Reid and R Zimmermann, A History of Private Law in Scotland (2000) 77 at 100.
[7] This was the theory promulgated by Prof Thomson as a basis for explaining this category of error: see JM Thomson, ‘Error Revised’ 1992 SLT (News) 215.
[8] L Richardson, ‘Error in the Law of Contract: Shaping a Doctrine Fit for the 21st Century’ (2025) 29 Edin LR 1 at p24-25.
[9] Wills v Strategic Procurement (UK) Ltd [2013] CSOH 26, 2016 SC 367.
[10] L Richardson, ‘Error in the Law of Contract: Shaping a Doctrine Fit for the 21st Century’ (2025) 29 Edin LR 1 at p 19-20.
[11] Steel’s Trustee v Bradley Homes (Scotland) Ltd 1972 SC 48 per Lord Dunpark at 56.
