Chapter 7Introduction to the law of contractThe principles set out in Saunderswill apply to a per-
son who signs a blank form (United Dominions Trust
Ltdv Western(1975)).
Mistake in equity
At common law, mistake only rarely invalidates a con-
tract. It may, nevertheless, be possible for the court to
apply equitable principles to achieve a measure of justice
in the case. A court may grant the following forms of
equitable relief.
1 Rescission on terms.The court may be prepared to
set aside an agreement, provided the parties accept the
conditions imposed by the court for a fairer solution to
the problem. 3 Specific performance.A court may refuse to grant an
order of specific performance against a party who made
a mistake, if it would be unfair to enforce the contract
against him.Misrepresentation
The formation of a contract is often preceded by a series
of negotiations between the parties. Some of the state-
ments made may later turn out to be false. The nature of
the statement will determine whether a remedy is avail-
able and, if it is, the type of remedy (see Fig 7.2).
A false statement, which is not incorporated into the
contract, is known as a misrepresentation. A misrep-
resentation is a false statement made by one party which
induces the other to enter into a contract. As a general
rule, a positive statement must be made; keeping quiet235advanced £2,000 to Lee on the strength of the deed.
Mrs Gallie brought an action against Lee and the build-
ing society claiming that the deed was void. She pleaded
non est factum. She succeeded at first instance against
both Lee and the building society. However, the building
society won on appeal to the Court of Appeal. Then Mrs
Gallie died and an appeal to the House of Lords was
brought by Mrs Saunders, the executrix of her estate.
The House of Lords held that the plea of non est factum
must fail. Although her signature had been induced by
fraud, the document she signed was not fundamentally
different from that which she thought she had signed.
Moreover, persons wishing to plead non est factummust
show that they exercised reasonable care in signing. Mrs
Gallie had not taken the trouble to read the document.Gristv Bailey(1966)Bailey agreed to sell a house to Grist for £850. The price
was based on both parties’ belief that the house had
a sitting tenant. The value of the house with vacant
possession would have been about £2,250. Unknown to
the parties, the tenants had died and their son did not
stay on in the property. The judge held that the contract
was not void at common law but he was prepared to set
the contract aside provided Bailey offered to sell the
property to Grist for the proper market price of £2,250.2 Rectification.If a mistake is made in reducing an oral
agreement into writing, the court may rectify the docu-
ment so that it expresses the true intention of the parties.
In the following case the Court of Appeal was asked to
consider a trial judge’s decision to order rectification.
George Wimpey UK Ltdv VI
Construction Ltd(2005)
Wimpey had entered into a contract to buy land from VI
Construction for the development of residential flats.
During the negotiations, it had been understood that
Wimpey would pay an ‘overage payment’ if the overall
sale prices of the flats exceeded a base amount and a
formula was proposed which took into account the value
of enhancements to each flat (referred to as ‘+E’). How-
ever, the contract omitted ‘+E’. The omission benefited
VI Construction by approximately £800,000. Wimpey
brought an action against VI Construction for rectifica-
tion of the contract based on mistake. The trial judge
concluded that there had been a unilateral mistake and
ordered rectification of the contract to include ‘+E’. VI
Construction successfully appealed. The Court of Appeal
held that it was not open to the trial judge to infer dis-
honesty on the part of VI Construction’s surveyor and
director and Wimpey had not discharged the onus on it
of providing convincing proof that VI Construction had
actual knowledge of Wimpey’s mistake. The court noted
that Wimpey was one of the country’s largest construc-
tion and development enterprises and therefore very
experienced in these matters whereas VI Construction
had no relevant experience. Peter Gibson LJ concluded:
‘I recognise that the mistake has had serious conse-
quences for Wimpey and brought a benefit to [ VI Con-
struction] which it did not foresee in putting forward the
formula. But it is not determinative of whether Wimpey
can successfully invoke the exceptional jurisdiction to
rectify for mutual mistake.’