Error in the substantials: contracting not?

Following September’s revival of the postal acceptance rule, another favourite of law students studying contract, the invalidating effect of error, leapt into life as well in November 2008.

It all began with a BBC News report on 5 November about how a person who bought a framed Joan Eardley charcoal drawing entitled “Boy with Big Boots” for £22,500 sent it for cleaning, whereupon it was discovered that concealed behind the sketch within the frame was an Eardley oil painting depicting a young boy and worth about four times as much as the drawing.  The views of the seller were not made public, but the anonymous buyer was said to intend to keep both works in his private collection.

Next came the decision of Sheriff Principal J A Taylor in McLaughlin v New Housing Association, 30 October 2008, published 11 November 2008, Glasgow Sheriff Court.   The case was about the exercise by a tenant in social housing of the right to buy under the Housing (Scotland) Act 1987.  The parties agreed a sale price which was produced by a miscalculation on each side under the statutory formula for determining it.  The Sheriff-Principal held that this was a case of mutual (in the sense of shared, or common) error, and that being as to price, it was in the substantials of the contract; meaning that the contract was void.  He relied mainly on McBryde on Contract and Hamilton v Western Bank (1861) 23 D 1033 to support this decision.

Finally, Lord Brodie issued his opinion in Khalid Parvaiz v Thresher Wines Acquisition Ltd [2008] CSOH 160 on 19 November 2008.  Here shop premises were sold by roup, the pursuer at least believing that the subjects included toilet facilities which could only be accessed by way of the shop, when in fact the toilets were not included in the titles.  There is some ambiguity as to whether the pursuer was arguing that this error made the contract void ab initio or merely voidable; but the error being as to the subject-matter, it seems to have been in the substantials.  Lord Brodie allowed the case to go to proof.  The defender had argued that the error being unilateral and uninduced it was irrelevant.  The pursuer argued that the error was either mutual or unilateral and that the defender had not acted in good faith.  Lord Brodie observed that the mere existence of error was not enough to invalidate a contract: there had to be, in Professor McBryde’s phrase, “error plus”.  Hamilton v Western Bank was directly in point and in the pursuer’s favour.  Either the defender was also unaware of the titles’ non-inclusion of the toilets, in which case there was mutual error, with the “plus” factor being its shared nature; or the defender was aware but did nothing to make the position clear to the pursuer before the roup, in which case this lack of good faith might constitute the necessary “plus” enabling the pursuer’s unilateral error to invalidate the contract.  He noted that the pursuer did not suggest that the defender had made any misrepresentations or had known of the former’s error and taken advantage of it.  An inquiry into the facts was necessary before any decision could be given.

What then of the Eardley drawing/painting case, where again the parties shared the error that the subjects sold consisted of a drawing only, rather than a drawing and a painting?  Is the buyer entitled to keep his windfall?  Gloag & Henderson, 12th edition (2007) has the following at para 6.24, under reference to the case of Dawson v Muir (1851) 13 D 843: “[T]hough the point may not be settled beyond question – it is conceived that a sale will stand though the article turns out to have a value which neither seller nor purchaser suspected.”  Dawson is cited and discussed in McLaughlin.  A kiln was sold for £2, with neither party realising that it contained lead worth £300.  It was held that the sale included the lead.  Sheriff Principal Taylor suggests that it was not so much a case of mutual error as one of mutual ignorance, and thus distinguishes it for the purposes of his decision in McLaughlin.  But the distinction between error and ignorance may be rather a fine one here, given that both are about gaps between reality and what people believe to be reality.  How much difference is there between what you think you know and what you just don’t know?  Perhaps Donald Rumsfeld could tell us, but his celebrated dictum on what we don't know doesn’t seem to be a good platform from which to begin legal analysis (see also here for further Rumsfeld-isms). 

Two final observations.  One is simply the very far-reaching nature of Lord Brodie’s suggestion that absence of good faith may be a “plus” factor supporting the invalidating effect of a party’s unilateral error, especially if it goes beyond the situation where the other party knows of the error and takes advantage of it.  The second observation is that both Sheriff Principal Taylor and Lord Brodie follow Professor McBryde in referring to shared error as mutual.  It is respectfully suggested that it is better to describe such errors as “common”, and to reserve the label “mutual” for those (rare) cases where the parties attribute different meanings to some phrase in or term of a contract and are each unaware of the other’s understanding, and the court cannot resolve which is to be preferred even applying the ordinary objective analysis of such matters (see Gloag & Henderson, para 6.23).