This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Each of the subjects of fraud, misrepresentation, mistake and non-disclosure must be considered, with reference to its point of contact with the contract. Each of them may (1) concern some one of the essential elements of the contract, or (2) concern some collateral though often material matter, which may involve the qualities or characteristics of the subject of the contract or of the parties thereto; or which may involve some external fact which may, nevertheless, operate as an inducement to the contract. (1) The essential elements of a contract are the parties, the subject-matter, the consideration and the offer and acceptance, which last, in one sense, includes the others. We have already seen in discussing offer and acceptance,1 that the offer as made must be accepted fully and completely, to constitute an agreement. If there is an attempted acceptance by a party other than the one to whom the offer is made, or an acceptance concerning a different subject-matter or consideration, or an acceptance which attempts to modify the terms of the offer, no contract exists. This attempted acceptance, however, may be regarded as a counterproposition which may in turn be accepted by the original offeror by words or acts. The function of fraud, misrepresentation, mistake, or non-disclosure as to an essential element of a contract is to conceal from one or both of the parties thereto the fact that in reality they have never agreed.2
12 Miller v. Thompson, 40 Nev. 35, 160 Ac. 775.
1 See Sec. 284.
1 See Sec. 168 et seq.
"There are two kinds of fraud of which the court takes cognizance: fraud in the consideration and fraud in the execution of the instrument. The latter goes to the question of whether the instrument ever had any legal existence."3 The further function of fraud, misrepresentation, mistake or non-disclosure is to rebut the presumption of offer and acceptance that would otherwise arise from the conduct of the parties. Thus if A makes an offer to B and X accepts, no contract arises. If A acts on X's offer, it would be inferred that A had accepted X's proposition, as that is the legal effect of X's nominal acceptance. A's mistake as to X's identity rebuts the inference that he has accepted X's offer. Like reasoning applies to mistakes in the subject-matter or consideration. If A makes an offer to B, and B attempts to accept with a modification, no contract arises, B's "acceptance" being a rejection with a counter-proposition. If A acts on B's counter-proposition, an acceptance thereof might be inferred from A's conduct. This inference may be rebutted by showing that A, by operative mistake, understood that B had accepted his offer as he made it. Like considerations apply to fraud, misrepresentation and non-disclosure as to an essential element of the contract. They each, in proper cases prevent offer and acceptance from existing where without one of them, the parties would be, by the inevitable legal effect of their conduct, precluded from denying the existence of a contract. Their appearance in an essential element of the contract, therefore, renders it ordinarily void. The principles involved as to fraud, misrepresentation, mistake or non-disclosure concerning an essential element of a contract are discussed most fully under mistake. Indeed some authorities attempt to include them all as forms of mistake. This is incorrect as certain complications, such as negligence lead to different results in some of these subjects from that reached in others. (2) On the other hand, the party to the contract may understand the identity of the adversary party, the consideration, the subject-matter, and the terms of the contract; and may be willing to enter into such contract. His willingness so to enter may, however, be due to an erroneous belief as to some collateral, though possibly highly material matter, which may involve the qualities or characteristics of the subject-matter, or which may involve other facts which, nevertheless, operate as the inducement to the transaction and as the motive for entering into it. This erroneous belief may be caused by fraud, misrepresentation, mistake or non-disclosure. For lack of a better term this may be said to affect a matter of inducement. Such a contract is never void. In some cases it is voidable, in others, valid. It will thus be seen that while fraud, misrepresentation, mistake, and non-disclosure have sharp points of contrast. each with the other, the difference between any two of them is slight when compared with the difference between one of them, for instance, mistake, as affecting some essential element of the contract, and the same defect as affecting some collateral matter. Each of these is more like the others in questions affecting an essential element of the contract than it is like the same defect as affecting a matter of inducement. Accordingly each of these topics will be considered as affecting (1) an essential element of a contract; and (2) a matter of inducement. Matters of inducement will be considered (1) as questions of fact and (2) as questions of law.
2 Thus in speaking of a mistake as to the identity of the realty contracted for the court said': "In this case the minds of the parties never met. The contract in form was not a contract in fact": Crowe v. Lewin, 95 N. Y. 423.
3 Turner v. Bray, 72 Or. 334, 143 Ac. 1011.
"Where parties assume to contract, and there is a mistake as to the existence of a subject-matter, it is, we think, a correct statement of the law that under such conditions there is no contract because of the want of mutual assent necessary to create one": Miller v. Thompson, 40 Nev. 35, 160 Ac. 775.