Law of Contract
Mistake 1
Mistake
Where one or both parties to a contract
are mistaken as to some terms or aspect
of the contract, they can’t be said to have
consented to it, although an agreement
had been reached.
Thus a contract can either be held to be
void or become voidable as a result of
mistake.
Mistake
There are three classes of Mistake :
1) Common mistake - both parties make the
same mistake
2) Mutual mistake - parties are at cross
purposes
3) Unilateral mistake - Only one party is
mistaken and the other party knows of the mistake
and takes advantage of it.
The above mistakes can have remedies both in
common law and equity.
Mistake
A common mistake may make the
performance of the contract impossible
and thus makes the contract void.
A mutual and unilateral mistake may
have no consensus ad idem. (agreement as to
the same thing), and could result in it
becoming voidable on a party insisting.
Mistake
Void contract (common law)
If the mistake is “operative’ (ie. It was the
reason why the contract was made or is
fundamental to the contract) then the common
law applies and contract is void ab initio.
(from the beginning)
Voidable contract (equity)
If the mistake is not operative, equity may
provide a remedy allowing the party to void the
contract. (contract voidable)
Common Mistake
This is also known as identical mistake or shared
mistake or mistake nullifying consent.
A common mistake will only be void if there is a
mistake as to the :
1) existence of the subject matter
: res extincta
2) ownership of the subject matter
: res sua
3) fundamental mistake
Existence of subject matter - res extincta
If at that time of the contract, unknown to both
parties, the subject matter of the contract had been
destroyed then the contract is void.
Scott v Coulson (1903)
Facts/Held : a life insurance policy was taken out
covering a Mr. AT Death, who both parties believed
was alive. In fact Mr Death was dead. The agreement
was held to be void at common law and the contract
was set aside.
Existence of subject matter - res extincta
Couturier v Hastie (1856)
Facts : The contract was to buy a cargo of corn that was
in a ship sailing from Salonica to England. When the
contract was made the corn was actually sold to a buyer at
a transit stop by the ships master (as the corn was going
bad).
Held : The HL held that the buyer need not pay for the
corn as it ceased to exist.
Existence of subject matter - res extincta
S 6 of the Sale of Goods Act 1979
covers situations like the one in Couturier v Hastie :
S6 provides :
Goods which have perished
“Where there is a contract for the sale of specific goods,
and the goods without the knowledge of the seller had
perished at the time when the contract is made the
contract is void.”
Existence of subject matter - res extincta
The question whether or not a contract would be void
depends on the construction of the contract.
Mcrae v Commonwealth Disposals
Commission (1951) - Australian case
Facts : The defendants sold the plaintiff a wrecked oil
tanker which was said to be at a particular location.(reef).
In fact the oil tanker did not exist. The Plaintiff spent
considerable money and time searching for it.
Held : High court held that the contract was not void but
term of contract was breached because there was an
implied term in the contract that the subject matter
existed. So Claimant allowed to sue, and defendant
cannot rely on defence that contract was void abinito.
Ownership of subject matter - Res sua
A situation could arise in which one party agrees to
transfer property to the other, but unknown to both of
them, the latter already owns the property.
Cooper v Phibbs (1867) HL
Facts : HL set aside an agreement whereby one party had
agreed to lease a fishery to the other, but unknown to
either, the fishery already belonged to the party taking out
the lease.
Fundamental mistake
Where the parties to the contract have made a
fundamental mistake as to quality, this can render the
contract void.
Bell v Lever Brothers (1932)
Facts : Bell and Snelling had been appointed Chairman
and Vice Chairman of a company controlled by Lever
brothers. Their contracts were for five years, but before
that time was up, a company merger occurred which
meant that there was no longer work for them.
Lever bros agreed with Bell and snelling to pay them
compensation of £50,000. But later found out that Bell
and snelling had comitted breach of contract that would
have allowed Lever Bros to void the contracts, and thus
not have to pay them any compensation.
Fundamental mistake
Where the parties to the contract have made a
fundamental mistake, as to quality, this can render the
contract void.
Bell v Lever Brothers (1932)
Held : HL rejected the argument by Lever Bros, stating
that the mistake was not sufficiently fundamental to the
parties agreement to render the contract void.
Fundamental mistake
Bell v Lever Brothers (1932)
But court mentioned obiter that a fundamental
mistake affecting the quality of the contract can void
a contract.
As per Lord Atkin : a contract would be void if both
parties were mistaken,
“ as to the existence of some quality which makes the
thing without quality essentially different from the
thing as it was believed to be’.
Fundamental mistake
In some cases a mistake as to the quality of the subject
matter will not affect the validity of a contract.
Harrison & Jones v Bunten & Lancaster (1953)
Facts : The contract concerned the sale of some Kapok
(used to fill stuffed toys) which both parties believed to be
of a certain standard of purity. It fell below the standard
and as a result was of no use to the buyer.
Held : Contract was held valid and not void.
Fundamental mistake
Mistake as to quality will not void the contract.
Leaf v International Galleries (1950) CA
Held : The court of appeal, obiter, said that
if A sells to B a painting which both parties
mistakenly believe to be the work of the famous John
Constable, but which in fact is not his work, the
contract is still valid and not void ab initio.
Fundamental mistake
Nicholson & Venn v Smith-Marriott (1947)
Facts : The D put up for auction some table napkins,
described as “with crest of Charles I and the authentic
property of the Monarch”. The napkins were bought on
the strength of this description.
They turned out to be different from what was described.
Both parties genuinely thought that the napkins, were as
described.
Held : The court held that if it was fundamental it would
have been void. ie. If the buyer and seller were there to
transact specially with napkins associated with Charles I
and not just merely antique linen.
Common mistake in equity
There is some uncertainty as to the impact of equity
where there is a common mistake.
Under the traditional view of equity one should
expect it to allow for a contract to be void where
otherwise common law doesn’t allow it.
But Lord Denning laid the same strict test as that in
Bell v Lever, which required fundamental mistake as
to quality.
Solle v Butcher (1950)
Common mistake in equity
Solle v Butcher (1950)
as per Lord Denning
“ A contract is also liable in equity to be set aside if
the parties were under a common misapprehension
either as to facts or as to their relative and respective
rights, provided that the misapprehension was
fundamental and that the party seeking to set it aside
was not himself at fault.”
Common mistake in equity
Solle v Butcher (1950) CA Lord Denning
Facts : The defendant had agreed to let a flat to the
plaintiff at a rent of £ 250, a year. Both parties
believed that the flat was not subject to the Rent Acts,
but they were mistaken. Under the act the maximum
rent to be charged was £ 140. Lord Denning felt that
the contract should not be held void under common
law but void under equity.
Held : The plaintiff either should give up the flat or
stay on at a maximum rent chargeable by law.
Mutual mistake - cross purposes
Mutual mistakes are not void ab initio but can be
voidable.
Wood v Scarth (1855)
Facts : The defendant was going to lease a pub to the
plaintiff for £63 a year, and thought that his clerk had
made it clear to the plaintiff that there would be an
additional one-off charge of £ 500. In fact the clerk had
failed to do so.
Held : Based on a reasonable mans test “objective test”,
the defendant had made a precise and unambiguous offer
which the plaintiff had accepted.
The contract was valid and not voidable.