Mistake
English contract law recognises three types of mistake:

Common mistake - Where both parties make the same
mistake

Mutual mistake - Where the parties are at cross purposes

Unilateral mistake - Where only one party is mistaken
Where the courts make a finding of mistake this will generally
render the contract void ab initio (from the beginning) so it is as if
the contract never existed. This represents an important distinction
from voidable contracts. Where a contract is voidable, the contract
exists and is valid until such time as the innocent party takes
action to set the contract aside. Thus where there is a voidable
contract a person acquiring goods under a contract will obtain good
title to those goods. If a contract is void, no title passes. This
distinction is most relevant where the goods have been sold on to a
third party. A purchaser of the goods will acquire good title if the
original contract was voidable, but will not obtain title if the contract
is void.
Bilateral mistakes
The parties may share the same bilateral mistake or they may each be mistaken, but with
respect to a different point
1. Common mistake
Common mistakes exist where both parties to the contract make the same
mistake. Three categories have emerged as giving rise to a cause of action:

Res extincta - the subject matter of the contract no longer exists

Res sua - where the goods already belong to the purchaser

Mistake as to quality - only available in very narrow limits
Res extincta
Res extincta will apply where both parties enter a contract with the
belief that the subject matter exists when in fact it does not exist.
The contract will be held to be void for mistake:
Scott v Coulson [1903] 2 Ch 439
At the time of entering a contract for life insurance both parties believed
the person whose life was to be insured was living. When in fact he was
dead.
The contract was void for mistake as it was a common mistake as to the
existence of the subject matter (Res extincta).
Couturier v Hastie (1856) 5 HLC 673
A cargo of corn was in transit being shipped from the Mediterranean to
England. The owner of the cargo sold the corn to a buyer in London. The
cargo had however, perished and been disposed of before the contract was
made. The seller sought to enforce payment for the goods on the grounds
that the purchaser had attained title to the goods and therefore bore the
risk of the goods being damaged, lost or stolen.
The court held that the contract was void because the subject matter of the
contract did not exist at the time the contract was made.
Statutory provision is also available in contracts for the sale of
goods where the goods have perished:
Section 6 of the Sale of Goods Act 1979
Common mistake
Common mistake occurs where both parties to a contract make the same mistake about a
critical element of their agreement. The leading case dealing with mistake, and this type of
mistake in particular, is Bell v Lever Brothers [1931]. In this case, Lord Atkin stated that when
mistake operates upon a contract, it does so to negative or nullify the consent of the parties.
Common mistake deals with those situations where an apparent contract lacks consent and
consequently the contract is void ab initio (void from the outset). This approach to mistake is
dependent upon a consensual theory of contract – that is to say, if a contract exists it is due to
the consensus or agreement of the parties. The court enforces the contract on the basis of this
consensus. Mistake operates to disrupt this consensus – it removes any consensus and
consequently no contract can arise in the circumstances.
Non-existence of the subject matter
In some situations, parties may reach an agreement to deal with a subject matter which,
unknown to either party, does not exist. These cases deal with the problem of res extincta.
Note that in these cases, the contract suffers from an initial impossibility; from the outset it
cannot be performed. An example of such a situation is where A, the seller, contracts to sell his
horse to B, the buyer. Without A or B’s knowledge, at the time the contract is entered into the
horse is dead. It is, therefore, impossible for A to sell B his horse.
In the leading case, Couturier v Hastie [1856] UKHL, the seller ‘sold’ a cargo of corn to the
buyer. Neither party was aware of the fact that, at the time of the ‘sale’ the captain of the ship
carrying the corn had sold the corn. This case has been taken to stand for the proposition that
in a contract for the sale of goods, where the goods have perished without the seller’s
knowledge, the contract is void – S.6 of the SGA 1979. You will note that in Couturier v Hastie
the HL’s did not call the contract void nor did they consider what the position would have been
if the buyer had claimed damages for non-delivery. However, this understanding of the case
was at least partially incorporated into the SGA 1979, s.6, which expressly provides that in a
contract for the sale of goods, where the goods have perished without the seller’s knowledge,
the contract is void. It should be noted here that s.6 applies to goods that have ‘perished’ (i.e.
to goods that once existed and subsequently ceased to exist). It will not apply to goods which
the parties mistakenly thought existed but which, in fact, never existed.
It is, however, possible to interpret Couturier v Hastie differently and this is what the HC of
Australia did in McRae v CDC {1951]. The HC of Australia expressed doubt that Couturier v
Hastie involved issues of mistake and that, properly understood, the case was about the proper
construction of the contract entered. In McRae the claimants sent a ship to salvage the wreck
of a tanker which they had purchased from the defendants. In fact no such tanker existed at the
location given and the case proceeds on the basis that neither party was aware of this mistake.
The claimant succeeded in their action for breach of contract. The contract was analysed as one
for goods that were guaranteed to exist. An alternative construction would have been that the
contract was one for the sale of the wreck, if it existed at that location. If this construction had
been taken then the claimant’s action for breach of contract would have failed. The subject
matter of the contract would then have been a ‘chance’ (sometimes called an ‘adventure’). It
may seem odd that a party would purchase such a chance but that in essence is what the
purchase of a lottery ticket is, the purchase of a chance of winning. If this had been the
construction applied in McRae the claimant would have no more valid claim for breach of
contract than would the purchaser of a lottery ticket who demanded the price back after the
draw because the ticket did not win! The result and approach in McRae seems correct. Put
slightly different, the result depends upon which party under the terms of the contract is
allocated the risk that the goods’ existence and so became liable when they did not exist. This
approach was approved by the Court of Appeal in The Great Peace (2002). However, if the SGA
1979 s.6 applies, the court is prevented from taking account of the construction of the contract;
the section simply states tjat the contract is void. The law in this area is therefore untidy with
different principles applying when there is a shared mistake as to the existence of the subject
matter of the contract where: goods which once existed have subsequently perished (contract
is void according to s.6 and so no action may be brought) and goods which never existed (an
action may be maintained depending on the proper construction of the contract: McRae).
Summary
Where the subject matter of the contract does not exist at the time of the contract, courts must
find that the contract is void where Sale of Goods Act s.6 applies. In cases falling outside s.6,
whether a party may sue for breach of contract will depend upon the proper construction of
the contract.
Mistake as to the existence of the subject matter of the contract
A mistake may be sufficiently fundamental to avoid a contact where both parties are mistaken
as to the existence of the subject matter of the contract.
Galloway v Galloway (1914)
Separation agreement was void on the ground that it was entered into under the common
mistake that the parties were, in fact, married.
Section 6 of the SGA 1979 provides that ‘where there is a contract for the sale of specific goods,
and the goods without the knowledge of the seller have perished at the time when the contract
is made, the contract is void.
Couturier v Hastie (1856) UKHL
The parties entered into a contract for the sale of a cargo of corn, which was believed to be in
transit. Unknown to both parties, the corn had deteriorated and was sold by the captain of the
ship. The buyer was not liable to pay the price.
McRae v CDC (1951) .HC AUS
The defendants purported to sell to the claimants a wreck of a tanker which was lying on the
Jourmand Reef. In fact, no such tanker had ever existed. A party cannot rely on a mutual
mistake where the mistake is a belief which is understood by the party without any reasonable
ground and the party is responsible for implanting the mistake in the mind of the other party.
(No fundamental mistake because it never existed so claimants sued for damages and
succeeded).
Res sua
This applies where a party contracts to buy something which in fact
belongs to him. This will generally render the contract void.
Although if the action is based in equity this will render the contract
voidable:
Cooper v Phibbs (1867) LR 2 HL 149
A nephew leased a fishery from his uncle. His uncle died. When the lease
came up for renewal the nephew renewed the lease from his aunt. It later
transpired that the uncle had given the nephew a life tenancy in his will.
The lease was held to be voidable for mistake as the nephew was already
had a beneficial ownership right in the fishery.
This is an instance of res sua. Normally where a contract is found to have
been entered under a common mistake the contract will be rendered void as
oppose to voidable. The lease was held to be voidable rather than void as
the claim was based in equity as it related to beneficial ownership as oppose
to legal ownership.
This caused some uncertainty as to whether there was equitable relief for
mistake which was wider than that which existed at common law. In
particular Lord Denning argued that such a position of the law existed
in Solle v Butcher.
Mistakes as to ownership
Like the situation of the non-existent subject matter, these cases involve a situation of initial
impossibility. One party agrees to sell and the party agrees to buy something which, unknown
to either of them, this is described as the sale of a res sua. The agreement cannot be performed
because it is impossible to transfer the ownership since the ‘buyer’ already owns the thing. See
Cooper v Phibbs (1867) as explained by the Court of Appeal in The Great Peace (2002).
Mistake as to the possibility of performance
In some circumstances the paties may be mistaken as to the possibility of performance. The
parties have a shared misapprehension that performance of their agreement is possible – in
fact it is not. Professor Treitel divides these cases into three categories.
Cases of physical impossibility – Sheikh Brothers Ltd v Ochsner [1957].
Cases of legal impossibility – Cooper v Phibbs (1867).
Cases of commercial impossibility – Griffith v Brymer [1903]
Note that it is important, in cases where it is alleged that there is a mistake as to the possibility
of performance, to ascertain from the agreement whether one party has assumed the risk of
performance. If one party has assumed this risk, the party will probably be in breach of a (valid)
contract. We will return to the concept of impossibility when we consider frustration. As we will
see, a contract is frustrated if performance becomes impossible because of a supervening (or
later) event.
Summary
It is possible to regard the situations where the subject matter does not exist, or the thing is
already owned by the ‘purchaser’ or situations of physical/legal/commercial impossibilities as
instances where the contract is void or invalidated because it cannot be performed. It is
important to note, however, that the apparent contract is only void where the mistake is of
both parties.
Mistake as to the possibility of performing the contract
A mistake may be sufficiently fundamental to avoid a contract where both parties believe that
the contract is capable of being performed when, in fact, it is not.
Physical impossibility
Sheikh Brothers’ Ltd v Ochsner (1957)
The appellants agreed to grant license to the respondents to cut sisal on their land and in return
the respondents would deliver a specified amount of sisal to the appellants. The land was
incapable of that much production.
Legal impossibility
Cooper v phibbs (1867)
The appellant agreed to take a lease of a salmon fishery which both parties believed to be the
property of the respondents. It was subsequently discovered that the appellant was the owner
of the fishery. (void)
Commercial impossibility
Griffith v Brymer (1903)
Contract for the hire of a room for the purpose of viewing the coronation procession of Edward
VII. The procession was cancelled. Although the contract was still physically and legally capable
of performance, the cancellation of the procession had undermined the commercial object of
the contract. (void)
Mistake as to quality
A mistake as to quality is only capable of rendering a contract void
where the mistake is as to the existence of some quality which
renders the subject matter of the contract essentially different to
that what it was believed to be:
Bell v Lever bros [1932] AC 161 House of Lords
Lever bros appointed Mr Bell and Mr Snelling (the two defendants) as
Chairman and Vice Chairman to run a subsidiary company called Niger.
Under the contract of employment the appointments were to run 5 years.
However, due to poor performance of the Niger Company, Lever bros
decided to merge Niger with another subsidiary and make the defendants
redundant. Lever bros drew up a contract providing for substantial payments
to each if they agreed to terminate their employment. The defendants
accepted the offer and received the payments. However, it later transpired
that the two defendants had committed serious breaches of duty which
would have entitled Lever bros to end their employment without notice and
without compensation. Lever bros brought an action based on mistake in
that they entered the agreement thinking they were under a legal obligation
to pay compensation.
The House of Lords held that this was only a mistake as to quality and did
not render the contract essentially different from that which it was believed
to be. The action therefore failed.
Leaf v International Galleries [1950] 2 KB 86
The claimant purchased a painting from the defendant. Both parties
believed that the painting was by the artist Constable. In fact 5
years later the claimant discovered the painting was not a
Constable. The claimant brought an action based both on
misrepresentation and mistake.
The claim based on misrepresentation was successful however,
since it was an innocent misrepresentation, the claimant had lost
the right to rescind the contract through lapse of time. With
innocent misrep the time starts to run from the date of the contract
not the date of discovery.
The claim based on mistake was unsuccessful as the mistake related
to the quality and did not render the subject matter something
essentially different from that which it was believed to be. He
believed he was buying a painting and he got a painting.
Great Peace Shipping v Tsavliris International [2003] QB 679 Court of
Appeal
A ship, The Cape Providence, suffered structural damage in the
South Indian Ocean. The defendants offered a salvage service which
was accepted by the ship owners. The defendants made inquiries as
to the nearest salvage ship and were informed that The Great Peace
was 35 miles away. They then entered a contract with Great Peace
Shipping (GPS) to engage The Great Peace to do the salvage work.
In fact The Great Peace was 410 miles away at the time. When the
defendants learnt of the actual distance they searched for a closer
ship as they believed the Cape Providence was close to sinking and
needed to rescue the crew. They found a closer ship and tried
cancelled the contract GPS. However, GPS refused to cancel the
contract and brought an action for breach. The defendants sought to
argue that the contract was void for mistake at common law,
alternatively that it was voidable for mistake in equity.
The Court of Appeal held that both claims failed. Equity does not
provide relief from mistakes where the common law does not
provide relief. At common law the mistake did not render the
contract essentially different from that which it was believed to be.
Mistake as to a quality of the subject matter
This is a very difficult area of the law of mistake. The difficulty arises from the House of Lords’
decision in Bell v Lever Brothers’ Ltd [1931]. This case presented hard facts to the court. The
chairman and vice-chairman of a Lever Brothers’ subsidiary rendered exceptional services to
the company but also breached their contracts of employment in such a way that the contracts
were terminable at Lever Brothers’ option. Lever Brothers, unaware of this, entered into
termination contracts to end the employment of the two men because Lever Brothers’ were
amalgamating the subsidiary with another company. When Lever Brothers later learned that
the employment contracts were terminable because of the behavior of the two men they
attempted to set aside the termination contracts and recover the money paid. The mistake was
a bilateral mistake as to a quality of the subject matter of the contract. The subject matter of
the termination contract was the employment contract and the particular quality was the
terminability of the employment contract at Lever Brothers’ option. Because of their breached
of duty, Lever Brothers could have terminated the contracts of the two men without
compensation. The jury found that they would have terminated the contracts without
compensation and would never have entered into the termination contracts had they known of
the secret trades.
The House of Lords was divided 3-2 in favour of finding that the severance contracts were valid.
Lord Atkin wrote the leading judgment. In it, he recognizes that a mistake as to quality may
render the contract void:
Mistake as to quality of the thing contracted for raises more difficult questions. In such a case, mistake will not
affect assent unless it is the mistake of both parties, and is to the existence of some quality which makes the thing
without quality essentially different from the thing as it was believed to be.
Lord Atkin then applied this test to the facts before him and found that the mistake in Bell’s
case was not sufficient to render the contract void. The problem the case creates is that if the
mistake was not sufficient in this case, it almost never would be. It is probably for this reason
that there have been so few successful mistake cases in later years.
Note that there are some older contrary authorities that do not sit easily with the decision of
the House of Lords in Bell: Nicholson & Venn v Smith-Marriott (1947) and Scott v Coulson
(1903).
In the case of Associated Japanese Bank (International) Ltd v Credit du Nord SA (1988)
Steyn J (as he then was) explained the meaning and application of Bell v Lever Bros [1932]. This
is an important case because it provides a comprehensive assessment of contractual mistake.
Steyn J discussed Bell v Lever Bros in some detail because of the controversy surrounding the
application of the case. He stated that the doctrine of mistake at common law had a narrow
ambit – and one into which few cases had fallen. To an extent which has yet to be determined,
this case is affected by the decision in The Great Peace
In The Great Peace, the Court of Appeal referred to Bell v Lever Bros with approval, although
Lord Phillips MR noted the cases which Lord Atkin relied upon as support for his principles
provided ‘an insubstantial basis for his formulation of the test of common mistake in relation to
the quality of the subject matter of a contract’. Lord Phillips MR, in The Great Peace, appears to
have made the relevant criteria for an operative mistake as to quality even more demanding
than those proposed by Lord Atkin in Bell v Lever Bros.
Summary
Mistake as to a quality of the subject matter creates great difficulties in the common law of
contract. Very few contracts are found to be void on the ground that there is a sufficiently
fundamental mistake as to quality. It is the element of ‘sufficiently fundamental’ that proves so
troublesome. This is partly because of the decisions in Bell v Lever Bros and The Great Peace
and partly because it is difficult to distinguished a sufficiently fundamental quality from the
assumption of a risk which worked to the disadvantage of one or both of the parties.
It is because of these difficulties that courts created an equitable device to circumvent the
difficulties posed by mistake at law. This device, and especially its reduced scope after The
Great Peace.
Mistake as to quality
A mistake as to the quality of the subject-matter of the contract may be sufficiently
fundamental to avoid a contract. But the courts are extremely reluctant to conclude that a
mistake as to quality renders a contract void
Bell v Lever Brothers Ltd (1932)
The defendants contracted with the claimants to serve as chairman & vice-chairman of a
subsidiary company and they would not make any private profit for themselves, by doing
business on their own account. But unknown to the claimants, the defendants did breach this
term. The claimants later decided that they wished to terminate the defendants’ contracts
because of a renegotiation of their business. So they entered into a compensation agreements
to terminate their services. After the money had been paid, the claimants discovered the
breach which entitled them to terminate the services without paying any compensation. It was
held that mistake was not fundamental.
Solle v Butcher (1950)
The defendant agreed to lease a flat to the claimant for seven years at an annual rental of £250.
The parties entered into this agreement under the mistaken assumption that the flat was free
from rent control (rent would be £140). The claimant sought to recover the rent which he had
overpaid. The defendant counter-claimed for rescission of the lease on the ground of mistake.
The Court of Appeal held that the landlord was entitled to set aside the lease on terms.
Great Peace Shipping Ltd (2002)
The defendant agreed to provide salvage services for a vessel which was in serious difficulties in
the South Indian Ocean. The defendants were informed that the Great Peace was close to the
vessel which was in difficulty and so they contacted the claimants and agreed to hire it. It
subsequently transpired that the Great Peace was not as close to the stricken vessel as the
defendants had believed (it being 410 miles away rather than 35 miles. When they discovered
the true situation the defendants sought to obtain the services of another vessel which was not
as far away and once they had done so, they purported to terminate the contract of hire with
the claimants. The contract was not fundamentally void because it was performable. The
claimants sued for hire again and succeeded.
2. Mutual mistake
A mutual mistake is one where the parties are at cross purposes. The courts
apply an objective test to see if the contract can be saved. Ie would a
reasonable person looking at the correspondence between the parties have
understood the contract to have a single meaning. If yes the contract is valid
on that meaning. If a reasonable person could not determine the meaning
then the contract will be void for mistake:
Raffles v Wichelhaus (1864) 2 H & C 906 Court of Exchequer
The parties entered a contract for the sale of some cotton to be shipped by
The Peerless' from Bombay. The Peerless had a sailing from Bombay in
October and in December. The defendant thought that it was the October
sailing and the claimant believed it was the December sailing which had
been agreed.
The court applied an objective test and stated that a reasonable person
would not have been able to state with certainty which sailing had been
agreed. Therefore the contract was void as there was no consensus ad
idem.
Absence of genuine agreement
In situations where there is an absence of genuine agreement, the parties are each mistaken,
but they do not share a mistake. Their separate mistakes are sufficiently fundamental,
however, that no contract can be created. It is sometimes said that the parties are at ‘cross
purposes’ and that the offer and acceptance do not correspond. No contract can arise because
there is an absence of agreement. A contract cannot be formed in these circumstances
because, on a objective interpretation, it cannot be said what was intended by the parties.
Another description of this process is that the mistake ‘negatives’ the consent of the parties to
contract. They have, in other words, failed to create an agreement.
The leading case is Raffles v Wichelhaus [1864]. Here, one party bought, and the other party
sold, cotton to be shipped on the vessel Peerless from Bombay. Unknown to either party, there
were two ships Peerless, and each intended a different ship. The Court found that there was no
contract.
See also Scriven Bros & Co v Hindley & Co [1913]
Mutual Mistake
Where there is an absence of genuine agreement, the parties are each mistaken, but they do
not share a mistake. No contract can be created. The parties are at ‘cross purposes’.
Raffles v WIchelhaus (1864)
The defendants agreed to buy from the claimants a cargo of cotton to arrive ‘ex Peerless from
Bombay’. There were, unknown to the parties, two ships called ‘Peerless’ and both sailed from
Bombay. The defendants meant the Peerless which said in October, whereas the claimants
meant the Peerless which sailed in December.
3. Unilateral mistake
In unilateral mistakes only one of the parties is mistaken. There
are two categories within unilateral mistakes: mistakes relating to
the terms of the contract and mistakes as to identity.
Mistake as to the terms of the contract
Hartog v Colin & Shields [1939] 3 All ER 566
The defendants mistakenly offered a large quantity of hare skins at
a certain price per pound whereas they meant to offer them at that
price per piece. This meant that the price was roughly one third of
what it should have been. The claimant accepted the offer.
The court held that the contract was void for mistake. Hare skins
were generally sold per piece and given the price the claimant must
have realised the mistake.
Smith v Hughes (1871) LR 6 QB 597
The claimant had purchased a quantity of what he thought was old oats
having been shown a sample. In fact the oats were new oats. The claimant
wanted the oats for horse feed and new oats were of no use to him. The
seller was aware of the mistake of the claimant but said nothing. The
claimant brought an action against the seller based on mistake and
misrepresentation.
Held: both actions failed. The action based on misrepresentation failed as
you cannot have silence as a misrepresentation. The defendant had not
mislead the claimant to believe they were old oats. The action based on
mistake failed as the mistake was not as to the fundamental terms of the
contract but only a mistake as to quality.
Mistake as to identity
Mistakes as to identity are generally induced by fraud in that one of
the parties is claiming to be someone who they are not. There is
thus an overlap with misrepresentation. A claim based in mistake is
more favourable to one based in misrepresentation as the affect of
a finding of mistake is that the contract is void as oppose to
voidable. This is important where a rogue has acquired goods and
sold them on to a third party. If the contract is void the rogue will
never receive title to goods and will not be able to pass title when
selling the goods. However, if the contract is voidable the contract
exists and title passes. If the goods are sold before the innocent
party rescinds the contract, the purchaser acquires good title to the
goods. In determining whether a contract will be held void for
mistake the courts draw a distinction between contracts made inter
absentes (at a distance) and contracts made inter praesentes (face
to face transactions).
Inter absentes
Where the parties are not physically present when the contract is
made, eg where the contract is made through dealings through the
post, telephone or over the internet, the courts will only make a
finding of mistake if the claimant can demonstrate an identifiable
person or business with whom they intended to deal with. A mistake
as to their attributes will not suffice:
Cundy v Lindsey (1878) 3 App Cas 459
A rogue, Blenkarn, hired a room at 37 Wood street, Cheapside. This was in
the same street that a highly reputable firm called Blenkiron & Son traded.
The rogue ordered a quantity of handkerchiefs from claimant disguising the
signature to appear as Blenkiron. The goods were dispatched to Blenkiron &
co 37, Wood street but payment failed. Blenkarn sold a quantity the
handkerchiefs on to the defendant who purchased them in good faith and
sold them on in the course of their trade. The claimants brought an action
based in the tort of conversion to recover the value of the handkerchiefs.
The success of the action depended upon the contract between the Blenkarn
and the claimant being void for mistake. If the contract was void, title in
the goods would not pass to the rogue so he would have no title to pass onto
the defendants. Ownership of the goods would remain with the claimant.
Held: The contract was void for unilateral mistake as the claimant was able
to demonstrate an identifiable existing business with whom they intended to
contract with.
Kings Norton Metal co ltd v Edridge, Merrett & co ltd (1897)
14 TLR 98
A rogue ordered goods from the claimant using a printed letter head
a claiming to be a company called Hallum & co with offices in Belfast
Lile and Ghent. In fact no such company existed. The claimant sent
out the goods on credit. The rogue sold the goods on to the
defendants who purchased them in good faith. The rogue then
disappeared without paying for the goods. The claimants brought an
action for conversion of the goods based on their unilateral mistake
as to identity.
Held: the contract was not void for mistake as they could not
identify an existing company called Hallum & co with whom they
intended to contract. The mistake was only as to the attributes of
the company. The contract was voidable for misrepresentation but
that would not stop title passing to the rogue and the defendants
therefore acquired good title to the goods.
Shogan Finance v Hudson [2003] 3 WLR 1371 House of Lords
A rogue purchased a car on HP terms from a car dealer. He had produced a
false driving licence in the name of Durlabh Patel. The car dealer faxed the
driving licence to the claimant finance company and phoned through the
details on the application form. The claimant then did a credit search on
Durlabh Patel and then told the dealer to let the rogue have the car. The
Rogue paid 10% deposit and drove off with the car. He then sold it on to the
defendant and reneged on the finance agreement. The claimant brought an
action against the defendant claiming to be the owner of the car as the
contract was void for mistake.
Held: 3:2 The contract was void for mistake. The contract concluded
between the finance company and the rogue was made inter absentes. The
identity of the person was crucial to the contract as that it was Durlabh
Patel that the credit check was carried out on and the claimant would not
have allowed the car to go without the credit check. The two dissenting
judges were highly critical of the result. Lord Millet and Lord Nicholls were
of the opinion that there should be no distinction between contracts
made inter absentes and contracts inter praesentes and that Cundy v Linsey
should be overruled.
Inter praesentes
Where the parties contract in a face to face transaction the law
raises a presumption that the parties intend to deal with the person
in front of them:
Phillips v Brooks [1919] 2 KB 243
A rogue purchased some items from the claimant's jewellers shop claiming
to be Sir George Bullogh. He paid by cheque and persuaded the jewellers to
allow him to take a ring immediately as he claimed it was his wive's birthday
the following day. He gave the address of Sir George Bullogh and the
jewellers checked the name matched the address in a directory. The rogue
then pawned the ring at the defendant pawn brokers in the name of Mr.
Firth and received £350. He then disappeared without a trace. The claimant
brought an action based on unilateral mistake as to identity.
Held: The contract was not void for mistake. Where the parties transact
face to face the law presumes they intend to deal with the person in front
of them not the person they claim to be. The jewellers were unable to
demonstrate that they would only have sold the ring to Sir George Bullogh.
Ingram v Little [1961] 1 QB 31 Court of Appeal
Two sisters Hilda and Elsie Ingram sold their car to a rogue calling
himself Mr. Hutchinson. They agreed a price for cash, but when the
rogue offered a cheque Elsie said the deal was off. She wanted cash
or no sale. The rogue then gave them his full name and address and
Hilda went to the post office, which was two minutes down the road,
to check the details out. When she returned she informed Elsie that
the details checked out and the sisters agreed to let Mr. Hutchinson
take the car. The cheque was dishonoured and the car was sold on
to Mr. Little. The sisters brought an action to recover the car.
Held: The contract was void for mistake. The Court of Appeal held
that the sisters only intended to deal with Mr. Hutchinson at the
address given because they were not willing to offer a sale for
payment by cheque from anyone else. This case has received
widespread criticism and has not been followed since.
Lewis v Avery [1971] 3 WLR 603 Court of Appeal
The claimant sold his mini cooper to a rogue claiming to be the
actor Richard Greene (who played Robin Hood in a series at the
time). The rogue showed the claimant a Pinewood studio pass which
had Richard Greene's name and an address on it. The claimant then
let him take the car with the log book in exchange for a cheque for
£430 which was later dishonoured. The rogue sold the car on to Mr
Avery for £200 claiming to be the claimant. The claimant sought
return of the car on the grounds that the contract was void for
mistake.
Held: The contract was not void for mistake. The case of Ingram v
Little was criticised by all of the judges although not formally
overruled. The presumption that the parties intend to deal with the
person in front of them was not displaced.
Unilateral mistakes
Courts are generally unwilling to find that a contract is void at law where the mistake is the
mistake of one party only. To find the contract void would, in most instances, prejudice the
non-mistaken party. Accordingly, courts will generally only find the contract void in one of two
situations.
In the first case, the non-mistaken party is aware of the other party’s mistake and proceeds to
contract anyway.
In the second case, the non-mistaken party has created the mistake to induce the (now)
mistaken party to contract. The largest group of these cases are those of ‘mistaken identity’.
In both of these instances, the non-mistaken party does not have any reasonable expectations
to protect. In the first instance, he is aware of the mistaken assumption or promise and acts to
take advantage of it. In the second instance, he has deliberately caused the mistake as to
identity to form a ‘contract’ between himself and the mistaken party. In neither situation has
he a reasonable expectation that the court will seek to protect. Indeed, the entire mistake has
come about by reason of his inaction or by his fraud.
As you consider this area, be aware of the fact that there are many cases where the contract is
valid at law and yet equity may provide some relief to the mistaken party.
Mistaken assumptions or promises
In some circumstances, mistake is said to negative the consent of the mistaken party so that no
contract arises. The mistake prevents the contract from arising. Importantly, the non-mistaken
party must be aware of the other party’s mistake. The perplexing case of Smith v Hughes
[1871] illustrates this proposition. The claimant sold the defendants oats after showing him a
sample of the oats. The defendant mistakenly thought he was buying old oats; in fact, they
were new oats. The claimant had done nothing to induce thi mistake and was unaware of it.
The Court held that for a mistaken assumption or promise of one party to be sufficient to vitiate
a contract (to render it void) the mistake must be known to the other party and it must be a
mistake as to what is promised. Thus, in Smith v Hughes, the contract would have been void
only if two factors were present. First, if the defendant had been mistaken as to the promise
made to him by the claimant. In this case the promise would have been as to the age of the
oats. Second, that the defendant knew about the claimant’s mistake as to the nature of the
promise made to him by the defendant (sometimes described as a mistake as to terms).
As you will see in your readings, while the law appears to require a subjective intention in these
cases (that is to say, what would be in the minds of reasonable parties in these circumstances).
Where the mistake is as to an assumption or as to a promise, courts rarely find that the mistake
is operative – that is to say, that, because of the mistake, no contract has been created. The
entire area displays the extent to which the common law of contract is rooted upon the
principle of caveat emptor (let the buyer beware). As long as one party does not misrepresent a
state of affairs or defraud the other party, courts will generally find the consensus, the
agreement, between the parties which is necessary to form a contract. Indeed, courts will be
very reluctant to disrupt an apparent contract in these circumstances, for to do so would be to
write the contract for the parties.
In some instances, however, it is so readily apparent to the one party that the other is
proceeding upon mistaken basis that the court will find that the apparent contract is void.
These are cases where one party ‘snaps’ at the obviously mistaken offer of another. A always
sells B grains at a price of x per pound. One day, A offers to sell B grain at x per ton. B, realizing
that A has made a mistake, snaps at A’s offer and ‘accepts’ immediately. This is a case where
the mistake is operative – the mistake negatives A’s consent in such a way that there is no
contract. Note that: (i) B is aware of A’s mistake and (ii) B’s conduct is such that it is
unconscionable or inequitable for him to hold A to a contract.
The cases of Hartog v Colin and Shields [1939] and Centrovincial Estates plc v Merchant
Investors Assurance Co Ltd [1983] illustrate this proposition.
Summary
This is not an easy area to understand. The mistake of one party is generally not enough to
avoid the contract. The mistake must be known to the other party. For the contract to be void,
it is not sufficient that the promisor realizes that the promise is mistaken as to an important
element of the contract. The promisor must realise that the promise is mistaken and that he is
mistaken as to the promise made by the promisor. It may be that this oddity arises because of
the nature of the contract in Smith v Hughes – where the sale of the oats was made by sample.
The defendant had examined a sample of the oats when he placed the order. In the
circumstances, the only reason that the contract would be void was if the promisor’s conduct
verged on the fraudulent – in not explaining to the promise that he was mistaken about the
promise.
Courts will usually allow the contract to be avoided for a unilateral mistake in circumstances
where the behavior of the non-mistaken party is such as to indicate that he has no reasonable
expectation to protect. Where the non-mistaken party who ‘snaps’ at the mistaken offer of
another will not reasonably have thought the mistaken offer was a legitimate one.
Mistakes as to identity
This area of law has received clarification from the HL’s in the case of shogun Finance v Hudson
(2003) UKHL. Prior to this decision, there was some uncertainty as to the application of a
doctrine of mistake as to identity. Virtually all mistake as to identity cases arise as the result of
the fraudulent actions of a wrongdoer, the ‘rogue’. In the typical situation a rogue presents
himself to an innocent vendor and offers to purchase a good. The rogue deceives the vendor as
to his identity. The vendor sells the goods to the rogue and the rogue departs with the goods.
The vendor is usually given a check which is not honoured. When the vendor seeks the return
of the goods from the rogue, he discovers:
a. the rogue for what he is
b. that the rogue has vanished
c. that the rogue has sold the goods to an innocent third party.
The court is thus faced with litigation between the (deceived and mistaken) vendor as claimant
and the (innocent) third party as defendant in which the claimants seeks the return of his
goods. The court must decide which of these two ‘victims’ will bear the cost of the rogue’s
deception. If the contract between the rogue and the vendor is good, the cost will be borne by
the vendor because by this contract, the rogue acquired good title to the goods and could sell
them on to the third party. If the contract between the rogue and the vendor is void, the cost
will be borne by the third party because the rogue never acquired good title to the goods. The
vendor thus recovers his goods from the third party. A decision, as required here, as to which of
two victims should bear the full consequences of a fraud perpetrated by a third party will
always be a difficult one. This difficulty prompted a suggestion from Devlin LJ in Ingram v Little
[1961] that a mechanism should be found whereby the loss was effectively shared by these two
parties. The suggestion has never been acted on. You must also note that in these
circumstances, misrepresentation is also involved. In the above circumstances, the rogue
induces the contact by a misrepresentation. If the contract is not void for mistake, it is voidable
for misrepresentation. However, the vendor must then set aside or rescind the contract before
the innocent third party contracts with the rogue. If he does not, the first contract can no
longer be set aside because of the involvement of the third party’s rights. That is to say, if the
third party contracts with the rogue before the contract between the rogue and the vendor is
rescinded, the vendor loses the right to rescind the first contract. This matter will be examined
in the ch. Of MIsrep.
Unilateral Mistake
Where one contracting party is under a mistake as to the terms of the contract, and that
mistake is known to the other contracting party. In such a case the party who is aware of the
mistake will be unable to enforce his version of the contract against the mistaken party.
(When one party is at mistake and the other party is aware about it.)
Smith v Hughes (1871)
A buyer purchased from a seller a quantity of oats in the belief that they were old oats. (Not
Void)
Where one party ‘snaps’ at the obviously mistaken offer of another, the mistake is operative if
(i) one party is aware of other’s mistake and (ii) non-mistaken party conduct is such that it is
inequitable for him to hold the other to contract.
Hartog v Colin and Shields [1939]
The defendant offered to sell hare skins at 10d per pound instead of 10d per piece. (Void)