CQUniversity
Division of Higher Education
School of Business and Law
LAWS11062
Contract Law B
Topic 1 Mistake
Term 2, 2014
Anthony Marinac
© CQUniversity 2014
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Table of Contents
1.0 Introduction to Contract Law B ........................................................ 3
1.1 Objectives ......................................................................................... 4
1.2 Introduction .................................................................................. 5
1.1 Prescribed Reading .......................................................................... 7
1.2 Key Terms ........................................................................................ 7
2.0 Unilateral Mistake ........................................................................... 8
2.1 Mistake as to the subject matter ...................................................... 9
2.2 Mistake as to the identity of the other party ..................................11
2.3 Mistake as to the nature of the document ..................................... 14
2.4 Review questions ........................................................................... 16
3.0 Common Mistake ............................................................................ 18
3.1 Mistakes as to the existence of the subject matter: res extincta ... 20
3.2 Mistakes as to title: res sua ........................................................... 22
3.3 Equitable remedies for common mistake .....................................23
3.4 Review questions ........................................................................... 25
4.0 Mutual Mistake ...............................................................................26
4.1 Review question ............................................................................ 28
5.0 Review ............................................................................................ 28
6.0 Tutorial Problems ...........................................................................29
7.0 Debrief............................................................................................ 30
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Topic 1 Mistake
1.0 Introduction to Contract Law B
Welcome back, everybody, to your second term of the study of
contracts. In Contract A we focused on the issues of formation
of contracts, and the interpretation or construction of
contractual terms. This term, we complete the picture by
looking much more at what happens in contract law when a
contract goes wrong. To my mind, the material we cover in this
second term is quite a bit more interesting than the material be
covered in Contract A. In the cases in this term, we see more
parties in deep conflict, and much more fascinating legal
reasoning is required in order to resolve those conflicts.
The term will be divided generally into four parts:
Part one will occupy us from topics 1 through to topic 5.
During this part we will explore the topic of vitiation, which is a
jargon term referring to circumstances in which the court will
decide that a contract has never been effective. As you can
imagine, this leads to serious legal difficulties when one or both
parties have been carrying out what they understood to be their
obligations under contract. We look at issues such as mistake,
misrepresentation, misleading and deceptive conduct,
unconscionable conduct, duress and undue influence, and a
very curious legal concept called estoppel.
Part two is our skills part, and will be covered in topic 6.
During this topic, we will spend a week looking at how we find
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the law and how we decode the system of legal citations. We
will be looking far further than simply the CLR series, and we’ll
look at the British citation system, the Canadian and New
Zealand citation systems, and some of the citation process is in
the United States of America. We will also look briefly at
citation processes for the United Nations, the International
Court of Justice, the International Criminal Court, and
tribunals within the European Union.
Part three examines the termination of contracts, and the
remedies which a court may apply to do justice to an innocent
party when a contract has been terminated. This is where things
get really interesting, as we look at parties whose contracts have
gone terribly wrong and who find themselves in serious conflict
as a result. Part three will occupy us from topic 7 until topic 11.
Finally, part four, which is covered in week 12, examines
international and transnational contracts. Once upon a time,
these were essentially a specialist concept, because relatively
few people (generally those involved in business) were involved
in international contracts. Nowadays, however, everyone who
buys a book from Amazon or who buys cheap products on
overseas websites, is engaging in international or transnational
contracts. It is therefore important that we begin to establish a
basic understanding of how such contracts differ from simple
domestic contracts.
1.1 Objectives
After studying Topic 1 you should be able to demonstrate:
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 An understanding of the difference between unilateral
mistake, common mistake and mutual mistake; and
 The approach which is taken by the common law to
circumstances where there is a mistake in the contract;
and
 The approach which is taken by equity law to
circumstances where there is a mistake in the contract.
1.2 Introduction
If there is one thing that I have learned through bitter
experience, it’s this: “Mistakes happen.” Mistakes happen in
contracts so often that there is an entire branch of contract law
devoted to unravelling them! Consider the following examples:
Maria offers Stephen $200 to tutor her in Contract A. She
says “I know you got a High Distinction, so you obviously
know what you’re doing.” Stephen has no idea why she
believes he got a high distinction, as he only got a Pass, but
he wants the $200 and agrees to tutor.
Susan tells Eric that if he collects her dry cleaning, she will
take him to see the movie “Grease” at a local cinema. Eric
agrees, and collects the dry cleaning. However, the
nostalgia cinema had ceased playing the movie a week
before Susan made her offer. Neither Susan nor Eric knew
that the movie had stopped playing.
Kahlia is a champion ballroom dancer in both the modern
and Latin styles. She owns a beautiful white flowing
modern ballroom dress, and a very daring and racy white
Latin dress. Antoinette approaches Kahlia, who was
wearing the Latin dress, and says “I’d like to buy your
white dress for $1200.” Kahlia is hard up for cash, so she
agrees, thinking that Antoinette intended to buy the white
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dress Kahlia was wearing. In fact, however, Antoinette
wished to buy the other white dress.
Can you see how we need to recognise in these circumstances,
one or both parties have made a mistake? And yet the mistakes
are a little bit different. In the first case, Maria is the only one
who has made a mistake, and Stephen knows she has made a
mistake. In the second case, Susan and Eric make the same
mistake. In the third case, it is very difficult to tell who has
made the mistake but one thing is clear: the two parties have
not really come to an agreement about anything at all. How
should the law resolve these different situations?
In fact, if you think about it, it is worth asking whether the law
should attempt to resolve the situations at all. If Maria has
made a mistake about Steven’s grade, isn’t that her problem? If
Susan and Eric made an agreement to see a movie which is no
longer playing, isn’t that a matter for them to sort out?
Shouldn’t Kahlia and Antoinette have been more careful to
ensure they both knew which dress they were talking about?
After all, once the contract is formed both sides should be able
to proceed with certainty that the contract will be enforced,
right? What happens to freedom of contract if the law rushes in
to fix things retrospectively because someone made a mistake?
In reality, courts are reluctant to intervene on the grounds of
mistake. The court takes the view that the parties have agreed
to the same terms on the same subject matter. They have
willingly undertaken the risk that they may have made a
mistake. The law may even place the risk on one of the parties
by applying principles such as caveat emptor (let the buyer
beware) or caveat venditor (let the seller beware) according to
the demand of commercial certainty.
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So this is our first lesson in terms of mistake: oftentimes, the
law will not intervene. Don’t always be in a huge rush to assume
that just because a party has made a mistake the law will come
to the rescue. However under some circumstances the law will
intervene, and this week we will look at those circumstances.
1.1 Prescribed Reading
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Lindy Willmott, Sharon Christensen, Des Butler and Bill
Dixon, Contract Law (Australia Oxford University Press,
4th ed, 2013) ch. 14.
Cundy v Lindsay (1878) 3 App Cas 459
Great Peace Shipping v Tsavliris Salvage [2003] QB 679
Leaf v International Galleries [1950] 2 KB 86
Lewis v Averay [1972] 1 QB 198
McRae v Commonwealth Disposals Commission (1951) 84
CLR 377
Petelin v Cullen (1975) 132 CLR 355
Raffles v Wichelhaus [1864] 159 ER 375
Slee v Warke (1949) 86 CLR 271
Solle v Butcher [1950] KB 671
Taylor v Johnson (1983) 151 CLR 422
XCB Pty Ltd v Creative Brands Pty Ltd [2005] VSC 424
1.2 Key Terms
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Common Mistake: A circumstance in which both parties
make the same mistake in relation to a contract.
Inter Praesentes: “Between those who are present”. A
contract made inter praesentes is made between parties who
are physically in the same place when the contract is made.
Mutual Mistake: A circumstance in which both parties make
a mistake in relation to the contract, but they make different
mistakes. The effect is usually that the parties are never ad
idem.
Non est factum: “It was not my deed”. A person may claim
non est factum if they did not know they were signing a
contractual document when they signed; that is, they have
made a mistake as to the nature of the document.
Res extincta: “The thing no longer exists”. The subject
matter of a contract is said to be res extincta if it has been lost,
destroyed etc prior to the time of contract formation.
Res sua: “The thing is mine”. Used to describe a situation
where a person purports to contract for something which, it
turns out, is already theirs by right.
Unilateral Mistake: A mistake in circumstances where only
one party to the contract makes the mistake, but the other party
knows or ought to know that the mistake is being made.
2.0 Unilateral Mistake
The first type of mistake we will discuss is known as a unilateral
mistake. Look again at the tale of Maria and Stephen which was
discussed above:
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Maria offers Stephen $200 to tutor her in Contract A. She
says “I know you got a High Distinction, so you obviously
know what you’re doing.” Stephen has no idea why she
believes he got a high distinction, as he only got a Pass, but
he wants the $200 and agrees to tutor.
This is a unilateral mistake. A unilateral mistake occurs when
the following conditions are true:
a) One party, and one party only, makes a mistake; and
b) The other party knows, or ought to know that the first
party has made a mistake.
Both of these conditions are important. In the example given
above, if Stephen had actually gotten a High Distinction there
would obviously be no mistake at all. Furthermore, if Maria
had simply approached Stephen out of the blue and asked him
to tutor her without stating her understanding about his
previous high-grade, there would be no reason why he should
not simply accept her offer. The circumstances which seem to
call on the law to intervene are the combination of the mistake
on one hand, and the knowledge of the other party that the
mistake was being made.
So, how does the law deal with situations in which a unilateral
mistake has been made? The first thing the law does is break
down the unilateral mistake into one of three categories: a
mistake as to the subject matter of the contract; a mistake as to
the other party to the contract: or a mistake as to the nature of
the contractual document. Let’s look at each of these in turn.
2.1 Mistake as to the subject matter
The classic Australian example of mistake as to subject matter
arose in a case called Taylor v Johnson (1983) 151 CLR 422. In
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this case, Mrs Johnson gave to Mr Taylor an option to purchase
a parcel of land for a specified price. Mrs Johnson believed that
the sale price was to be $15,000 per acre. In fact, she was
mistaken and the option specified the sale price to be $15,000
total. When this came to light, Mrs Johnson refused to go
through with the sale, and Mr Taylor sued to force her to
perform the contract.
In its decision, the High Court made a number of important
statements about how these unilateral mistakes will be treated
by the court.
First and foremost, the test to be applied will be an objective
test, not a subjective test. As a result, the mere fact that one
party feels they made a mistake about the subject matter is not
enough to prove the mistake. The court will ask whether a
reasonable observer would also conclude that a mistake had
been made.
Second, the court distinguishes between the approaches of the
common law and equity law in dealing with a situation such as
this. Common law would hold, in these circumstances, that the
mistake was irrelevant. Common law would find that Mrs
Johnson had not undertaken sufficient care and attention, and
she must suffer the consequences.
The court found that equity law, however, took a slightly
different approach. You will no doubt recall from previous
study that equity law is more closely aligned to the law of
conscience. The High Court found that equity would rescind
(set aside) the contract in this case, but only because Mr Taylor
had taken deliberate steps to prevent Mrs Johnson from
becoming aware of her mistake. As a result, equity law will
intervene in a case of unilateral mistake as to the subject matter
of the contract when the following three conditions hold true:
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a) The mistake must relate to a fundamental matter of the
contract;
b) The other party must know of the mistaken party’s
mistake; and
c) The other party must take some steps to prevent the
mistaken party from learning of their mistake.
The third of these conditions was sharpened somewhat in the
case of XCB Pty Ltd v Creative Brands Pty Ltd [2005] VSC
424, in which the Victorian Supreme Court found that the other
party’s conduct must amount to more than simply failing to
correct the other party’s mistake: it must amount to an
unconscionable effort to prevent the other party from becoming
aware of the mistake.
www.letan.com.au
Context: Le Tan was a trading name for Creative Brands Pty Ltd
2.2 Mistake as to the identity of the other party
In many circumstances, the identity of the other party to a
contract is an important element of the contract itself. For
instance, we may intend to contract with a particular party
because of their reputation, their skill, our history of dealings
together, their credit worthiness, or some other factor personal
to themselves. This is perfectly reasonable. Under those
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circumstances, a mistake as to the identity of the other party
may be an important mistake. The law subdivides these
mistakes into two types: mistakes where parties are not face-toface whilst conducting contract formation; and contracts which
are formed by two parties who are face-to-face. Let’s look at
each in turn.
2.2.1 Parties not Face to Face
If a mistake is made about the identity of the other party, and
the contract is not made by parties who are face-to-face, the
contract will typically be void. This is best understood by
looking at the classic case on this issue, Cundy v Lindsay (1878)
3 App Cas 459.
In this case a man named Blenkarn sent a letter to Lindsay
offering to buy a consignment of more than 3000
handkerchiefs for a specified price. He wrote his letter in such a
way as to make it appear that he was in fact writing on behalf of
a company called “Blenkiron & Co” which had a very sound
business reputation. In fact, Blenkarn then sold the
handkerchiefs to Cundy and disappeared, refusing to pay
Lindsay. Lindsay sued Cundy in the tort of conversion,
essentially on the basis that Cundy had received what
amounted to stolen goods.
The court found in favour of Lindsay. The reasoning was that
Lindsay had never intended to form any contract with
Blenkarn. As a result, Lindsay and Blenkarn were never ad
idem and so no effective contract for sale had ever been made.
The handkerchiefs had never properly passed to Blenkarn, so
he could not pass title in them to Cundy.
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The result of this is that if one party makes mistake as to the
identity of the other party, and the two are not face-to-face at
the time, the contract is likely to be void.
2.2.2 Parties Face to Face (inter praesentes)
The second situation occurs when two parties undergo sharing
face-to-face. In legal Latin, the contract is said to be inter
praesentes, or “between those who are present”. To understand
how this situation works, let’s consider the case Lewis v Averay
[1972] 1 QB 198.
In this case a contract was formed for the sale of a car. The
purchaser gave his name as “Richard Greene”, which was the
name of a well-known actor who was famous for playing the
role of Robin Hood. To support this identity, he presented a
television studio pass bearing his name and an official-looking
stamp. The seller accepted his identity and took a cheque for
the car. The cheque subsequently bounced, and the seller
turned out not to have been the actor after all.
What should the court do in this situation?
The court begins with a rebuttable presumption (revise the
topic on intention to create legal relations from Contract A if
you need to remind yourself about the effect of assumptions).
The presumption is that each party intends to make a contract
with a person who is standing opposite them. As a result, in this
situation, the presumption would be that the seller intended to
sell the car to the person who gave them the cheque, regardless
of whether that person was in fact the actor Richard Greene.
This presumption can be rebutted by showing sufficient
evidence of an actual intention to undertake a contract with a
specified person. So, in this case, if the seller had perhaps said
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“I am only prepared to engage in this contract with you because
you are the actor Richard Greene and if you were anyone else
then I would not be prepared to engage in this contract with
you” then this might have been sufficient to rebut the
presumption. In Lewis v Averay, however, there was no such
evidence that the contract was not held to be void due to
unilateral mistake.
Before you get too anxious about this, bear in mind that we still
have to cover misrepresentation, and misleading and deceptive
conduct, which are separate areas of contract law. Often the
innocent party might have a remedy under these aspects of
contract law, even if the court is not prepared to find that there
was an actionable mistake.
12290336
2.3 Mistake as to the nature of the document
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Finally, we ask how the court should treat a situation where a
person enters into a contract, without any idea that they are
doing so. For instance, what is the situation if a person
believes that the document they are signing is merely a request
for further information, or a receipt, or a bill of lading, or some
other document which might occur in a commercial context but
which is not contractual in nature? On the one hand, the rule in
L’Estrange v Graucob, which we studied in Contract A, tells us
that if a person has signed a document they are bound by it,
even if they haven’t read it properly. This is an important role
because it allows commercial parties to rely on a signature
when a signature has been given. Would it be fair to allow the
doctrine of mistake to do away with this reliability?
The law deals with this issue by introducing a concept called
non est factum, which translates as “this was not my deed.” If it
is clear that the person had no concept that they were ever
entering into a contract, then how can we say that the two
parties were ever ad idem? And if they were never ad idem,
then on what basis do we say there has been an agreement at
all?
The court has worked hard to balance these competing and
important principles of contract law. The authoritative case for
Australia is called Petelin v Cullen (1975) 132 CLR 355. In this
case, Petelin was illiterate in English, and was very poorly
proficient even in spoken English. He had extended an option
to Cullen for the purchase of a parcel of land, but the option had
expired and Cullen wrote, via an agent, seeking a further
option and paying $50 for the option. Petelin was told by
Cullen’s agent that he must sign the document, and he signed it
believing it to be a receipt, not a contract. He later refused to
sell the land.
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The High Court found that the option was not binding upon
Petelin, but in doing so it set out three rules which must be met:
First, the person who claims that they have made the mistake
must either be unable to read (for instance, through blindness
or illiteracy in English) or must rely on another person to
explain the document to them; or alternatively for some other
reason they must be unable to understand the nature of the
particular document.
Second, the person must believe that the document is radically
different from what it actually is. As a result, if the person who
signed the document was even aware that the document was
capable of creating obligations, the doctrine of non est factum
will not apply.
Finally, if the other party is innocent, the person making the
mistake must show that their failure to read and understand the
contract was not due to carelessness. Note, however, that if the
other party is not innocent (for instance, if they have
misrepresented the nature of the document) then this final
criterion will not apply.
If we apply these rules to Petelin v Cullen we can see that
Petelin was unable to read English and relied upon the agent’s
explanation of the document, so the first rule is met. He
believed that the document was a receipt, and was thus
radically different in nature to a contract, so the second rule is
met. In this case the third rule did not have to be met because
the High Court found that Cullen’s agent was not innocent, as
he had effectively misled Petelin as to the nature of the
document.
2.4 Review questions
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Question 1
Which of the following is a unilateral mistake as to subject
matter?
a) the promisee is in error as to the date of delivery
b) the promisor is in error as to the quantity to be
delivered
c) both parties are in error as to the customs implications
of the contract
d) one of the parties has adopted a fraudulent identity.
Answer: (b)
Question 2
What occurs when there is a mistake as to the nature of a party,
and the parties are not face to face?
(a)
(b)
(c)
(d)
the contract will be void
the contract will be voidable
the contract will be breached
the contract will be frustrated
Answer: (a)
Question 3
The Latin term inter praesentes means:
(a)
(b)
(c)
(d)
the exchange of presents or gifts
between those who are present
at the present time
upon presentation
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Answer: (b)
Question 4
Which of the following is not a consideration for relief when a
person has made a unilateral mistake as to the nature of a
document?
(a)
the person making the mistake must show the
mistake was not due to carelessness
(b) the person making the mistake must be unable to
read or understand the document
(c) the person making the mistake must have been the
victim of misrepresentation
(d) the person making the mistake must believe the
document is of a radically different nature.
Answer: (c)
3.0 Common Mistake
Recall, from this week’s introduction, the tale of Susan and
Eric:
Susan tells Eric that if he collects her dry cleaning, she will
take him to see the movie “Grease” at a local cinema. Eric
agrees, and collects the dry cleaning. However, the
nostalgia cinema had ceased playing the movie a week
before Susan made her offer. Neither Susan nor Eric knew
that the movie had stopped playing.
This situation is rather different from the unilateral mistakes
we have been considering above. In this case, both parties have
made the same mistake. Both parties have assumed that the
movie would be playing and later found out that it was not.
What should we do in this case? On the one hand, a simple
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solution might be to declare the contract to be void. However,
this might not be fair on Eric who has afterall kept his end of
the bargain by collecting the dry cleaning.
This situation is described in the law as a common mistake,
where both parties make the same mistake.
Read that sentence again, please. You’ll need to clearly
understand it if you do not wish to be confused when we discuss
mutual mistakes below. For a common mistake, both parties
make the same mistake.
The law in Queensland currently follows an English case called
Great Peace Shipping v Tsavliris Salvage [2003] QB 679,
which set out five rules for cases in which common mistake is
alleged:
 First, there must be a common assumption (which turns
out to be in error);
 Second, neither party must have given an undertaking that
the circumstances are true;
 Third, neither party must be responsible for creating the
error (for instance, by destroying the subject matter of the
contract);
 Fourth, the mistake must render performance of the
contract impossible;
 Fifth, the mistake may be made about the subject matter,
or about vital circumstances surrounding the subject
matter.
We divide common mistakes into two general categories: those
where a party has made a mistake about the existence of the
subject matter (these are referred to in legal Latin as mistakes
in the circumstances of res extincta); and, second, those where
a party has made a mistake as to the title in the subject matter
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(these are referred to in legal Latin as mistakes in the
circumstances of res sua). Let’s look at each in turn.
3.1 Mistakes as to the existence of the subject
matter: res extincta
What do we do when two parties make a contract regarding
some item, both believing the item to exist, but then later
finding that the item does not exist. This is essentially the
problem faced by Susan and Eric above. Screenings of Grease
no longer exist.
The classic case in this area of contract law is called McRae v
Commonwealth Disposals Commission (1951) 84 CLR 377. As
you can no doubt imagine, the early 1950s were a very busy
time for anyone involved in shipping salvage operations. The
collective warlike efforts of all major countries in the world had
resulted in a great quantity of shipping lying at the bottom the
ocean. At this time, the Commonwealth Disposals Commission,
a government agency, called for tenders for companies who
wished to purchase an oil tanker which was said to be lying on
Jourmand Reef, slightly to the North of Papua New Guinea’s
Milne Bay. McRae was the successful tenderer, and
subsequently spent a great deal of money mounting a salvage
operation. After this expense had all been incurred, they
discovered that in fact there was no tanker lying on Jourmand
Reef. To make matters worse, there was actually no reef called
Jourmand Reef to begin with. If there wasn’t so much money at
stake, this would count as comedy. If the Chaser gang made up
a story along these facts, they’d be attacked for being
unrealistic!
What should occur in this situation?
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3563486
The High Court considered whether this was a case of common
mistake. After all, both sides of the contract had made the same
mistake: both sides had assumed there was a place called
Jourmand Reef, and both sides had assumed there was a tanker
sunk on the reef. The court found, however, that this was not a
case of common mistake. The reason for this was that the
Commonwealth had certainly made a mistake, but then McRae
had acted in reliance upon the Commonwealth’s statement.
There was really only one mistake made: by the
Commonwealth. As a result, the Commonwealth promised
something it could not deliver and it was therefore in breach of
the contract.
This makes sense if we consider the criteria set out in Great
Peace Shipping. There was, of course, a common assumption
which turned out to be an error. However the Commonwealth
had given an undertaking that the circumstances were true. As
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a result, following the criteria in Great Peace Shipping, this was
not a common mistake.
Another case worth considering here is the case of Leaf v
International Galleries [1950] 2 KB 86. In this case the gallery
purchased a painting, believing it to be by a famous artist. In
fact, it was a forgery. The seller provided the painting the
contract stated he would provide, but of course it had nowhere
near the value which it would have had if it had been the
genuine article. Was this a mutual mistake? The court found
that it was not, because the seller had contracted to sell a
painting by the famous artist; the gallery had contracted to buy
a painting by the famous artist; and the seller had failed to
provide a painting by the famous artist. As a result, this was a
case of breach rather than a case of mistake.
10950700
3.2 Mistakes as to title: res sua
In this rare situation a mistake is made by both parties about
the ownership of the goods in question. Under most
circumstances, if it turns out that the seller does not actually
own the item being sold, the principle nemo dat quod non
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habet, or “You cannot give what you do not have” will apply.
You will learn all about this in property law. However what
about the rare situation where someone is sold something
which they already own?
In a case called Bell v Lever Bros [1932] AC 161, the English
Court of Appeal remarked in obiter that such a case would be
one of common mistake and would make a contract void.
3.3 Equitable remedies for common mistake
As you will have learned during previous studies, rules of equity
may provide more flexible solutions to contractual disputes
than can be provided by the common law. Equity provides a
number of remedies in cases of common mistake, which you
must understand.
3.3.1 Recission
First, and perhaps most obviously, equity can set aside the
contract on whatever terms are considered appropriate. For this
to occur, there must be a common mistake of the fundamental
nature, and the party seeking to have the contract set aside
must not be at fault in relation to the mistake.
The authority for this remedy is Solle v Butcher [1950] KB 671,
where both parties made a mistake about whether certain rent
capping legislation applied to a flat. They later discovered that
the rent cap should have applied, and the renter therefore had
been paying too much rent. However the court found that the
plaintiff had in fact served as an advisor to the owner in relation
to the application of the legislation. As a result, the plaintiff
(who was seeking to have the contract set aside) was at fault in
relation to the mistake and it would have been inequitable to
allow them to benefit from the mistake.
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Instead, the court rescinded the contract and ordered that a
new contract be set in place for the proper amount of rent going
forwards.
3.3.2 Rectification
The second option the court may use is to rectify the contract,
in circumstances where it may be possible to undo the mistake
and allow the contract to carry on. The effect of this would be to
change the contract so that it properly reflects the actual
intentions of the parties. This situation would be unusual, but
is possible. An example can be found in the case Slee v Warke
(1949) 86 CLR 271 which related to an option for the sale of this
pub:
www.museumvictoria.com.au
In this case, the drafter of the contract use the word “may” in
circumstances where it was clear that both parties understood
that the word “shall” would have been more appropriate. When
you get to Advanced Statutory Interpretation and Legal
Drafting you will quickly learn that I hate the word “shall” in all
its forms and believe it should be eliminated from legal writing,
as soon as possible. In this case, the court did not need to
determine whether “may” or “shall” was the appropriate word
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for the contract, as the case was decided on other grounds;
however the court made it clear that such rectification was
within its power.
3.4 Review questions
Question 5
A common mistake occurs where:
(a)
The mistake is commonly made by inexperienced
commercial parties
(b) Both sides have made a mistake, but the mistakes are
different
(c) Both sides have made the same mistake
(d) The mistake occurs in relation to common law, not
statute law
Answer: (c)
Question 6
What happens in a common mistake situation, where one party
has given a mistaken undertaking that the circumstances were
true?
(a) The courts can rectify the mistake in the contract
(b) This is not a common mistake situation
(c) The contract will be void under the doctrine of
mistake
(d) The party in error will have 120 days in which to
rectify the error under the doctrine of rectification
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Answer: (b)
Question 7
What does the phrase nemo dat quod non habet mean?
(a)
(b)
(c)
(d)
Nemo the clownfish should avoid bad habits
The mistake should be rectified if not habitual
The mistake if quoted must be corrected
You cannot give what you do not have
Answer: (d)
4.0 Mutual Mistake
Finally, let’s consider the last of the examples given in the
introduction to this topic:
Kahlia is a champion ballroom dancer in both the modern and
Latin styles. She owns a beautiful white flowing modern ballroom
dress, and a very daring and racy white Latin dress. Antoinette
approaches Kahlia, who was wearing the Latin dress, and says “I’d
like to buy your white dress for $1200.” Kahlia is hard up the cash,
so she agrees, thinking that Antoinette intended to buy the white
dress Kahlia was wearing. In fact, however, Antoinette wished to
buy the other white dress.
In this case, both parties have made a mistake but they have
made different mistakes. Kahlia believes Antoinette wants to
buy the Latin dress. She is wrong. Antoinette believes Kahlia
wants to sell the modern ballroom dress. She’s wrong. The law
describes this situation as a mutual mistake.
Read this next bit until your eyes bleed: if the parties make the
same mistake, it is a common mistake. If the parties make
different mistakes, it is a mutual mistake.
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This simple distinction probably costs contract students more
marks than any other single point of law made in either
Contract A or Contract B. Trust me, I’m not kidding here.
How on earth is the law going to settle a dispute under these
circumstances? To do so, we return to our old friend the
reasonable person, who exercises the objective test. We ask
“would a reasonable person, observing the formation of this
contract, consider one party to be right and the other party to
be wrong?”
So, in the circumstances given, if a third party was standing
there when Antoinette asked to buy Kahlia’s dress, would that
third party have had any reason to believe that the parties had
agreed to sell either the Latin dress or the ballroom dress?
If the reasonable person can identify that one party is right and
the other party is wrong, then the matter will be treated as one
of unilateral mistake, and the rules of unilateral mistake will
apply.
If, however, the reasonable person is unable to identify that one
party is right and the other party is wrong, then it will be
abundantly clear that the parties were never ad idem, so the
contract will be void.
The classic case on mutual mistake is Raffles v Wichelhaus
[1864] 159 ER 375. In this case, two ships, both bearing the
name Peerless, set out from Bombay within a few months of
one another. The two parties undertook a contract for the
delivery of goods via the ship Peerless. You guessed it: one
party understood the contract to refer to the Peerless which left
Bombay in October; the other party understood the contract to
refer to the Peerless which left Bombay in December.
Realistically, there was no way for a reasonable person to tell
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which of the two contracting parties was right. It was not
possible to say that one party was correct and the other had
made a unilateral mistake. Under those circumstances, the only
reasonable thing to do was declare the mistake to have been
mutual and the contract to be void.
4.1 Review question
Question 8
A mutual mistake is:
(a) A mistake both parties have made together
(b) A situation where each party has made a different
mistake
(c) A situation where a reasonable person would have
made a mistake
(d) A situation in which consideration has failed
Answer: (b)
5.0 Review
In this topic we have covered the three general categories of
mistake: unilateral mistakes, where a mistake is made by one
party only; common mistake, where both parties make the
same mistake; and mutual mistakes, where each party makes a
different mistake.
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We have examined three different types of unilateral mistake:
mistakes as to the nature of the subject matter, mistakes as to
the identity of the other party, and mistakes as to the nature of
the contractual document. While these mistakes are all
unilateral in nature, they have very different applications for
the outcome of each dispute. In each case, the court is required
to balance the certainty which ought to be inherent in a signed
contractual document, with the need to do justice where a
signature may have been improperly procured.
We have then considered common mistake, where both parties
make the same mistake as to the existence of the subject matter
or as to the title of the subject matter. In most cases, the result
of such a mistake will be to void the contract, although equity
law provides a range of alternative remedy.
Finally, we have considered mutual mistake where each party
makes a different mistake. If, after the application of an
objective test, it truly is clear that each party has made a
difference mistake, then it is impossible to say that the parties
were ever ad idem. As a result, the contract is void.
6.0 Tutorial Problems
Problem 1
Lord Mitchell of the Seven Golden Orbs
Please watch the short animated video at the following link, and
then consider the questions below. Apologies in advance to any
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other fans of Robert Jordan’s Wheel of Time series … but I
couldn’t help myself. May Mr Jordan rest in peace.
https://www.youtube.com/watch?v=8PkukYiMzDk
Is Mitchell’s mistake unilateral, common, or mutual?
Which of the cases you have learned about this week most
closely approximates Mitchell’s circumstances?
What remedy does Mitchell have against the menswear store
attendant who was posing as Jordan Roberts?
[30 Minutes]
7.0 Debrief
After completing this topic you should recognize:
 How to identify a unilateral mistake;
 How the rules in Taylor v Johnson apply to unilateral
mistakes about subject matter;
 How unilateral mistakes are resolved if the parties were
not face-to-face during contract negotiations;
 How unilateral mistakes result if the parties were face-toface during contractual negotiations;
 Those circumstances in which the court will set aside a
contract in accordance with the doctrine non est factum,
because the person who signed the document believed it
to be of another type;
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 How to identify common mistake and how to distinguish
between res extincta and res sua;
 The equitable remedies which may be available for
common mistake; and
 How to identify a mutual mistake by applying the objective
test.
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