#4602 - Mistake - GDL Contract Law

• “Operative mistake” (sufficient to render a contract void) is more than a mere understanding

• It is a mistake of fact: either prevents the formation of a contract or which renders the contract something other than that which was intended

• It makes the contract void and not just voidable

• Operates only where the mistake existed at the time of contract formation – not where the mistake occurs subsequently (Amalgamated Investment)

Three Categories of Mistake:

1. Mutual: Both parties are mistake but in different ways. E.g.. I think I’m selling X some ‘Coke’ (the drink) – X believe he is buying some ‘Coke’ (the drug) – there is no contract because no agreement

2. Common: Both parties suffer the same misapprehension – offer and acceptance correspond (underlying agreement between the parties) – e.g. I agree to sell X some golf clubs – but overnight, unbeknown to either of us, they burn in a fire – we are both mistaken

3. Unilateral: Only one party is mistaken – e.g. one party knows the other has mistakenly mispriced a contract

Mutual mistake as to the identity of the subject matter

• Smith v Hughes: the test for agreement is objective – if on the evidence, a reasonable man would infer the existence of a contract, then it will be binding on both parties (per Blackburn J)

• But where there is a large degree of ambiguity (no discernible meaning can be found) – the contract will be void for mistake

• Raffles v Wichelhaus- two ships with the same name – it was impossible to tell from the contract which ship the coal would be on

Common mistake as to the existence of the subject matter

• If at the time of the contract and unbeknownst to the parties, the subject matter of the contract is not in existence (res extincta), there can be no contract

  • Courturier v Hastie: contract to sell corn, but at the time of the contract the corn had already been sold – res extincta

  • McRae v Commonwealth Disposals Commission: argument for common mistake failed – the seller was deemed to have warranted to the existence of the goods (had invited tenders to help salvage an oil tanker that in fact didn’t exist) – was deemed to have assumed the risk that the ship did not exist

• Or if at the time of the contract, it already belongs to the person attempting to purchase it (res sua) there can be no contract

  • Cooper v Phibbs: nephew tried to lease fishery from his aunt, but unbeknownst to both parties, the nephew had already been given a life interest in it

Common mistake as to a fact or quality fundamental to the agreement

• Generally does not nullify consent – even if the mistake affects the utility of the goods / the value of the goods (Harrison & Jones v Bunten & Lancaster)

• This is unless: the mistake is so fundamental as to destroy the nature of the agreement:

  • Bell v Lever Bros: Lord Atkin – ‘does the state of the new facts destroy the identity of the subject-matter as it was in the original state of the facts?’

    • Mistake must be operative and fall within Lord Atkin’s criteria –i.e. it must be a mistake of both parties, and must as to the existence of some quality essentially different from the thing as it was believed to be

    • Suggests that such a mistake as to quality will only very rarely (if ever) make a contract void - narrow view

• Obiter statements in the following three cases:

1. Nicholson & Venn v Smith Marriott:

   • Defendants (D) put table napkins up for auction, claiming that they had the crest of Charles I on them – but they were in fact Georgian – Hallett J said the contract may have been void for mistake (if both parties believed they were buying/selling Carolean table linen

2. Leaf v International Galleries

   • Evershed MR claimed mistake was not available -as the buyer contracted to buy a painting of Salisbury Cathedral, and received a painting of Salisbury Cathedral (but it wasn’t by Constable as both parties believed)

   • Treitel has suggested that this should have been sufficiently fundamental for mistake to operate

3. Associated Japanese Bank v Credit du Nord

   • Steyn J observed that Bell v Lever Bros had virtually prevented mistake being utilised at common law

• Narrow constraints on doctrine confirmed in Great Peace Shipping v Tsavlris:

  • CA: services provided were not ‘essentially different’ to what the parties had agreed (‘the test of essential difference’) – performance of the intended service was not rendered impossible so the contract was not void (here there was misinformation about how far away the salvage ship was)

  • Post Great Peace – strict application of the case means this form of mistake is virtually extinct

Unilateral mistake as to the expression of intention

• Where the offeror makes a mistake in expressing their intention and the other party knows or is deemed to know of that mistake, the contract will be void - Hartog v Colin & Shields (you cannot snatch at a bargain)

Unilateral mistake as to the nature of the document signed

• General rule: a signature is binding – (L’Estrange v Graucob)

• Exception: Non est factum (“it is not my deed) – where mistake is due to either:

  • Blindness, illiteracy or senility of the person who signs; or

  • A trick/fraudulent misrepresentation as to the nature of the document

• Incapacity: Thoroughgood’s Case – lady was illiterate

• Fraud: Foster v MacKinnon – where the signature was procured by fraud

• Lloyd Bank v Waterhouse: Illiterate man was able to rely on mistake where the bank made negligent misrepresentations as to the documents nature

BUT:

• Mistake will not operate where there is negligence on the part of the signee (here where a woman claimed she had lost her glasses!) – mistake won’t operate excuse stupidity – Saunders v Anglia Building Society

Unilateral mistake as to the identity of the person contracted with

• Court must ask whether the mistaken party would have contracted, had they known the true identity of the person with whom they are contracting

• Lewis v Averay: Fraud – CA held that the contract was voidable for fraudulent misrepresentation and not void for mistake as the identity of the buyer was not fundamental to the contract

  • Where someone conceals his true identity in order to gain possession of goods – then if the rogue’s identity is not itself fundamental to the contract –...