#2122 - Doctrine Of Mistake - Contract Law

Unilateral Mistake

In general

• Smith v Hughes [1871]:

  • Cockburn CJ:

    • As long as objectively the parties can have said to have agreed on the subject matter of the contract (e.g. parcel of good oats)

      • Then C not responsible for correcting D’s self induced mistake, (parcel of oats are old oats when they are actually new oats)

Exception 1: Where there is objectively a mistake as to terms

Exception 2: Mistake as to identity of other party

• In general, courts will void a contract if identity of the party is mistaken, not if just the attributes of that party are mistaken (e.g. solvency, social position) (this being merely voidable for misrepresentation)

• Four contradictory factors “guide” the court on whether dealing with attribute (non-voidable) or identity (voidable):

  • Objectivity – X cannot accept an offer meant for Y

    • Ingram v Little [1961]: C sold car to H only after H identified himself as PGMH living at an address C checked as accurate in phone book. H actually rogue and not PGMH, dishonoured cheque, sold to D, innocent party.

      • Sellers LJ:

        • The mere presence of an individual cannot be conclusive that an apparent bargain he may make is made with him.

          • E.g. If he were disguised in appearance to represent someone else and the other party, deceived

dealt with him on the basis but wouldn’t have done if knew truth

• then, there would be no contract established

• But this is a question only answerable in each case by its own facts.

• Lewis v Averary [1972]:

  • Megaw LJ:

    • In this case, can’t be said that L thought the identity of R was of vital importance to him

      • He would have sold to anyone

        • Thus, contract is valid.

  • Moi:

    • Only where name represented is of vital importance to C (e.g. famous painter/ respected tradesman)

      • Should the presumption that C intends to deal w/ person in front of him be rebutted and contract void

      • Else, contract only voidable on notice per Lord Denning for any other mistake of identity/attributes.

• Written Contracts

  • When contract is in writing, only parties named in document are parties to contract

  • Cundy v Lindsay [1878]: A, a rogue, rented some rooms near famous firm of cloth dealers. Since trade name was similar to said firm, C dealt w/ A thru written correspondence on this basis. A sold on lace, and then did not pay C what was due.

    • Lord Hatherley:

      • C never thought they were dealing with A

        • They corresponded with Blenkiron & Co sent all of their invoices addressed to Blenkiron & Co, believed they were contracting with and selling to said firm, not A.

      • Thus, A can never have had any chance of gaining title to pass on to anyone else.

  • Shogun Finance v Hudson [2003]: X agreed a deal for sale to R on stolen driving licence of P. After credit check based on this identity, C, who had no contact with R, authorised X to sell car to whom R had represented self as (P). The next day, R sold the car to D, a good faith purchaser, whom C then sued after discovering the fraud

    • Lord Hobbhouse (maj):

      • The name written on the document is different from negotiations face to face

        • there was no consensus ad idem, R having no honest belief or contractual intent whatsoever and the finance company believing that it was accepting an offer by P

      • R may have negotiated with X orally

        • But as far as C was concerned, C was dealing with P

    • Lord Nicholls (dis):

      • Presence of writing does not give reason for any distinction from face-to-face cases

        • Fact that A believes he is dealing with B when in fact B is C is not relevant.

      • What matters is whether A agreed to sell his goods to the person dealing with, not why he did so or under what name.

        • The latter is relevant to remedy, not to formation of a contract

    • Lord Millet (dis):

      • Rule should be that while Y can’t intercept and accept an offer made to someone else, whatever the medium of communication, a contract comes into existence if, on an objective appraisal of the facts,

        • It can be said that a party’s offer has been accepted by the person to whom it was addressed.

          • Thus, regardless of fraud, the transaction should result in a contract, albeit one which is voidable

    • Lord Phillips (maj):

      • Where there is some form of personal contact between individuals who are conducting negotiations,

        • There should be a strong presumption that each intends to contract with the other.

      • Where the dealings are exclusively conducted in writing, there is no scope or need for such a presumption.

        • It is clear from the policy C went about that they only ever intended to contract with the person stated on the document (P) not R.

• Non Existence of identity assumed

  • A’s mistake to B’s identity only voids a contract where A mistook A for C, an existing and identifiable party

  • If A merely believes B to be an unidentifiable or non-existing party

    • Then contract is only voidable (i.e. A must rescind the contract themselves, it is not automatic)

• Face to Face Dealing

  • Ingram v Little [1961]:

    • Devlin LJ:

      • English Law operates on a number of judicial presumptions which may actually have no true reflection in fact

        • The presumption here should be that a party intends to contract with the person face-to-face with him.

      • Fact X wouldn’t have made contract if they’d known the truth

        • does not rebut this presumption.

    • Sellers LJ:

      • The mere presence of an individual cannot be conclusive that an apparent bargain he may make is made with him.

        • Essentially, the question turns on the facts of the case – it could go either way.

          • In some cases, presence will be enough

  • Lewis v Averary [1972]:

    • Lord Denning (min):

      • Has been suggested that the identity of a man is one thing, his attributes another

        • Problem is that X’s name is an attribute of him which is the key to his identity and therefore all other relevant attributes

Exception 3: Mistake as to nature of the document (non es factum) “The crazy cat lady doctrine”

• Signatures are in the main binding on the signor

  • However, law recognises exceptional cases where this should not be the case

• If X signs document mistakenly thinking it is something else, relief available if:

  • B induced mistake through misrepresentation

  • There was a common mistake

  • There was a mistake of identity, and X elects to void the contract before an innocent third party

• If not, non es factum (which voids contract automatically) available where:

  • Saunders v Anglia Building Society [1971]

    • Lord Reid:

      • Non es factum applies where

        • Someone is purported to have signed a document when in fact they have not

        • OR where someone is blind or illiterate so must trust someone else to represent the truth of what they are signing to them

          • AND difference between what is signed and what is thought to be signed must also be fundamental to the contract itself.

      • BUT this remedy can’t apply where C has not taken proper precautions to assist him

        • Chen Wishart: Carelessness of X is irrelevant where there is a two party case

          • It becomes more of an issue in three party cases, where competition is between two innocent parties seduced by a fraudster.

Common (shared) mistakes at common law

• This applies to the same mistake(s) made by both parties about matters relevant to the contract (but outside of it)

  • But not to the terms of the contract itself

    • Bell v Lever Brothers [1932]:

      • Lord Atkin:

        • Where a mistake is made to the existence of the truth of something at contract formation

          • This will only void the contract where that is a “condition” (implied or express) of the contract:

            • Either “something in the contemplation of both parties fundamental to the continued validity of the contract”

            • OR “a foundation essential to the contract’s existence”.

This means that a contract can be voided (under this section) when C proves four elements:

• Mistake is shared

• Construction is of no assistance

  • If contract has allocated risk of mistake to a party, then that party carries the can regardless of mistake

    • McRae v CDS [1951]: CDS invited tenders for purchase of wrecked oil tanker. C made the successful tender, but then found (at great expense) that no such tanker existed. CDS claimed common mistake.

      • Dixon and Mullager JJ:

        • Condition precedent implied there

        • CDS assured existence of tanker in contract, therefore risk allocated to them of it not existing.

        • Goold: both in error but CDS started the whole process by inviting tenders – so responsibility on them to make sure correct.

• Not the Fault of either party

  • McRae v CDS [1951]:

    • Dixon and Mullager JJ:

      • Must be true to say that party cannot rely on common mistake

        • When mistake was entertained by him either without reasonable excuse

          • or else deliberately induced by him in the mind of the other party.

  • Associated Japanese Bank Ltd v Credit du Nord SA [1988]:

    • Steyn J:

      • Policy seems to dictate that an unreasonable mistake made by one of the parties, inducing the said mistake into the other party’s mind

        • Should not be allowed to be relied upon.

• Mistake is fundamental:

  • Mistakes as to the existence of the subject matter

    • Bell v Lever Brothers [1932]

      • Lord Atkin:

        • Contract void where A and B contract for specific article

          • And turns out item has perished before contract formation.

    • S.6 Sale of Goods Act

      • Where goods specific goods contracted but perished at time contract made w/o knowledge of seller

        • Then contract is void

  • Mistake as to an essential quality of the subject matter

    • Associated Japanese Bank Ltd v Credit du Nord SA [1988]:

      • Steyn J:

        • Court must work to uphold contracts rather...