#16751 - Mistakes Pq Notes - Contract Law

NB if there is a mistake, contract is void ab initio (not voidable!).

A fundamental distinction between unilateral and common mistakes:

• Unilateral mistakes: mistake by one party as to the terms or identity of the contract

• Common mistake: mistake by both parties as to the facts or the law relating fundamentally to the subject matter of the contract

The effect of each category of mistake also differs slightly:

• Unilateral mistakes – negative consent, the parties did not in fact reach an agreement. Contract is sometimes void ab initio, but sometimes it is more accurate to say that there was no contract on the terms apparently agreed.

• Common mistakes – mistake renders the agreement ineffective as a contract. Contract is void ab initio.

Because of the objective principle—by which we ascertain the intention of the parties objectively, not subjectively—the doctrine of unilateral mistakes is narrow. The law is not concerned with subjective mistakes.

The mistake must be in respect of the terms of the contract, not just the quality or substance of the subject matter of the contract. Also, the other party must know about the mistake the party makes: Smith v Hughes (1871). Facts: D wanted old oats to feed to his racing horses. He bought a quantity of oats without stipulating that he wanted ‘old’ oats. D then refused to pay for the new oats and asserted his entitlement to reject the goods delivered and refusal to accept the remaining quantity. P, the seller, sued D. Verdict: Successful. The contract is not void. Even though D knew of the error, the error did not relate to the term of the contract, only to the quality or substance of the subject matter.

An extension of Smith v Hughes: even if the other party does not know about the mistake, if he should have known, so long as error is in respect of term of contract, then contract is void: Hartog v Colin. On the facts, D must have known that C had wanted to buy hare skins per piece instead of per pound, because their negotiations had proceeded on the basis that price was to be assessed per piece. D mistakenly offered them on a per pound basis. Held: Price is a term of the contract. Mistake found.

Conversely, where the mistake was not known to and could not reasonably have been known to the other side, the contract is binding in full at the outset, even when it has not yet been relied upon: Centrovincial Estates v Merchant Investors

Where a party’s fault is found to be the cause of the mistake, the contract will not be enforced against the other party. Scriven Bros v Hindley (1913). Facts: D, the buyer, was bidding in an auction but had mixed up which lot was which, resulting in an extravagant bid for the wrong lot. When D found out that they did not bid for what they wanted, they refused to pay, claiming there was no contract. C sued. Verdict: Unsuccessful. There was no contract as the mistake was attributable to C’s own fault (by negligence it had contributed to the mistake by laying out the lots in a confusing manner).

The paradigm scenario: B, pretending to be A, sells goods to C. C later sells the goods to a bona fide purchaser, D. B absconds. Question is if A, C, or D has title.

The law now has a choice between two analyses: a) D has acquired good title from C, who has received a ‘voidable’ title open to rescission, or b) A remains owner because B had derived no title from A which he might transfer to C.

The starting point is to treat written contracts and face-to-face dealings separately, as the case law does Shogun Finance Ltd v Hudson

1. Where the dealings are face-to-face, the objective presumption is that A intended to contract with the person in front of him, that is, B, so the contract is not void Lewis v Averay (1972)

When will this presumption be rebutted? Lord Walker in Shogun Finance v Hudson at [187], obiter, gave an example as to when this presumption must be rebutted: "the most audacious form of impersonation would be where a rogue…attempts, face-to-face, to deceive a member of the family of which he claims to be part, or someone else personally acquainted with the individual whom the rogue is impersonating… I would not exclude the possibility that impersonation of that sort might be outside the presumption."

2. Where the contract is written, the rule is different.

There are two approaches.

1. Firstly, the traditional approach is to use mistaken identity analysis.

Cundy v Lindsay: Where the contract is written, and B impersonates X, and X is a real entity known to A, A makes a mistake as to identity and the contract is void. On the facts, because X was a real and reputable company known to A, the contract was void.

King’s Norton Metal Co v Edridge, Merrett & Co: Where the contract is written, and B impersonates X, and X does not exist, A does not make a mistake as to identity and the contract is not void. On the facts, because X was a non-existent company, the contract was not void.

Note that this analysis – in Cundy v Lindsay – was affirmed by the majority in Shogun Finance v Hudson.

2. Alternatively, use parol evidence analysis

Lord Hobhouse in Shogun Finance v Hudson: The issue is simply one of construction of the written terms. If the written contract indicates that the contract is between A and X, not A and B, because of the parol evidence rule, evidence cannot be adduced to contradict the written contract’s explicit identification of the contractual parties. However, X has not consented, and so the contract is void. This has nothing to do with mistake. The contract is between A and X, not A and B.

Of course, the other four Lords engaged with the mistake analysis. Of these four, Lord Nicholls and Lord Millet, in the minority, sought to apply the rules of face-to-face dealings generally.

• Shogun Finance v Hudson (2004)

Facts: A car was ostensibly acquired under a hire-purchase agreement between the hire-purchase company, S, and ‘Patel’. But the real Patel had no knowledge of this transaction and the rogue, X, had impersonated him. The dealings between S and X were not face-to-face (they were in writing). S then sued H, who was the bona fide purchaser of the car.

Verdict: Successful. There was no valid contract between S and X.

Majority, with the exception of Lord Hobhouse (who did not use mistaken identity analysis but used the parol evidence analysis instead): use the rules in Cundy v Lindsay – there are separate rules for written contracts.

• As a matter of construction of the written contract, the only parties to it were S and the person named in the document itself, Patel. The identity of parties to a written agreement is established by the names stated in that agreement (parol evidence rule; no other evidence may be adduced to contradict the provisions of a contract contained in a written document).

• Note that the other two in the majority did affirm Lord Hobhouse’s analysis but also affirmed Cundy v Lindsay.

Minority (Lord Millet & Lord Nicholls): using the same rules as with face-to-face dealings, for policy reasons.

• Currently, if use Cundy v Lindsay, third parties’ position not taken into account of because the contract is void. Alternatively, if use rules of face-to-face dealings, the contract will not be void...