Mistakes can be made by either party during the formation of a contracy, which, inconvenient though they may be, do not affect the validity of the contract. However, some mistakes are much more fundamental and could make the contract void.
The cases where this has arisen can be categorised as follows:
- Common Mistake: where both parties are labouring under the same false assumption
- Mutual Mistake: sometimes known as shared mistake, where the parties are at cross purposes
- Unilateral Mistake: where only one party is mistaken and the other is aware of this
- Mistake as to Documents
Here the parties are in agreement but their contract is based on an assumption whish is false. There are two main categories; where the mistake is over the existence of the subject matter; cases where the mistake is over the quility of the subject matter.
Non Existent Subject Matter
- Where the mistake is over the existence of the subject matter of the contract, the situation is known as res extincta (the thing is destroyed) Coutourier V Hastie: the contract was for sale and purchase of cargo of grain in transit and which both parties believed existed at the time of the contract. in fatc, the captain of the ship had sold the cargo, as was customary practice, when it had begun to overheat. when this was discovered the court (while not actually mentioning mistake) declared the contract void rejecting the sellers argument that the buyer had accepted the risk and should pay the price. this basic proposition is now containted in s6 Sale of Goods Act "where there is a contract for specific goods and the goods without the knowledge of the seller have perished at the time when the contract is made, contract is void"
- Mistake over Title: an extension of the principle of res extincta is res sua (the thing is his own). this will rarely arise, but in the case of Cooper V Phibbs: a lease was drawn up to transfer a fishery and, unkown to both parties at the time, the buyer was already the owner. c took a 3 year lease for a salmon fishery from p. at the time both believed that p owned fishery when infact c was life tenant. he was unable to dispose of property but was effective owner at time of contracting. c then tried to have lease set aside. the HofL agreed to this but also granted p a lien in respect of expense he had gone to improving the property. although case was decided on equitable rather than common law principles, lord atkin in bell v lever refers to it as an example of res sua.
Common Mistake Cont.
Mistake over the quality of the subject Matter
- the general position is that where the mistake of the parties merely results in a bad bargain for one of them, the contract will not be void. this is consistent with the principle that the law only requires sufficiency of consideration not the normal market value. this arose in the leading case of Bell V Lever Bros: lever bros employed bell as chairman of a subsidary company, niger co. with the brief of rejunavating the subsidary. when he was successful in his task, lever brothers offered £30,000 for termination of his contract. later discovered that bell breached contract. lever then sued for return of settlement claiming fraudulent misrep which failed. CA held that settlement was invalid for common mistake, mistake being that level were bound to pay £30k when they could have just fired bell. basically lever bros just gained a bad bargain, it wasn't an operative mistake.
- the point is more easily seen in Leaf V International Galleries: contract was for the sale and purchase of an oil painting of salisbury cathedral that was innocently represented as being a constable. the buyer discovered that is was not when he tried to sell it 5 years later. his claim for rescission failed and he appealed. the CA rejected his claim, holding that an action for damages would have been the appropriate action, and also that he had delayed for too long for rescission. lord denning made some interesting references to mistake, "there was no mistake about the subject matter of the sale, it was a specific picture of the cathedral." it was a mistake only as to the quality of the contract.
In cases of mutual mistake, the parties are not really in agreement, as they make different assumptions in forming the contract. In such cases, if there is total ambiguity the contract is held void.
- Raffles V Wichelhaus: the contract was for the sale of cotton on board a ship named peerless that was sailing out of bombay. in the event, there were two ships both named peerless both sailing from bombay on the same day. the seller was selling the cargo other than the one that the buyer was intending to buy. there was no way of finding a common intention. the contract could not be completed and was declared void.
- Where there is some 'extra' factor the contract may be allowed to continue. Wood V Scarth: a lease was drawn up for a pub and, after conversation with the seller's clerk, the buyer accepted, beleiving the only payment to be the rental of £63. The seller had also intended a premium of £500 to be paid. here the contract was upheld, because of the 'extra' evidence of the statements of the clerk.
This is where only one party has contracted on the basis of a false assumption. the other party will normally know of this mistake, and in some cases will have encouraged it.
- The courts again take the view that merely being mistaken over the quality or value of the goods is not fundamental enough to avoid the contract. This was one arguement raised in Smith V Hughes where the court said that even if the seller knew that the buyer was mistaken over the quality of the oats which he bought, this would not render the contract void.
- On the other hand, some mistakes may be so fundamental and obvious that one party will be taken to have known about the mistake of the other. In Hartog V Colin Shields a mistake over prce was so obvious and fundamental to a buyer that he was deemed to have been aware of it and the contract was held void.
Mistake as to Identity
This is an aspect of unilateral mistake, and in many cases has occured when one person has posed as someone else in order to persuade a seller to part with goods on credit. The cases fall into two groups.
Dealing at Arm's Length
- Cundy V Lindsay: blenkarn hired a room of 37 wook street where a highly respectable firm, blenkiron co. conducted its business at no 123. he then ordered a large number of handercheifs from lindsays, with a signature designed to be confused with the firm. the goods were supplied and blenkiron was billed. blenkarn had sold some goods onto cundy before the fraud was discovered. lindsay then tried to recover the goods, on appeal the HofL held that the contract was void for mistake. the mistake was operable because lindsays were able to show that the identity of the party trading from 37 was material to the formation of the contract, unlike the kings norton metal case, there was a party here with whom the claimants wished to contract. the third party aquired the goods from blenkarn without any title.
- Shogun finance V Hudson: a rogue, giving a false name and address completed hire purchase forms o buy a car and showed a stolen driving licence in the name of patel to confirm his identity. the car dealer faxed a copy of the licence and draft hp agreement, signed by the rogue in patels name, to the claimant finance company. they accepted the deal. the rogue paid 10% in cash and partly in cheque and drove the car away and then sold it to hudson. when finance company realised mistake they brought proceedings against the defendant. the CA considered the 'face to face' cases but decided that they didn't apply. there was no contract between the rogue and the finance company. the innocent purchaser had to bear the loss
Mistake as to Identity Cont.
In Each Others Presence
- a series of cases have been the subject of some debate. In Phillips V Brooks the principle was applied that identity was not crucial to a contract where a person was face to face with the other party. in the case a rogue posed as someone else to obtain jewellery on credit, paying with a cheque that was dishonoured, and then selling the jewellery to 3rd party for cahs before disappearing. apart from the mistake issues, there was fraudulent misrep, but rescission was barred. the court held that the mistaken identity was not crucial enough to avoid the contract, and that the seller intended to enter into the contract with the person before him.
- Ingram V Little: involved similar facts, except this time 3 elderly ladies were selling a car. the court held that the mistaken identity was crucial to the contract and held it void, the car being returned to the ladies.
- Lewis V Avery: a rogue buying a car represented himself as a famour actor of the time and showed a false studio pass after his cheque was first rejected. when the cheque was dishonoured and the seller later discovered the whereabouts of the car, he sued the new owner for recovery, his action failed. the claimant had been induced into believing that he had contracted with somebody different but he had still contracted. this mistake wasn't operative and contract couldn't be void.
Mistake Relating to Document
The general rule is that if parties sign a written agreement they are bound by it
- Lestrange V Graucob: claimant bought vending machine signed contract without reading which included clause that no warranty was included. machine was unsatifactory but claimants claim failed as she had signed document so was bound whether she read it or not
- However, is a party has been induced to sign under misrep, or duress, then contract will be voidable. in addition, two more measures exist which may help where a written contract is not in accordance with parties intentions; the plea of non est factum (not my deed, may be available), rectification.
- Foster V Mackinnon: an elderly man with poor eyesight was induced to sign a document, being told that it was a guarantee. when it was found to be a bill of exchange in favour of the plaintiff the defendant successfully pleaded non est factum.
- However, the plea will not be allowed too easily, lest it be used as an excuse to escape unwanted contract. Saunders V Anglia: Mrs Gallie was unsuccessful in her claim, as the document which she signed was not very different from what she intended to sign, and she was considered careless in not reading it first.
- Rectification is a measure used by the courts to amend a written document so that it reflects more accuratley the parties original oral agreement.
Mistake in Equity
If the mistake does not render the contract void at common law, then could there be an equitable remedy? Denning developed the doctrine of voidable in equity, where the court would grant rescission on terms. these terms were based on fairness and justice in order to balance the positions of the parties. Cases such as Solle V Butcher, Grist V Bailey and Lawrence V Lexcourt Holdings illustrate the way the courts applied the equitable principles.
- This doctrine has now been over ruled in Great Peace Shipping: the defendants who were sailors, had an interest in a ship, the cape providence and worried that it might sink. they approached london brokers who contacted a 3rd party (OR) who identified the nearest vessel as the great peace, which belonged to the claimants. the defendants then agreed a charter party contract to hire the great peace for five days. however, OR was wrong, and great peace was several hundred miles away. so the charter contract was based on a common mistake. the defendants then tried to concel the contract but the claimants refused and claimed for 5 days hire. they argued that the mistake was not as to the existence of the subject matter. the contract was not void at common law. he also considered that it could not be set aside in equity since it was impossible to determine the nature of the fundamental mistake that would enable the contract to be rescinded and he would not excercise any discretion to set aside contract because the fixing of charterparties is done by professionals and is an area where certainty is important and to set aside contract would amount to making correctness of info given by OR a condition of contract.