Mistake

If Mistake is found, the contract is rendered void.

II. Categories of Mistake

Common Mistake; Where both parties to the contract make the same mistake. Each is fully aware of the intention of the other but each person makes a mistake as to some underlying and fundamental part of the contract

Mutual Mistake; Where the parties are at cross-purposes, but each believes that the other is in agreement

Unilateral Mistake; Where one party makes a mistake and the other is aware of the error

3 types of mistake but 2 general categories?

A. Agreement is reached (meeting of minds) but there is something which fundamentally robs the agreement of its efficacy (common mistake comes under this.)

B. Agreement is never reached (O and A never coincide. No meeting of minds. A unilateral mistake falls into this second category where agreement is not reached at all.

III. Agreement is reached but lacks effectiveness

2 things to bear in mind; the mistake must be fundamental. Secondly, the state of affairs must’ve been in existence prior to the conclusion of the contract. (This second one is really important. Compare lectures on mistake with the doctrine of frustration of contract)

Common Mistake

1. Mistake as to the existence of subject matter - Res extincta

The leading case is Couturier v Hastie [1856] 5 HLC 673; Contract was for sale of corn in transit who believed the corn existed when the contract was formed. However, the cargo was rotten and had already been sold by the captain. HL said if the subject matter of the contract did not exist at formation, the contract could never be formed and was void.

However, in the case where one party actually guarantees the existence of the subject matter, mistake as to the subject matter has not sufficed to set aside the contract and the contract is valid. McRae v Commonwealth Disposals Commission (1951) 84 C.L.R. 377 (Australia)

So, you can rely on common mistake as to the subject matter where; 1. It must be a belief which is understood by the party without any reasonable grounds of believing otherwise 2. One of the parties must not be responsible for implanting the mistake in the mind of the other.

s6 Sale of Goods Act 1979

“where there is a contract for the sale of specific goods, and the goods, without the knowledge of the seller, have perished at the time when the contract is made, the contract is void”

2. Mistake as to ownership of the subject matter of a contract (res sua)

In Cooper v Phibbs (1867), cooper agreed to take a lease of a fishery from his uncle but unknown to both parties, cooper already owned it. HL set the agreement aside and declared it void for mistake. So, if there’s a mistake to ownership which both parties commonly share, that will allow the contract to be declared void.

3. Mistake as to possibility of performance

a. legal impossibility; Cooper v Phibbs (1867) L.R. 2 H.L. 149

b. physical impossibility; Sheikh Brothers Ltd v Ochsner [1957] A.C. 136

In this instance, it’s not physically possible to get the thing you contracted for. The contract here was for the delivery of 50 tonnes of sizol to be delivered per month but the land that it was going to be grown on was not capable of producing that much.

c. commercial impossibility; Griffith v Brymer [1903] 19 T.L.R. 434

In this case, the commercial venture that was planned was impossible. The contract was made after the king’s coronation was postponed. And that factor was not known to both parties. The contract regarded viewing the procession but this was impossible.

4. Mistake as to quality of the subject matter of the contract

Note: this is really controversial for 2 reasons. The questions are is the contract void for mistake when there’s a mistake as to the quality of the subject matter? Or Is the contract voidable for mistake as to the quality of the subject matter? The distinction between the 2 is a remedy at common law and the second is a remedy in equity. As mentioned earlier, the difference between the 2 is huge. (void and voidable)

Common mistake as to quality of the subject matter in (common) law

The classic case is Bell v Lever Bros [1932] AC 161. Here, Lever Bros entered into an agreement with Bell to leave the company in exchange for £30, 000. It was later revealed that there were grounds for termination without compensation at the time of the agreement as Bell had previously breached his contract of employment. This is a common mistake as the parties share the same one. (Lever Brothers didn’t know about the mistake and Bell had forgotten)

The HL held that the contract was valid since the mistake was not ‘of such a fundamental character as to constitute an underlying assumption without which the parties would not have made the contract they in fact made.’ What lord Atkin points to is that mistake as to the quality of the subject matter will be available if you can show two things. 1. The mistake must be the mistake of both parties. 2. The mistake must be ’as to the existence of some quality which makes the thing without that quality essentially different from the thing as it was believed to be.

In bell, the difference is between a contract worth £30, 000 and worth nothing, you’d think the Atkins test would be satisfied. You’d think a £30, 000 drop would satisfy that test. Lord Atkin said the

change was not sufficiently serious in this case. What that means is that the contract was not void and carried on so the director’s were entitled to the money.

Catherine McMillan feels that it was decided the way it was because the courts focused on fraud (directors forgot they did it) and non-fraud. And because it was not fraud, the contract was held to be okay. And thus it’d probably have been differently decided.

The leading modern case on Common Mistake as to the quality of goods is Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd ( The Great Peace) [2003]. Note that it is a CA case.

Lord Phillips give 5 criteria to show how common mistake as to the quality of goods will work

1. There must be a common assumption as to the existence of a particular state of affairs.2. There must be no warranty by either party that that state of affairs exist.3. The non-existence of the state of affairs cannot be due to the fault of either party. (must

be unattributable to any party)4. The non-existence to the state of affairs must render the contract impossible5. The state of affairs ‘might be a vital attribute of the consideration provided or the

circumstances that must exist in order for the contract to be performed’ (iow if you’re thinking about great peace it’s the proximity of the vessel in relation to its ability to pick up the passengers)

Based on that, Lord Phillips said the contract wouldn’t be void at common law as the contract was clearly not impossible to perform (4) as Tsaviliris knew the contract could kind of be performed which is why they didn’t immediately terminate the contract.

The question also arose whether the contract was voidable for common mistake in equity. Here the CA actually went so far as to say that Denning was wrong in Solle v Butcher [1950] to create a remedy for mistake in equity. (take note that until the SC completely rules it out however, it is still technically around. There is some support for it at the highest level as Denning’s decision was even followed by Lord Steyn)

Common mistake as to the quality of the subject matter in equity

Invented in Solle v Butcher, followed numerous times but then disapproved of but not overruled in The Great Peace.

IV. Agreement is Never Reached

Mutual Mistake

Here the parties are essentially talking past each other, they’re talking about different things.

Raffles v Wichelhaus (1864) 2 H. & C. 906 (cotton arriving on the ship peerless from Bombay)

The court considered whether a reasonable third party would interpret the contract in line with the understanding of one or the other of the parties. Court said parties are talking past each other; the contract is void for mutual mistake.

Smith v Hughes (1871) L.R. 6 Q.B 597: (old oats new oats case)

“if whatever a man’s real intention may be. He so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into a contract which him, the man thus conducting himself would be equally bound as if he intended to agree to the other party’s terms”. (as per Blackburn J)

Unilateral Mistake

Occurs when only one party makes a mistake. The other party to a contract is either aware of that mistake or is deemed to be aware of that mistake. (Most common is mistake as to identity)

Written Contracts - generally, the innocent (original contracting) party is deemed to deal with the legitimate business and not the fraudster.

In unilateral mistake cases, the contract will only be void for mistake where the identity of the contracting person is of fundamental importance to the contract. This is highlighted in Cundy v Lindsay (1878) (HL). Here, the HL essentially said the claimant wanted to deal with Blenkiron and Co. and no one else. The rogue never even entered their minds and thus there was no meeting of minds.

Face-to-face Dealings – the contract is considered to be formed with the actual person irrespective of the identity assumed by that person (Phillips v Brooks), this is true even where a contract is made through an intermediary (Shogun Finance Ltd. V Hudson). Reasonable steps should be taken to check the identity of the other person (Midland Bank plc v Brown Shipley & Co. Ltd)

Phillips v Brooks Ltd [1919] 2 K.B. 243. (rogue impersonates a famous wealthy person and writes out a worthless cheque and immediately takes a ring before the cheque is cashed) Here, the court said the claimant was happy to sell the jewellery to the person who stood in front of him. So the true identity of that person wasn’t crucial to our claimant. This means that the original contract is not void for mistake but merely voidable for misrepresentation.

However, the law was shaken up a bit by Ingram v Little [1961] 1 Q.B. 31. In this case, the court rejected Phillips and Brooks. Instead, the court said the identity was so crucial to the little old ladies, that they must be deemed to be dealing with PGMH and not the rogue. Thus there’s no meeting of minds and the contract is void.

Why is this case different from Phillips v Brooks? Most commentators think it’s because it involves little old ladies. However, we need to try and find a better reason. The distinction given is that we must distinguish between a mistake as to the identity of the person on one side, and the mistake as to the attributes of a person on the other. If you make a mistake as to the attributes of a person, the that’s not enough to grant a claim for unilateral mistake, rather you need to make a mistake as to the identity. The fundamental core of the human being. i.e. who they are not what they are like.

Fortunately, the law has been cleared up a bit by Shogun Finance Ltd v Hudson [2003] UKHL 62. Here, the issue dealt with a written contract between Shogun Finance and the rogue. The starting point is the nemo dat rule. If the contract is void, the rogue never acquired any title and couldn’t pass it to Hudson. If the contract is merely voidable, the rogue acquires a title until such point as it can be set aside. Here, the majority of the lords (3-2) upheld the general position in Phillips v Brooks and Lewis v Avery. Ingram v Little was not however decisively overruled. (note: the minority gave

strong dissents suggesting that in all such contracts be it face-to-face or in writing, the contracts should merely be voidable)

In closing, the most important thing to note is that of all the vitiating factors, mistake has the most drastic remedy and can have catastrophic knock-on effects for third parties. The courts rarely use it both for the above reason and also to preserve sanctity of contract. (and also the worry that if it were easy to prove, people would attempt to use it to get out of bad bargains)