1. Mistake
Lecture 8

2. Introduction A mistake in contract renders the contract void.
Vitiating factors
As we have seen, vitiating factors operate to prevent a contract being fully binding where one party has not given genuine consent of their own free will.
The effect of an operative mistake on a contract

3. Classification of Mistake
A mistake must induce the contract - a mistake can only negate consent if it induced the mistaken party to enter into a contract.
Mistake of fact or law – in the past only a mistake of fact could affect the validity of a contract; a mistake of law was not sufficient.
Example – one makes a mistake as to the cost of an item in a shop, you might expect the shop to refund the excess amount when you discovered the mistake. However in law the shop would only have been obliged to refund you if you had made a mistake of fact (you thought the price was K50 when in fact it was K5). See;
Kleinwort Benson Ltd v Lincoln City Council (1999)
Legal principle – the remedy of restitution is available for a mistake of law.

4. Agreement mistakes
McKendrick describes these as ‘offer and acceptance’ mistakes as they negate consent and prevent a contract from coming into existence. This is because either one party has made a mistake or because both parties are at cross-purpose.
The are two types of mistake: common mistakes and cross-purposes mistake.
Cross-purpose (sometimes called mutual mistakes) – occurs where each party has a different view of the situation - where, for example, Ann thinks she is buying Ben’s Rolls-Royce, when in fact it is his Daimler that is for sale.

5. Agreement mistakes (2)
Two types of cross-purposes mistake are possible
Mutual mistake – where each party makes a mistake but they are different mistakes; and
Unilateral mistake – where only one party is mistaken. The other either knows of the mistake or ought to know of it.
The courts will simply decide whether a reasonable onlooker would have understood the contract to mean what one party thought it meant, or what the other party thought it meant. See;
Wood v Scarth (1855)
Held: that the agreement was valid: as far as many reasonable onlooker was concerned, the defendant had made a precise and unambiguous offer, which the claimant had accepted, and the mistake did not negate that.

6. Agreement mistakes (3) See; Raffles v Wichelhaus (1864) 2 H & C 906
Scriven Bros & Co v Hindley [1913] 3 KB 564
The are three situations where a cross-purposes mistake can make a contract void:
The mistake was negligently induced by the other party
The parties are at such cross-purposes that a reasonable observer would not be able to say what they had agreed; and
One party knew of the other’s mistake (unilateral mistake) regarding their identity or the terms of the contract, and the mistake was fundamental. A unilateral mistake about the quality of the subject matter of the contract is not sufficient.

7. Unilateral Mistake over the Terms of the Contract.
(b) One party is mistaken about the terms of the contract and this mistake is known to the other party (unilateral mistake) Hartog v Colin & Sheilds [1939] 3 All ER 566 The defendant had some animal skins for sale, which they intended to sell at a certain price ‘per piece’, as was apparently the custom in the trade. By mistake, they offered them at the same price ‘per pound’ instead of ‘per piece’, which, at about three skins to the pound, obviously worked out much cheaper. The buyers accepted this offer. When they realised their mistake, the sellers refused to deliver the skins and were sued by the buyers for breach of contract. Held: that there was no contract, because the buyers were aware of the seller’s mistake.

8. Unilateral Mistake over the Terms of the Contract. (2)
By contrast in Centrovincial Estates plc v Merchant Investors Assurance Co Ltd (1983) a landlord offered, by mistake, to renew his tenant’s lease at a rent of £ 65,000 a year; he had meant to offer it at £126,000. the tenant, unaware of the mistake, accepted the offer.
Held: that the mistake had no effect upon the contract, because the tenant did not know of it, and the contract was therefore binding.
Smith v Hughes (1871) LR 6 QB 597
Legal principle – when deciding whether or not there has been a mistake sufficient to make the contract void, the courts will look at the facts objectively.

9. Unilateral Mistake involving Mistaken Identity
One party is mistaken about the identity of the other contracting party.
A genuine mistake of this nature, where the identity of the other party is of fundamental importance, will render the contract void
The law draws a fine distinction between where a person intended to contract with someone else (mistake renders the contract void), and a mistake which is merely as to a person’s attributes rather than as to their identity. Only a mistake as to identity will be operative.
A mistake as to a person’s attributes, such as thinking that they are creditworthy when they are not, can leave the contract intact.

10. Unilateral Mistake involving Mistaken Identity (2)
The leading case.
Hudson v Shogun Finance Ltd [2001] EWCA Civ 1000
Legal principle – where a party makes a unilateral mistake as to the identity of the other contracting party, the contract is void.
Face-to-face principle – this where there has been face-to-face contact between the contracting parties, there is a strong presumption that each party intends to contract with the other person present.
This presumption applies even where the buyer assumed a false name, or practised any other deceit to induce the vendor to sell.

11. Unilateral Mistake involving Mistaken Identity (3)
The only case which was out of line with the face-to-face principle was
Ingram v Little [1961] 1 QB 31 but this case was overruled by the HOL in Hudson v Shogun.
The Ingrams were two elderly sisters who advertised a car for sale. A man came to see it, and made an offer, stating that he would pay by cheque. The sisters refused this, and the man gave the name of P. Hutchinson, and an address. The sisters checked the telephone directory and, finding that a P. Hutchinson was listed at that address, agreed to take the cheque. The cheque bounced, and the sisters discovered that the man was not who he claimed to be but, by this time, he had disappeared and the car had been sold to a dealer.
Held; that mere presences of an individual did not necessarily mean that the contract was being made with him or her; ‘if he disguised in appearance to represent someone else, and the other party deceived by appearance, dealt with him on the basis that he was that person and would not have contracted had he known the truth’, there was no contract. The same should apply where a person uses words to disguise their identity.

12. Unilateral Mistake involving Mistaken Identity (4)
The face-to-face principle creates a strong presumption that the offer was accepted by the person to whom it was physically addressed, and exceptions to it are rare and have been significantly restricted by the decisions of the House that Ingram v Little was wrongly decided.
An exception would apply where a rogue attempts, face-to-face, to deceive someone personally acquainted with the individual whom the rogue is impersonating.
Where a contract is made face-to-face, the courts are likely to conclude that the parties intended to contract with the person in front of them and the only mistake was a mistake as to attributes. See;
Lewis v Avery [1972] 1 QB 198

13. Unilateral Mistake involving Mistaken Identity (5)
The claimant had advertised his car for sale. A potential buyer introduced himself as Richard Greene, a film actor who was well known at the time for playing the part of Robin Hood. Agreeing to buy the car, he signed the cheque ‘R.A. Green’, and, when the claimant asked for evidence of identity, he produced a Pinewood Studios pass with his name and photograph on it. The claimant handed over the car, but a few days later was told by his bank that the cheque was worthless.
Held: that there was a contract, and Lord Denning based his judgment on the fact that Mr Lewis had reached an agreement with the person who turned up on his door-step, and there was no evidence that he intended to contract with someone other than that person. The contract was deemed to be voidable under misrepresentation and not void for mistake.

14. Another the case incolving a contract face-to-face is Phillips v Brooks Ltd [1919] 2 KB 243
Held: that the contract was valid as the claimant had intended to make the contract with the person in front of him in the shop. The mistake had been merely about the creditworthiness of the rogue, rather than as to his identity.
See also the following;
Cundy v Lindsay (1878) 3 App Cas 459
King’s Norton Metal Co Ltd v Edridge Merrett & Co Ltd (1897) 14 TLR 98
Lake v Simmonds [1927] AC 487

15. Common Mistake
Both parties make the same mistake, sometimes called mutual mistake.
Example Ann buys a painting from Ben, which both parties believe is Picasso, but which is in fact a fake, they have made a common mistake.
Here a contract does come into existence but is set aside because the parties made the same mistake.
A contract will not be void for common mistake due to the fault of the parties.
If the contract allocates the risk of the mistake occurring on one of the parties then the doctrine of mistake will not apply.

16. Common Mistake (2) The leading case on common mistake
Bell v Lever Bros Ltd [1932] AC 161
Held: the HOL rejected the Lever Brothers’ argument, stating that the mistake made was not sufficiently fundamental to the parties agreement to render the contract void.
Legal principle – a shared mistake will only render a contract void if it amounts to a fundamental mistake

17. Common Mistake (2)
Mistakes as to the existence of the subject matter of the contract.
For example, a contract may contain a warranty for the existence of a state of affairs. If the parties have made a mistake and the state of affairs does not actually exist, there is a breach of contract and the legal doctrine of mistake does not apply. See;
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377
Held; that the contract contained an implied warranty that the subject matter was in existence. The defendant had breached that implied term and so the claimant could claim damages. See;
William Sindall plc v Cambridgeshire County Council (1994)
The doctrine of mistake did not apply in this case.
Galloway v Galloway (1914) 30 TLR 531

18. Common Mistake (3)
Fundamental mistake – a shared mistake will only render a contract void if it amounts to a fundamental mistake. A mistake is fundamental if it renders the performance of the contract essentially and radically different from what the parties had supposed it to be. See;
In Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (2002) goes as far as suggesting that the mistake must have rendered performance impossible or devoid of purpose. In determining this issue Lod Diplock ‘s test in Hong Kong Fir Shipping was applied.

19. Common Mistake (4)
The courts will find a fundamental mistake, where there has been a mistake as to the existence of the subject matter of the contract. This kind of mistake will usually concern goods to be sold.
Example- Ann purports to sell her car to Ben, and it is then discovered that the car has been destroyed by fire, the contract will not be valid. However, it applies to other subject matter. See;
In Scott v Coulson (1903) a life insurance policy was taken out, covering a Mr A.T. D’eath, who both parties believed was alive. In fact, Mr D’eath was, appropriately enough, dead. The agreement was held to be void at common law and the contract was set aside.

20. Common Mistake (5) Couturier v Hastie (1856) 5 HL Cas 673
The decision in Couturier was put into statutory contained in the Sale Of Goods Act s6;
‘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’.
Associated Japanese Bank v Credit Du Nord [1988]

21. Common Mistake (5)
Mistake as to the possibility of performing the contract.
Physical impossibility
Sheikh Bros Ltd v Ochsner [1957] AC 136
Mistake as to title – a mistake as to title is also sufficient to amount to a fundamental mistake.
Cooper v Phibbs (1867) LR 2 HL 149
HOL set aside an agreement whereby one party had agreed to lease a fishery to the other, but, unknown to either, the fishery already belonged to the party taking out the lease.
Commercial impossibility
Griffith v Brymer (1903) 19 TLR 434

22. Mistakes as to Quality
In most cases a mistake as to the quality of the subject matter will not affect the validity of a contract. This is so even where the quality of goods is a major factor in the decision to buy. See; In Harrison & Jones v Bunten & Lancaster (1953) the contract concerned the sale of some kapok (used to fill stuffed toys), which both parties believed to be of a certain standard of purity. In fact it fell below this standard, and as a result was of no use to the buyer, but the contract was nevertheless held to be valid. Sometimes a mistake as to the quality of the subject of the contract will be sufficiently fundamental to render the contract void. See; In Bell v Lever Brothers Lord Atkin said that a contract would be void if both parties were mistaken ‘as to the existence of some quality which makes the thing without the quality essentially different from the thing as it believed to be’.

23. Mistakes as to Quality (2)
Leading case
Leaf v International Galleries [1950] 2 KB 86
Bell v Lever Bros Ltd [1932] AC 161
Solle v Butcher [1950] 1 KB 671
The Great Peace [2002] 3 WLR 1671
Quality mistakes were found in;
Scott v Coulson [1903] 2 Ch 249
Nicholson & Venn v Smith-Marriott (1947) 177 LT 189

24. Common Mistakes in Equity
Solle v Butcher [1950] 1 KB 671 Lord Denning laid down a test for common mistake in equity that required a fundamental mistake, which appeared on the surface to be the same test laid down in Bell v Lever Brothers. ‘A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to the facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault’. Lord Denning.

25. Common Mistakes in Equity (2)
It is therefore difficult to see when the equitable doctrine should apply and when the common law should apply.
On the facts of the case it seems that Lord Denning felt that as a matter of public policy the contract should not be void under common law, but equity could still apply.
In a recent case the courts held that there were no separate rules in equity on common mistake. The case of Solle v Butcher was considered wrong and Lord’s Denning’s judgment criticised. See;
The Great Peace [2002] 3 WLR 1671
Legal principle – there is no separate doctrine of common mistake in equity
Grist Bailey [1967] Ch 532

26. Document Mistakes
Rectification – where part of a written document is alleged not to reflect accurately the intention of the parties, the equitable remedy of rectification may in certain circumstance allow the written document to be altered so that it coincides with the true agreement of the parties.
The legal requirements for rectification were confirmed by the House of Lords in Chartbrook v Persimmon Homes (2009).

27. Document Mistakes (2)
The remedy of rectification only applies where the following conditions are satisfied;
The parties had a common intention (whether or not amounting to an agreement) on the relevant term of the contract which continued to exist when the contract was put down in writing;
The contract was put down in writing;
A mistake was made when writing down the particular term of the contract so the contract did not reflect that common intention

28. Document Mistakes (3)
If the parties have simply overlooked the issue, and therefore not reached any agreement on it, then the remedy of rectification is not available; the written agreement will simply be interpreted as it stands. See; Fredrick E Rose (London) Ltd v William H. Pim Junior & Co Ltd [1953] 2 QB 450 ‘……in order to ascertain the terms of their contract, you do not look into the inner minds of the parties – into their intentions – any more than you do in the formation of any other contract you look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed’. Lord Denning.

29. Document Mistakes (4)
Rectification and unilateral mistake – only occasionally available when there has been a unilateral mistake. If the mistake is one-sided, rectification will be available if the person who realised the other was mistaken, dishonestly failed to tell the other of their mistake.
Josceylene v Nissen [1970] 2 QB 86
Commissioner for the New Towns v Cooper (GB) Ltd [1955] Ch 259

30. Document Mistake (5) The plea of non est factum (this is not my deed)
We have seen that, as a general rule, a person who signs a contractual document is bound by it, regardless of whether he or she has read or understood it.
The general rule
L’Estrange v Craucob Ltd [1934] 2 KB 394
However, where a person signs a document believing it to be something totally different from what it actually is, the common law remedy of non est factum may make the contract void.

31. Document Mistakes (6)
The person seeking the remedy must prove three things; firstly
That the signature was induced by a trick or fraud; secondly
That the made a fundamental mistake as to the nature of the document; and thirdly
That they were not careless in signing it
A plea of last resort
Saunders v Anglia Building Society [1971] AC 1004 (also known as Gallie v Lee)