Mistake

Mistake

Described as "a confused and difficult branch of law" by Lord Atkin in Bell v Lever Brothers 1932.
There are four key areas to consider: common, mutual, unilateral, mistake as to the nature of the documents.
1. Common Mistake
  1. Both parties make the same error relating to fundamental fact.
  2. Res Extincta: a contract will be void at common law if the subject matter is non-existent.
    1. Scott v Coulson: at the time of entering a contract for life insurance, both parties believed the person who's life was to be insured was alive, when he was in fact dead. Void for mistake.
    2. Galloway v Galloway: a couple were separating and believed they were married when in fact they were not. Void for common mistake when they realised their marriage was a nullity.
    3. Couturier v Hastie: a cargo of corn was being shipped from the Med Sea to England and the owner sold it to a man in London. However, before it was sold the goods had perished so the contract was void for common mistake as both parties thought they were making an agreement when in fact there was no existence of the goods.
    4. McRae v Commonwealth Disposals Commission: CDC sold the claimant a shipwreck of a tanker supposedly containing oil. However no tanker even existed but the courts still found that the claimant succeeded in claims for damages for breach of contract and rejected the contract be void as CDC promised that the tanker did exist.
      1. The distinguish between these two cases is that CDC had actually promised of the existence when Hastie had not promised anything.
  3. Res Sua: a person makes a contract to purchase something that in fact already belongs to him.
    1. Cooper v Phibbs: a nephew rented a room off his uncle who then died. He then paid rent to his aunt when in fact it was later found the uncle had left a life time tenancy to his nephew in his will. The lease was held to be voidable for mistake as the nephew already had a beneficial ownership right.
  4. Mistake as to quality
    1. A mistake as to quality of the subject matter of a contract has been confined to very narrow limits.
    2. Bell v Lever Bros: Mr Bell was appointed as chairman as well as Mr Snelling to run the company Niger. Under contracts, the contract was due to run for 5 years. However due to poor performance, the merged with another subsidiary and made the defendant redundant. Bell accepted the substantial pay out off Lever Bros for the termination of his contract but it was later found they had seriously brached heir contract which would have lead to their termination anyway.
      1. This was only a mistake as to quality and did not render the contract essentially different from that which it was believed to be. The action therefore failed.
    3. Leaf v International Galleries: Lead purchased a painting form the defendant. Both parties believed the painting to be by the artist Constable. 5 years later they realised it wasn't. Leaf brought a claim for misrepresentation and mistake.
      1. The claim for misrepresentation was successful (innocent) but lost the right to rescind because of a lapse of time as he had left it 5 years.
        Claim for mistake was unsuccessful as the mistake related to the quality and did not render the subject matter something essentially different from that which was believed to be. He believed he was buying a painting and he got a painting.
    4. Associated Japanese Bank v Credit Du Nord:AJB bought machines from a client and then leased them back to him under a guarantee from CDN. The client went bankrupt so AJB sued CDN on the guarantee. It turned out the machines never existed, and as they were fundamental to the guarantee there was no contract - it was void.
If a mistake is to effect the validity of a contract it must be an operative mistake (the reason the contract is void)
Common Law
1. When the mistake is operative, the contract is usually void ab initio (from the beginning) and no property will pass under it and no obligations can arise under it.
Equity
1. Even if the contract is valid at common law, in equity (fairness) the contract may be voidable on grounds of mistake. This means the contract is able to be void but does not have to be.
Mutual Mistake
1. Where both parties fail to understand each other.
  1. The courts will apply an objective test and consider whether a "reasonable man" would take the agreement to mean what one party understood it to be or what the other party did.
    1. If the test leads to the conclusion that the contract could be understood in one sense only then both parties will be bound by this contract in the sense that it is to be understood.
      1. Wood v Scarth: a lease was drawn up concerning a pub, after a conversation, the sellers clerk accepted the rent from the buyer only believing it to be £63. However the seller intended to receive a £500 premium from the buyer.
        The contract was upheld on the buyers terms because of the extra evidence of the clerk which had misled the buyer.
    2. If the transaction is totally ambiguous under the objective test then there will be no consensus ad idem and the contract will be void.
    3. Raffles v Wichelhaus: a cargo had been bought, however there was two ships of the same name. The buyer thought he was buying one whilst the seller thought he was buying the other.
      1. The case was too hard to decide and too ambiguous so the contract was void.
    4. Scriven Bros v Hindley: the defendant bid for two lots believing them to be of the same category because they contained the same shipping mark. He refused to pay for one of the lots (of lower value). The auctioneer believed that the bid was made under a mistake as to the belief of the value of the lot.
      1. As the parties were not at ad idem, the plaintiff could only recover if the buyer were estopped from relying the truth. They were not estopped since their mistake had been caused by the negligence of the seller.
Unilateral Mistake
1. Where only one party is mistaken.
2. Mistake as to terms of the contract
  1. One party is mistaken as to the nature of the contract and the other party is aware of the mistake then the contract is void.
    1. Hartog v Colin & Shields: the defendant mistakenly offered a large quantity of hare skins at a certain price per pound whereas they are meant to be offered at that price per piece. This meant the price was roughly one third of what it should have been, to which the claimant accepted.
      1. The court held that the contract was void for mistake. Hare skins were generally sold per piece and given the price the claimant must have realised the mistake.
3. Mistake as to identity
  1. A party makes a contract with a second party believing it to be someone else. The law makes a distinction where the parties are inter absentes or inter praesentes.
    1. Inter absentes
      1. Cundy v Lindsay
      2. Kings Norton Metal v Etridge
    2. Inter praesentes
Unilateral Mistake
1. Shogun v Hudson: a rogue purchased a car on hire purchase terms and showed the ID of a Mr Patel and granted the finance. He paid a 10% deposit but then sold the car to Mr Hudson and then disappeared.
  1. Where a private purchaser buys a motor vehicle from someone who has it subject to a hire purchase agreement and does not yet properly own the vehicle, if he buys in good faith and without notice of the hire purchaser, the transaction is treated as if the person selling the vehicle did properly own it.
2. Phillips v Brooks: a rogue purchased some items from the claimants jeweller's shop claiming to be Sir George Bullogh. He paid by checque and persuaded the jeweller's to allow him to take a ring immediately as he claimed it was his wives birthday the following day. He gave the address of Sir George Bullogh and the jeweller's checked the name and address matched. He then pawned the ring under the name of Mr Firth. The claimant brought an action as to unilateral mistake as to identity.
  1. The contract was not void for mistake. Where the parties transact face to face the law pressumes they intend to deal with the person in front of them not the person they claim to be. The jewellers were unable to demonsrtate that they would have sold the ring to Sir George Bullogh.
3. Ingram v Little: two sisters sold their car to a rogue under he name Hutchinson and paid cheque giving his full name and address to which she checked at the post office. The cheque was dishonoured and the car was sold on to Mr Little. The sisters brought an action to recover the car.
  1. The contract was void for mistake. The Court of Appeal held that the sisters only intended to deal with Mr Hutchinson at the address given because they were not willing to offer a sale by payment of cheque from anyone else.
    1. This case has been criticised and has not been followed since.
4. Lewis v Avery: The claimant sold his mini to a rogue claiming to be the actor Richard Greene. The rogue showed the claimant a Pinewood Studio pass which had his details on it. The cheque was dishonoured and the car was sold on to Mr Avery. The claimant sought to return the car on grounds that the contract was void for mistake.
  1. It was not void for mistake. The pressumption that the parties intend to deal with the person in front of them was not displayed.
Documents
1. A person is bound by their signature to a document whether or not they have read and understood the document.
  1. L'Estrange v Graucob: The claimant purchased a smoking vending machine. She signed an order form with the small print "any express or implied, condition, statement of warranty, statutory or otherwise is expressly excluded.
    1. By signing the agreement, she was bound by all terms in the form regardless of whether she had read them or not. It was her duty to read everything contained in the form.
  2. However, if a person has been induced by a fraudulent misrepresentation, the transaction will be voidable.
    1. Saunders v Anglia Building Society: Mrs Gallie signed a document which stated it was the sale of her interest in her home to Mr Lee. He then used the document to obtain a mortgage on the property for £2,000. He failed to keep up payments so the building society sought possession of the house. She had signed the document without her glasses. She sought to claim repossession for non est factum (not her deed) as it was only a gift to help raise money for Mr Lee and her nephew.
      1. The House of Lords found against Mrs Gallie as the document she had signed was not radically different to the one she believed it to be which was that she was relinquishing the rights to her property.
        The House of Lords stated that non est factum should not be too widely applied and reserved it for those who could for no fault of their own read the document i.e. illiterate or incapacitated through age.
        For such a plea to be applied there must be two factors established: 1. the signer was careless of signing 2. there is a radical difference in what the singer thought they were signing.

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