Contract
Content
Mistake
Introduction
Mistakes are categorized as a Mistake of Fact, Mistake of
Law, or mutual mistake. A mistake of fact occurs when a person
believes that acondition or event exists when it does not. A mistak
e of law is made by a person who has knowledge of the correct fa
cts but is wrong aboutthe legal consequences of an act or event.
A mutual mistake arises when two or more parties have a shared
intention that has been induced by a common misbelief.
Mistake can be - (1) Mistake of Law
(2) Mistake of Fact
Mistake of law: when a party enters into a contract, without the
knowledge of the law in the country, the contract is affected by
such mistakes but it is not void. The reason here is that ignorance
of law is not an excuse. However if a party is induced to enter into
a contract by the mistake of law then such a contract is not
valid. Illustration A and B make a contract grounded on the
erroneous belief that a particular debt is barred by the Indian law
of Limitation; the contract is not voidable.
Mistake of Fact: Where both the parties enter into an agreement
are under a mistake as to a matter of fact essential to the
agreement, the agreement is void. Explanation: An erroneous
opinion as to the value of the thing which forms the subject-matter
of the agreement is not to be deemed a mistake as to a matter of
fact.
Types of mistake
1. Common mistake
2. Mutual mistake
3. Unilateral mistakes
Common Mistake
Where a common mistake occurs, the parties appear to be in
agreement, but have entered into the contract under the same
misapprehension. Such mistakes are fundamental to the contract,
render the contract ‘void ab initio’ (void from the very beginning).
In the case of Bell v Lever Bros (1932), it was held that for a
common mistake to be operative the mistake ‘must go to the root
of the contract’, that is to say, the fundamental purpose of the
agreement between the parties.
(i) Mistake as to the existence of the subject matter
Where the subject matter of the contract does not exist or
ceases to exist, it may be void at common law. In the case
of Couturier v Hastie (1856), a buyer bought a cargo of corn
which both parties believed to be at sea. The cargo had to be
disposed of and the court held that the contract was void as the
subject matter ceased to exist.
However, it depends upon the construction of the contract as to
whether it will be deemed void or valid. Where performance is
guaranteed or there is the purchase of a ‘chance’, the contract will
be valid. In the case of McRae v Commonwealth Disposals
Commission (1951), McRae was sold the right to salvage a tanker
of a specific reef, but neither existed. The court held that there
was a valid contract as there was an implied guarantee that the
tanker existed.
(ii) Mistake as to title
Where there is an agreement to transfer property from one person
to another, but the buyer already owns the property and neither
party is aware of this, the contract will be void at common law.
(iii) Mistake as to quality
A mistake as to the quality of the subject matter will not render a
contract void at common law. In Leaf v International Galleries
(1950), both parties mistakenly believed that a painting was by
Constable. The court held that the contract was still valid.
However, where a mistake as to quality is fundamental, it has
been argued that this could render a contract void. In particular,
Lord Atkin in Bell v Lever Bros stated that ‘A contract may be void
if the mistake is as to the existence of some quality which makes
the thing without that quality essentially different from the thing it
was believed to be’.
(iv) Mistake as to the possibility of performing the contract
Where the obligations under the contract are impossible to
perform, the contract will be deemed void. In Sheik Bros Ltd v
Ochsner (1957), the land was not capable of the growing the
crops contracted for, so the contract was held to be void.
(v) Mistake in equity
Where a contract is void on the grounds of common mistake, the
court will either refuse specific performance in equity or it can
grant rescission and impose terms if necessary.
If it is a mistake as to quality, even though the contract may be
valid at common law, it may still be deemed voidable in equity. In
the case of Solle v Butcher (1950), the Court of Appeal set the
contract aside in equity, even though it was valid at common law
and imposed terms to do justice.
Mutual Mistake
Where a mutual mistake occurs, there is a misunderstanding
between the parties as to each other’s intentions and they are
said to be at cross-purposes. A mutual mistake negates consent
and therefore no agreement is said to have been formed at all.
(i) Mutual mistake as to the identity of the subject matter
Where there is ambiguity as to the understanding of the
agreement, the contract will be deemed void. In determining this,
the court applied an objective test asking whether
a reasonable third party would take the agreement to mean what
one party thought it meant, or what the other party thought it
meant. In the case of Raffles v Wichelhaus (1864), the court held
that there was no agreement as the parties were thinking of two
different ships when they entered into the agreement and it was
therefore too ambiguous to enforce. This can be contrasted with
the case of Smith v Hughes (1971) where the mistake related to
the quality, not the identity of the subject matter and the court held
that the agreement was valid.
(ii) Mutual mistake in equity
Where a contract is void on the grounds of mutual mistake, the
court will refuse specific performance in equity and if
necessary, rescind the contract.
Unilateral Mistake
A unilateral mistake is where only one party is mistaken and the
other party knows about it and takes advantage of the error. A
unilateral mistake also negates consent and the existence of an
agreement.
(i) Unilateral mistake as to the terms of the contract
For a unilateral mistake to be operative, it must relate to the terms
of the contract. This type of mistake occurs where one party is
aware of the mistake and takes advantage of the other party’s
error. Such a mistake will render the contract void.
In the case of Hartog v Colin and Shields (1939) the seller had
made a mistake as to the price of goods and it was held that the
buyer must have realised the mistake and as it concerned a term
of the contract, the contract was held to be void.
A unilateral mistake as to the quality of the subject matter will not
render the contract void. In Smith v Hughes the contract was for
the sale of ‘oats’. The buyer believed they were ‘old oats’, but they
were not. However, the contract was still held to be valid as the
sale of ‘old oats’ was not a term of the contract.
(ii) Unilateral mistake in equity
Where a contract is void on the grounds of unilateral mistake, the
court will refuse specific performance in equity and if necessary,
rescind the contract.
Mistake as to identity
Where a mistake as to the identity of the other party to the
contract is made, the contract will be deemed void if the identity of
that person is central to the contract. However, where the parties
negotiate in person, there is a presumption that there is an
intention to do business with the person in their presence, in
which case it is unlikely that a contract will be void, as is
demonstrated by the case of Phillips v Brooks (1919).
The contract was held to be valid where a jeweller sold goods to
someone who purported to be someone else as he had intended
to do business with that particular person, even though he was
not who the jeweller thought he was.
Remedies
Depending on the type of mistake made and whether it is
considered ‘fundamental’, a contract may be deemed void. Even
where a contract is deemed valid, or indeed void at common law,
equity may intervene in which case a contract may be deemed
voidable.
This creates a more flexible approach which in certain
circumstances gives either party the option of terminating the
contract rather than the courts simply rendering the contract either
valid or void. If the prerequisites for rectification of the contract are
satisfied, the court may change the terms of the contract to reflect
the parties' intentions.
Introduction
Mistakes are categorized as a Mistake of Fact, Mistake of
Law, or mutual mistake. A mistake of fact occurs when a person
believes that acondition or event exists when it does not. A mistak
e of law is made by a person who has knowledge of the correct fa
cts but is wrong aboutthe legal consequences of an act or event.
A mutual mistake arises when two or more parties have a shared
intention that has been induced by a common misbelief.
Mistake can be - (1) Mistake of Law
(2) Mistake of Fact
Mistake of law: when a party enters into a contract, without the
knowledge of the law in the country, the contract is affected by
such mistakes but it is not void. The reason here is that ignorance
of law is not an excuse. However if a party is induced to enter into
a contract by the mistake of law then such a contract is not
valid. Illustration A and B make a contract grounded on the
erroneous belief that a particular debt is barred by the Indian law
of Limitation; the contract is not voidable.
Mistake of Fact: Where both the parties enter into an agreement
are under a mistake as to a matter of fact essential to the
agreement, the agreement is void. Explanation: An erroneous
opinion as to the value of the thing which forms the subject-matter
of the agreement is not to be deemed a mistake as to a matter of
fact.
Types of mistake
1. Common mistake
2. Mutual mistake
3. Unilateral mistakes
Common Mistake
Where a common mistake occurs, the parties appear to be in
agreement, but have entered into the contract under the same
misapprehension. Such mistakes are fundamental to the contract,
render the contract ‘void ab initio’ (void from the very beginning).
In the case of Bell v Lever Bros (1932), it was held that for a
common mistake to be operative the mistake ‘must go to the root
of the contract’, that is to say, the fundamental purpose of the
agreement between the parties.
(i) Mistake as to the existence of the subject matter
Where the subject matter of the contract does not exist or
ceases to exist, it may be void at common law. In the case
of Couturier v Hastie (1856), a buyer bought a cargo of corn
which both parties believed to be at sea. The cargo had to be
disposed of and the court held that the contract was void as the
subject matter ceased to exist.
However, it depends upon the construction of the contract as to
whether it will be deemed void or valid. Where performance is
guaranteed or there is the purchase of a ‘chance’, the contract will
be valid. In the case of McRae v Commonwealth Disposals
Commission (1951), McRae was sold the right to salvage a tanker
of a specific reef, but neither existed. The court held that there
was a valid contract as there was an implied guarantee that the
tanker existed.
(ii) Mistake as to title
Where there is an agreement to transfer property from one person
to another, but the buyer already owns the property and neither
party is aware of this, the contract will be void at common law.
(iii) Mistake as to quality
A mistake as to the quality of the subject matter will not render a
contract void at common law. In Leaf v International Galleries
(1950), both parties mistakenly believed that a painting was by
Constable. The court held that the contract was still valid.
However, where a mistake as to quality is fundamental, it has
been argued that this could render a contract void. In particular,
Lord Atkin in Bell v Lever Bros stated that ‘A contract may be void
if the mistake is as to the existence of some quality which makes
the thing without that quality essentially different from the thing it
was believed to be’.
(iv) Mistake as to the possibility of performing the contract
Where the obligations under the contract are impossible to
perform, the contract will be deemed void. In Sheik Bros Ltd v
Ochsner (1957), the land was not capable of the growing the
crops contracted for, so the contract was held to be void.
(v) Mistake in equity
Where a contract is void on the grounds of common mistake, the
court will either refuse specific performance in equity or it can
grant rescission and impose terms if necessary.
If it is a mistake as to quality, even though the contract may be
valid at common law, it may still be deemed voidable in equity. In
the case of Solle v Butcher (1950), the Court of Appeal set the
contract aside in equity, even though it was valid at common law
and imposed terms to do justice.
Mutual Mistake
Where a mutual mistake occurs, there is a misunderstanding
between the parties as to each other’s intentions and they are
said to be at cross-purposes. A mutual mistake negates consent
and therefore no agreement is said to have been formed at all.
(i) Mutual mistake as to the identity of the subject matter
Where there is ambiguity as to the understanding of the
agreement, the contract will be deemed void. In determining this,
the court applied an objective test asking whether
a reasonable third party would take the agreement to mean what
one party thought it meant, or what the other party thought it
meant. In the case of Raffles v Wichelhaus (1864), the court held
that there was no agreement as the parties were thinking of two
different ships when they entered into the agreement and it was
therefore too ambiguous to enforce. This can be contrasted with
the case of Smith v Hughes (1971) where the mistake related to
the quality, not the identity of the subject matter and the court held
that the agreement was valid.
(ii) Mutual mistake in equity
Where a contract is void on the grounds of mutual mistake, the
court will refuse specific performance in equity and if
necessary, rescind the contract.
Unilateral Mistake
A unilateral mistake is where only one party is mistaken and the
other party knows about it and takes advantage of the error. A
unilateral mistake also negates consent and the existence of an
agreement.
(i) Unilateral mistake as to the terms of the contract
For a unilateral mistake to be operative, it must relate to the terms
of the contract. This type of mistake occurs where one party is
aware of the mistake and takes advantage of the other party’s
error. Such a mistake will render the contract void.
In the case of Hartog v Colin and Shields (1939) the seller had
made a mistake as to the price of goods and it was held that the
buyer must have realised the mistake and as it concerned a term
of the contract, the contract was held to be void.
A unilateral mistake as to the quality of the subject matter will not
render the contract void. In Smith v Hughes the contract was for
the sale of ‘oats’. The buyer believed they were ‘old oats’, but they
were not. However, the contract was still held to be valid as the
sale of ‘old oats’ was not a term of the contract.
(ii) Unilateral mistake in equity
Where a contract is void on the grounds of unilateral mistake, the
court will refuse specific performance in equity and if necessary,
rescind the contract.
Mistake as to identity
Where a mistake as to the identity of the other party to the
contract is made, the contract will be deemed void if the identity of
that person is central to the contract. However, where the parties
negotiate in person, there is a presumption that there is an
intention to do business with the person in their presence, in
which case it is unlikely that a contract will be void, as is
demonstrated by the case of Phillips v Brooks (1919).
The contract was held to be valid where a jeweller sold goods to
someone who purported to be someone else as he had intended
to do business with that particular person, even though he was
not who the jeweller thought he was.
Remedies
Depending on the type of mistake made and whether it is
considered ‘fundamental’, a contract may be deemed void. Even
where a contract is deemed valid, or indeed void at common law,
equity may intervene in which case a contract may be deemed
voidable.
This creates a more flexible approach which in certain
circumstances gives either party the option of terminating the
contract rather than the courts simply rendering the contract either
valid or void. If the prerequisites for rectification of the contract are
satisfied, the court may change the terms of the contract to reflect
the parties' intentions.
