11. Mistake
Great Peace Shipping Limited v Tsavliris (International) Limited [2002] CA
Lord Phillips MR
A mistake can be simply defined as an erroneous belief. Mistakes have relevance in the law of contract in a number of different circumstances. They may prevent the mutuality of agreement that is necessary for the formation of a contract. In order for two parties to conclude a contract binding in law each must agree with the other the terms of the contract. Whether two parties have entered into a contract in this way must be judged objectively, having regard to all the material facts. It may be that each party mistakenly believes that he has entered into such a contract in circumstances where an objective appraisal of the facts reveals that no agreement has been reached as to the terms of the contract. Such a case was Raffles v. Wichelhaus (1864) 2 H&C 906. The parties believed that they had entered into a contract for the purchase and sale of a cargo of cotton to arrive “ex Peerless from Bombay”. That term was capable of applying equally to a cargo of cotton on two different ships, each called “Peerless” and each having sailed from Bombay, one in September and one in December. The court accepted that parole evidence could be adduced to prove which shipment the parties had intended to be the subject of the contract. Had one party intended the October shipment and the other the December shipment, the agreement necessary for a binding contract would have been absent.
29. Raffles v. Wichelhaus was a case of latent ambiguity. More commonly an objective appraisal of the negotiations between the parties may disclose that they were at cross-purposes, so that no agreement was ever reached. In such a case there will be a mutual mistake in that each party will erroneously believe that the other had agreed to his terms. This case is not concerned with the kind of mistake that prevents the formation of agreement.
30. Another type of mistake is that where the parties erroneously spell out their contract in terms which do not give effect to an antecedent agreement that they have reached. Such a mistake can result in rectification of the contract. Again, this case is not concerned with that type of mistake.
31. In the present case the parties were agreed as to the express terms of the contract. The defendants agreed that the “Cape Providence” would deviate towards the “Great Peace” and, on reaching her, escort her so as to be on hand to save the lives of her crew, should she founder. The contractual services would terminate when the salvage tug came up with the casualty. The mistake relied upon by the defendants is as to an assumption that they claim underlay the terms expressly agreed. This was that the “Cape Providence” was within a few hours sailing of the “Great Peace” . They contend that this mistake was fundamental in that it would take the “Great Peace” about 39 hours to reach a position where she could render the services which were the object of the contractual adventure.
32. Thus what we are here concerned with is an allegation of a common mistaken assumption of fact which renders the service that will be provided if the contract is performed in accordance with its terms something different from the performance that the parties contemplated. This is the type of mistake which fell to be considered in Bell v. Lever Brothers . We shall describe it as “common mistake”, although it is often alternatively described as “mutual mistake”.
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11.1 Introduction
11.1.1 Underlying principle: Caveat Emptor
Bell v Lever Bros Ltd [1932] AC 161
“If mistake operates at all, it operates so as to negative or in some cases to nullify consent”
per Lord Atkin, p217.
The underlying principle of the law of contract is still caveat emptor (“let the buyer beware”). The situations in which a contract will be avoided on the ground that one or both parties have made a mistake will be somewhat limited.
Nevertheless the cases reveal that in certain circumstances a contract may be void at common law on the ground of a mistake and in some cases even where the contract is valid at law it may nevertheless be voidable in equity on the ground of mistake.
A mistake which has the effect of rendering a contract void is described as an “operative” mistake.
It used to be thought that mistakes as to law would not be operative, but in Kleinwort Benson v Liverpool City Council [1999] 1 AC 953 the House of Lords declared that this rule is not part of English law.
The law relating to mistake will be considered under five heads:
1. Common Mistake; (11.2)
2. Mutual Mistake; (11.3)
3. Unilateral Mistake; (11.4)
4. Mistake as to Identity; (11.5)
5. Mistake Relating to Documents. (11.6)
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11.1.2 Classification of mistake
Commentators are not agreed as to the classification of Mistake.
Treitel deals with Mistake by contrasting Mistake nullifying consent (Parties reach agreement which is based on a fundamental mistaken assumption) with Mistake negativing consent (Where mistake prevents the parties from reaching an agreement e.g. where they intend to contract about different things)
Treitel classification:
Mistake nullifying consent
(1) Mistake as to the existence of the subject matter
Consent is nullified where both parties are mistaken as to the existence of the subject matter.
Galloway v Galloway (1914)
(2) Mistake as to the identity of the subject matter
A variant of mistake as to quality
(3) Mistake as to the possibility of performing the contract
(a) Physical impossibility
Sheikh Bros v Ochsner [1957] AC 136
(b) Legal impossibility
Cooper v Phibbs (1867) LR 2 HL 149
(c) Commercial impossibility
Griffith v Brymer (1903) 19 TLR 434
Great Peace Shipping v Tsavliris Salvage (The Great Peace) (2002)
(4) Mistake as to quality
If there is no misdescription, mistake as to quality generally does not nullify consent.
Kennedy v Panama etc Royal Mail Co (1867)
Bell v Lever Bros [1932] AC 161 ***
Leaf v International Galleries [1950] 2 KB 86
Oscar Chess v Williams [1957] 1 WLR 370
(5) Mistake as to quantity
Cox v Prentice (1815) 3 M&S 344
(6) Cases in which a fundamental mistake does not nullify consent
Clark v Lindsay (1903) 19 TLR 202
Couturier v Hastie (1856.
McRae v Commonwealth Disposals Commission (1951)
Barrow Lane & Ballard v Phillips [1929] 1 KB 574
S.6 Sale of Goods Act 1979
Mistake negating consent
(1) Mistake as to the person
Cundy v Lindsay (1878) 3 App Cas. 459
King’s Norton Metal v Edridge Merrett & Co (1897)
Phillips v Brooks [1919] 2 KB 243
Lewis v Averay [1972] 1 QB 198
Ingram v Little [1961] 1 QB 31.
Shogun Finance v Hudson [2003] UKHL 62, [2004] 1 AC 919.
(2) Mistake as to the subject matter
Falck v Williams [1900] AC 176
Smith v Hughes (1871) LR 6 QB 597
(3) Mistake as to the terms of the contract
Smith v Hughes (1871) LR 6 QB 597
Mistake must induce the contract
Some commentators divide the mistake into two, that is, common mistake shared by the parties, and mistake in communication. Because mistake in communication can be on all sides (mutual mistake), or on one side only (unilateral mistake), we will adopt the following classification:
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11.2 Common Mistake: Common Law
Great Peace Shipping Limited v Tsavliris (International) Limited [2002] CA
Lord Phillips MR
A mistake can be simply defined as an erroneous belief. Mistakes have relevance in the law of contract in a number of different circumstances. They may prevent the mutuality of agreement that is necessary for the formation of a contract. In order for two parties to conclude a contract binding in law each must agree with the other the terms of the contract. Whether two parties have entered into a contract in this way must be judged objectively, having regard to all the material facts. It may be that each party mistakenly believes that he has entered into such a contract in circumstances where an objective appraisal of the facts reveals that no agreement has been reached as to the terms of the contract. Such a case was Raffles v. Wichelhaus (1864) 2 H&C 906. The parties believed that they had entered into a contract for the purchase and sale of a cargo of cotton to arrive “ex Peerless from Bombay”. That term was capable of applying equally to a cargo of cotton on two different ships, each called “Peerless” and each having sailed from Bombay, one in September and one in December. The court accepted that parole evidence could be adduced to prove which shipment the parties had intended to be the subject of the contract. Had one party intended the October shipment and the other the December shipment, the agreement necessary for a binding contract would have been absent.
29. Raffles v. Wichelhaus was a case of latent ambiguity. More commonly an objective appraisal of the negotiations between the parties may disclose that they were at cross-purposes, so that no agreement was ever reached. In such a case there will be a mutual mistake in that each party will erroneously believe that the other had agreed to his terms. This case is not concerned with the kind of mistake that prevents the formation of agreement.
30. Another type of mistake is that where the parties erroneously spell out their contract in terms which do not give effect to an antecedent agreement that they have reached. Such a mistake can result in rectification of the contract. Again, this case is not concerned with that type of mistake.
31. In the present case the parties were agreed as to the express terms of the contract. The defendants agreed that the “Cape Providence” would deviate towards the “Great Peace” and, on reaching her, escort her so as to be on hand to save the lives of her crew, should she founder. The contractual services would terminate when the salvage tug came up with the casualty. The mistake relied upon by the defendants is as to an assumption that they claim underlay the terms expressly agreed. This was that the “Cape Providence” was within a few hours sailing of the “Great Peace” . They contend that this mistake was fundamental in that it would take the “Great Peace” about 39 hours to reach a position where she could render the services which were the object of the contractual adventure.
32. Thus what we are here concerned with is an allegation of a common mistaken assumption of fact which renders the service that will be provided if the contract is performed in accordance with its terms something different from the performance that the parties contemplated. This is the type of mistake which fell to be considered in Bell v. Lever Brothers . We shall describe it as “common mistake”, although it is often alternatively described as “mutual mistake”.
11.2.1 Definition
Here, the parties, although apparently in agreement, have entered into the contract on the basis of a false and fundamental assumption. It is called common mistake since both parties make the same mistake. The contract is not necessarily void at law in these circumstances.
The cases may be categorised as follows:
1. Mistake as to the existence of the subject matter (res extincta)
The contract will be void at common law if, unknown to the parties, the subject matter of the agreement does not exist or has ceased to exist.
Thus, a cargo of corn, en route to London per the ‘Kezia Page’, had to be sold at a port of refuge in Tunis as it had begun to ferment. Unaware of this, the respondents agreed a sale of the corn in London. It was held that no contract of sale had come into being as the subject matter effectively did not exist; Couturier v Hastie (1856) 5 HLC 673. The case must be contrasted with McRae v Commonwealth Disposals Commission (Infra).
Similarly, the parties may contract on the basis of a false assumption which underlies the contract, as in Scott v Coulson (1903) 2 Ch 249 where the plaintiff contracted to sell to the defendant a policy of life insurance on the life of a certain Mr Death. However, at the time of the contract, Death was already dead. The court set aside the transaction. This case is considered by Treitel alongside the mistake as to quality cases and reference should be made to it in that context as well.
A statutory version of this principle is to be found in s.6 , which provides that 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 was made, the contract is void. (Infra)
But even where the subject matter is not in existence, the contract is not automatically void. There are three possibilities which may have to be considered before the law of mistake:
Kyle Bay Ltd v Underwriters Subscribing under Policy 019057/08/01 [2007] EWCA Civ 57
A nightclub was gutted by arson on a nearby proprty. The club was unable to operate for over a year and they claimed under their insurance policy for lost profits. The settlement the claimants had been advised to sign was £108,319 less than they believed they were entitled to under the policy.
The Court of Appeal upheld the decision of the High Court, the mistake in the compromise agreement did not stop the contract from being performed. The Test the Court of Appeal applied was whether the mistake rendered the subject matter of the contract essentially and radically different from the subject matter the parties believed to exist. The answer to that in the case was not.
Lord Justice Neuberger:
The case on mistake
On this issue, the facts are simple and were not in dispute before the Judge. The settlement for the claimant’s business interruption claim against the defendant underwriters was settled at about £205,000 on the common assumption that the Policy was not declaration-linked, whereas it was so linked, and, had the parties been aware of this, they would (I assume for present purposes) have settled at a figure about 50% higher.
As the Judge said, the leading modern case in which the circumstances in which a common mistake can vitiate a contract were considered was the decision of this court in Great Peace Shipping Ltd –v-Ttsavliris Salvage (International) Ltd [2002] EWCA Civ 1407 , [2003] QB 679 . Relying on what Lord Phillips of Worth Matravers MR (giving the judgment of the court) said at paragraphs [73] to [76], the Judge held that the proper test to apply in this case was whether the mistake in question rendered the contract in issue “impossible of performance” (the expression also used by Lord Phillips when ultimately formulating the critical question in the Great Peace case itself at paragraph [162]). At least on the face of it, it seems difficult to quarrel with the Judge’s view that, if that is the right test, it was self-evidently not satisfied here.
Mr Butler, who appears for the claimant, runs as his main argument the contention that this test was inappropriate in a case such as this; his alternative argument is that the test, if properly applied, was in any event satisfied here. I should in this context refer to the decision of this court in Brennan –v- Bolt Burdon [2004] EWCA Civ 1017 , [2005] QB 303. In that case, a personal injuries action was settled on the common assumption that the claim form had been served out of time, and a subsequent decision of this court showed that that assumption was wrong. The claimant unsuccessfully sought to impeach the settlement.
In paragraph [22] of his judgment, Maurice Kay LJ gave three reasons why the Great Peace decision gave rise to difficulties for the claimant, the first of which was that it was “quite simply not a case of impossibility of performance. The compromise has at all times remained performable…”. Sedley LJ, however, was more concerned about the application of the “impossibility of performance” test in cases of common mistake of law – see at paragraphs [60] to [61]. At the end of paragraph [59], he had identified the “difficulty…in seeing how the effect of [a common mistake of law…on an agreement by which litigation is compromised] can be equiparated with the impossibility of a contractual venture”. The third member of the court, Bodey J, did not discuss this aspect.
In my opinion, it is unnecessary for us on this appeal to decide which view is preferable. Indeed, I suspect that ultimately, the two approaches may essentially amount to the same thing. If the doubts of Sedley LJ are justified, then, as Mr Butler argues, the right test is that propounded by Steyn J in Associated Japanese Bank (International) Ltd –v- Credit du Nord SA [1989] 1 WLR 255. In a passage at p. 268F, cited and expressly approved in the Great Peace case at paragraphs [90] and [91], Steyn J said that, in order to vitiate a contract, “the mistake must render the subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist”. He justified this at p. 268E on the basis that “the law ought to uphold rather than destroy apparent contracts”.
It appears to me that, by approving Steyn J’s observations and by applying the “impossible to perform” test, this court in the Great Peace case must have considered that the two approaches amounted to much the same thing. In practice, the concept of impossibility of performance, at least in a case such as this, can be said to raise an issue of definition: if one defines the contract as the assessment of compensation under a declaration-linked policy, then it is, at least in a sense, impossible to perform if both parties negotiate on the basis that the policy is not declaration-linked. It seems to me, therefore, that there is much to be said for applying, as Mr Butler argues we should, Steyn J’s test in the Associated Japanese Bank case in the instant case.
In my judgment, applying that approach, the mistake in this case did not render what the parties believed to be the “subject matter of the [Settlement agreement] essentially and radically different” from what it actually was. The parties correctly believed that they were settling a business interruption claim resulting from a fire at certain premises at which the claimant ran a night club; they made no mistake as to the period of interruption or the estimated level of gross profit, or indeed any other mistake about the claim or the nature of the cover, save that they assumed that it was on the gross profits basis, rather than on the declaration-linked basis. The difference between the actual and assumed subject matter of the settlement can in my view certainly be characterised as significant, but it is not an “essential…and radical…” difference.
I suspect that it is normally not easy to say precisely why a difference such as there is in this case is not, or indeed is, radical and essential. If that is right, this case is no exception to the norm. However, it seems to me that the following factors strongly drive one to the conclusion that the difference in this case was not radical or essential. In conceptual terms, once one appreciates what was correctly assumed or agreed (as discussed in the preceding paragraph), it is hard to say that if one corrects the one aspect which was wrongly assumed, it would radically and essentially alter the nature of the contract. What was wrongly assumed was a detail, albeit a significant detail, of the basis on which the Policy was written: it did not go to the validity of the Policy, the parties, the property or nature of the business, or even the nature of the risks covered. In addition, if it is appropriate to look at the matter in commercial terms (as I believe it is in this case at any rate), although the claimant received some 33% less than it should have done, which is a significant, even a substantial, reduction on its entitlement, I do not think it can fairly be characterised as an “essentially or radically” different sum from its entitlement.
Accordingly, I think the Judge was right to dismiss the claim in so far as it was based on common mistake. I would leave open the question whether it would, in any event, be right to hold the settlement vitiated by mistake, given that the question of whether the Policy was declaration-linked had been raised by the claimant and considered by the parties in the very negotiations which resulted in the Settlement which is now sought to be impeached on the ground of a common mistake that it was not declaration-linked.
(a) Warranty, and the construction of the contract
One party may have impliedly warranted the existence of the subject matter, as in McR ae v Commonwealth Disposals Commission (1950) 84 CLR 377. The defendants purported to sell the salvage rights to an oil tanker sunk on the Jourmand Reef. The plaintiffs mounted a salvage operation and discovered that there never had been any such tanker. The High Court of Australia held that the defendants had impliedly warranted the existence of the tanker and in breach of this warranty were liable in damages. The defendants recovered reliance interest damages, but the argument that the contract was void was rejected.
(b) Chitty (29th ed. 5-041) points out that there is an overlap between the doctrine of mistake, and the doctrine of implied terms. For example, in The Great Peace (discussed below) the parties both mistakenly believed that a vessel chartered for a salvage operation was conveniently close to the vessel which need help. When the charterer cancelled the contract, they refused to pay a cancellation fee on the grounds that the parties had made a mistake about the location of the ships. The court held there had been no fundamental mistake. As in McR ae v Commonwealth Disposals Commission , the court rejected the theory that the doctrine of mistake is based on there being an implied term that the contract will be void if certain facts are not as the parties believe. However, the court made clear that on facts like this, before considering whether mistake is relevant, the court must first consider whether the contract has provided for which parties bears the risk if the facts are not as the parties suppose.
(c) Misrepresentation
Rescission and/or damages may be available where one party has misrepresented the existence of the subject-matter.
(d) Assumption of risk
The true construction of the contract may be that one party has assumed the risk of the subject-matter not being in existence, e.g. if in Couturier v Hastie the purchaser had assumed the risk of the non-existence of the com.
2. The particular problem of sales of goods
Treitel draws attention to the difficulty in sales of goods cases. In summary:
In McR ae ‘s case the risk of non-existence of the subject matter was thrown on one party; in this case the defendant who was held to have warranted the existence of the goods.
Section 6 of the Sale of Goods Act 1979 provides:
“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. “
Barrow Lane & Ballard v Phillips [1929] 1 KB 574
“Where a contract relates to specific goods which do not exist, the case is not to be treated as one in which the seller warrants the existence of those specific goods, but as one in which there has been failure of consideration and mistake.”
Per Wright J.
As Treitel has observed – The seller will not be held to have warranted the existence of the goods in English law any more than the buyer will be held to have bound himself to pay for them in any event.
“Neither party is bound and the contract can properly be called void.”
(Treitel Law of Contract (11th Edition) p. 296)
3. Mistake as to title
Treitel regards this category as falling within the concept of legal impossibility. The mistake will nullify the consent.
The contract will be void at common law in the situation, rare today, where one party agrees to transfer property to the other which the latter already owns and neither party is aware of this fact.
Cooper v Phibbs (1867) LR 2HL 149
The court set aside an agreement whereby A had agreed to lease a fishery to B, but unknown to either, the fishery was already owned by B.
The use of the term ‘set aside’ seems to indicate that the contract was valid at law and only voidable in equity. ( Solle v Butcher [1950] 1 KB 671). The contract is void at law, a view supported by Lords Atkin and Wright in Bell v Lever Bros [1932] (Infra).
4. Mistake as to quality
There is authority in the cases that a common mistake as to the quality of the subject-matter, as opposed to its existence, is not operative at common law.
Leaf v International Galleries [1950] 2 KB 86
HELD: if A sells to B a painting which both parties mistakenly believe to be the work of the famous John Constable (and therefore very valuable), but which in fact is not his work (and therefore worth far less), the contract is valid at law, assuming the absence of actionable misrepresentation or the other matters outlined above. The mistake concerns the quality of the subject-matter.
Leaf was based on the earlier and rather difficult case of Bell v Lever Bros [1932] AC 161, a decision of the House of Lords. Indeed the judgments in Bell , discussed below, are somewhat at variance but the orthodox interpretation of the case (and the one followed in most subsequent cases) is that a common mistake as to quality, however fundamental, can never render the contract void at common law. Nevertheless, there are dicta in the speeches of the House of Lords in Bell which suggest that a contract may be void if the common mistake as to quality is sufficiently fundamental. This view was accepted by Steyn J in Associated Japanese Bank v Credit du Nord [1988] 3 All ER 902.
5. Bell v Lever Bros Ltd [1932]
In the absence of a breach of a contractual term or misrepresentation the victim of a mistake as to quality will generally have no remedy for a mistake as to quality rarely, if ever, renders the contract void.
Bell v Lever Bros [1932] AC 161
In Harrison & Jones v Bunten & Lancaster [1953] 1 QB 646
A contract was upheld as valid even through both parties believed the kapok to be pure when in fact it was not and of no use to the buyer. See also Kennedy v Panama etc Royal Mail Co (Supra) where Blackburn J referring to the Roman law doctrine of error in substantia (mistakes of quality going to the substance of the contract) may render a contract void. (Treitel considers this).
Bell v Lever Bros [1932] AC 161 (HL)
Bell and Snelling agreed to serve for a period of four years as Chairman and Vice-Chairman of a Lever Bros subsidiary company. Lever Bros wished to terminate the contract early and agreed with Bell and Snelling to pay £50,000 compensation split between them. Lever Bros then discovered breaches by Bell and Snelling of their service contracts which would have allowed Lever Bros to terminate the contracts without payment of compensation. There was no fraudulent concealment on the part of Bell and Snelling and the House of Lords had to consider whether the compensation agreements were void for mistake.
Treitel observes:
“The mistake related only to a quality of the service contracts and was not fundamental”
“The contract released is the identical contract in both cases and the party paying for the release gets exactly what he bargained for.”
Lord Atkin.
Lord Thankerton took the view that mistake, even if it was as to a fundamental quality, was not operative unless it related to some assumption which both parties regarded as essential.
Treitel’s observations
Treitel observes that the cases and examples given (some of which follow) cannot be perfectly reconciled but that there is a principle which runs through them:
“A thing has many qualities. A car may be black, old, fast and so forth. For any particular purpose one or more of these qualities may be uppermost in the minds of the persons dealing with the thing. Some particular quality may be so important to them that they actually use it to identify the thing. If the thing lacks that quality, it is suggested that the parties have made a fundamental mistake, even though they have not mistaken one thing for another, or made a mistake as to the existence of the thing. The matter may be tested by imagining that one can ask the parties, immediately after they made the contract, what its subject matter was. If, in spite of the mistake, they would give the right answer the contract is valid at law. Thus in Bell v Lever Bros the parties would have said, quite rightly, “We are contracting about a service agreement.”
Treitel Law of Contract (11th Edition) p292
In Nicholson & Venn v Smith-Marriott they might have said, rightly, “We are contracting about antique table linen,” in which case the contract would be valid; or they might have said, wrongly, “We are contracting about a Carolean relic,” in which case the contract would be void.”
Treitel Law of Contract (11th Edition) p292
6. Lord Atkin’s examples from Bell v Lever Bros Ltd
The House of Lords recognised that some mistakes as to quality could be fundamental.
“Mistake as to quality) will not affect assent unless it is the mistake of both parties and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be.”
Lord Atkin, Bell v Lever Bros Ltd [1932] AC 161at 218
Treitel notes that Lord Thankerton stated that a mistake as to quality of the subject matter must relate to:
“something which both must necessarily have accepted in their minds as an essential and integral element of the subject matter.”
Lord Atkin then goes on to give a number of illustrations – all of which are considered in Treitel fully.
Lord Atkin’s illustrations
According to Lord Atkin a mistake as to quality will not make a contract void where:
(a) a man bought a horse mistakenly believed to be sound
(b) if he bought a dwelling house mistakenly believed to be habitable
(c) if he bought a garage on a road which was about to be starved of all traffic by the construction of a by-pass.
(d) A buys a picture from B; both believe it to be the work of an old master and a high price is paid. It turns out to be a modern copy.
(Treitel Law of Contract (11th Edition) p 290)
In the absence of a warranty or misrepresentation the buyer has no remedy. The contract is valid.
See Solle v Butcher where a lease was not void because the parties believed the premises to be free from rent control. (Infra)
See also Oscar Chess v Williams [1957] 1 WLR 370 where the parties made a mistake as to a car’s age so that the buyer paid more for the car than he would have done had he known the truth.
7. Concluding thoughts: Treitel’s observation
“The suggested test for determining whether a mistake is fundamental, presupposes that both parties would give the same answer to the question “what are you contracting about”?” If they would give different answers, the mistake, whatever else its effect may be, will not nullify consent. A seller may intend to sell antique table linen and the buyer to buy a Carolean relic. If the parties are thus at cross-purposes consent may be negatived.”
(Treitel Law of Contract (11th Edition) p 294)
See (Infra):
Raffles v Wichelhaus (1864) 2 H&C 906
Falck v Williams [1900] AC 176
Smith v Hughes (1871) LR 6 QB 597
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11.3 Mutual Mistake
11.3.1 Definition
A mistake is said to be “mutual” where the parties misunderstand each other’s intentions and are at cross-purposes.
Unlike common mistake, in this situation the parties do not both make the same mistake
Please ensure that you read this case!
Great Peace Shipping Limited v Tsavliris (International) Limited
English Court of Appeal: Phillips MR, May and Laws LJJ: 14 October 2002
SALVAGE: CONTRACT FOR HIRE OF STAND-BY VESSEL: BELIEVED TO BE IN CLOSE PROXIMITY: MUTUAL MISTAKE: WHETHER CONTRACT VOID AT LAW: WHETHER CONTRACT VOIDABLE IN EQUITY
Summary
The Court of Appeal has held that there is no basis on which to rescind a contract on the grounds of a mutual mistake where the contract is valid and enforceable at common law. In other words, the doctrine of equitable mistake established by Lord Denning in Solle v Butcher ([1950] 1 KB 671) no longer exists. .
11.3.2 Operative mistake
A mistake which (as Treitel puts it) ‘negatives’ consent does not necessarily make the contract void. The contract will be valid in spite of the mistake if the person “so conducts himself that a reasonable man would believe he was assenting to the terms proposed by the other party, and that other party, upon that belief enters into a contract with him.”
Treitel goes on to say ‘that this “objective principle” is sometimes regarded as a kind of estoppel by representation.” (which would require detriment) but that a person who invokes the “objective principle” need only show that he has entered into the contract relying on the appearance of contract created by the other party’s conduct.
The illustration given by Treitel is that of a person who by mistake bids for the wrong lot at an auction. The parties are not ad idem but the bidder by his conduct is prevented from relying on the mistake.
11.3.3 Illustrations of operative mistake
Operative mutual mistake is illustrated by:
Raffles v Wichelhaus (1864) 2 H & C 906
D agreed to buy cotton from the plaintiffs ex the ship “Peerless” from Bombay. Two ships of that name were due to leave Bombay; it seems D had in mind the ship leaving in October and P had in mind the ship leaving in December. The court held that the transaction was too ambiguous to be enforced as a contract.
It will be noticed that the problem in the above case is essentially one of defective offer and acceptance, and so the test applied by the court in this type of case is to ask what a reasonable third party would take the agreement to mean.
Would he take the agreement to mean what one party, A, understood it to mean or what the other party, B understood it to mean. It is only when the transaction is totally ambiguous under this objective test that the contract is void for mutual mistake.
Compare the following cases:
Wood v Scarth (1855) 2 K & J 33
D offered in writing to let a pub to the plaintiff at £63 per annum. After a conversation with the defendant’s clerk, the plaintiff accepted by letter, believing that the £63 was the only payment under the contract. The defendant had intended that a £500 premium would also be payable and he believed that his clerk had explained this to the plaintiff. It was held that the contract as understood by the plaintiff would be enforced and the court awarded him damages.
Scriven v Hindley (1913) 3 KB 564
At an auction, lots of hemp and also of tow (an inferior commodity) were up for sale. The defendants bid for two lots believing that both were for hemp whereas one was for hemp and tow.
The bid was accepted. The defendants believed that they had bid for hemp. Their bid was about right for hemp but extravagant for tow, although the auctioneer was unaware of the true nature of the defendant’s mistake – he thought they were ignorant of the value of tow. However, the catalogue and samples were misleadingly described and marked, and these factors, together with other circumstances, meant that a reasonable person could not say whether the contract was for hemp or tow. The contract was held to be void.
Treitel Law of Contract (11th Edition) p 309 categorises this as a case of mistake negligently induced.
See also: Tamplin v James (1880) 15 Ch D 215 where there was no misdescription in the particulars at an auction and the mistake was due to the plaintiff’s carelessness).
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11.4 Unilateral Mistake
11.4.1 Definition
Here one party is fundamentally mistaken concerning the contract and the other party is aware of the mistake, or the circumstances are such that he may be taken to be aware of it.
11.4.2 Operative mistake
For a unilateral mistake to be operative, the mistake by one party must be as to a fundamental term of the contract itself, rather than an error of judgment as to the quality of the subject-matter.
The distinction is illustrated by the following pair of cases:
In the first case it was a mistake as to a term of the contract, whereas in the second it was a mistake as to the quality of the subject matter.
Hartog v Colin and Shields (1939) 3 All ER 566
The defendants offered hare skins to the plaintiff at a certain price ‘per pound’ but had intended to offer them at the same price ‘per piece’. The value of a piece was one third that of a pound. It was held that the circumstances were such that the plaintiffs must have realised the defendants’ error, which, as it concerned a term of the contract, rendered the contract void.
(Treitel analyses the distinction by remarking that consent is negatived if the parties intend to contract on different terms (as in Hartog), whereas mistakes as to the person (infra) or the subject matter ( Smith v Hughes ) only negative consent if they are fundamental.)
Smith v Hughes (1871) LR 6 QB 597
D was shown a sample of oats by the plaintiff. The defendant bought them in the belief that they were “old” oats; he did not want “new” oats. They were new oats.
The court was of the view that the mistake was merely as to the quality of the subject-matter and could not render the contract void, even if the plaintiff seller knew of the mistake.
(But if the buyer mistakenly believed that the seller had warranted that the oats were old and the seller was aware of this mistake, the mistake would be operative.
If a sale of oats believed by one party to be warranted as ‘old’ and not intended by the other party to be so warranted the contract may be void. The mistake then would be a mistake as to the terms of the contract and would negative consent (Treitel)).
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11.5 Mistake as to Identity
This topic is worthy of separate analysis, classified here as a unilateral mistake and by Treitel as a mistake negativing consent.
11.5.1 Definition
Where one party is mistaken as to the identity of the other party, in certain circumstances the contract may be void at common law.
Almost all the decided cases of operative mistake in this area are in fact instances of unilateral mistake, as the non-mistaken party is aware of the mistake because he has engineered it through his own fraud.
Even where the contract is not void, it may be voidable for fraudulent misrepresentation and if the goods which are the subject matter have passed to an innocent third party before the contract is avoided, that third party may acquire a good title (see below for examples).
11.5.2 For the contract to be void, certain requirements must be satisfied:
The identity of the other party must be of crucial importance
Cundy v Lindsay (1878) 3 App Cas 459
The plaintiffs received an order for linen from a rogue, Blenkarn, who gave his address as 37, Wood Street, Cheapside. In the correspondence, he imitated the signature of a reputable firm, Blenkiron and Co, known to the plaintiffs, who traded at 123, Wood Street, Cheapside. The plaintiffs were thus fraudulently induced to send goods to Blenkarn’s address, where he took possession of them and disposed of them to the defendants, innocent purchasers. It was held that the contract between the plaintiffs and Blenkarn was void for mistake as the plaintiffs intended to deal only with Blenkiron and Co. No title in the goods passed to Blenkarn (because the contract was void) and therefore none passes to the defendants who were liable in conversion to the plaintiffs.
Phillips v Brooks [1919] 2 KB 243
Identity was held not to be crucial. Here, a rogue called North entered the plaintiff’s shop and having selected some jewellery, wrote a cheque and announced himself as Sir George Bullough of St James’ Square, a man of means of whom the plaintiff had heard. The plaintiff, having checked this addressed in a directory, allowed North to take away a ring. He then pledged the ring with the defendants, who had no notice of the fraud. In an action by the plaintiffs to recover the ring from the defendants, it was held that the contract between the plaintiffs and North was not void for mistake, because the plaintiffs had intended to contract with the person in the shop, whoever it was. The only mistake was as to the customer’s credit-worthiness, not his identity. The contract was, however, voidable for fraud but because the defendants had acquired the ring in good faith before the contract was sought to be set aside, they acquired good title.
Despite Phillips v Brooks , identity was held to be crucial in Ingram v Little [1961] 1 QB 31. The plaintiffs, elderly ladies, advertised their car for sale. A rogue, calling himself P G M Hutchinson of an address in Caterham, offered to buy it. The plaintiffs would only accept a cheque when they had checked, from a directory, that there was such a person at that address. The cheque was worthless and the rogue disposed of the car to the defendant, who took in good faith. It was held that the contract between the plaintiffs and the rogue was void for mistake. The decision in this case is very difficult to distinguish from Phillips v Brooks .
See also: Shogun Finance v Hudson [2003] UKHL 62
11.5.2 The decision in Lewis v Averay
The decision in Phillips v Brooks was followed by Court of Appeal in Lewis v Averay [1972] 1 QB 198 where the plaintiff, a post-graduate student advertised a car for sale and was visited by a rogue posing as the actor Richard Greene, who offered to buy it. The rogue signed a cheque but the plaintiff only allowed him to take the car away after being shown a forged studio admission pass. The cheque was worthless and the rogue sold the car to the defendant, an innocent purchaser. The Court of Appeal held that the contract, though voidable, was not void. The court took the view that, where the parties are face to face, there is a presumption that a person intends to deal with the person before him, as identified by sight and hearing. There was insufficient evidence in this case that the plaintiff intended to deal only with the well-known actor.
11.5.3 The decision in Shogun Finance v Hudson
Cundy v Linday has come to be regarded as establishing a principle that a mistake as to identity will be fundamental, and render the contract void, where a the parties communicate in writing; although there may be a valid contract, regardless of a mistake as to identity, where parties deal face to face. This principle has been confirmed by a bare majority of the House of Lords in Shogun Finance v Hudson [2003] UKHL 62, [2004] 1 AC 919. The judgments contain important discussions of the doctrine of mistake general.
Shogun Finance v Hudson [2003] UKHL 62, [2004] 1 AC 919
A rogue obtained a car on hire purchase. He pretended to be a Mr Patel – a case of ‘identity theft.’ The car dealer contacted the hire purchase company, Shogun Finance, with Mr. Patel’s details. Shogun Finance checked Mr Patel’s credit, and agreed to extend finance. This involved the finance company buying the car then renting to the ultimate customer. They thought they were renting it to Mr Patel. They were in reality renting it to a rogue. The rogue sold it Mr Hudson. If the contract with the rogue posing as Mr Patel was valid (if voidable for misrepresentation) Mr Hudson got good title to the car (under Hire Purchase Act 1964 s.27). If the contract was void, Mr Hudson got no title, and the car still belonged to the finance company.
The minority in the House of Lords thought that, contrary to Cundy v Lindsay , the fact that there was no face to face communication between the finance company and the rogue posing as Mr Patel did not prevent them from having a valid contract (in which case M. Hudson would be entitled to the car). The majority followed Cundy v Lindsay and decided that a mistake as to identity where the parties are not face to face means the contract is void. Therefore the rogue never had good title to pass to Mr Hudson, and the finance company still owned the car.
A mistake as to identity should be distinguished from a mistake as to the capacity in which a party deals
Hardman v Booth (1863) 1 H & C 803,
P intending to sell cloth to Thomas Gandell Co, negotiated with one Edward Gandell at the firm’s offices. Edward, an employee and not a member of the firm, intended to take possession of the goods for his own use. Having obtained possession, he sold them to the defendant, an innocent third party. It was held that the contract between P and Edward was void. P had believed he was a representative of the firm and never intended to deal with him personally.
It is sometimes stated that an additional requirement for the contract to be void is that the mistaken party must have taken reasonable steps to verify the identity of the other party. It may be that this is more in the nature of an evidential burden to establish that the identity of the other party is crucial.
The mistaken party must have in mind an identifiable person with whom he intends to contract
Norton Metal Co v Edridge Merrett Co Ltd (1897) 14 TLR 98.
This requirement was not satisfied: P received a letter purporting to be from “Hallam and Co” with an impressive letterhead. In fact Hallam was a fictitious firm consisting entirely of a rogue named Wallis. The plaintiffs despatched goods on credit to the bogus company. The court took the view that the plaintiffs had intended to contract with the writer of the letter, whoever it may be, and the contract was not void for mistake. The only mistake was as to the credit-worthiness of the other party and not as to his identity. This decision should be compared with Cundy v Lindsay, and Shogun Finance (above), where the rogue posed as a real person who was creditworthy.
The other party must be aware of the mistake
In the cases discussed above, identity was fraudulently misrepresented and therefore this requirement was satisfied.
An unusual case in this context is:
Boulton v Jones (1857) 2 H&N 564.
P was employed by Brocklehurst, a pipe hose manufacturer, with whom the defendants had had previous dealings. The plaintiff took over Brocklehurst’s business and on the same day the defendants ordered hose form Brocklehurst. The plaintiff supplied the goods but the defendants refused to pay on the ground that they intended to contract, not with the plaintiff, but with Brocklehurst as they wished to enforce a set-off against him. It was held that there was no contract, although the precise state of knowledge of the plaintiff was not made clear. If the plaintiff was unaware of the fact that the offer was not intended for him them, arguably, the contract was valid.
11.5.5 The practice where there is a sale of goods in a Lewis v Averay situation
Sale under a voidable title: s.23 SOGA 1979
“When the seller of goods has a voidable title to them, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.”
Confirms common law rule that a person cannot avoid a voidable contract to the prejudice of third party rights acquired in good faith and for value.
Phillips v Brooks [1919] 2 KB 243
Lewis v Averay [1972] 1 QB 198 (CA)
Contrast:
Cundy v Lindsay (1878) 3 App Cas. 459
Ingram v Little [1961] 1 QB 31.
Communication of rescission –
Car & Universal Finance Ltd v Caldwell [1965] 1 QB 525
Buyers of motor vehicles are now protected by Hire Purchase Act 1964 s.27 (as amended). A private person who buys in good faith, and without notice that there is a hire purchase, from the bailee under a hire purchase agreement, acquires good title.
However, the buyer cannot acquire title if there is in fact no hire purchase agreement because the supposed agreement with the bailee is void:
Shogun Finance v Hudson [2003] UKHL 62, [2004] 1 AC 919.
Note : If the innocent third party does not acquire title under section 23 he may do so under section 25 of the Act (Infra)
Disposition by a Buyer in Possession: S.25 SOGA 1979
“Where a person, having bought or agreed to buy goods, obtains with the consent of the seller possession of the goods or the documents of title to the goods, the delivery or transfer, by that person or by a mercantile agent acting for him, of the goods or the documents of title under any sale, pledge or other disposition thereof [ or under any agreement for sale, pledge or other disposition thereof] * to any person receiving the same in good faith and without any notice of any lien or other right of the original seller in respect of the goods, shall have the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.”
Consent of the seller
Du Jardin v Beadman Bros [1952] 2 All ER 160
‘Seller = owner’ so it is possible therefore to obtain title down the chain from a thief. [TO – THIEF – B1 – B2: B2 can get title.]
Having bought or agreed to buy goods
Does not apply to Hire Purchase – debtor does not agree to buy in HP: See HPA 1964 Pt.III ss.27 – 29. (Infra)
Possession of the Goods
3P only protected if obtains possession of the goods and not if he has merely bought or agreed to buy them
Good Faith and Notice
Newtons of Wembley v Williams [1965] 1 QB 560
B in possession was not a Merc Agent. Treat him notionally as one; examine behaviour. If behaves as [MA] would 3P gets title. If not 3P does not get title.
National Employers Mutual General Insurance Association Ltd v Jones [1990] 1 AC 24 HL
***
11.6 Common mistake: Equity
11.6.1 Introduction
Where a contract is void at common law on the ground of common mistake (e.g. existence of the subject matter, title and quality) the court, exercising its equitable jurisdiction, may refuse specific performance of the contract.
Alternatively, the court may rescind any contractual document between the parties, and in order to do justice between them, impose terms.
In Cooper v Phibbs , while setting aside the lease, the House of Lords imposed a requirement that the “lessor” should have a lien on the fishery for such money as he had spent on improvements during the time he wrongly thought it belonged to him.
11.6.2 Where there is a mistake as top quality although the agreement is probably valid at law, it is not voidable in equity
The case of Solle v Butcher [1950] 1 KB 671 broke new ground in that the Court of Appeal enunciated a new doctrine of common mistake in equity under which the courts have a discretionary jurisdiction to grant such relief as in the circumstances seems just. It will come as no surprise to learn that Lord Denning was involved in this decision.
Other examples of this equitable jurisdiction include Grist v Bailey [1967] Ch 532 and Magee v Pennine Insurance [1969] 2 QB 507 (again Lord Denning).
However, in Great Peace Shipping v Tsavliris Salvage (The Great Peace) [2002] EWCA Civ 1407; [2003] QB 679, the Court of Appeal declared that where the contract is valid at common law, there is no jurisdiction to set it aside in Equity.
In The Great Peace the defendant owned a ship which was in trouble. Both defendant and claimant believed The Great Peace was close to the ship in trouble. It was not. The defendant’s discovered this and cancelled the contract (because The Great Peace would take longer to get to where it was needed than the charterers had anticipated). The owners of the Great Peace, the claimant, claimed a cancellation fee. The defendants refused to pay. The owners succeed, on the basis that the contract, although a bad deal for the charterers, was possible to perform, and contained no warranty about the relative position of The Great Peace to the ship in trouble.
The Court of Appeal, in refusing to set aside the contract in The Great Peace, effectively, though not formally, overrules Solle v Bucher . The Court said that the test for whether a contract is void for mistake is in Bell v Lever Bros, and the idea in Solle v Butcher that there is an alternative, equitable ground for ‘setting aside’ a contract for mistake is inconsistent with Bell v Lever Bros , and is wrong.
See: Sedley Solle v Butcher bites the dust
11.6.3 Mutual mistake in equity
If the contract is void at law on the ground of a mutual mistake, equity “follows the law” and specific performance will be refused, and any contractual document the parties have entered into, e.g. a lease, will be rescinded. However, even where the contract is valid at law, specific performance will be refused if to grant it would cause hardship. Thus the remedy of specific performance was refused in a sequel to Wood v Scarth (1855), in Wood v Scarth (1858) 1 F & F 293.
11.6.4 Unilateral mistake in equity
As with mutual mistake, equity follows the law and will rescind a contractual document affected by operative unilateral mistake or refuse specific performance.
Webster v Cecil (1861) 54 ER 812
D, having refused to sell his property to P for £2,000, wrote offering to sell it to him for £1,250. This offer was immediately accepted. The defendant had intended to write £2,250. It was held that the mistake was operative and specific performance was refused.
11.6.5 Mistake Relating to Documents
Non est factum
As a general rule, a person is bound by his signature to a document, whether or not he has read or understood the document.
L’Estrange v Graucob [1934] 2 KB 394.
Where he has been induced to sign a contractual document by fraud or misrepresentation, the transaction will be voidable.
Similarly, if one of the other forms of mistake discussed in this chapter are present, the contract may be void.
In the absence of these factors, the plea of non est factum (not my deed) may be available
The plea is an ancient one and was originally used to protect illiterate persons. It eventually became available to literate persons who had signed a document believing it to be something totally different from what it actually was.
Foster v Mackinnon (1869) LRCP 704
D, a senile man with poor eyesight, was induced to sign a document which he was told was a guarantee. In fact, it was a bill of exchange upon which the plaintiff ultimately became entitled. It was held that D, who had not been negligent, was not liable on the bill; the plea of non est factum succeeded.
An unrestrained right to raise the plea would lead to abuse and uncertainty and so the courts have placed two restrictions on the right to raise the plea:
(i) the signer’s mistake as to the nature of the document must be fundamental or radical, and
(ii) the signer must not have been careless in signing the document.
With regard to (i) the courts originally took the view that the plea was not available where the signer’s mistake was merely as to the contents of the document rather than as to its character or class; Howatson v Webb [1908] 1 Ch 1. This test was not a realistic one and was substituted by the House of Lords in Saunders v Anglia Building Society [1971] AC 1004.
The test is now that there must be a fundamental or radical difference between the document actually signed and what the signer believed it to be.
With regard to (ii), the Court of Appeal had ruled in Carlisle and Cumberland Banking Co v Bragg [ 1911] 1 KB 489 that negligence on the part of the signer only defeated the plea if the document was a negotiable instrument. The distinction was illogical and Bragg’s case was overruled by Saunders; the position is now that the plea cannot be raised by a signer who has been careless.
Saunders v Anglia Building Society [1971] AC 1004.
An elderly widow wished to transfer the title of her house to her nephew by way of gift. Her nephew and a man named Lee prepared a document assigning the property to Lee and asked her to sign. She signed it unread as she had lost her spectacles and trusted her nephew. Lee mortgaged the property to the Building Society and disposed of the moneys raised for his own use. He defaulted on the repayments and the Building Society sought possession of the house. Saunders (the widow’s executrix) sought a declaration that the assignment to Lee was void by reason of non est factum.
In the view of both the Court of Appeal and the House of Lords, the plea could not be raised because, (i) the transaction the widow had entered was not fundamentally different from what she intended at the time she entered it; and (ii) she had been careless in signing the document; she could at least have made sure that the transfer was to the person intended by her. The effect of Saunders v Anglia Building Society is, if anything, to restrict the circumstances in which the plea of non est factum can be successfully raised.
Rectification
Where the parties are agreed on the terms of the contract but by mistake record them incorrectly in a subsequent written document, the remedy of rectification may be available. The court can rectify the error and order specific performance of the contract as rectified.
The remedy is an exception to the parol evidence rule as oral evidence is admissible to show that the written document is in error.
In order to obtain rectification the following must be established:
(i) There must be a concluded antecedent agreement upon which the written document was based. The agreement need not necessarily be a finally binding contract, Joscelyne v Nissen [1970] 2 QB 86.
(ii) The written document must fail to record what the parties had agreed. In Frederick E Rose (London) Ltd v William H Pim Co Ltd [1953] 2 QB 450 the parties had contracted for the sale of a type of horsebean and the written contract referred to “horsebeans”. The goods delivered were not of the type the parties had in mind. Rectification was refused since the written contract correctly recorded what the parties had agreed.
(iii) The written document must fail to express the common intention of the parties. However, if one party mistakenly believes the document gives effect to that intention and the other party is aware of this mistake but nevertheless is guilty of sharp practice in allowing the contract to be executed, rectification may be ordered, A Roberts Co v Leicestershire CC [1961] Ch 555.
(iv) It must be equitable to grant the remedy; in particular, it will be refused where third parties have acquired rights on the faith of the written contract.
Rectification is an equitable doctrine. A court can correct obvious slips of the pen under ordinary rules of evidence, without the need to grant rectification.
A note on mistake. When approaching questions on mistake it is advisable to remember that the law of mistake is often a last resort, i.e. there may have been an actionable misrepresentation or a warranty which will provide the plaintiff with a remedy.
Demonstration Question – Mistake
P and Q are rival art dealers who live in the same town. In August, 2004, while P was on holiday in Spain, he acquired what he honestly believed was a valuable painting by Goya. On returning home he offered the painting for sale. Q, after having viewed the painting and also believing it to be a Goya, sent his agent, W, to buy the painting, instructing him to pose as Sir Charles Trevelyan. P sold the painting to W for £250,000, pleased at last that he was attracting wealthy clientele.
Q subsequently resold the painting for £300,000 to S who also believed it was a Goya.
Last month all the parties discovered that they were mistaken and that the painting is in fact a missing part of Guernica by Picasso and that the art world has been searching for this painting for years. It is worth £2,000,000.
Advise P.
Answer
Issues
(a) Mistake as to identity and,
(b) Mistake as to quality at common law and in equity.
Law and application
The contract: P v W/Q
W an agent for an undisclosed principal.
1. Misrepresentation
P induced to sell by fraudulent misrepresentation.
No remedy of rescission for Fr. Misrep because the goods have been sold on to an innocent third party
(s.23 SOGA 1979, the right of rescission being barred)
Remedy in damages available against W
(Remedies in Agency will not be canvassed)
2. Mistake as to identity
Is the contract void at common law? If so, then no title will vest in W, Q or S.
Contrast Cundy v Lindsay (affirmed by Shogun Finance) with Lewis v Avery
A Lewis v Avery situation – person thus present to sight and hearing; therefore not void, but only voidable for fraud. Cundy v Lindsay distinguished (not inter praesentes)
Compare Ingram v Little and reconcile.
3. Mistake as to quality
The perception on the part of (all) parties was that the painting was a Goya when in fact it is a Picasso raises mistake as to quality.
Bell v Lever Bros [1932] AC 161
Lords Atkin and Thankerton
Atkin specifically raised this case as an illustration of when mistake as to quality would not be operative. (See: Treitel criticism)
See also:
Kennedy v Panama etc Royal Mail Co (1867)
Smith v Hughes (1871) LR 6 QB 597
Peco Arts Inc v Hazlitt Gallery Ltd [1983]
Associated Japanese Bank v Credit du Nord [1988] 3 All ER 902 per Steyn J.
Any remedy in Equity?
Equity does not allow rescission for mistake where the contact is valid at common law.
See :
Great Peace Shipping v Tsavliris Salvage (The Great Peace ) [2002] EWCA Civ 1407; [2003] QB 679
Could Q recsind against S and, thereby allow the possibility of P rescinding against Q?
Questions on Mistake
1. What is a “common mistake”?
2. What is the difference between the approach of common law and equity to common mistake as to quality?
3. How does the court decide whether a mutual mistake is operative?
4. What must be established before a unilateral mistake will be operative?
5. If a person wishes to avoid a contract on the ground of a unilateral mistake as to identity, what must he prove?
6. “I do not accept the theory that a mistake as to identity renders a contract void. I think the true principle is … that the contract is voidable.” (Lord Denning MR in Lewis v Averay [1972] 1 QB 198
To what extent, if at all, does this statement reflect the current legal position relating to mistaken identity in the Law of Contract?
7. “After Gallie v Lee the plea of non est factum is now not available to persons of sound mind and full capacity”.
How far do you agree with this view?
8. Under what circumstances is rectification available?
Tutorial – Mistake (1)
1. Oscar, a frequent visitor to Diana’s house, had always admired her dining table. On one occasion he expressed interest in buying it and Diana said, “it is an Elizabethan relic and actually belonged to Queen Elizabeth the First herself.” One week later Diana sold the table to Oscar for £20,000.
Some two years later, Oscar wished to sell the table and sent it to Northeby’s, the auction house, for valuation. They reported that the table was no more than 100 years old and worth about £500.
Advise Oscar.
How far, if at all, would your answer differ, if the table had been genuine as Diana stated but just before Diana and Oscar agreed the sale and unknown to either of them, it was stolen and replaced by a copy?
2. On Saturday, Peter put an advertisement in the local newspaper, offering his Ford Sierra for sale for £2,500 and giving his telephone number. That evening Peter received a telephone call from bill, who, impersonating the well-known television and stage personality Ronnie Parker, agreed to buy the car. In his assumed voice, Bill said that he would send his chauffeur round to collect and pay for the vehicle. On Sunday morning Bill called at Peter’s house, saying he had been sent by Ronnie Parker. Peter handed over the car in exchange for a cheque for £2,500 signed by ‘R Parker’.
Bill then asked Peter to sign a piece of paper, which read: ‘Received of R Parker, a cheque for £2,500′. Peter read this and signed. Just before leaving, Bill handed Peter another piece of paper, saying it was just a copy of the receipt for Parker’s records. Peter signed the document without reading it. It was in fact a guarantee to Tom, a tradesman, of Bill’s debts up to £3,500.
On Monday, Bill sold the car to Doris for £500 and by showing the guarantee, induced Tom to let him have goods on credit to the value of £500.
Advise Peter who wishes to recover the vehicle from Doris and refuses to honour the guarantee.
Tutorial – Mistake (2)
1. Gartmore agrees to buy a house from Murray which both parties believe to be rented by Fleming who enjoys protection under the Rent Acts at a low price to reflect Fleming’s protected residency.
Murray has now learnt that Fleming was killed in a car crash just before the contract was signed.
Advise Murray.
Would it make any difference if Gartmore had sold the property on at a considerable profit when, on taking possession, he realised that Murray had been killed?
2. Horace, pretending to be the well known City financier Rupert Murdoch, persuades Throgmorton who wished to add to his personal pension, to part with his AC Cobra against an uncleared cheque from him.
Throgmorton later that day realised that he had been defrauded by Horace when told that the cheque was worthless by his banker and unable to find Horace reported the fraud to the Police.
Later in the day Horace sold the car on to Barclay. Barclay paid for the car in cash. Horace has now disappeared. Barclay is in possession of the car.
Advise Throgmorton as to whether he may recover the car from Barclay.