Law of Contract Mistake 2

Mutual mistake - cross purposes A mutual mistake is one where parties fail to understand each other, and thus are at cross purposes. Court will apply objective test to see whether a reasonable man would, interpret the “agreement” to be understood the way, either one of the parties had meant it to be. If transaction totally ambiguous then contract will be void for failure of agreement. i.e. Non consensus ad idem (no agreement as to the same thing)

Mutual mistake - cross purposes Mutual mistakes are not void ab initio but can be voidable. Wood v Scarth (1855) Facts : The defendant was going to lease a pub to the claimant for £63 a year, and thought that his clerk had made it clear to the plaintiff that there would be an additional one-off charge of £ 500. In fact the clerk had failed to do so. Held : Based on a reasonable mans test “objective test”, the defendant had made a precise and unambiguous offer which the plaintiff had accepted. The contract was held valid and not voidable, and the court enforced the contract as understood by the claimant.

Mutual mistake - cross purposes Where the transaction is too ambiguous to ascertain a “common” intent in an mutual mistake situation, the court will not enforce the contract and it will be void. Raffles v Wichelhaus (1864) Facts : D agreed to buy cotton from the claimant’s ex the ship Peerless from Bombay. Two ships of the same name were due to leave Bombay. It seems that the D’s had in mind the ship leaving in Oct., whereas the Claimants had in mind the ship leaving in Dec. Held : The courts held that contract was void as there was no consensus ad idem.

Mutual mistake - cross purposes Ambiguity surrounding the subject matter which was caused by a “misdescription” by the Defendant can lead to a void contract. Scriven v Hindley (1913) Facts : At an auction lots of hemp and tow (an inferior commodity) were up for sale. The defendants bid for a lot of tow and their bids were accepted. The defendants were thinking that they were bidding for hemp. The bid amount was about right for hemp but would have been extravagant for the same amount of tow. The catalogues and samples were misleading and lead to the defendants to think that they were bidding for hemp. Held : The contract was void as parties were at cross purposes, and there was no consensus.

Mutual mistake - cross purposes On the other hand, if there was no mis-description in the particulars and the mistake was due to the claimant’s carelessness, the contract would be held to be valid. Tamplin v James (1880) Held : claimant was mistaken as to quality of the subject matter and mistake was due to Claimant’s carelessness, thus court held that contract still valid.

Mutual mistake - equity If a contract is found void at common law for mutual mistake, equity will “follow the law”, thus : 1) specific performance will be refused 2) Contract will be rescinded 3) No award of damages will follow

Unilateral Mistake In these situations one party is mistaken concerning some matter in the contract which the other party is aware of. For the mistake to be operative it must be as to the fundamental term of the contract and not just relate to the quality of the subject matter. Hartog v Colin and Shields (1939) Facts : The Ds had some animal skins which they intended to sell at a certain price “per piece” as was the custom for this trade. By mistake they offered the same price “per pound”, which taken as 3 pieces to a pound worked out to be too cheap. Held : The sellers refused to deliver when they realised their mistake. Court held there was no contract as the buyers were aware of the seller’s mistake.

Unilateral Mistake What if one party is mistaken as to the terms of the contract but the other party is unaware of the mistake? The contract is valid. Centrovincial Estate v Merchant Investors (1983) Facts : A landlord offered, by mistake, to renew his tenant’s lease at a rent of $65,000 a year ; he had meant to renew it at $126,000 a year. An objective test was applied and was found that there was a valid contract and it was not void for mistake. The Tenant was unaware of the mistake.

Unilateral Mistake-identity of parties Unilateral mistakes sometimes occur as to the identity of the contracting parties. The contract may become void if the following requirements are met: 1) The identity of the other party is of crucial importance 2) The mistaken party must have in mind an identifiable person with whom he intends to contract with 3) The other party must be aware of the mistake

Unilateral Mistake-identity of parties 1) Identity - Of Crucial Importance This means that the claimant must prove that the person he believed the other party to be is the only person with whom he would have been prepared to contract with. Cundy v Lindsay (1878) Facts : The Plaintiffs thought that they were selling handkerchiefs to Blenkiron & co whereas they delivered the goods to a “Blenkarn” a rogue who signed off as Blenkiron and obtained the goods by fraud. Held : The contract was void, as the court found from the facts that the claimants intended to contract only with Blenkiron & Co., and thus it was found that the identity was of crucial importance. But see CA decision in Lewis v Averay (1972)

Unilateral Mistake-identity of parties Where parties are face to face, there is a strong presumption that the party intended to contract with the “person” standing in front of him. Lewis v Averay (1972) Facts : The claimant advertised a car for sale and a rogue posing as the actor Richard Greene offered to buy it. He signed a cheque. The cheque was worthless and the rogue sold the car to the defendant, an innocent purchaser. Held : The CA held that the contract was not void (although it was voidable) as the court held that the claimant had intended to contract with the person before him. But see Ingram v Little : Claimant elderly ladies….

Unilateral Mistake-identity of parties 2) The mistaken party must have in mind, an identifiable person with whom he intends to contract. King’s Norton Metal v Edridge Merrett (1897) Facts : The claimant’s received a letter from a “Hallam and Co”,. The claimants despatched the goods which was received by a rogue by the name of Wallis, as the company was fictitious. Held : The claimant intended to contract with the “writer” of the letter, and in this case Hallam and Co was the same as Wallis the rogue. The only issue was to the credit worthiness of the party and not to the identity.

Mistakes relating to documents As a general rule a person is bound by a document that he signs, whether or not he has read and understood it. L’Estrange v Graucob (1934) but if he has been induced to sign a document that he had no intention of signing because he was induced to sign, due to fraud or misrepresentation, the transaction will be void. The claimant can plead, “Non est Factum” (not my deed)