Unit #3: Mistake

Communication mistake: terms

Smith v Hughes (1871) LR 6 QB 597: mistake about contracts terms may lead to a contract
being void. In order to do so (determine consensus ad idem) courts will….
1. Utilise an objective test: would the reasonable bystander based on external
appearances, think the parties had reached an agreement, and on what terms had they
reached an agreed.
2. Mistake must be about something that was a term of the contract: something
fundamentally part of the agreement between the parties.

A contract is void if one party to the contract enters into it under a serious mistake as to
the content or existence of a fundamental term and the other party has knowledge of that
mistake.

Centrovincial Estates plc v Merchant Investors Assurance [1983] Com LR 158:

● Contract for a lease of commercial property, which provided that the rent should be set at
“the then current market rental value” of the property.
● Landlords wrote to the tenants inviting them to consent that the current rental value was
£65,000.
● Tenants accepted, but then the landlords realised their letter contained an error: the
figure that they had intended to propose was £126,000.
HELD: contract was still upheld
If one party is unaware that the terms stipulated by the other party are a mistake the
contract will still not be void as long as a reasonable person would have assumed a
contract between both parties and term was about something specific and fundamentally
important

Exceptions to objective test about communication mistakes

Even if there is an objective agreement between the parties, there are two situations in
which the court will not allow one party to enforce it:

1. Where a contracting party is aware or ought to have been aware that the other
party has made a mistake.
Hartog v Colin and Shields [1939] 3 All ER 566.: Where a contracting party is aware or ought
to have been aware that the other party has made a mistake.
Court held: the party cannot "snap up" the benefit arising from the mistake of the offeree where
the evidence shows that a reasonable person would know that was not the true intention of the
offeree

Chwee Kin Keong v Digilandmall (2004): The court applied Hartog and stated that the
contract was VOID as the pricing was a mistake and complaints must have known this was
'absurdly low' price
 2. The seller causes the buyer to make a mistake
Scriven Brothers & Co v Hindley & Co [1913] 3 KB 564: plaintiff = auctioneer trying to get
money for tow that was sold- defendant though it was hemp- judge believed that markings were
not what expect to discover what item was for sale- no duty on the customer to take care to look
at catalogue to discover what the item is-in other words, auctioneer should have made it clear

court held: there is no contract, there was no ad idem ("meeting of the minds) and the
mistake was due to the fault of the plaintiff (the offeree)

3. Case of latent ambiguity

Raffles v Wichelhaus (1864) 2 H & C 906: ship called the Peerless sales from Bombay,
plaintiff sue defendant for breach of contract because deliver goods on Peerless from Bombay
in December, but defendants say intended to receive delivery from another shipped named
Peerless leaving Bombay in october
court held: there was a latent ambiguity, and such there was not a "consensus ad idem"
between the two parties and therefore there was no binding contract

Mistaken identity
1. Face-to-face contracts
Phillips v Brooks Ltd [1919] 2 KB 243: Rogue went to jewellers, Phillips. Pretended to be Sir
George (real person). Selected a ring and paid by cheque. Before, Sir George’s address is
checked. Rogue pawns ring to Brooks. Held: contract not void as courts concluded Philips
wanted to contract with person in front of them. Connection can be made with the seller to who
they saw
court held: there was a valid contract, where the rogue comes in person the contract is
said to be valid in that there was agreement as to who was purchasing the goods.

Lewis v Averay [1972] 1 QB 198: followed Phillips precedent. Seller here checked the rogue’s
identification as well. Strong presumption the seller intends to contract with the person in front of
them.
Held: the seller was checking the buyers credit worth not their identity

2. Remote contracts
Cundy v Lindsay (1878): correspondence where identity was stolen is of a real person. Rogue
ordered handkerchiefs from Lindsay as Blenkiron (firm). B then sold the handkerchiefs to Cundy.
Contractual connection is important.
Held: HL said this contract was void. “With him they never intended to deal...” per Lord Cairns
LC.King’s.
When a contract is made remotely, the law presumes that the seller only intended to deal
with the person the rogue intended to be. Valid contract.
Shogun Finance v Hudson (2004): Rogue stole the identity of a Mr. Patel. Bought a purchase
agreement from Shogun Finance and bought a car. Rogue sells car to 3rd party (Mr Hudson). If
the agreement was not void for mistake, Mr Hudson had the title and Shogun would be unable
to get it back.
Held: Majority held this was a contract concluded by correspondence. SF intended to contract
with Mr. Patel who was a real person that they could identify with by collecting evidence of the
identity of mr. Patel.
● Thus . Mr. Patel was the only person SF mentally connected with and therefore
could have intended to contract with. NOT A VALID CONTRACT

Exception to remote contract rule: where company/person is made up

Kings Norton Metal v Edridge (1879): Rogue pretends to be a fake company, Hallam & Co.
Wrote to KN ordering goods. Rogue then sells them to Edridge.
Held: contract not void because company and rogue not separated. Rouge was the only person
who used that name “Hallam & Co”- seller could not have intended to contract/deal with anyone
else.
● KN canly only have intended to deal with the person who signed the letters (the
rogue), consensus ad idem.

Common mistake of fundamental fact

Great Peace v Tsavliris Salvage (2002): established the test for common mistake as a
fundamental fact. Two companies were looking to locate the Great Peace and rescue it. Ship
was said to be 35 miles, but it was actually 400 miles away. This was a mistake as to quality.
This was not sufficient enough to render the contract void.

Also established 5 requirements that must be satisfied for a c;ain in common mistake:
Elements for common mistake
● Common assumption as to existence of state of affairs
● No warranty by either party that state of affairs exists
● Non-existence of state of affairs must not be attributable to either party
● Non-existence must render performance impossible
● Consideration: what the mistake must relate to: mistake may be about matters such as
the existence, it’s ownership, and the quality of the subject matter.

Held: it was not impossible to rescue the ship it only made the voyage more difficult. Shows
courts respect contracts that’ve been entered into voluntarily. Established that finding a common
mistake is a rare occurrence.
 a. No warranty by either party that state of affairs exists
b. Non-existence of state of affairs must not be attributable to either party
McRae v Commonwealth Disposals Commission: role of fault/reasonable belief
.Commission invited offers to purchase an oil tanker. C successfully bid for the purchase of the
tanker. C went to the location, but the tanker was not there. Tanker did not exist. McRae (the C)
claimed for damages for breach of contract. D (Commission) argued for common mistake.

Held: C won the case. D was entertaining the belief of the tanker without reasonable grounds.
Careless. D were at fault. - “A party cannot rely on [common] mistake where the mistake
consists of a belief which is, on the one hand, entertained by him without any reasonable
ground…deliberately induced by him in the mind of the other part

c. Non-existence must render performance impossible

Remember that the mistake must be “fundamental”. According to Lord Phillips in The Great
Peace, this means that once the mistake is discovered, performance of the contract becomes
impossible.
● Once the parties realised that the Great Peace was actually 410 miles away from
stricken vessel, the contract became less profitable for Tsavliris.
● But it was not impossible for them to use the Great Peace to perform the contract. They
could still offer a few days rescue service.
● In fact, Tsavliris made sure that they could locate a vessel nearer to the Cape
Providence, before they repudiated this contract.
● This shows they were “hedging their bets”.

HELD: not void

d. Consideration: what the mistake must relate to: mistake may be about matters
such as the existence, it’s ownership, and the quality of the subject matter.

Existence:
COUTURIER V HASTIE (1856) 5 HLC 673: A cargo of corn was in transit being shipped from
the Mediterranean to England. The owner of the cargo sold the corn to a buyer in London. The
cargo had however, perished and been disposed of before the contract was made. The seller
sought to enforce payment for the goods on the grounds that the purchaser had attained title to
the goods and therefore bore the risk of the goods being damaged, lost or stolen.

HELD: Where there is a contract for the sale of specific goods and they had perished by
the time the contract was made, the contract will be void.
Title:
Cooper v Phibbs (1856) 10 ER 1065: Person contracted for a lease of a fishery. Unbeknownst
to the parties, he already had a life interest in the fishery.

HELD: The lease was held to be void for mistake as he already had a beneficial
ownership right in the fishery.

Quality of subject matter:

Bell v Lever Bros (1932): Bros negotiate a compensation agreement for £50k each for two
employees who were being fired under their contracts. Mistake of fact was that this was not
necessary. The employees had breached their contracts in a way that they were not to be
compensated. Bros argued that employees return money

HELD: HoL contract was NOT void. Lord Atkin said that it had to be “the mistake of both
parties” and a mistake about the “existence of some quality” which made the contract different to
the one intended. Therefore, there is no operative mistake because Lever Bros got exactly what
they wanted (i.e. the defendants ending the contract) and the fact this could have been done
without Lever Bros paying compensation to the defendants DOES NOT MATTER. In Bell, the
employees could be paid the compensation, even though they did not deserve it.

Great Peace v Tsavliris Salvage (2002): Two companies were looking to locate the Great
Peace and rescue it. Ship was said to be 35 miles, but it was actually 400 miles away. This was
a mistake as to the quality of the contractual subject matter.

Held: it was not impossible to rescue the ship, it only made the voyage more difficult and
more expensive. Contract not void bc it was not impossible/essentially different to
perform after the mistake had been discovered.

Griffith v Brymer (1903) 19 TLR 434: The coronation of King Edward VII was due to take
place. The parties entered into a contract for the hire of a room overlooking the coronation
procession. Unbeknown to either party, before the contract was made, the King fell ill and the
coronation was cancelled.

HELD: Contract was void because the common mistake went to the heart of the agreement;
the whole purpose of the contract for the hire of the room was to view the coronation
procession⇒ which, once the true facts came to light, could not happen.