Mistake

BUSINESS LAW 2
 Where the courts make a finding of mistake, the contract is rendered void ab
initio. You have entered in to a contract on the basis of a mistake, so the contract
was never valid, the party that enetered in to the contract with you never had
‘legal title/owenership’ , so the party cannot pass on the legal ownerhip
 Void vs Voidable contracts.
 Impact on passing of title.
 Impact on third party rights. – if it is void to begin with so the legal owenership
title cannot be passed on to another third party as the legal title is not theirs to
begin with.
Types of mistake

 Three general types:

1) Common mistake - Where both parties make the same mistake. The example :
Hassan inherits a house in Coventry so he owns it now. Unknown to him, it burns down. Without knowing this, he sells the house to
Dan via a contract. When they enter in to the contract, the house now ceases to exist, both parties are under a mistake here as the
property in the contract does not exist. Mistake = the house does not exist anymore , which is the basis of why both parties entered in
to the contract.

2) Mutual mistake - Where the parties are at cross purposes. Ne party thinks you agree to x, the other party thinks you agreed to Y.
they are not on the same page with each other. One party wants to buy a car. Sneha has a car showroom with used and new B&W.
Party phones and asks for a black B&W. party thinks he has agreed to the new car, but Sneha thinks the contract is for the old car.
3) Unilateral mistake - Where only one party is mistaken. E.g. mistake of identify when committing a fraud. Shein has a business
where they sell specialised tooling equipment. I go to shien and use the letter head of Procter and gamble and buy lots of tooling
equipment from her on credit. In reality this is a fraud as you can get her to sell her the tools on credit as they are a good company.
Shien is under the mistake as to identity as she thinks she is dealing with Procter and gamble but actually she is just dealing with you.
Common mistake

 Three categories:
1) Res extincta - Both parties enter a contract with the belief that the subject matter
of the contract exists when it does not exist. E.g. the house burned down
example on previous slide
2) Res sua - A party contracts to buy something which he/she/they already own.
They think someone else owns the asset and the other person thinks this too , but
the first party already own it. It will be void ab initio
3) Mistake as to quality - Only available in very narrow limits. Only loose
guidelines for this. The idea is that it is very rarely, if ever allowed.
A) Res Extincta

Scott v Coulson
A life insurance policy taken out on someone who was already dead. It wasn’t fraudulent.
They didn’t know the person has already dead.
Held: The subject matter no longer existed when the contract was formed. This is a case of
res extincta, contract can be void
Couturier v Hastie
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.

Held: The contract was void because the subject matter of the contract did not exist at the
time the contract was made. Both parties believed that the cargo existed when it didn’t
B) Res sua – mutual mistake

Cooper v Phibbs
A nephew leased a fishery from his uncle. His uncle died. When the lease came up
for renewal the nephew renewed the lease from his aunt. It later transpired that the
uncle had given the nephew a life tenancy for the fisery in his will.

This is an instance of res sua. Normally where a contract is found to have been
entered under a common mistake the contract will be rendered void.
C) Mistake as to quality

 A mistake as to quality is applies where the mistake is as to the existence of some

quality which renders the subject matter of the contract essentially different to
that what it was believed to be.
 Leaf v International Galleries [1950] 2 KB 86

The claimant purchased a painting from the defendant. Both parties believed that
the painting was by the artist Constable. In fact 5 years later the claimant
discovered the painting was not a Constable. The claimant brought an action based
both on misrepresentation and mistake.

The claim based was unsuccessful as the mistake related to the quality and did
not render the subject matter something essentially different from that which
it was believed to be. He believed he was buying a painting and he got a painting.
Great Peace Shipping v
Tsavliris International
 A ship, The Cape Providence, suffered structural damage in the South Indian
Ocean. The defendants offered a salvage service which was accepted by the ship
owners. The defendants made inquiries as to the nearest salvage ship and were
informed that The Great Peace was 35 miles away. They then entered a contract
with Great Peace Shipping (GPS) to engage The Great Peace to do the salvage
work. In fact The Great Peace was 410 miles away at the time. When the
defendants learnt of the actual distance they searched for a closer ship as they
believed the Cape Providence was close to sinking and needed to rescue the crew.
They found a closer ship and tried cancelled the contract GPS. However, GPS
refused to cancel the contract and brought an action for breach. The defendants
sought to argue that the contract was void for mistake.

Held: Based on mistake on quality- The mistake did not render the contract
essentially different from that which it was believed to be.
2. Mutual mistake

 A mutual mistake is one where the parties are at cross purposes. They are not on
the same page. The courts apply an objective test to see if the contract can be
saved.
 Question court asks: would a reasonable person looking at the correspondence
between the parties/who reads at this contract/looks at all of the circumstances
have understood the contract to have a single meaning, or would it have been
interpreted as ambiguous?
 If yes the contract is valid on that meaning. If a reasonable person could not
determine the meaning then the contract will be void for mistake.
Raffles v Wichelhaus

The parties entered a contract for the sale of some cotton to be shipped by 'The
Peerless' from Bombay. The Peerless had a sailing from Bombay in October and in
December. The defendant thought that it was the October sailing and the claimant
believed it was the December sailing which had been agreed.

The court applied an objective test and stated that a reasonable person would not
have been able to state with certainty which sailing had been agreed. Therefore the
contract was void for mistake as there was no consensus ad idem
3. Unilateral mistake

 In unilateral mistakes only one of the parties is mistaken. There are two categories
within unilateral mistakes:
1) Mistakes relating to the fundamental terms of the contract – Must be a
fundamental/material term. Mistake must be one that goes to the root of the
contract. Second requirement, is that the other party which is not mistaken, knew
that the party that is making the mistake was actually mistaken.
2) Mistakes as to identity. – of two types 1. at a distance e.g. Procter and gamble
example 2. face-face . The
Mistake as to the terms of the contract -
‘Snap up’ the offer.
Hartog v Colin and Shields
 The defendants, Colin and Shields, were hide merchants that were based in
London. The complainant, Hartog, was a furrier from Belgium. The defendants
entered into an oral agreement with the complainant to sell him 30,000
Argentinian hare skins and this would be at a price of 10d per skin. However, the
defendant made a mistake on their written agreement that said they would sell the
complainant 30,000 hare skins at 10d per pound. This would mean that the price
difference was one third cheaper for the complainant than had previously been
agreed. Hartog accepted this offer, but the defendants refused to fulfil contract.
 The court held that the contract was void for mistake.
 “There really was no contract, because you knew that the document which went
forward to you, in the form of an offer, contained a material mistake. You realised
that, and you sought to take advantage of it.”
 “I am satisfied, however, from the evidence given to me, that the plaintiff must
have realised, and did in fact know, that a mistake had occurred. What did he do?
Mr Hartog put it forward as being a bona fide act on his part that he at once went
to Mr Caytan and entered into a contract with him. I am not sure that it points to a
bona fide act at all.”
 “The offer was wrongly expressed, and the defendants by their evidence, and
by the correspondence, have satisfied me that the plaintiff could not
reasonably have supposed that that offer contained the offerers’ real
intention. Indeed, I am satisfied to the contrary. That means that there must be
judgment for the defendants.” (Singleton J)
Smith v Hughes (1871)

The claimant had purchased a quantity of what he thought was old oats having been
shown a sample. In fact the oats were new oats. The claimant wanted the oats for horse
feed and new oats were of no use to him. The seller was aware of the mistake of the
claimant but said nothing. The claimant brought an action against the seller based on
mistake and misrepresentation.

Held: Both actions failed. The action based on misrepresentation failed as you cannot
have silence as a misrepresentation. The defendant had not mislead the claimant to
believe they were old oats. The action based on mistake failed as the mistake was not
as to the fundamental terms of the contract but only a mistake as to quality. You
entered in to the contract to buy oats, and oats is what you got, this is therefore a
mistake as to quality. When it comes to this, the courts really do not really allow this.
Mistake as to identity

 Mistakes as to identity are generally induced by fraud in that one of the parties is
claiming to be someone who they are not. There is thus an overlap with
misrepresentation.
 A claim based in mistake is more favourable to one based in misrepresentation as
the affect of a finding of mistake is that the contract is void as oppose to voidable.
 2 subcategories: determining whether a contract will be held void for
mistake the courts draw a distinction between contracts made inter
absentes (at a distance) and contracts made inter praesentes (face to face
transactions). Whhen it is at a distance, the court has no presumption with
regards to who it is you are actually dealing with. However, when you are
dealing with face to face, the court has a presumption that you actually
intended to deal with the person infront of you
Inter absentes – contracts at a distance

 Inter absentes: Where the parties are not physically present when the contract is
made, e.g. where the contract is made through dealings through the post,
telephone or over the internet.
 The courts will only make a finding of mistake if the claimant can demonstrate
an identifiable person or business with whom they intended to deal with.
 A mistake as to their attributes will not suffice.
 Cundy v Lindsey (1878) 3 App Cas 459
 A rogue, Blenkarn, hired a room at 37 Wood street, Cheapside. This was in the same street
that a highly reputable firm called Blenkiron & Son traded. The rogue ordered a quantity
of handkerchiefs from claimant disguising the signature to appear as Blenkiron. The goods
were dispatched to Blenkiron & co 37, Wood street but payment failed. Blenkarn sold a
quantity the handkerchiefs on to the defendant who purchased them in good faith and sold
them on in the course of their trade (bona fida). The claimants brought an action based in
the tort of conversion to recover the value of the handkerchiefs. The success of the action
depended upon the contract between the Blenkarn and the claimant being void for mistake.
If the contract was void, title in the goods would not pass to the rogue so he would have
no title to pass onto the defendants. Ownership of the goods would remain with the
claimant.

Held: The contract was void for unilateral mistake as the claimant was able to demonstrate
an identifiable existing business with whom they intended to contract with.
Kings Norton Metal co ltd v Edridge,
Merrett & co ltd (1897)
 A rogue ordered goods from the claimant using a printed letter head of a
company called Hallum & co with offices in Belfast Lile and Ghent. In fact no
such company existed. The claimant sent out the goods on credit. The rogue sold
the goods on to the defendants who purchased them in good faith. The rogue then
disappeared without paying for the goods. The claimants brought an action for
conversion of the goods based on their unilateral mistake as to identity.

Held: the contract was not void for mistake as they could not identify an existing
company called Hallum & co with whom they intended to contract. The mistake
was only as to the attributes of the company. The contract was voidable for
misrepresentation but that would not stop title passing to the rogue and the
defendants therefore acquired good title to the goods.
Inter praesentes

 Where the parties contract in a face to face transaction the law raises a presumption that
the parties intend to deal with the person in front of them.
 Phillips v Brooks [1919] 2 KB 243

A rogue purchased some items from the claimant's jewellers shop claiming to be Sir
George Bullogh. He paid by cheque and persuaded the jewellers to allow him to take a
ring immediately as he claimed it was his wive's birthday the following day. He gave the
address of Sir George Bullogh and the jewellers checked the name matched the address in
a directory. The rogue then pawned the ring at the defendant pawn brokers and received
£350. He then disappeared without a trace. The claimant brought an action based on
unilateral mistake as to identity.

Held: The contract was not void for mistake. Where the parties transact face to face the
law presumes they intend to deal with the person in front of them not the person they
claim to be.
Lewis v Avery [1971]

 The claimant sold his mini cooper to a rogue claiming to be the actor Richard
Greene (who played Robin Hood in a series at the time). The rogue showed the
claimant a Pinewood studio pass which had Richard Greene's name and an
address on it. The claimant then let him take the car with the log book in exchange
for a cheque for £430 which was later dishonoured. The rogue sold the car on to
Mr Avery for £200 claiming to be the claimant. The claimant sought return of the
car on the grounds that the contract was void for mistake.

Held: The contract was not void for mistake. The presumption that the parties
intend to deal with the person in front of them applied.