Mistake

Question 1

What is mistake?

Answer 1

Mistake is the last vitiating factor where the parties are mistaken about the consequences of their contract

Question 2

What are the two categories of mistake?

Answer 2

1. Formation Mistakes

2. Common Mistakes

Question 3

What is a formation mistake?

Answer 3

Mistakes which mean that there is no contract formed. It is a question of whether there was a contract in the first place.

There are two types of Formation Mistakes:

1. Mutual Mistakes - where one party thinks one thing and another party thinks another
2. Unilateral Mistakes - Where one party makes a mistake. This covers mistake as to term and mistake as to identity (where it’s critical).

Question 4

Mutual Mistakes Cases 1

Answer 4

Raffles - P sold D 125 bails of cotton. P tendered cotton from a ship called Peerless which itself is from Bombay.
Ultimately, despite name of ship, there were two “peerless” ships, both sailing from Bombay, in the same year, but in different months.
D was interested in a ship that sells it in October.

Held: No agreement as there is a mutual mistake as one thinks cotton from one ship and the other thinks cotton from another ship.
Hence no contract

Question 5

Mutual Mistakes Cases 2

Answer 5

Scriven v Hindley -
Auctioneer acting for P put up sale of lots of hemp and toe.
Auction catalogue was misleading as it only contained mention of hemp.
Toe was much cheaper than hemp and D went there thinking to get hemp.
D bid for hemp, thought he’d gotten a bargain. Discovered mistake.

Held: Mistake, ,one party thought they were selling toe, the party bidding through they were buying hemp.
No contract.

Question 6

Unilateral mistakes: Mistake as to term

Answer 6

Smith v Hughes -
D was an owner and trader of race horses.
He agreed to buy some oats from farmer. Sale was by example before they bought the product.
Crucial difference between new and old oat. (old oat was preferred)
P supplied new oat, D claimed they had contracted to buy old oat.
Difference here is that one party knows that the other party is mistaken.
Held: No contract. It was a formation mistake.

Question 7

Unilateral mistakes: Mistake as to term

Answer 7

Hartog v Collin
D entered into contract to sell some hair skins. As a result of a mistake, they were offered 10 pence a pack.
When mistake was discovered that D was selling them for less than they were worth, D refused to deliver them.
P thought they had got a bargain and sued for delivery.

Held: It was a mistake and P’s could not have reasonably thought that the offer was genuine in the sense that they were dealers in the skins, it was not possible to get a hair skin for 10 pence a pound.

Question 8

Unilateral Mistakes: Mistakes of Identity

Answer 8

Mostly cases where there’s a rogue who buys, sells the item and then disappears.
The question is whether the contract is voidable?
To determine this, we look at whether the mistake of identity is ‘material’ Boulton v Jones

Question 9

Unilateral Mistakes Mistakes of Identity.

How to know if the identity is material 1

Answer 9

Cundy v Lindsay -
Major fraud case.
P received an order for handkerchiefs.
P received orders from a rogue called Blankar and gave his address. He wanted to get handkerchiefs on credit by representing himself as the firm as the firm was very recognise-able. He wanted to get the handkerchiefs on credit.
Once he got them, he sold them. He didn’t pay for anything because he was on credit. So he sold it to D (an innocent third party).
Was there a contract between P and the rogue? It was said contract was void. P could recover handkerchiefs or at least get damages in tort of conversion.

Question 10

Unilateral Mistakes Mistakes of Identity.

How do know if the identity is material 2

Answer 10

Shogun Finance -
Sale of car. A finance company, because it was bought on hire purchase, agreed to sell a car to rogue.
Rogue misrepresented identity and character to the finance company. He produced proof of identity which was unlawfully obtained. It was the name of another person. The finance company did a check on that name and then sold him the hire purchase.
The rogue sold the car and disappeared.
If contract was void, then the party who currently had the car had no chance because they were bona fide of a value.

Held: Contract was void. The bank thought they were dealing with another person but they weren’t. They say that the contract isn’t void because parties dealt face to face.

Question 11

Unilateral Mistakes Mistakes of Identity.
How do know if the identity is material 3
What did the dissenting judges say in Shogun Finance?

Answer 11

That there is a presumption when parties deal face to face that there is a contract. Not that the contract is not voidable, but a presumption that if you’re dealing face to face, there’s a presumption that there is a contract.

Question 12

Unilateral Mistakes Mistakes of Identity.
How do know if the identity is material 4
Parties dealing at a distance

Answer 12

King’s Norton Metal v Merrett
P received an order from Hallom. They were described as a substantial firm and they were indeed respectable. It was a rogue called Wallace that P thought was the respectable firm. They sold wire to rogue via credit. The guy sold it on and took the money.

P intended to contract with the writer of the letter. It was said there was no mistake of identity. Wallace had merely misrepresented that he was a respectable firm. Hallom was merely an alias.

Held: Contract was voidable for fraud. The third party bona fide purchaser could keep the wire. Where the parties are dealing face to face, it’s different.
So just remember these presumptions!

Question 13

Unilateral Mistakes Mistakes of Identity.

How do know if the identity is material 5

Answer 13

Phillips v Brooks - Rogue who liked jewellery.
He selected a ring, produceed a cheque book claiming to be Sir George Burlow and gave Sir Burlow’s address. They check the address and found that Sir George Burlow did indeed live there. They allowed Rogue to take the ring.
He went to brokers and pledged the ring.

Held: face to face dealing and so the contract was valid. It was their intention to deal with the person in front of them. So hence courts don’t like saying face to face contracts are void.

Question 14

Unilateral Mistakes Mistakes of Identity.

How do know if the identity is material 6

Answer 14

Ingram v Little.
Rogue who wanted to buy a car. He bought a car pretending to b PGM Hutchinson. He goes to P and pretends he is. P checked telephone directory and there was a PGM at the address.
Rogue got car without paying and the cheque bounced.
Unlike Phillips v Brooks, the COA said the contract was void.
COA distinguished from Phillips saying P in this case intended to deal with PGM. It wasn’t a mistake to credit worthiness. In Phillips, the jeweller was quite happy to sell ring on credit before it confirmed it was Sir George.

Question 15

Unilateral Mistakes Mistakes of Identity.

How do know if the identity is material 7

Answer 15

Lewis v Avery
P sells a car to rogue. Rogue pretends he is some well known actor. He produces a studio card for identity.
Now here can apply either Phillips or Ingram.

Held: Its a matter of intention. There’s a presumption when dealing face to face that there’s an intention that they were to deal with the person in front of them. So can’t say contract is void.

Question 16

Unilateral Mistakes Mistakes of Identity.

How do know if the identity is material 8

Answer 16

Porter v Latec Finance
Guy was pretending to be his father. There were various subsequent frauds.
Could loan contract be set aside?

Held: Majority in HC say isn’t a mistake that is void the contract. Barwick CJ says it is not fundamental to the transaction who the fraudster pretends to be and the contract stands.
So it’s very difficult to get a contract void in Australia.

Question 17

Unilateral Mistake in equity

Answer 17

Equity says that a contract can be rescinded if it is unconscionable for the non mistaken party to enforce it. Taylor v Johnson

Leibler v Air New Zealand - Victorian case suggesting need not be deliberate concealment to get contract set aside in equity.

Smith v Smith - Needs to be deliberate, but you can act deliberately and omit to do something. You can give a false impression by omission

Question 18

What is Common Mistake?

Answer 18

Here, the parties accept there is a contract, but because of a mistake, one of them wants the contract to be void. Courts do not like to set aside contracts.

Question 19

What are the two requirements for Common Mistake?

Answer 19

1. The mistake must be shared i.e. the parties must make the same mistake; AND
2. The mistake must be fundamental.

Question 20

First type of Common Mistake:

Answer 20

Where there is a contract for sale of specific goods, but the goods, without the knowledge of the seller, have perished at the time when the contract is made. The contract is then void.

Svansio v McNamara.
This case: D sold land to P. Both parties were mistaken that they both thought land sold included hotel.
Vendor not in a position to sell hotel because part of the land that the hotel was on, was owned by the crown.
Contract void? P could have just claimed damages, but they wanted the contract set aside and money repaid. In order for money to be repaid, the contract had to be void.

Held: Contract was not void. Neither in equity. Not in equity because there had been no fraud, both made a mistake.

Question 21

What is the first type of Common mistake?

Answer 21

Where there is non existence of the subject matter of contract at time of contract, then the contract is void - Couturier v Hastie.

Sales of Goods Act s9.

Question 22

What is the second type of Common Mistake?

Answer 22

Mistakes as to acquiring an interest in property that already belongs to the buyer.
Copper v Phibbs - Lord Atkin said it was void at law, but not equity. Why? In a transaction with a third party, if a transaction is voidable, the third party keeps the goods (Bell v Lever).
The first two categories of Common mistake mistake can set a transaction aside. Probably makes it void at law.

Question 23

What is the third type Common Mistake?

Answer 23

Mistake as to quality - both parties making the mistake.
Traditionally, court’s don’t like to say that if it’s mistake as to quality, that a contract is void. Mistakes as to quality will not void a contract, mistakes of substance or essence will.

Bell v Lever Bros
Bell and partner agreed with Lever bros to serve as chairman and vice chairman. Didn’t go well, Lever essentially wished to pay them off and paid a significant amount of money.
Problem: although neither parties realised it, both parties thought they were entitled to money. But actually, Bell had breached contract and was not entitled to a pay off. But at pay off, both parties thought that Bell did.
Contract void for mistake?
HOL say not void as mistake is not sufficiently fundamental. The mistake related to the quality of the agreement but wasn’t fundamental.
A mistake as to quality can make a contract void ONLY if it’s fundamental.

Question 24

Position in Australia?

Answer 24

Australian courts accept there is an equitable doctrine of mistake, can fall back on equity for mistake.
To rely on equity for mistake, there must be fraud or total failure of consideration. - Swansio v McNamara.
However, fraud only makes the contract voidable, not void.

Australian Estates Pty Ltd - Can fall back on equity which makes it easier to set aside a contract for mistake.

Question 25

What is rectification?

Answer 25

Where a contract is in writing but does not reflect the true intention of the parties, the contract can be rectified - Maralinga v Major Enterprises.

Pukallus v Cameron - The courts will rectify the contract in order to make it reflect the true intention of the parties.
Can’t use rectification just because parties have changed minds post the agreement.
Look to the intentions at time of contract Winks v WH.

Question 26

What is Non Est Factum?

Answer 26

General rule is that you are bound by a contract if you sign it L’Estrange v Graucob

There the defence of Non Est Factum to this general rule: if the person signing it is illiterate. Saunders v Anglia Building Society.

Question 27

Saunders v Anglia Building Society

Answer 27

English case, where HOL said defence extended to those who permanently or temporarily, through no fault of their own, without an explanation are unable to understand the document whether through defective education, illness or innate incapacity.

Question 28

Petelin v Cullen

Answer 28

HCA Case.
Petelin had poor understanding of English. He was persuaded by agent of Cullen to renew option, the option being in favour of Cullen.
Petelin didn’t understand document that they’d signed. They thought it was just a receipt.
Cullen was able to purchase land at a very cheap price.
Could Non Est Factum be used?
Key point was whether they were careless, that they simply had not read it. In such a case, Non Est Factum would not apply.
Petelin hadn’t been careless and the agent knew or ought to have known that Petelin hadn’t understood the document. So defence applied.