Contract Law I

Mistake
Prof. Christina Perry
 Final Summative Coursework
• Questions released 15 December on
QMplus
• Choose 1 of 4 questions
• 3,000 words (strict limit, and footnotes
count)
• Use OSCOLA citation
• Submission of essay via QMplus
• Essay due 19 January at 12:00 noon
 Mistake
• Mistake is an “excuse” area of contract law
• Renders a contract void, not voidable
• Objective test
– Smith v Hughes
• Objective vs subjective test
– Raffles v Wichelhaus
 Mistake
• Distinguish the different types of mistake:
– one party is very seriously mistaken or the parties
are entirely at cross-purposes -> consent is
negatived -> no contract ever comes into
existence (“the offer and acceptance mistake” or
“unilateral mistake”)
– parties are at cross-purposes (the “mutual”
mistake)
– both parties at the time of making the contract
make the same mistake -> parties have a contract,
but it may later be set aside on that ground (“the
common mistake” or “bilateral mistake”)
Common law mistake - the common or
bilateral mistake
• Both parties at the time of making the
contract making the same mistake
• -> parties have a contract, but it may later be
set aside on that ground
• Common mistake (a.k.a. bilateral mistake)
• Links to frustration
– Amalgamated Investment & Property Co. Ltd. v.
Walker (CA1977)
 Common law mistake
• Distinction between mistakes of fact and
mistakes of law
– Kleinwort Benson v. Lincoln City Council [1998] 4
All ER 513
• Removal of the mistake of law bar in the law
of contract
– Brennan v. Bolt Burdon [2004] EWCA Civ 1017
• English law vs other systems
– Halpern v. Halpern [2006] EWHC 603
 The common/bilateral mistake
• For the mistake to form basis of setting
contract aside, it must be a FUNDAMENTAL
mistake
• Bell v. Lever Bros. Ltd. (HL 1932) (a 3:2 split):
mistake must be about “an essential and
integral element of the subject-matter of the
contract”; majority said LB’s mistake was not
fundamental
 Categories of accepted common mistakes

• Both parties mistaken about existence of

subject-matter of contract
• Both parties mistaken about identity of
subject-matter of contract
• Both parties mistaken about possibility of
performing contract
• Both parties mistaken about quality of
subject-matter of contract
Both parties mistaken about existence of
subject-matter of contract
• Galloway v. Galloway (1914)
• Contract for sale of non-existent goods
– s.6 Sale of Goods Act
– Couturier v. Hastie (HL1856). Means what?
• Mistake as to existence of subject-matter always makes
contract void?
• Implied condition precedent that contract performable
(Solle v. Butcher)?
• Whether contract void or not depends on
interpretation of contract: McRae v. Commonwealth
Disposals Commission (HC Australia 1951); Great Peace
Shipping Ltd. v. Tsavliris Salvage (International) Ltd. (CA
2002)
 Mistake as to title
• Cooper v Phibbs (1867) L.R. 2 H.L. 149
• Bell v Lever Brothers, Ltd (1931), [1931]
A.C. 161 at 218 and 235-6
• Bligh v Martin (1966), [1968] 1 W.L.R.
804 (Ch.D.)
 Both parties mistaken about identity of
subject-matter of contract

• May be sufficiently fundamental mistake to

avoid contract: Diamond v. British Columbia
Thoroughbred Breeders’ Society (1966)
 Both parties mistaken about possibility of
performing contract
• Mistake may be fundamental enough to avoid
contract where both parties believe contract
capable of performance when in fact it isn’t
– Physically impossible: Sheikh Bros. v.
Ochsner (1957), [1957] A.C. 136 (JCPC)
– Legally impossible: Cooper v. Phibbs (HL
1867)
– Commercially impossible: Griffith v. Brymer
(1903) 19 T.L.R. 434 (K.B.D.)
 Both parties mistaken about quality of
subject-matter of contract

►May be fundamental enough to avoid

contract, but courts very hesitant about
reaching that conclusion
• Bell v. Lever Bros. Ltd.
• Leaf v. International Galleries Ltd. (CA 1950)
• Harrison & Jones v. Burton and Lancaster
(1953)
• Oscar Chess Ltd. v. Williams (CA 1957)
 Both parties mistaken about quality of
subject-matter of contract
• On the other hand
– Solle v. Butcher (CA 1950): valid in law, but
voidable in equity
• Now The Great Peace (CA 2002): mistake not,
on the facts, so fundamental as to justify
setting contract aside
• Scott v. Coulson and Nicholson and Venn v.
Smith-Marriott
 Both parties mistaken about quality of
subject-matter of contract
• The Great Peace, para.76: what you need to show to avoid
contract for common mistake
– Common assumption about state of affairs
– No warranty by either party that it exists
– Non-existence of state of affairs not either party’s fault
– Non-existence of state of affairs must make performance
impossible
– State of affairs may be existence or a vital feature of the
consideration or of circumstances which must exist if
performance of contract to be possible

• It will be very difficult to show these things

Mistake as to quality of subject matter
• Associated Japanese Bank (International) Ltd v
Credit du Nord S.A. (1988), [1989] 1 W.L.R. 255
(Q.B.D.)
• William Sindall plc v Cambridgeshire County
Council [1994] 3 All ER 932 per Evans LJ at
955-957.
• Apvodedo NV v Collins [2008] EWHC 775 (Ch)
• Graves v Graves [2007] EWCA Civ 660
 Mistake going to root of contract
• Fundamental mistake going to the root of the
contract
– Kyle Bay Ltd (t/a Astons Nightclub) v Underwriters
[2006] EWHC 607
 The “offer and acceptance” mistake
• Mutual mistake: parties completely at cross-
purposes: contract so ambiguous no
agreement is ever reached: Raffles v.
Wichelhaus (1864)
• Unilateral mistake:
– one party mistaken as to terms of
contract/the promise, and other party
knows of that mistake
– one party mistaken as to identity of other
party
 Absence of genuine agreement
• Offer and acceptance not coincident/Absence
of genuine agreement
– Raffles v Wichelhaus (1864) 2 H. & C. 906
– Scriven Bros. & Co. v Hindley & Co. [1913] 3 K.B.
564 (C.A.)
 Unilateral mistake as to terms/the
promise
• One party mistaken as to terms of
contract/the promise, and other party
knows of that mistake
– Smith v Hughes
– Hartog v Colin & Shields
 One party mistaken as to other party’s
identity
• When will this matter?
• Purchase of goods by rogue who assumes
false identity, does not pay for goods, then
sells them on to a bona fide buyer, then
disappears
• Conflict between original (unpaid) owner and
bona fide purchaser of the goods from the
rogue (who has paid the rogue for them)
 One party mistaken as to other party’s
identity: resolving the conflict 1
* Contract void for mistake? -> makes contract
void -> set aside for all purposes -> has no
effect at all -> rogue got no property -> cannot
transfer ownership
* Fraudulent misrepresentation by rogue? ->
contract voidable by original owner; but rights
of bona fide third party have intervened ->
original owner cannot rescind
 One party mistaken as to other party’s
identity: resolving the conflict 2
• NB s.21 SGA 1979: in sale of goods contracts,
nemo dat quod non habet
• Odd that original owner is better off relying on
mistake than on fraud?
• But English law is clear: “offer and
acceptance” mistake makes contract void;
fraudulent misrepresentation only makes it
voidable; and consequences are different
 One party mistaken as to other party’s
identity: resolving the conflict 3
• Difference between written contracts and contracts made
orally (generally (but not always) face-to-face)
• Contract made face-to-face: strong presumption each party
intends to contract with the party in front of him, whoever
that might be (so one party’s mistake as to the other’s identity
(e.g. because of what the other says) will not make contract
void)
• Contract made in writing: names of parties are more
important (so, courts apparently more willing to acknowledge
one party’s mistake as to other’s identity can made contract
void)
 One party mistaken as to other party’s
identity: written contracts
• Identity must be material: Dennant v. Skinner (1948)
• Mistake must be fundamental: Cundy v. Lindsay
(1878)
• But King’s Norton Metal Co. v. Edridge Merrett & Co.
(1897)
• The distinction: in Cundy, claimants intended to deal
with identified third party Blenkiron & Co. (of whom
they knew); in King’s Norton, claimants had never
heard of Hallam & Co. & simply intended to deal with
whoever had written the letters
 One party mistaken as to other party’s
identity: oral contracts
• Ingram v. Little (CA 1961): contract held void (now doubted)
• Lewis v. Averay (CA 1972): contract held voidable (and, on the
facts, bona fide third party rights had intervened)
• Strong presumption that in oral contract you intend to
contract with the person who is in your presence (whoever he
might be), so one party’s mistake as to the other’s identity
(e.g. because of what the other says) will not make contract
void.
• Rebuttal of that presumption?
• Shogun Finance Ltd. v. Hudson (HL 2003): treated as a written
contract (but, since the real Mr. Patel had never authorised
making of contract, contract was void)
 Mistake inter praesentes
• For such a mistake to be an operative
mistake and to make the agreement void
the mistaken party must show that:
– (i) they intended to deal with someone else;
– (ii) the party they dealt with knew of this
intention;
– (iii) they regarded identity as of crucial
importance; and
– (iv) they took reasonable steps to check the
identity of the other person
 Problems of mistake inter praesentes
• Hardman v Booth (1863) 1 H. & C. 803, 158
E.R. 1107
• Phillips v Brooks Ltd (1919), [1919] 2 K.B. 243
• Lake v Simmons (1927), [1927] A.C. 487 (HL)
• Ingram v Little (1960), [1961] 1 Q.B. 31
• Lewis v Averay (1971), [1972] 1 Q.B. 198 (C.A.)
• Citibank v Brown Shipley (1990), [1991] 2 All
E.R. 690
Contractual assumption of the risk of mistake

• Clark v Lindsay (1903) 88 L.T. 198

• Clifford v Watts (1870) L.R. 5 C.P. 577
• Bute v Thompson (1844) 13 M & W 487
• William Sindall plc v Cambridgeshire County
Council [1994] 3 All ER 932 per Hoffman LJ at
951-952
Contractual conditions & implied promise

• Associated Japanese Bank (International) Ltd v

Credit du Nord S.A. (1988), [1989] 1 W.L.R. 255
(Q.B.D.)
• McRae v Commonwealth Disposals
Commission (1951) 84 C.L.R. 377 (HCA)
 Common mistake in equity
• Bell v. Lever Bros. – very narrow scope for avoiding
contracts for common mistake at law
• Solle v. Butcher - CA developed wider principle of
avoidance of contracts for common mistake in equity
• Differences (i) wider (ii) contract voidable not void
(=> can protect innocent third parties) (iii) court
could impose conditions (restitution)
 Mistake in equity
• Magee v Pennine Insurance Co. Ltd [1969] 2 Q.B. 507
• Grist v Bailey (1966), [1967] Ch. 532
• William Sindall plc v Cambridgeshire County Council
[1994] 3 All ER 932 per Evans LJ at 959
• Clarion Ltd v National Provident Institution [2000] 2 All
ER 265
• Great Peace Shipping Ltd v Tsavliris Salvage
(International) Ltd [2002] EWCA Civ 1407; [2002] 4 All
ER 689 (CA)
• Apvodedo NV v Collins [2008] EWHC 775 (Ch).
 Effect of mistake in equity
• CA in The Great Peace in effect abolishes principle
of common mistake in equity => Bell v. Lever
Bros. prevails
• Great Peace Shipping Ltd v Tsavliris Salvage
(International) Ltd [2002] EWCA Civ 1407; [2002]
4 All ER 689 (CA)
• Smithson v Hamilton [2007] EWHC 2900 – the
application of the decision in Great Peace
Shipping Ltd v Tsavliris Salvage (International) Ltd
 Equitable relief
• Refusal of specific performance
– Webster v Cecil (1861) 30 Beav. 62; 54 E.R. 812
– Malins v Freeman (1837) 2 Keen 25; 48 E.R. 537
– Tamplin v James (1880) 15 Ch.D. 215 (CA)
– Baskomb v Beckwith (1869) L.R. 8 Eq. 100 (MR)
• Rescission
– Solle v Butcher
– Grist v Bailey
– Magee v Pennine Insurance
 Equitable relief: rectification
• (i) There must be a concluded antecedent agreement
upon which the written document was based
• (ii) The written document must fail to record what
the parties had agreed
• (iii) The written document must fail to express the
common intention of the parties.
• (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
• F.E. Rose (London) Ltd v William Pim Jnr & Co. [1953] 2 Q.B. 450
(C.A.)
• Riverlate Properties Ltd v Paul [1975] Ch. 133 (C.A.)
• Thomas Bates v Wyndhams Lingerie [1981] 1 W.L.R. 505 (C.A.)
• Swainland Builders Limited v Freehold Properties Limited (CA)
• GMAC Commercial Credit Development Ltd v Sandhu [2004]
EWHC 71
• George Wimpey UK Ltd v VI Components Ltd [2005] EWCA Civ 77
• Kyle Bay Ltd (t/a Astons Nightclub) v Underwriters [2006] EWHC
607
 Rectification cont’d
• Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38
• Fshc Group Holdings Ltd v Glas Trust Corporation Ltd
[2019] EWCA Civ 1361: test for rectifying a contractual
document on grounds of common mistake
– to establish a claim for rectification, a party must prove that the
document failed to give effect to either:
• a prior concluded contract, in which case the terms of the prior
contract must be objectively determined; or
• a common intention shared by the parties, in which case the existence
of the intention must be established as a subjective state of mind
– it must also be shown that, as a result of communication between
them, the parties understood each other to share that intention