Mistake

The main concern is whether there is an enforceable contract

one or both parties enter into a contract under a mistake

usually there is no remedy provided for the mistaken party

objective theory of contract (intention considered objectively) → words or conduct

certainty of contracts: elements for formation of contract are established

Factors favouring a remedy:

fairness

need for “integrity” of actual agreement: consensus ad idem (meeting of the minds) → to
ensure that there is actual agreement (needs correspondence between offer and acceptance)
(see Textbook)

Reasons for mistake made:

Some mistakes are caused by misrepresentation

sufficient to analyse under law of misrepresentation (remedies are adequate → don’t have
to think about the concept of mistake to deal with the situation)

Mistakes arise through no fault of either party

Categories of mistakes

common mistakes: both parties under the same mistake

both parties are mistaken as to the existence of the contract? (e.g. goods are destroyed)

Mutual mistakes: parties at cross-purposes

mistaken in different things (e.g. the two parties are thinking about different things but
nonetheless enter into contract)

this sort of categorization is not universally used

Unilateral mistakes: only one party is mistaken

it involves parties that are at cross-purposes → depends whether we can objectively

ascertain what the contract is about (if yes, one party may be right in understanding what
the contract is about → unilateral mistake)

Legal consequences/remedies where operative mistake (because of mistake of one of the party →
there will be legal consequences)

when the contract stands → not operative mistake

Main remedy: no contract formed (or contract void ab initio ~ contract void from the outset)

Other equitable remedies:

Mistake 1
 refusal to grant specific performance of contract

rectification of contract

a voidable contract in equity: prima facie there is a valid contract formed, the party can
rescind the contract potentially (make the decision by the party)

Mutual mistake
no contract formed

there may be literal correspondence between the parties (the words used by the parties
corresponded)

offer and acceptance do not coincide (no consensus ad idem)

Case Example: Raffles v Wichelhaus

the buyer refused to take delivery as the buyer argued that the goods were to be delivered in
October rather than December

the court had to deal with whether the buyer has a defence to a claim by the seller → yes

mutual mistake can make a contract void (the parties not ad idem) → operative to render the
contract void

Scriven Bros & Co v Hindley &Co

just describe the lot number but not the goods

the defendant just inspected the first sample but did not inspect the second sample (which is
another product) → the defendant made bid for both lots (after discovering the second lot to be
another product, the defendant refused to pay)

second contract (tow): price bid for the second lot was quite high

the auctioneer intended to sell tow but the defendant intended to bid for hemp

the parties are at cross-purposes so no contract was formed for purchase of tow

not ad idem as to subject matter of sale

→ true ambiguity: offer and acceptance did not coincide

the actual contract formed can be something different from what is actually supplied

mutual mistake is operative only if the objective facts are equivocal (as to which interpretation
is correct)

when it can be found that one interpretation is correct → unilateral mistake

Unilateral mistake
no remedy for the mistaken party

mistake about some matter relating to the contract is not sufficient on its own to give rise to
operative mistake

Mistake 2
 even if the other party to contract knows that the mistaken party is contracting under the
mistake

Goldsborough Mort & Co Ltd v Quinn

land sold at a price calculated on a freehold basis (rather than a leasehold basis thought by one
party)

the court held that the purchaser’s interpretation was correct

the wording is clear and unequivocal in meaning → unilateral mistake

Caveat emptor: Let the buyer beware

Smith v Hughes

the seller offered to sell oats to the purchaser, with sample given to the purchaser

the purchaser agreed to buy but later discovered oats were new oats rather than old oats, so
refused to take delivery

the court held that even if the seller knew that the purchaser intended to buy old oats →
does not necessary make the contract void for mistake (sample is inspected → meeting of
minds)

the purchaser himself is mistaken as to the nature of the goods → unilateral mistake will
not affect the validity of the contract

Exception: if the seller knew that the purchaser believed that old oats was a term of the
contract → the contract may be void

when the seller knew that the purchaser believed the seller would sell old oats

💡 Unilateral mistake is operative if there is a mistaken belief as to a term of the contract and
the other party knew (or ought reasonably to have known) of that mistake.

→ difference between mistake in Smith and operative unilateral mistake is the nature
(the mistake related to the contract vs the mistake as to the term of the contract)

if the purchaser made known to the seller that the purchaser believed the seller is selling
something intended by the purchaser → operative?

“snapping up” cases

Hartog v Collins & Shields

the seller intended to sell at price “per piece” while the buyer intended to buy at price “per
pound”

no contract was formed

the buyer was aware of the mistake as to the intended term

Mistake 3
 Additional remedy for operative unilateral mistake

“apparent contract” void, but the actual contract may be enforceable on terms as intended by
the mistaken party (and known to other party) to reflect true intentions

For unilateral mistake which is not known to unmistaken party

the contract stands (not void)

but the court may deny specific performance (if unjust to impose burden on mistaken party
due to hardship)

specific performance: order compelling the party who breached the contract to perform

will not compel the mistaken party to perform

but mistaken party still liable for damages for breach of contract if the party does not
perform

Unilateral mistake as to the identity of contracting party

mistake induced by misrepresentation of fraudster

contract voidable for misrepresentation

if the goods are transferred to a third party, although the mistaken party may not be able to
rescind the contract or get damages through the law of misrepresentation, the mistaken
party may rely on law of mistake to make the third party not entitled to the right of
possessing of the goods or ownership (since the fraudster does not have ownership of the
goods due to mistake)

Nemo dat quod non habet (no one can give what they do not have)

offer made personally to specific individual → no other person can accept the offer to bind the
offeror

the specific identity is a term of the contract → unilateral mistake as to identity is operative
to render the contract void as long as the unmistaken party knew of the existence of the
mistake

when the mistaken party is indifferent as to who is to be the contracting party → the
contract not void (the identity not a term of the contract)

Face-to-face dealings

💡 Strong presumption that the parties intend to deal with the person standing in front of
them

Example case: Phillips v Brooks Ltd (the presumption was not rebutted)

a different decision in Ingram v Little → despite the presumption, it can be rebutted on clear
evidence (originally the seller refused to accept the rogue’s payment by cheque, but only after the
seller checked the directory and was mistaken as to the identity of the rogue the seller was willing
to sell the car)

Mistake 4
 Lewis v Averay: the contract was only voidable for misrepresentation but not void for mistake (the
plaintiff failed to prove that identity of person was a matter of vital importance, as opposed to
general concern for creditworthiness)

Parties dealing by writing

💡 Presumption that parties intend to contract with persons named in written agreement

→ the presumption is the opposite of the one in face-to-face dealings

→ a rebuttable presumption

Example case: Cundy v Lindsay (Lindsay intended that the identity of the buyer was a term of the
contract)
Shogun Finance Ltd v Hudson → the rogue was not a debtor under the hire purchase contract

The party under the agreement was Durlabh Patel (under the statutory provision, if the rogue
was a debtor under the hire-purchase agreement, the rogue would be able to confer the
ownership of the car to the third party)

a different decision in King’s Norton Metal Co v Edridge Merrett & Co Ltd → the firm named in the
letter did not exist, the plaintiff simply wanted to deal with whoever the writer of the letter was
(distinguish Cundy v Lindsay from this case because there was a firm as contemplated by the seller
in Cundy v Lindsay but no such firm in King’s Norton Metal Co v Edridge Merrett & Co Ltd existed)

Written agreement with named party tends to indicate that identity intended to be a term of the
contract [condition precedent to formation of contract

Legal principle: whether the party intended that identity of the buyer was a term

→ strike a balance between protecting the original owner and the third party

Common mistake

💡 Contract void under common law where common mistake means that performance of the
contract would be impossible, or would essentially be fundamentally different to what was
contemplated by the parties

1. contract was prima facie void

e.g. Bell v Lever Bros; Great Peace Shipping

→ consent of parties to contract on the terms becomes useless and nullified

[specific goods or unascertained goods]

Sale of Goods Ordinance (Cap. 26) section 8

Mistake 5
 Goods which have perished
Where there is a contract for the sale of specific goods, and the goods,
without the knowledge of the seller, have perished at the time when the
contract is made, the contract is void.

2. Contract not void if a party expressly or impliedly undertakes responsibility for existence of
subject matter

Example case: McRae v Commonwealth Disposals Commission → contract not void, since the
Commission impliedly warranted existence of tanker

3. Mistake as to the quality of the subject matter

→ Two tests

1) whether the mistake as to the quality of the subject matter renders the subject matter essentially
different from the thing that the parties believed it to be (Bell v Lever Bros Ltd)

2) whether the mistake renders the contractual venture impossible (Great Peace Shipping)

Example case: Bell v Lever Bros Ltd → Mistake of the parties as to whether the company had a right
to terminate the contract without paying compensation to the employees
(the mistake was not fundamental → the contract was not void)

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd → mistake as to the distance of the
ship (between the two parties) → contract not void for common mistake → contractual venture not
impossible because the ship can still arrive later

Tony Investments Ltd v Fung Sun Kwan

4. Contract voidable in equity

void: no contract formed ever

voidable:the contract is regarded as having been validly entered into, the contract continues to
exist unless it is rescinded (the party can choose to rescind or not, and once the party chooses to
rescind the contract, the contract is not valid)

whether the common mistake is fundamental → voidable

Example case: Solle v Butcher

In Great Peace Shipping, it was contended that Solle v Butcher was inconsistent with Bell v Lever
Bros Ltd, since there is no jurisdiction in equity to rescind contract for common mistake

Hong Kong court’s position: no need to decide whether Solle v Butcher had been overruled by
Great Peace Shipping? (But Hong Kong courts generally follow English authority, i.e. Great Peace
Shipping)

Rectification of contracts

Mistake 6
 → only applies to written contracts

“apparent contract”

equitable remedy

unilateral mistake on terms when the other party is also aware of the mistake

lack of good faith of the other party

common mistake when there was an outward expression of accord (words or conduct)

(1) the parties had a continuing common intention, whether or not amounting to an agreement, in
respect of a particular matter in the instrument to be rectified

(2) there was an outward expression of accord

(3) the intention continued at the time of the execution of the instrument sought to be rectified

(4) by mistake, the instrument did not reflect the common intention

In Hong Kong, objective intentions should be adopted

→ pre-contractual negotiations could be admissible for determining claim of mistakes?

Non est factum

signed contract may be void under doctrine (defence) of non est factum

Non est factum applies where person did not sign document

OR

where the signer was under disability that prevents them from being able to read or understand
document (permanent or temporary)

Fundamental or radical difference between document signed and what signer believed they
were signing

e.g. signing extension of period of option under the belief that he was signing a receipt

Signer was not careless

→ is applied very narrowly

Failure by person of full capacity to read document before signing is not sufficient to establish
non est factum

Example case: Saunders v Anglia Building Society

Mistake 7
 Mistake as to legal effect of the document is also insufficient to establish non est factum

Mistake 8