Mistake

Front 1

What is the effect of mistake in the two jurisdictions of common law and equity?

Back 1

Common law, mistake renders contract void.
Equity, only renders contract 'voidable', can rescind at party's option.

Front 2

How is mistake different from other vitiating factors?

Back 2

Most vitiating factors (save frustration and mistake) require some kind of wrongdoing. But in pure mistake cases, not wrongdoing required.
- many think we do not need doctrine of mistake - can deal with issues with existing doctrines.

Front 3

3 types of mistake are:

Back 3

1. Common mistake - both parties mistaken about same thing
2. mutual mistake - both parties mistaken, but about different things
3. Unilateral mistake - one party mistaken, other party unmistaken.

Front 4

Mutual mistake?

Case with 2 different ships with same name

Back 4

Raffles v Wichelhaus and Busch
This case we can see mistake is not a necessary mechanism to deal with problem of this kind
Was a contract for importation of cotton from India to England
Cotton will be carried by “Perlis” ship to England
However 2 ships called “peerless” one running at Oct and other in Nov.
Cargo sent with November ship
Buyer said would not take – wanted Oct ship.
Seller said always intended on sending with Nov ship.

Front 5

Alternative ways of dealing with mutual mistake (as it arose in Raffles)

Back 5

1. No meeting of the minds – cross purpose – no consensus
o Must note this is very subjective
2. Is serious uncertainty – latent ambiguity – no way of finding out which ship the contract is referring to – uncertainty makes the contract void.
3. We need to dig deeper into facts to find any reason to prefer one interpretation over the other
a. .eg if one party is at fault in producing this mistake – however need to find facts.

Front 6

Common Mistake at common law - looks at mistake as to:

Back 6

◦As to the existence of the subject matter (res extincta)
◦As to title (res sua)
◦As to the quality of the subject matter (proves to be the most controversial and important in practice).

Front 7

Common Mistake in Equity:
- look at mistake as to:

Back 7

◦As to the quality of the subject matter
◦As to the recording of the agreement (as to terms – means make a mistake to put the agreement into writing – may involve common or unilateral mistake – normal remedy sought is not rescission – seek ‘rectification’ to correct error in written aggreement)

Front 8

Existence of the subject matter: Does the subject matter exist?
- Case law
- Statute

Back 8

Coutureir v Hastie
- Contract for shipping
- in this case when the parties make to contract – the good had been resold – they no longer existed when contract was being made
- The buyer brought action because did not receive goods
- Argument that buyer was not buying cargo, but buying interest in the cargo.
- Court rejected this argument
- If cargo didn’t exist – then contract void.
- Since been Codified – SOGA s 9 – if contract sale of specific goods – if goods have ‘perished’ then will make contract void.
McRae v Cth Disposals

Front 9

McRae v Cth Disposals
Is risk allocated?

Back 9

- Commonwealth Committee
- Invite tenders to purchase tanker – which is sinking
- Cth will tell them where it was – just had to go and get it.
- McRae assembled team to go to place specified – but no oil tanker there – nonexistent
- McRae brought action on 3 grounds
1. The Cth Govt was in breach of contract
2. Cth committed fraudulent mis representation. (to prove fraud against cth impossible).
3. committed negligent misrepresentation (at time when case was decided Hedley Byrne had not been decided – not until Hedley burn law recognised pure economic loss for negligence)
- So have to win on Breach
o Dixon and Fulligan JJ
• Cth was in breach of implied warrantee that tanker did exist.
• Since didn’t exist, in breach of warrantee.
• Also means that Q of mistake does not arise because risk of mistake assumed by one party – Govt.
• Failure to find out truth contradicts implied warrantee
• Normally for breach of contract can gain expectation damages – however here only claimed reliance damages and were granted reliance damages.
• Contract ‘condition precedent’ subject to condition – that is existence of tanker.
o This view was rejected by the HCA.
1. Warrantee refers to promise for existing fact.
2. Condition precedenty – if not satisfied contract must be void.
Can still use SOGA – goods have perished – however here non[existent] – SOGA cannot apply
- Key message – HCA reasoning does not involve Mistake
- Mistake does not arise if risk is allocated
o Mistake will only arise in very exceptional circumstances where risk has not been allocated.

Front 10

Assumed risk in sale of land that have good title

Back 10

Svanosio McNamara
Know that if buy goods or a house from someone – seller has obligation - good title of goods – if doesn’t have title – then in breach of contract
In this case contractor for sale of land
Unknown to both parties, about one third of parties owned by 3rd party,
Nevertheless contract went on – contract was completed
Purchaser tried to rescind contract – based on argument that contract was make in common mistake.
Court rejected this argument – had time to check title for self
Risk was allocated to purchaser – assume risk that no good title.

Front 11

Quality of subject matter - common mistake at common law

Bell v Lever Bros

Back 11

Bell v Lever Bros
Facts:
Mr Bell surved as a director for Lever Bros for many years
Company decided best to part w Bells services
Bell still under fixed contract
Inorder to terminate – company had to pay substantial fees “golden handshake fee”
After the payment, company found out Mr Bell had committed breaches of contract which would have allowed them to dismiss Bell with out payment
Brought action in common mistake
Was mistake serious enough to make conract void
997 – Otkin – essential difference from what parties understood
3 hypothetical cases:
1. Buy a horse believing the horse is sound – horse is not sound – can you get out of contract
2. Buy expensive painting believing it to be original – turns out to be modern copy
3. Buy Garage – seller knows, but you don’t know new road being built…
Contract is valid and enforce in all of these illustrations.
So why do we have narrow strict test of mistake?
Mistake can only be an exception. Invoked in v rare cases.
In Bell – court raised arguments.
The company got what they bargained for.
Or could argue this is not a case were changes have made it less desirable
Case that parties would never have entered into contract if had known truth
Mistake as to cost – price of something – “too bad”
In interesting piece by McMillan – shows concept of mistake not as important as appears to be in reasoning in this case
Company did not bring the case for money, brought for moral standards.

Front 12

Common Mistake at Equity

Solle v Butcher

Back 12

• Both parties believed their property (lease) contract was not caught by rent control act.
• Rent paid 250 pounds
• Max rent was 140 pounds
• Cannot allege common mistake
o Can have operative unilateral mistake in equity.
o Can also have common mistake in equity – but must be fundamental.
• Test of fundamentally
• Court ordered rescission of contract on terms
• That party should make new tenancy agreement with rent fixed
• 2 other important points
o Distinction between mistake of facts and mistake of law
• Here mistake of law
• View that cant have mistake of law
• However this has been firmly rejected in context of contract law.
• David Securities. ‘
o Quite clear that presently no distinction in this area of law
o Other point
• Do you think the tenant has done something wrong into the leading P into thinking was not subject to rent control act.
• Tenant Mislead P.
• Principles accord with Taylor v Johnson.

Front 13

do we actually have two separate doctrines of Mistake - i.e. at common law and equity?

Back 13

in Great Peace Shipping court said only have doctrine of common alw mistake. This approach has been followed in Qld. However the question of whether we have two types of doctrine of Mistake still a question open for the High Court.

Front 14

Unilateral Mistake: 3 Categories.

Back 14

1. Unilateral mistake as to terms (means the contents of the contract).
2. Unilateral mistake as to identity (of the other contracting party)
3. Non est factum (“it is not his/her deed”)
Unilateral mistake that applied to party who has signed document, but document was not what person had in mind. (Equitable doctrine)

Front 15

Unilateral mistake as to terms
- is the contract voidable?

Back 15

• Subjectivity vs Objectivity Smith v Hughes
o This case poses Q of how we are to construe contract terms
o The Fault factor: unconscionability (endorsed by HCA in Taylor v Johnson

Front 16

Unilateral Mistake
Element of unconscionability

Knowedge of mistake alone is not enough - must be ‘unconscionable’ for unmistaken party to take advantage of mistake
Must be a serious mistake as to a fundamental term

Back 16

Taylor v Johnson*
- Contract negotiation for sale of 10 acres of land – wants to sell.
- Granted option to Mr Taylor for $50 – on that document was stated that land for $15 000 dollars
- Mr Taylor tried to exercise to option to purchase land for $15000
- Mrs Johnson said no – made a mistake – intended to be 15000 per Ha, not $15000 altogether.
- Decision that Mr Taylor had knowledge of mistake affirmed at high court
- However knowledge not enough
o Taylor had to have done something unconscionable to ensure Mrs Johnson remained mistaken
o Resembles Dennings Test in Sole v Butcher
o In this case the contract was held to be voidable and rescinded
• HCA introduced important element – unconsionability
• Must be ‘unconscionable’ for unmistaken party to take advantage of mistake
• Here
o 1. Mr Taylor is aware of Mrs Johnson’s mistake
o Actual or constructive knowledge – knowledge imputed by law
o Seems that either would suffice in this context
• Key is that knowledge it’s self is not enough
• Must be some “shop practice”
• Something very shop”
o Harsh – not right.
o On one occasion Mr Johnson asked for copy of option document.
o Said he didn’t have a copy even though had several copies.
o Addition to mere knowledge
• 3. Does not require ‘deliberate’ concealment of the truth.
• Silence may be enough
• Must be a serious mistake as to a fundamental term

Front 17

two types of mistake as to terms

Back 17

Pricing Error
- taylor and Johnson
Valuation Error
(price too low at time of valuation not an excuse)

◦Fox v Mackreth
- Sale of House – buyer knows that gold mine under neath the house – seller doesn’t know that
- Seller says contract must be set aside – mistake – didn’t know gold mine below house
- Contract must go on – information advantage

Front 18

Unilateral Mistake as to Identity

Back 18

Shogun Finance v Hudson

Hire purchase agreement
- contract between Finance company and purchaser
- Hudson
o Stole licence – went to Shogan with fake licence pretending to be Mr ‘Petol’– bought car – sold on – Shogun tried to recover – mistake
o Written contract – void.
o Parol evidence rule – ignore any information extraneous to contract.
o However this result is not satisfactory –
o WHO should be protected over the other??
• Denning says should be third party
• A takes risk – whereas C takes no risk acting in good faith.
• English always refuse to portion remedy between parties.

Front 19

Non est Factum

Back 19

The general rule in L’Estrange v Graucob – when sign a document – you are bound by it.
—Non est factum as an exception ‘this is not my deed’ not the document I believe it to be when I sign it (Saunders v Anglia Building Society)

Front 20

2 requirements to satisfy Non est Factum

Back 20

1. That there is a good excuse for a mistaken signature
a. E.g. disability
i. Poor understanding of English – thought document was a receipt – but was actually option to buy his land
b. If fraud – deceived to sign.
2. Must be fundamental difference between the doc you think you are signing – and the actual document. (Petelin v Cullen)

Front 21

Mistakenly Recorded Agreements?

Back 21

Rectification - equitable remedy. - to correct error in recording –court may, subject to discretion – grant equity rectification


Maralinga v Major Enterprises
- 2 requirements:
o Common intention
o Here house was on sale
• Seller to provide finance
• Seller responsible for demolishing
• Buyer said want conditions to be in the contract
• Seller said ‘take it or leave it’.
• Signed and then challenged.
• 2. Both parties intend the common agreement to be recorded in the contract – because the seller clearly doesn’t intend to be recorded

Front 22

Unilateral Mistake

Back 22

The approach in Taylor v Johnson
Applied in;
Medsara Pty Ltd v Sande
Eroc Pty Ltd v Amalg Resources

Front 23

Summary

Back 23

- difficult to strike balance between certainty and protection of party.
—The law relating to mistake strives to strike a balance between the need for certainty in transactions and the desire to protect a mistaken party.
—Where the parties share the same mistake as to the existence, or possibly the identity, of the subject-matter of the contract, the mistake may suffice to avoid the contract where it is sufficiently fundamental. The central controversy lies in the case where the mistake is one that relates to the quality of the subject-matter of the contract. It is still unsettled whether the law should adopt a wider, more flexible doctrine of mistake in equity than that which existed at common law.
—According to Taylor v Johnson, if a party is mistaken about a term of the contract and it is unconscionable for the other party to take advantage of his mistake, the mistaken party may have the contract set aside in equity. This is a ratification of, and probably also a constriction to, Lord Denning’s test in Solle v Butcher.