Mistake

MISTAKE VITIATING CONSENT: sub-categories

Unilateral mistake
Where one contracting party is under a mistake as to the terms of the contract and that mistake is
known to the other contracting party → party who is aware of the mistake will be unable to enforce
his version of the contract against the mistaken party
• Must relate to contract terms
• Must be known to the other (unmistaken party)
o Actual or constructive knowledge
• Mistake as to identity
o Written contract, oral/ face-to-face
• Non est factum “it is not his/her deed”
• mistake as to surrounding circumstances of contract
• true agreement has not been given as terms are misunderstood → void/voidable
Mutual Mistake
both parties are at cross purposes
• one party is offering one thing whereas the other party is accepting something else
Common Mistake
Where parties enter into the contract sharing the same mistake that nullifies their contract (contract
may be set aside on the ground of the parties' shared mistake)
• Common law
o As to existence of the subject matter (res extincta)
o As to title (res sua)
o Quality of the subject matter
• Equity
o As to quality of subject matter
Can the law of mistake be invoked?
Contract provision (Assumption of Risk)
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 (express promise)
→ There was an oil tank lying at the bottom of Pacific Ocean - AD by gov inviting into water to carry
tank and share benefits
• Plaintiff company answered the call and put out tender accepted by the gov
• they spent a lot of money assembling a team & travelling & did search and work & found out
there was no oil tank there
• McRae bought action suing for wasted expenditure
• Gov’s argument was “we made a mistake” & said contract is void because of mistake
It was held that the complainant was entitled for damages from the defendant. A contract did exist
between the complainant and the defendant and since this oil tanker did not exist, this was a breach
of contract. Thus, the complainant was entitled to damages for breach of contract and for the
purchase price amount of the oil tanker, as well as the expenses paid out for the salvage operation.
• Risk that the oil tank did not exist had been allocated to the federal government
→ when they say “there is an oil tank lying there”
o IMPLIED WARRANTY/ PROMISE (Tony Investments ltd v Fung Sun Kwan 2006)→ if
one party made a promise about the existence of something and that something did
not exist → risk is on the gov - no point for law of mistake to come in and allocate
risk and there is already contractual allocation
→ damages awarded against commission
→ if you sell goods and land, implied promise that seller has good title/ owns it
• if not, seller will be liable for breach of contract
Tony Investments Ltd v Fung Sun Kwan Bernard [2006] HKCU 119 (implied warranty)
• The plaintiff entered into an agreement with the defendant to purchase a property
• D did not have good title over the property
• Did not gave reply on the acquisition request made by the plaintiff over the property
• P for specific performance of the agreement as well as damages
• D claimed there was a common mistake
Outcome: The court held that D is in breach of a sale agreement
• A common mistake, however, did not exist in this manner of construction
o The risk of mistake have been allocated to the defendant.
• Why? → D gave an implied warranty that he has good title over the property
• Turns out to be an invalid claim → doctrine of common mistake has no place to be
implemented

The need for a clear contract provision

City University of Hong Kong v Blue Cross (Asia-Pacific) Insurance Ltd [2001] 1HKC 463 (CFI)
• CityU invitation for tenders for medical insurance cover for employees
• Provisions:
o (i) All tenders not be withdrawn for three months
o (ii) CityU obliged to inform tenderer of error and seek confirmation
• CityU knew BC’s tender contained an error in pricing but did not inform or seek confirmation
• CityU refused to accept BC’s withdrawal of the tender and purported to accept the tender
and sued for breach of contract
• BC claimed that there is a mistake → So there cannot be a binding contract
• CityU claimed that the risk of the mistake has been covered by the two provisions
o The doctrine of mistake cannot apply → Binding contract exists
Held: Contract void for unilateral mistake
• The agreement did not allocate the risk, it purely discuss the matter of time before a tender
can be withdrawn, rather what will happen, who will bear the responsibility if there is a
mistake of pricing in the contract. → Ans is thereby NO
• Should Cl. 8 displace the law of mistake? (CI.8 served to protect CityU by giving CityU to
correct a mistake that is undesirable to CityU, but the doctrine of mistake should serve to
protect the tenderer (Blue Cross), so CI.8 cannot displace the law of mistake as they are not
serving the same purpose and did not deal with the same risk.
• A contract provision that only “relates” to the risk is not enough, the provision should be
able to “adequately ” handle the “particular” risk

MISTAKE MUST BE AS TO CONTRACT TERMS

Smith v Hughes
• A buyer purchased from a seller a quantity of oats in the belief that they were old oats but in
reality were new and unsuitable for buyer's proposed use
• When he discovered his mistake, the buyer refused to accept the oats and the seller sued for
the price
• Queen's bench made distinction between 2 types of cases
o Where buyer correctly understands the seller's offer is an offer to sell oats but the
buyer mistaken believes they are old oats - seller not under an obligation to inform
the buyer he has made a mistake (Satoil ASA v Louis Drayfus Eenergy)
o Where the seller knows the buyer is mistaken, but the buyer is mistaken as to the
TERMS of the seller's OFFER - seller knows the buyer has misunderstood the offer -
offer and acceptance mistake and seller is under an obligation to inform the buyer of
the true nature of offer
Courts apply OBJECTIVE APPROACH:
• a mistake must not be one that a reasonable person would not have made
o dispute: promise to sell oats (not old, or new)
• no evidence supporting buyer’s argument that promise was to sell old oats
o term was outside of contract as age was not mentioned in the contract, seller made
no promise

Subjective qualification: Unilateral Mistake (TWO must satisfy)

a. Mistake must relate to one or more terms of the contract (Smith as authority)
b. The unmistaken party’s knowledge over the mistake: passive acquiescence (Cockburn CJ) (In
Smith v Hughes: The seller must know about the buyer’s mistake, but did not mention it
c. Applicable only when objective approach is passed

MISTAKE MUST BE KNOWN TO THE OTHER (UNMISTAKEN) PARTY

• Proof of offeree ‘either knew or ought to have known of’ / Snapping up offer
Centrovincial Estates plc v Merchant Investors Assurance Co [1983] Com LR 158 (*)
• claimants let premises to the defendants at yearly rent of $68320, subject to review from 25
December 1982
• on June 1982, the claimants wrote to the defendants inviting them to agree that the current
market rental value should be $65000
• the defendants accepted
• when the claimants received the defendant's written acceptance they immediately
contracted the D to inform them they meant $126000 and not $65000
• the D refused to agree to the new figure
Slade LJ said "it is contrary to the well-established principles of contract law to suggest that
the offeror under a bilateral contract can withdraw an unambiguous offer, after it has been
accepted in the manner contemplated by the offer, merely because he has made a mistake
which the offeree neither knew nor could reasonably have known when he accepted it."
Above all, the court held that there can not be a legally binding contract present, if the offeree knew
or ought to have known that an offer by an offeror contained a mistake.
• The Court of Appeal held in favour of the defendant. The existence of a mistake was to be
judged objectively (proof of offeree ‘either knew or ought to have known of’ the error in the
rent offered)

Contract may be inferred from the objective conduct of parties

→ not to be lightly inferred, the conduct must unequivocally refer to the contract
→ objective test is only met if the parties conduct was consistent w there being an applied contract,
and inconsistent w there being no such contract
1. Standard of detached objectivity -> takes POV of detached observer
2. Interpret the words as they were reasonably understood by the promisee (objectivity)
3. Interpretation of the person making the offer (promisor objectivity)
BUT in a bilateral contract, each party is a promisor/promisee

ACTUAL KNOWLEDGE
Eshed Diam v Siam Color Gems, 2017, HKCFI
• Judge found against P because judge wasn’t satisfied that D had knowledge about P’s
mistake in the terms of the offer of the purchase price offer
• P mistakenly quoted & agreed to a price in HK dollars instead of US dollars
• If no knowledge, then the second condition failed, and doctrine of mistake is not operative,
ultimately having no claim for the breach of contract
No knowledge, no claim
Hartog v Colin and Shields [1939] 3 All ER 566
• Defendants were hide merchants - entered into an oral agreement with the complainant to
sell him 30,000 hare skins at the price of 10d per skin
• Defendant made a mistake on written agreement and said they would sell at 10d per pound
- 1/3rd cheaper
• Defendants refused to fulfill contract - argued complainant would have known this was a
mistake and fraudulently accepted offer
• Held that there had been no contract - any contract would be void by the mistake of the
hare skin price - duty to correct a mistake that is known to not be the real intention
• Nelsonian knowledge: Wilful blindness (You sense something was wrong, but deliberately
turned a blind eye to it)

CONSTRUCTIVE KNOWLEDGE
When this happens, common law is not appliable and contract voidable under the law of equity
Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR(R) 502
• Defendants were an online IT company - employee accidentally made a mistake as to the
price of the printer - listed at $66 but printers were advertised at $3,854
• Not noticed by company till over 4,000 ordered - when D noticed mistake - sent an email to
claimants saying order will not be fulfilled
• Held that the contract was void because the pricing was 'absurdly low' and claimants must
have known - no consensus ad idem or meeting of the minds between parties

ACTUAL KNOWLEDGE VS CONSTRUCTIVE KNOWLEGE

• One has knowledge about the mistake
• One that does not have knowledge but should have knowledge about it if some action is to
be taken or made some inquiries

Alternatively, mistake must be induced by the other party

Scriven Bros and Co. v Hindley and Co. [1913] 3 KB 564
• The complainants, Scriven Bros and Co, instructed an auctioneer to sell large bales of tow
and hemp on behalf of them at an auction.
• The bales looked rather similar in the way they were packaged and the samples that were on
display to potential bidders were not easily distinguishable.
• The defendants believed they were bidding for two lots of hemp, when actually one of the
lots was tow.
o The bid that was made was overpriced, but was accepted by the complainants.
When the defendants found out that it was tow, they refused to pay for the lot and
the complainant sued them for the price.
• The issue in this case was whether there was a contract between the two parties or if it
would be void for mutual mistake as to the subject matter of the contract.
Decision / Outcome
• The court held that there was no contract between the complainant and defendant, due to
faults on both sides. This meant that there was no consensus ad idem or meeting of the
minds to make it a binding contract.
• The complainant had not made the hemp and tow samples sufficiently clear and the
defendant had not brought a catalogue along to the auction, as well as inspected the
samples thoroughly before bidding. The defendant’s negligence contributed to the mistakes
of the complainant in this case.
• Knowledge requirement extended to scenario where there’s no evidence of knowledge, but
it was seller’s fault
 MISTAKE AS TO IDENTITY
• Where there is a mistake to the identity of the other contracting party
o Usually immaterial - owner of the shop indifferent to who is purchasing goods
• Where the customer sells the goods that he has purchased to a third party who pays for the
goods in all good faith and is unaware of the circumstances that surround the earlier
transaction
o Defaulting customer usually a thief and sold to innocent third party
o Original seller may bring a claim against 3rd party in possession of the goods (that
the seller remains the owner of the goods and is entitled to have them back or their
financial value)
o English law recognizes a general principle titled "nemo dat quod non habet" (you
cannot give what you do not have) -- require an examination of the rights acquired
by the rogue under the initial transaction with the original seller
• Looking at the contract between seller and rogue - the rogue has assumed a
false identity and will generally be guilty of fraud: and induced seller to
enter into the contract by a fraudulent misrepresentation as to his identity
• But fraudulent misrepresentation renders a contract voidable, that is to say,
the contract remains valid and can operate to transfer ownership in the
goods until such time as the contract has been set aside
• Not attractive option for a seller as the rogue will probably have transferred
the goods to an innocent 3rd party purchaser before he has the opportunity
to discover the truth and set aside the transaction with the rogue & the 3rd
party would win because he will acquire ownership of the goods from the
rogue
• Attractive option from the purpose of the seller is to assert that the contract with the rogue
was void on the ground that it had been entered into under a mistake & so the rogue could
not have obtained property in the goods from the original seller and therefore, has no
property rights to pass onto innocent 3rd party purchaser

Shogun Finance Ltd v Hudson

• P agreed on price for a motor vehicle to a fraudster (produced stolen driving licence as proof
of ID) - P made draft hire-purchase agreement that fraudster signed (forged signature)
• Fraudster paid agreed 10% deposit - by cash & cheque that was then dishonoured →
fraudster took the vehicle
• D bought from the fraudster in good faith
• P brought action against D when they found out payment = dishonoured
Whether the vehicle was in the fraudster’s possession as a debtor. Whether possessory title passed
to the innocent purchaser and whether the contract was void.
• HELD: appeal dismissed. D could never get the title from the fraudster bc fraudster never
owned the vehicle
• The hire purchase agreement was not between the fraudster and P, as the name on the
agreement was that of the stolen licence which was a fraudulent identity.
• Therefore, as there was no agreement or hire purchase between Shogun and the fraudster,
the fraudster could not have passed a possessive title to Hudson, as he never had one.
Hudson was required to return the car to Shogun.

DIFFERENCE BETWEEN WRITING AND FACE-TO-FACE

Where the parties deal with each other in a face-to-face transaction, the law presumes that each
party intends to deal w the party in front of him
• the fact that one party to the contract claims he is mistaken as to the true name (identity) of
the party who was in front of him will not suffice to render contract void
Matters are different when. Contract has been reduced to writing & in this case, names of the
parties to the contract assume greater significance
1. need to create certainty in relation to written contracts
o Lord Hobhouse in Shogun, the law does not generally allow oral evidence to be led
for the purpose of contradicting one of the terms of a written contract
o Parol evidence rule 'one of the great strengths of English commercial law and one of
the main reasons for the international successes of English Law in preference to laxer
systems that do not provide such certainty'
o Thus, where a contract states hirer of goods is 'Mr Patel' - it is not open to the
parties to lead evidence that hirer is not Mr Patel but some 3rd party who falsely
assumed name
2. courts are more willing to infer that a party has made a mistake as to the identity of the
other party where the contract is reduced to writing than in the case of a contract made
orally
o Lord Phillips in Shogun 'the innocent party will have in mind when considering with
whom he is contracting, both the person with whom he is in contract and the third
party whom he imagines that person to be'

CONTRACTS ENTERED INTO WRITING

Cundy v Lindsay
• Dishonest person called Blenkarn ordered handkerchiefs from the claimants
• Blenkarn signed his name to make it look like Blenkiron & Co, a respecable firm and known
by reputation to claimants
• Claimants sent handkerchiefs to the address where Blenkarn received them & didn’t pay for
the goods & sold it to defendants
• When they discovered mistake, C sought to recover goods from the D
• HoL found for claimants and held that the contract between claimants and Blenkarn was
void for mistake because claimants did not intend to deal with Blenkarn but with Blenkiron
& Co
o Put regard to the fact that order form sent to claimants was signed Blenkiron & Co
and the fact that the claimants KNEW of a firm that name and intended to deal with
that firm

King's Norton Metal Co v Edridge Merrett & Co Ltd

• Claimants sent goods on credit to Hallam & Co which purported to be a large firm in
Sheffield but was a broke rogue called Wallis
• Wallis failed to pay for goods and sold them to D
• The claimants when discovered their mistake, sought to recover from D
• Claim failed as it was held they intended to contract with "the writer of the letters" and
simply made a mistake as to one of his attributes, namely creditworthiness
DIFFERENCE: In Cundy, was a mistake as to identity because claimants intended to deal with an
identifiable third party, a company they knew BUT in King's Norton, the claimants had not heard of
Hallam & Co and simply intended to contract with the writer of the letters
• Could be voidable due to misrepresentation but not due to mistake as to identity
• No mistake as to identity but to attributes
Lord Phillips in Shogun, the Claimants in King's Norton 'intended to deal with whoever was using the
name "Hallam & Co". It was necessary to resort to extrinsic evidence for the purpose of identifying
the existence of 'Hallam & Co', but once Wallis was identified as the user of that name, the party with
whom the claimants had contracted was established and they could not demonstrate that their
acceptance of the offer was intended for anyone other than Wallis'
Cundy v Lindsay is now held to be the correct approach to fraud and sale of goods to an innocent
third party, in that there is no possessory title to be passed on to the innocent third party. However,
the court held that King’s Norton was unable to recover the goods or their value from Edridge
Merrett.

CONTRACTS CONCLUDED IN FACE-TO-FACE DEALINGS

Strong presumption that if the contract is made with the person in front, therefore contract is not
void for mistake In the event of face-to-face dealings that the seller intended to contract with the
person physically before identifying him by sight and person. There can be no mistake of identity so
as to render the contract void

Ingram v Little (doubted in Shogun Finance)

• Two sisters visited by a rogue who called himself Hutchinson who wished to buy their car
• He produced a cheque to pay for it but one of the claimants said they would not accept a
cheque
• The rogue then said he was a certain P.G.M Hutchinson of Stanstead House, Caterham
• Neither of the claimants had heard of this person but one of them went to the Post Office,
checked the telephone directory and confirmed there was such a person
• Believing the rogue, they allowed him to take the car on handing over the cheque which
proved to be worthless
• The rogue then sold it to the defendants
• When claimants found mistake, they sought to recover the car from the defendants
• The CoA held the contract was void between the claimants and rogue because of a mistake
as to identity
o Held while there was a prima facie presumption that a party contracts with the
person in front of him - presumption displaced on the facts of the case
o Decisive factor appears to be that the claimants refused to accept the rogue's offer
to enter into contract on terms that he paid by cheque until they had checked his
identity (showed his identity was crucial to creation of a contract and not simply to
the method of payment under a contract that had alr been concluded)

DIFFERENT result in Lewis v Averay

• A rogue, calling himself the actor Richard Greene, offered to buy claimant's car
• Signed a cheque but claimant did not want him to take the car away until the cheque cleared
• In order to persuade claimant, the rogue produced an admission pass to Pinewood Studios
bearing the name Richard A. Green, his address, his photo and official stamp
• Claimant let rogue take car in return for cheque which proved to be worthless
• Rogue sold car to the D from whom the claimant sought recover when he discovered
mistake
CoA held there was nothing to displace the prima facie presumption that the claimant intended to
deal with the party in front of him and confined Ingram to 'its special facts'
• this was fraud and impersonation by the rogue, which would render a contract voidable and
it could be set aside. Yet, this must be done before a third party acquires the rights. In this
case, the contract was not set aside before Mr Averay, in good faith, purchased the car
Position adopted by Waller J in Citibank NA v Brown Shipley & Co Ltd when he said each case' rests
on its own facts'
Phillips v Brooks Ltd (1919)
• Phillips = a jeweller. The fraudster purchased a ring from the jeweller with a cheque and
signed his name “Sir George Bullough” and provided this person’s address.
• Phillips knew of Bullough and knew he lived at the address, so allowed him to take the ring
before the cheque cleared.
• The purchaser subsequently turned out not to be ‘Sir George Bullough’. The fraudster then
pledged the ring to a bona fide third party.
Issue: Whether Phillips could rely on mistake to identity to void the contract and seek
possession/ownership of the ring.
HELD: whilst the fraudster had indeed fraudulently purchased the ring there was no mistake as to
identity due to the fact this contract was made face-to-face.
• Whilst fraudulent statements were made, the identity of the fraudster could not be
considered ‘mistaken’.
• Importantly, a fraudulent contract is voidable (not void) and permits property to pass to
bona fide third-party meaning Brooks Ltd was the legal owner of the ring.

Non Est Factum - 'this is not my deed'

-> renders deed void so third party cannot obtain good title under it
-> Saunders v Anglia Building Society (Gallie v Lee)
Mrs Gallie, who had broken her spectacles, signed a document without first informing herself of its
contents. She was lied to by her nephew's business partner, Mr Lee, that the documents were merely to
confirm a gift of her house to her nephew. In fact, she signed papers allowing the nephew's business
partner to grant a mortgage over the property in favour of Anglia Building Society. When the business
partner defaulted on the mortgage, Anglia Building Society claimed to foreclose and repossess the House.
Mrs Gallie died before the litigation reached the House of Lords, and was represented by Saunders.
• Moreover, the lady was careless in the sense that she was capable of reading the document
had her spectacles be in perfect condition -> HER carelessness
ONLY APPLICABLE TO
1. person unable to understand document (through no fault of their own)
2. radial difference between what he signed and what he thought was being signed
Lord Reid 'it must also apply in favour of those who are permanently or temporarily unable
through no fault of their own to have without explanation any real understanding of the
purport of a particular document, whether that be from defective education, illness or innate
incapacity... There must, I think, be a radical difference between what he signed and what he
thought he was signing - or one could use the words “fundamental” or “serious” or “very
substantial.” But what amounts to a radical difference will depend on all the circumstances.'

Petelin v Cullen
• Petelin had extremely poor English skills and could not read.
• Petelin owned land in Liverpool & He granted Cullen an option to purchase land from him.
• After the timeframe had expired, Cullen sent a letter asking for an extension with $50
enclosed.
• Petelin thought that the letter was a receipt. Petelin signed it because Cullen’s agent told
him he had to.
• Petelin then refused to sell the land to Cullin.
Held: Petelin had a plea of Non Est factum (it is not my deed) which gets him out of the contract
• The plea of Non Est factum is only applicable to certain class of people
• Petelin fell into the class due to his poor ability in English
• Petelin had no idea that he was signing away his land and thought that the letter was
something totally different.
 • He was induced by the agent who knew he did not competently understand English and did
not try to explain it to him.
o Even if Cullen was unaware of the agent’s conduct, it was his responsibility.
• The High Court did not believe that Petelin had been careless. He had every reason to
believe the agent and to investigate it himself would have been longwinded and too difficult
for him
“The class of persons who can avail themselves of the defence is limited. It is available to those who
are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what
they are signing; it is also available to those who through no fault of their own are unable to have
any understanding of the purport of a particular document. To make out the defence a defendant
must show that he signed the document in the belief that it was radically different from what it was
in fact and that, at least as against innocent persons, his failure to read and understand it was not
due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who
seeks to establish the defence.”

Kincheng Banking v Kao Yu Kuel:

• guarantee contract explained in canto
• insufficient to raise non est factum

Mutual Mistake
both parties are at cross purposes
• For example where one party is offering one thing whereas the other party is accepting
something else
Test for Mutual Mistake: An objective test to the question of whether there is an agreement,
considering whether one party’s interpretation was more reasonable than the others.

LATENT AMBIGUITY (Mutual Mistake)

• Where the terms of the offer and acceptance suffer from such latent ambiguity that it is
impossible to reasonably impute any agreement between the parties

Raffles v Wichelhaus (1864)

• The defendants agreed to buy from the claimants a cargo of cotton to arrive 'ex Peerless
from Bombay'
• There were, unknown to both parties, two shups called 'Peerless' and both sailed from
Bombay
• The defendants meant the Peerless that sailed in Oct, claimants meant December
• When cotton arrived, the defendants refused to accept delivery because they argued that
the claimants were obliged to deliver the cotton on the Peerless that sailed in Oct, not Dec
• Claimants sued for price of the cotton - issue for the court whether the parties appeared to
be at cross-purposes capable of giving the defendants a defense to the claim brought against
them
• Court concluded it did and entered judgement for the defendants
Where a key term of the contract (Identity of Ship) is completely ambiguous, the contract will be
void for mutual mistake and lack of consensus ad idem (Meeting of Minds).
The objective test made it clear that a reasonable person would not have been able to identify
with certainty what ship had been agreed on.
COMMON MISTAKE
Where parties reach an agreement but an event occurs which was unforeseen by the parties &
which destroys the basis upon which they entered into the contract
• court grants relief on the ground that it is no longer fair or just to hold the parties to their
agreement in which changed & unforeseen circumstances
• Where common misapprehension is present AT THE DATE OF ENTRY into the contract; the
contract may be set aside on the ground of common (mutual) mistake
o If events occur after the making of the contract which render performance of the
contract impossible, illegal or radically different -- contract may be discharged for
frustration
Mistake relates to the formation of a contract
• events that exist prior to the making of the contract

• Where the mistake is common to both parties & the parties have reached agreement but it
is based upon a fundamental mistaken assumption - may nullify the consent of the parties
and set aside the contract which they concluded

Test for Common Mistake:

• Fundamental Test
o The mistaken matter must be fundamental to the parties’ decision in entering into
the contract
o The existence of the mistake must be fundamental in rendering the contract VOID

Bell v Lever Brothers Ltd (common mistake as to quality)

• The defendants, Bell and Snelling, entered into a contract with the claimants under which
they agreed to serve for 5 years as chairman and vice-chairman of a subsidary company of
the claimants
• One of the terms of service agreements was that they must not make any private profit for
themselves but the defendants, unknowing to claimants, engaged in business on their own
account and did not disclose their profits to the claimants
• Claimants later decided they wished to terminate the D's contracts because of business
reorganisation
• Entered into compensation agreements with the defendants under which they agreed to pay
Bell 30,000 and Snelling 20,000 in exchange for their consent to the termination of their
service agreements
• After money was paid, claimants discovered the breaches by the defendants of the service
agreements - would have entitled the claimants to terminate the service agreements
without the payment of compensation
• Claimants sought compensation - common mistake being both entered into compensation
agreements under a common mistake that the service agreements were valid when they
were liable to be set aside by the claimants without payment of compensation
• HoL held that the claimants could not recover
o Lord Atkin and Thankerton held that the mistake was not sufficiently fundamental
to avoid the contract
• The test established by the majority expressed by Lord Thankerton when he said that the
common mistake must 'relate to something which both parties must necessarily have
accepted in their minds as an essential element of the subject matter'
MISTAKE AS TO THE EXISTENCE OF THE SUBJECT-MATTER OF THE CONTRACT (RES EXTINCTA)
• A mistake may be sufficiently fundamental to avoid a contract where both parties are
mistaken as to the existence of the subject-matter of the contract
Galloway v Galloway
• The defendant assuming his wife to be dead married the claimant
• The D and C later separated and entered into a deed of separation under which the D
promised to pay a weekly allowance to C
• The D later found out his wife was alive and he fell into arrears
• C sued to recover arrears - held she could not do so because separation agreement was void
on the ground that it was entered into under the common mistake that the parties were in
fact married

Section 8 of the Sale of Goods Ordinance

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.

Section 14(2) of the Sale of Goods Act 1979 Outlines that all goods sold should be of ‘satisfactory
quality’ - Refers to the tangible quality of the goods & all qualities are revealed

Non-Existent Goods: Requires for perished goods before sale but after agreement to sell
Section -- void
• They will have needed to exist at some point
• Goods that have never existed at all will amount to a fundamental breach
o Associated Japanese Bank (International) Ltd v Credit du Nord [1989] 1 WLR 255.
• Exceptions
o If there is a term that allocates the risk to one party in the event of non-existence or
non-delivery of goods Ø As such will amount to a breach of contract
o Claim for mistake would not be made able

Couturier v Hastie
• Parties entered into a contract for the sale of a cargo of corn, which was believed to be in
transit from Salonica to the UK
• Before the contract was made, the corn deteriorated to such an extend that the master of
the ship sold it
• Seller argued that the buyer remained liable for the price of the corn because he had bought
'an interest in the adventure' or such rights as the seller had under the shipping documents
• HoL rejected the selller's argument, holding that the subject-matter of the contract was not
the rights of the seller under the shipping documents but the corn and since the corn did not
exist, there was a total failure of consideration and the buyer was not liable to pay the price
• CONTRACT VOID

McRae (above)

MISTAKE AS TO IDENTITY OF THE SUBJECT MATTER

• Mistake as to the identity of the subject-matter of the contract may be sufficiently
fundamental to avoid a contract if both parties thought they were dealing with one thing
but in fact dealing with another
MISTAKE AS TO THE POSSIBILITY OF PERFORMING THE CONTACT
• A mistake may be sufficiently fundamental to avoid a contract where both parties believe
the contract is capable of being performed when in fact it is not

(1) Physical Impossibility

Seikh Brothers Ltd v Ochsner
• The apellants granted to the respondents a license to enter and cut sisal growing on their
land and in return the respondents agreed to deliver the appellants 50 tons of cut sisal per
month
• Unknown to both parties, the land was incapable of producing an average of 50 tons of sisal
per month throughout the term of the license
• Privy C held the contract was void because the mistake of the parties related to a matter
which was essential to the agreement and neither party had assumed the risk of the land
being uncapable of producing such a yield

(2) Legal impossibility

MISTAKE AS TO TITLE (Res Sua)
Cooper v Phibbs
• P = nephew of the owner of a salmon fishery. He leased this salmon fishery from his Uncle.
• When his uncle died and the lease came up for renewal, P renewed the lease for the salmon
fishery with his Aunt.
• Later found out that in the Uncle’s will, P had been given life tenancy of the salmon fishery.
• Thus no need for the lease between him and the Aunt and the dispute arose when the next
rental payment was due.
• Issue: whether Mr Cooper was the owner of the salmon fishery and whether the lease would
be void.
HELD: contract and lease that existed between the complainant and the defendant was voidable,
rather than void.
• This was due to the claim being in equity, as P had beneficial ownership of the salmon
fishery and not legal ownership.
• ‘res sua’ and it was a mistake as to the title of the property → P = already the beneficial
owner of the salmon fishery and there could not be a lease.
• Such an agreement would be set aside due to a common mistake by both parties as to
ownership.
• transfer title to owner [legally] impossible

(3) Commercial Impossibility

Griffith v Brymer
• Parties entered into a contract for the hire of a room for the purpose of viewing the
coronation procession of Edward VII
• Cancelled due to illness of Edward VII - parties concluded contract at 11am but the decision
to operate on Edward VII taken at 10 am
• Contract was held to be void as the mistake of the parties went to the root or the heart of
their agreement - although the contract was still physically and legally capable of
performance, the cancellation of the procession had undermined the commercial object of
the contract
MISTAKE AS TO QUALITY OF THE SUBJECT MATTER
• May be sufficiently fundamental to avoid a contract but courts are reluctant to conclude so
(Bell v Lever ABOVE)
Harrison and Jones v Burton and Lancaster
• Parties entered into a contract for the sale of a particular brand of kapok which was believed
to be pure -- in reality it also contained some brush cotton which made it commercially
inferior
• Held mistake was not sufficiently fundamental

Oscar Chess Ltd v Willaims

• Both entered into contract of sale for a car under the belief the car was a 1948 model but
was a 1939 model - not sufficient

Great Peace Shipping Ltd v Tsavliris Salvage

• Guarding service by great peace shipping to another ship - goods need salvage - need
another ship to perform salvage
• responsible people believed 2 ships are in proximity - made contract for 5 days - fees on
daily basis → turns out 2 vessels were much further than expected → even if the 2 vessels
moved towards each other - GPS was unable to provide service
• is the mistake about distance fundamental? → mistake not fundamental enough
• CoA held while vessels were far apart, it would have taken them 22 hours to meet - not such
a time delay as to render performance 'essentially different from those which the parties
had envisaged when the contract was concluded'
• COMMON MISTAKE REQUIRES AN ELEMENT TO MAKE THE PERFORMANCCE OF THE
CONTRACT FUNDAMENTALLY DIFFERENT
• 5 criteria of Lord Phillips:
o Must be a common assumption as to the existence of a state of affairs
o There must be no warranty by either party that the state of affairs exist
o The non-existence of the state of affairs must not be attributable to the fault of
either party
o The non-existence of the state of affairs must render performance of the contract
impossible
o The state of affairs may be the existence or a vital attribute of the consideration to
be provided or circumstances which must subsist if performance of the contractual
adventure is to be possible
→ slow reaction a ‘telling indication’ when shipping company found out truth - did not
immediately tell
→ equity when unmistaken party has constructive knowledge of mistake (Digilandmall.com)
(Satoil v Dreyfus, 2008)
• quality is not a term, only surrounding facts

Scott v Coulson
• A contract for the sale of a life assurance policy was held to be void when, unknown to
parties, the assured had died and the value of the policy increased from 460 to 777
Leaf v International Galleries [1950] 2 KB 86
• Plaintiff bought a picture that was said to be drawn by Constable
• Returned to the seller for inspection
• Brought an action to rescind the contract as the defendant had responded maintaining that
the artist of the painting was J. Constable
• Issue: Whether the plaintiff had the right to rescind the contract, five years after agreeing
on the terms with the defendant
o Whether the mistake as to the painter of the art was fundamental enough to void
the contract between the parties.
Held: The plaintiff’s claim had failed as a significant amount of time had lapsed between agreeing
the contract and the window to rescind.
• The court found that the mistake that was made regarding the painter of the art was
fundamental
• But it was not severe enough to make the contract void. On this basis the plaintiff’s claim
failed

TEST OF FUNDAMENTALITY (standard of fundamentality)

• mistake held not ‘fundamental’
o Leaf v International Galleries → negotiation for sale of painting - both parties
thought painting belonged to famous author → it was by a random stranger - NOT
fundamental mistake - parties contracted to buy/sell painting and got what they
bargained for
o Great Peace Shipping
• mistake held ‘fundamental’
o Associated Japanese Bank v Credit du nord → guarantee contract, subsidary contract
→ main contract was for hire of machinery - 3rd party made a guarantee contract to
guarantee payment - machinery in main contract never existed - void because of the
parties’ common mistake - both believed machinery existed
o Sheikh bros → contract to cut trees - licensee was going to pay fee for permission to
cut trees but contract said licensee must deliver minimum 50 tons of fibre per
month → impossible as the entire land did not have minimum delivery amount →
physically impossible to perform contract - void

COMMON MISTAKE IN EQUITY

Solle v Butcher
• D agreed to lease a flat to claimant for 7 years at 250 and both entered under the mistaken
assumption that flat was free from rent control
• Claimant discovered it was subject to rent control and rent payable under legislation was
only 140 - he sought to recover the rent which was overpaid
• Defendant counterclaimed for rescission of lease on the ground of mistake
• CoA held landlord could set aside lease 'on terms'
• Denning LJ held contract was valid in law but voidable in equity
o (1) Equity in mistake must be 'fundamental' and that the party seeking to set the
contract aside must not himself be 'at fault'
o Asserted court had power to set aside a contract which is valid at law 'whenever it is
of the opinion that it is unconscientious for the other party to avail himself of the
legal advantage which he has obtained
• followed by CA in Magee v Pennine (settlement on insurance claim unaware on false
disclosure)
(2) Mistake in equity renders contract voidable and not void, so when a contract was set aside on
the ground of mistake in equity, innocent third party rights could be protected
(3) courts had greater remedial flexibility because they could set aside the contract 'on terms' -
attach conditions to the entitlement of one party to set aside the initial contract

DENIED BY Great Peace 'if coherence is to be restored to this area of our law, it can only be by
declaring that there is no jurisdiction to grant rescission of a contract on the ground of common
mistake where that contract is valid and enforceable on ordinary principles of contract law'
• Solle v butcher overruled BUT UNDECIDED IN HK

Rectification
an equitable remedy distinct from ‘corrective interpretation’
• Process by which a document, the meaning of which has already been ascertained, is
rectified so it gives effect to the intention of the parties
• Pre-contractual negotiations may be admissible where the claim is one to rectify the
contract
• Concerned with the defects not in the making but in the recording of a contract

Fredrick E Rose Ltd v William H Pim Jnr & Co Ltd

• Claimants asked to supply certain buyers of theirs with a quatity of 'Moroccan horsebeans
known here as feveroles'
• Claimants did not know what feveroles were so they asked the D who said they were simply
horsebeans
• Parties entered into a contract for the supply by the D to C of 'horsebeans' -- both believing
'horsebeans' were 'feveroles'
• Later transpired 'feveroles' were more expensive variety of horsebean than the type
supplied to claimants - when claimants buyters claimed damages from the claimants - the
claimants sought to have the contract with the defendants rectified by the insertion of the
word feveroles
• CoA refused to recitfy as this was not a case where document failed to record intention of
parties - it reflected their prior agreement and simply that parties were under shared
misapprehension

Only available in the discretion of the court

• Only rectify where 'convincing proof' is provided that the document fails to record the
intention of the parties (Joscelyne v Nissen) & high degree of proof is needed (The Olympic
Pride)
FSHC Group Holdings Ltd v GLAS Trust Corporation
Cases into 2 groups
(1) cases where the parties have made a binding agreement to execute a document containing
particular terms but instead execute a document containing different terms
• Terms to be objectively determined
(2) where there is no prior binding agreement between parties but simply a continuing common
intention
• CoA held the intention is to be ascertained subjectively
• When document fails to give effect to their common subjective intention that it is
unconscionable for both parties to be bound by the terms of the document which they have
concluded
• Necessary to show not only each party to the contract had the same actual intention with
regard to the relevant matter, but also there was an 'outward expression of accord'
o As a result of the communication between parties, they understood each other to
share that common intention
(2) The document must fail to record the intention of BOTH parties
o Unilateral mistake is insuffficient on itself to base a claim on rectification but where one
party mistakenly believes that the document correctly expresses the parties' common
intention, and other party is aware of that mistake, rectification may be available
o Where D is guilty of unconscionable conduct, claimant may be entitled to rectification
o Stuart-Smith LJ in Commission for the New Towns v Cooper
"where A intends B to be mistaken as to the construction of the agreement, so conducts
himself so he diverts B's attention from discovering the mistake by making false and misleading
statements, and B makes the very mistake that A intends, thennot withstanding that A does
not actually know, but merely suspects that B is mistaken, and it cannot be shown that the
mistake was induced by any misrepresentation, rectification may be granted"
Therefore, necessary to go further and prove other party of the contract knew of the mistake so it
can be said to have behaved dishonestly

(3) document must have been preceded by either a concluded contract or a 'continuing common
intention'
• FSHC CoA confirmed that an outward expression of accord is necessary ingredient of a
rectification claim in a 'continuing common intention case' and does not suffice to
demonstrate that the relevant intentions of the parties were' locked separately in the breast
of each other' without being communicated by each party to the other
Joscelyn v Nissin
• Father and daughter agreed the daughter would purchase the father's business and would in
return, pay all expenses of the father's home, including gas and bills
• No prior contract to which the court could have regard but it was held there was sufficient
evidence of a continuing common intention that the daughter pay the gas and bills to enable
the court to rectify the agreement to give effect to common intention

Rectification will not be granted in favour of a claimant who is guilty of excessive delay
Kowloon Development v Pendex
• two parties were creditor and debtor - debtor owed a large amount to creditor - debtor was
in financial difficulties
• debtor wanted settlement agreement - payment plan - after 2004, parties should
renegotiate and make a new payment plan for the outstanding days
• in 2005, another similar settlement agreement was made
• difference: in 2005 agreement, there was no mention of what the parties would do with any
outstanding debt - debtor argued that after he paid all the amount in the 2005 agreement -
all the outstanding debt would be discharged and does not owe any amount
• creditor said no - and no outstanding debt was mentioned due to mistake - true intention of
agreement was incorrectly recorded - forgot to mention outstanding debt - mistake
• made 2 diff arguments: both made same mistake and agreed outstanding debt was payable -
COMMON MISTAKE
• creditor said if he cannot establish common continuing intention of parties - UNILATERAL
MISTAKE - true intention was outstanding debt was payable and not discharged → but true
intention was not clearly expressed
• debtor said these arguments were inconsistent
• Lord Hoffman confirmed that rectification in common mistake is objective and find objective
agreement between parties
o if you want to award rectification based on unilateral mistake - the test is subjective
- evidence to show one party has subjectively made a mistake and establish other
party did unconscionable conduct