Q.
What would be the consequences of law if mistakes are found to be exist in a contract:
- Common Mistake
- Mutual Mistake
- Mistake relating to documents
A.
Similar question was asked in
2013 D02 Q8,
MIA QE 2012/3 Q1 (b) (iv),
Common and Mutual Mistake.
INTRODUCTION
For a mistake to affect the validity of a contract it must be an "operative mistake", ie, a mistake which operates to make the contract void. The effect of a mistake is:
At common law, when the mistake is operative the contract is usually void ab initio, ie, from the beginning. Therefore, no property will pass under it and no obligations can arise under it.
Even if the contract is valid at common law, in equity the contract may be voidable on the ground of mistake. Property will pass and obligations will arise unless or until the contract is avoided. However, the right to rescission may be lost.
Unfortunately, there is no general doctrine of mistake - the rules are contained in a disparate group of cases. This is also an area of confusing terminology. No two authorities seem to agree on a common classification, and often the same terminology is used to cover different forms of mistake.
COMMON MISTAKE
A common mistake is one when both parties make the same error relating to a fundamental fact. The cases may be categorised as follows:
(A) RES EXTINCTA
A contract will be void at common law if the subject matter of the agreement is, in fact, non-existent. See for example:
Couturier v Hastie (1856) 5 HL Cas 673
In addition, s6 of the Sale of Goods Act 1979 provides that:
Where there is a contract for the sale of specific goods, and the goods without the knowledge of the sellers have perished at the time when the contract was made, the contract is void.
Other relevant cases include:
Griffith v Brymer (1903) 19 TLR 434
Galloway v Galloway (1914) 30 TLR 531
Couturier v Hastie was interpreted differently by the High Court of Australia in:
McRae v The Commonwealth Disposals Commission (1950) 84 CLR 377
(B) RES SUA
Where a person makes a contract to purchase that which, in fact, belongs to him, the contract is void. For example see:
Cooper v Phibbs (1867) LR 2 HL 149
MUTUAL MISTAKE
A mutual mistake is one where both parties fail to understand each other.
WHERE THE PARTIES ARE AT CROSS PURPOSES
In cases where the parties misunderstand each other's intentions and are at cross purposes, the court will apply an objective test and consider whether a 'reasonable man' would take the agreement to mean what one party understood it to mean or what the other party understood it to mean:
If the test leads to the conclusion that the contract could be understood in one sense only, both parties will be bound by the contract in this sense.
If the transaction is totally ambiguous under this objective test then there will be no consensus ad idem (agreement as to the same thing) and the contract will be void:
Wood v Scarth (1858) 1 F&F 293
Raffles v Wichelhaus (1864) 2 H&C 906
Scriven Bros v Hindley & Co [1913] 3 KB 564
REMEDY
If the contract is void at law on the ground of mistake, equity "follows the law" and specific performance will be refused and, in appropriate circumstances, the contract will be rescinded. However, even where the contract is valid at law, specific performance will be refused if to grant it would cause hardship. Thus the remedy of specific performance was refused in Wood v Scarth (above).
A recent case is:
Nutt v Read (1999) The Times, December 3.
MISTAKE RELATING TO DOCUMENTS
NON EST FACTUM
As a general rule, a person is bound by their signature to a document, whether or not they have read or understood the document: L'Estrange v Graucob [1934] 2 KB 394. However, where a person has been induced to sign a contractual document by fraud or misrepresentation, the transaction will be voidable.
Sometimes, the plea of non est factum, namely that 'it is not my deed' may be available. A successful plea makes a document void. The plea was originally used to protect illiterate persons who were tricked into putting their mark on documents. It eventually became available to literate persons who had signed a document believing it to be something totally different from what it actually was. See, for example:
Foster v Mackinnon (1869) LR 4 CP 704
The use of the rule in modern times has been restricted. For a successful plea of non est factum two factors have to be established:
(i) the signer was not careless in signing; and
(ii) there is a radical difference between the document which was signed and what the signer thought he was signing.
Note: Because of the strict requirements, it may be better for the innocent party to bring a claim based on undue influence.
Ref:
Mistake Law, LawTeacher.net, available at
http://www.lawteacher.net/lecture-notes/contract-law/mistake-lecture.php