What is an operative mistake and what are its consequences?
- Mistake recognised in law from outset as preventing a contract from taking legal effect
- Contract is void
Declared a nullity from its beginning
What are the 3 categories of mistake?
- Common mistake: where both parties to an agreement are suffering from the same misapprehension
- Mutual mistake: where both parties are mistaken but about different things (have negotiated at ‘cross purposes’)
- Unilateral mistake: where only one party is mistaken and other party knows (or is deemed to know) about the mistake
What is the general rule on a (common) mistake about the quality of goods? Will it automatically be void?
E.g. the sale of a basic painting that the buyer believed to be famous
- Does not void the contract - even where utility or value of the goods are affected
- It will only be void if the subject matter is essentially different from that intended or where mistake renders assumed performance impossible
Leaf - mistake re a painting both the buyer and seller believed to be a Constable failed as a claim - parties contracted for sale of painting and this is what buyer received under contract
Where will common mistake not operate?
3
- Mistake is not sufficiently fundamental
- One party is at fault
- The contract makes provision for the issue
What is the test for mutual mistake to see if contract is binding?
A agrees to sell a horse to B, A intended to sell chesnut horse, B thought he was agreeing to buy A’s grey horse, and colour of horse was not mentioned during formation of contract
Whether a reasonable person would infer the existence of a contract in a given sense notwithstanding a material mistake
But will usually be void if impact on subject-matter
Result may be agreement was what A understood it to be, what B understood it to be, or nothing at all
Can a unilateral mistake ever not render a contract void?
No, as acceptance does not correspond with the offer; there is consequently no real agreement reached
But see rules on unilateral mistake of identity
Hartog - Ds entered into contract to sell 3000 hare skins, offering them for sale at 10d per pound instead of 10d per piece by mistake, whereas negotiations had proceeded on basis of price per piece - court held that D’s offer was not accurate reflection of true intention = no binding contract
How does the rule of mistake apply to the general rule that a person is bound by the terms of any instrument they sign whether or not they read it/did not understand its contents?
Exception under mistake to this general rule where a person signs a document under mistaken belief as to the nature of the document
Defence of non est factum (it is not my deed)
When will a plea of non est factum be available?
2 scenarios
I.e. person signs document under mistaken belief as to the nature of the document
Where mistake due to either…
- Blindness, illiteracy or senility of person signing; or
- A trick or fraudulent misrepresentation as to the nature of the document provided person took all reasonable precautions before signing
Thoroughgoods - illiterate woman induced to execute deed in belief that it was concerned with arrears of rent, when it was actually a deed releasing another from claims which woman had against him - deed held to be a nullity
What is a unilateral mistake of identity and will it render a contract void?
- Where one party mistakenly believes they are contracting with a person that the other party is pretending to be (other party knows of mistake)
- Whether void or not depends on the circumstances
What is the presumption in face-to-face transactions of unilateral mistake? Void?
E.g. a fraudulent buyer claiming another identity (then selling on)
- The seller intended to deal with the person in front of them identified by sight and hearing
- Will not be void for mistake, only voidable for misrepresentation (e.g. fraudster misrepresents identity)
Remember this is a presumption
When will a face-to-face transaction of unilateral mistake render a contract void for mistake?
Iif seller can show that identity rather than attributes (e.g. creditworthiness) was of ‘vital importance’ = contract void for mistake
Heavy burden to show operative mistake
What does it mean for identity to be of ‘vital importance’?
- If identity was of ‘vital importance’ = seller meant to sell it to that specific person
- If identity is not of such importance = the seller will care more about the buyer’s creditworthiness (attribute)
The latter is the more likely case!
E.g. Lewis v Averay - C was going to sell car to who he thought was famous actor Richard Greene - C wanted to make sure that the cheque would clear before ‘RG’ took car, but was satisfied that man was ‘RG” once he presented a film studio pass - cheque was worthless and RG sold car to D who paid in good faith - court held:
- Presumed seller intended to deal with person in front of them and this is what happened
- Contract not void for mistake but voidable for misrepresentation
- Presumption only rebutted - and contract void for mistake - if seller can establish that identity was of vital importance rather than attributes
I.e. seller only cared about the man’s creditworthiness rather than his identity; did not care who he was selling it to, so long as they possessed the funds to buy it
What are the different effects on a third party buyer re a contract being void and voidable for misrepresentation?
I.e. seller and fraudster has completed transaction, then party from outside original transaction (TP buyer) purchases the subject of the transaction from the fraudster
- If void for mistake = TP buyer does not acquire title as the contract was void (ineffectie) from the start
- If void for misrepresentation = TP buyer acquires good title (if contract was not avoided by time of sale)
Buyer, even if they paid good money - must return goods to duped seller as they never had good title
What is the rule (presumption) on unilateral mistake in distance-selling situations?
Not face to face
Mistake renders a contract void and the title remains with the original seller - easier for seller to show they only intended to deal with the person named in correspondence
E.g. Shogun - fraudster agreed to buy car on hire-purchase terms, signed agreement and presented a genuine but unlawfully obtained driving licence for Mr Patel - car dealer sent signed document and copy of licence to finance company - Shogun - who approved credit rating of Patel and approved sale. Fraudster immediately sold car to innocent TP. Court held:
- Contract void for mistake = Shogun entitled to return of car
- Was a distance selling situation between finance company and fraudster
Will a unilateral mistake in distance selling always render a contract void?
Not always! If the mistake is one as to attributes (rather than identity) = contract not void
King’s Norton - C sent goods to ficticious entity created by fraudster - letterhead used by fraudster gave impression that company was large and successful (attributes) - court held mistake made by original seller was one as to attributes of the seller and not the identity - they therefore intended to deal with the letter writers rather than an identifiable party
