Mistake - Summary Contract Law PDF

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MISTAKE Categories: Four categories of mistake:  Common mistake (where the parties make the same mistake)  Mutual mistake (where parties make different mistakes)  Unilateral mistake (where one party makes a mistake)  Non est factum mistake (where the mistake goes to the nature of the document) Consequences: Depending on the circumstances, an operative mistake (allows a remedy):  Makes a contract void or voidable: McRae v Commonwealth Disposals Commission, Taylor v Johnson, Bell v Lever Brothers  Can entitle rescission or rectification: Ryledar Pty Ltd v Euphoric Pty Ltd, Franklins Pty Ltd v Matcash Trading Ltd). Rescission for a mistake not available where D neither shares nor knows of P’s mistake, and the mistake was not attributable to anything said/done by D: Riverlate Properties Ltd v Paul  Can entitle an order for rectification (a correction to the contract): International Advisor Systems Pty Limited v XYYX Limited Operative mistake:  Allows a remedy  David Securities Pty Ltd v CBA (Straight mistake of law): CBA requires a guy to make payments that are illegal by law. He stops and wants them back. CBA refuses and pleads that mistake of law forbids him setting the contract aside.Court found that if payments are made because of mistake of fact or law then can order restitution if that is not unjust. Common Mistake: Voids contract at common law and at equity, so the contract never existed and the parties cannot therefore claim damages.  Occurs ‘if the parties were under a common misapprehension either as to facts or to their respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault’: Solle v Butcher  Parties might mistakenly believe that goods being sold are undamaged: Couturier v Hastie: Corn is being shipped to the UK. It overheats and is offloaded and sold. After this point, person in UK purchases it. They try to make him pay. Basically they are arguing that the person bought a share in the venture, and had to wear the loss. The court found that they had actually bought corn; with both parties (mistakenly) believing it existed. As the corn did not exist in a commercial sense at the time of the sale the contract was void and the buyer had no obligation to pay anything. You can see if the corn had existed at the time of sale the outcome would be quite different.  McRae v Commonwealth Disposals Commission (best example): CDC issued statement about oil tanker wreckage on Jourmaund Reef, containing oil. Relying upon this, McRae organised salvage expedition to discover no oil tanker and location did not exist. M sued for breach of contract, CDC claimed

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common mistake. Court: found for M. Ordinarily common mistake, however comments by CDC reckless and irresponsible. Galloway v Galloway: A married couple separate, sign deed re him making payments, he doesn’t she sues. He discovered that his first wife was still alive when he married the woman who is now suing him. The court finds that the deed she is suing on is void as marriage never existed. Cooper v Phibbs (the thing was already his): A guy buys fishing rights from his cousins, thinking they had belonged to his (now dead) uncle. He owned them already, contract set aside (void).

Where the mistake is NOT FUNDAMENTAL, they may be VOIDABLE IN EQUITY. Voidable is an election (person who was mistaken can choose to void at that point or continue) Example: Solle v Butcher: A guy rents a flat at 250 a year. He later finds out flat is rent controlled at a max 140. He sues for two years difference. The landlord pleads mistake and wants to void the contract. The court says mistake not fundamental, but allows contract voidable. The tenant could elect to treat it as on foot and keep paying the 250, or leave; he stayed. Here the difference is between mistaken about a fundamental matter (they were not, that was renting a flat) and mistake about a subordinate matter (the amount of rent that could be charged) Prerequisities for a voidable contract (Approved in Australia in Svanosio v McNamara): 1. A common misapprehension 2. That is fundamental in nature (you can see the difference in Mcrae as compared to Solle) 3. Party seeking relief not at fault 4. Must be unconscionable to allow the other party to benefit from the mistake 5. Third party rights must not suffer (a key issue in any equitable remedy) Common Mistake Rendering Contract Void: 3 Situations: 1) 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: s 11 of Sale of Goods Act 1923 (NSW) 2) Where the contract can be constructed as being subject to an implied condition precedent (condition that needs to be satisfied before a contract comes into existence) that is not satisfied because of the mistake. McRae 3) Where the following elements are satisfied: Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, followed and applied in Australia Estates: (i) there must be a common assumption as to the existence of a state of affairs (ii) there must be no warranty by either party that the state of affairs exists (iii) the non-existence of the state of affairs must not be attributable to the fault of either party (iv) the non-existence of the state of affairs must render the performance of the contract impossible (v) the state of affairs may be the existence, or a virtual attribute, of the consideration to be provided or circumstances that must subsist if performance of the contractual adventure is to be possible

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If a common mistake does not render a contract void at common law, then it might still render it voidable in equity: Solle v Butcher, Taylor v Johnson

Rectification Where the contract has been put in writing but a mistake has been made in setting out the previously agreed terms. The court rectifies the instrument not the contract (fine point). They change the instrument so that it is an accurate account of the contract.  Josceleyne v Nissen: Daughter agrees to take over Dad’s business. She agrees to pay him money towards household expenses, that is not recorded in the writing and, after some time, she refuses to honour it. As common intent continued up to the time contract commenced the written contract could be rectified. In other words, at the time agreement was reached both parties intended this to be part of the deal, even though it was not written in. Here the mistake is in the document, not in the minds of the parties. When only one party is mistaken about the document then you cannot have rectification.  NAB v Budget Stationary Supplies: The bank sent out a loan document that set out 60 instalments, when it should have been 180. There was no evidence that the borrower knew they were supposed to be going into a fifteen year loan instead they believed that it was supposed to be five years. The bank may have had a remedy in unjust enrichment, but not one in mistake as unlike Josceleyne above, there was no common intent at the time the agreement was made. If the parties did not intend the provision to be in the contract then it will not found rectification (this should be obvious, there was no mistake!)  Maralinga v Major Enterprises: Auctioneer makes representations to buyer before signing. Buyer is told reps will not be included in the contract, signs anyway, figuring they will be enforceable as oral terms or as a collateral warranty. He later seeks rectification, but cannot have it as reps were deliberately left out, not mistakenly. Rectification will not work if parties are mistaken, and the mistake is repeated in the document  Pukallus v Cameron: Parties both think bore and cultivated area are on lot x. Contract is for sale of lot x. When buyer finds out that it is not included he asks the court for rectification. The court refused as document is correct. So both parities are genuinely mistaken, and the document, while not actually repeating the mistake, represents what they both thought they were selling, being lot x. Relief in Equity If a contract is void at common law, it is generally also void in equity. But in cases like Goldsborough, if the contract can be objectively determined, it will be enforced, which in turn can be quite unfair. In such cases there may be an equitable remedy that disallows an order for specific performance (where the person must do the thing agreed rather than just pay damages)  Tamplin v James: Defendant bought an inn, thinking it included a some land at the rear, despite the fact that the plans were unambiguous. He refused to pay and the seller sought specific performance ( making him complete the sale, pay the money and take the inn). The buyer was mistaken about what was included while the plan was clear.  Denny v Hancock: the buyer bid for land at auction, after looking at the plan the seller supplied. The plan misled him into thinking it was larger. He, like

the buyer above, refused to go through with the sale, and the seller sought specific performance. The seller had provided a poor plan that led to the mistake Equitable Remedies for Mistake:  Specific Performance: make the person do what the contract says, court can refuse to award the remedy  Rectification: repairing the document so that it reflects what the parties both intended  Rescission: an election to rescind, or void the contract Mutual Mistake Reasonable person test. Parties are at cross purposes, if a reasonable person would think that the contract was as one party thinks then it will be, but if a reasonable person cannot tell what the contract should be it is void.  Raffles v Wichelhaus: cotton was to come on a ship called Peerless. In fact there were two ships called Peerless, both sailing from Bombay (three months apart) carrying cotton. Buyer thought one ship, seller thought the other. A reasonable person could not have worked out which boat was meant from the circumstances. Offer and acceptance did not truly coincide, so no contract had arisen (it was void).  Goldsborough v Quinn a guy held leasehold and sold it at 30 shillings an acre ‘calculated on a freehold basis’ but then refused to pay the costs of getting it converted. He lost, as a reasonable person would have thought that meant he had to have it converted to freehold, by the inclusion of that term. In both cases the parties were at cross purposes, only in the second would a reasonable observer be able to say ‘well it obviously meant this’. Court found for Goldsbrough. Quinn was liable to pay the conversion fee  Alpine Hardwood Pty Ltd v Hardys Pty Ltd: parties contract for the sale and purchase of a house in a street of a certain name, two streets have the same name, seller referring to one and the buyer the other  Cannot rely on a mistake being a mutual mistake where ‘the mistake consists of a belief which is, on the one hand, entertained by him without any reasonable ground, and, on the other hand, deliberately induced by him in the mind of the other party’ (McRae v Commonwealth Disposals Commission) Unilateral Mistake:  One party enters into a contract under a mistake about its contents  Depending on the circumstances, can render a contract void or voidable (entitling rescission), but it is also possible for the mistake to be remedied via the contractual remedy of rectification.  Where the unilateral mistake relates to the identity of the contracting party, the contract will be void: Boulton v Jones, Cundy v Lindsay. Exception occurs where contract made face-to-face, then it could be void or voidable depending on the intentions of the mistaken party: Southdown Publications Pty Ltd v ACP Magazines  Can render a contract voidable (entitling rescission) where it is unconscionable for the other party to enforce the contract: Solle v Butcher, Svanosio v McNamara

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Taylor v Johnson: mistake serious and concerns a fundamental term, renders a contract voidable. Mrs Johnson agreed to sell her ten acres to Taylor, believing the price to be $15,000 per acre. He knew that what she was signing was an agreement to sell the whole lot for that price. She refused to complete and he sued for specific performance (note that the objective position was clear, sale of a bit of land x for a price y). She sought rectification or an order setting the contract aside. Actual knowledge of the mistake is not required, it is sufficient that the other party ‘must have known’ or ‘strongly suspect’ that the first party is making a mistake (Misiaris v Saydels)

Three basic forms of unilateral mistake: 1) Unilateral mistake as to the terms of the offer. example: Taylor v Johnson 2) Unilateral mistake as to identity (identity must be important) examples: - Cundy v Lindsay: A rogue orders hankies using false name so he appears to be reputable firm known to the sellers, sells them on but does not pay. First seller can have remedy against final buyer as identity was important (would not have dealt with otherwise) so contract void, no rights in chattels so even though innocent they have to return them. - Kings Norton Metal v Eddridge Merrit and Co: Rogue orders wire for fictitious firm, which claims to have branches in a few overseas cities, sells on and disappears. This time the result is different as the court found that the seller meant to contract with the writer of the letter. Unlike the case above the firm was not known to the seller, but they believed it was real. Difference is that in 1 they meant to deal with a firm they knew and would not have done so without cash up front terms, in second they would have sold to any firm. Final buyer had actually paid. - Phillips v Brooks: Rogue goes in to buy pearls and ring writes check as a lord, tells them they should wait till the cheque clears. The jeweller allows him to takering for wife’s birthday, he pawns ring. Jeweller cannot get it back from pawnshop as contract voidable, not void and now too late to void. Here the court felt that the seller was concerned with creditworthiness of the buyer rather than actual identity. - Lewis v Averay: Rogue representing himself as a well-known film actor purchased car with a cheque. Subsequently discovered he used stolen cheque book to make purchase. Original car owner (Lewis) wanted car returned on grounds of void for a mistake. Court: Parties had dealt with each other face-to-face, found for Averay as contract was not void but voidable for a unilateral mistake (liable to be set aside at the instance of the mistaken person, so long as he does so before third parties have in good faith acquired rights under it. 3) Unilateral mistake as to nature of the contractual document  When a person signs a document that they know contains contractual terms and affects legal relations, they are bound by those terms, it is immaterial that they have not read the document (Toll v Alphapharm Pty Ltd)  Non est factum (not my deed) can declare contract void. ‘Non est factum mistake’ occurs where (Petelin v Cullen): - someone signs a document in the belief that the document was radically different from what it was - unable to read due to blindness/illiteracy and must rely on others for advice

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on what they are signing, or through no fault of their own are unable to have any understanding of the document Saunders v Anglia Building Society: defence failed because Mrs Gallie thought she was signing a gift of her property to her nephew when she was actually signing it to someone else Petelin v Cullen: defence was made out because the D thought he was signing a receipt for $50 but he was signing an extension for 6 months of an option to purchase property...