MISTAKE

 INTRO

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. Mere mistake, in itself, it is said, ought not to affect the consent of one of the parties to the contract, or to their obligations under the contract.

MISTAKE UNDER ENGLISH LAW

English contract law recognises three types of mistake;

1. Common Mistake

2. Mutual Mistake

3. Unilateral Mistake

This will usually render the contract invalid ab initio (from the beginning) when the courts make a finding of mistake, so it is as though the agreement never existed. It constitutes a major difference from voidable contracts. Where a contract is void, the contract remains and is binding until the innocent party takes steps to set aside the contract. Thus, a person purchasing goods under a contract will acquire good title to those goods if there is a voidable contract. No title moves if a contract is void. This difference is most important if the items have been sold to a third party.

1. Common Mistake

Common mistakes exist where both parties to the contract make the same mistake. Three categories have emerged as giving rise to a cause of action:

Res extincta - the subject matter of the contract no longer exists

 

Res sua - where the goods already belong to the purchaser

 

Mistake as to quality - only available in very narrow limits

Res extincta 

 

Res extincta will apply where both parties enter a contract with the belief that the subject matter exists when in fact it does not exist. The contract will be held to be void for mistake:

 

Scott v Coulson [1903] 2 Ch 439              

 

Couturier v Hastie [1856] 5 HL Cas 673     

 

 

The statutory provision is also available in contracts for the sale of goods where the goods have perished:

 

S.6 Sale of Goods Act 1979

Res sua

 

This applies where party contracts to buy something which in fact belongs to him. This will generally render the contract void. Although if the action is based on equity this will render the contract voidable:

 

Cooper v Phibbs (1867) LR 2 HL 149

Mistake as to the quality

 

A mistake as to quality is only capable of rendering a contract void where the mistake is as to the existence of some quality which renders the subject matter of the contract essentially different to that what it was believed to be:

 

Bell v Lever Bros [1932] AC 161         

 

Leaf v Int Galleries [1950] 2 KB 86    

 

Great Peace Shipping v Tsavliris (International) Ltd [2003] QB 679

2. Mutual mistake

A mutual mistake is one where the parties are at cross purposes. The courts apply an objective test to see if the contract can be saved. Ie would a reasonable person looking at the correspondence between the parties have understood the contract to have a single meaning. If yes the contract is valid on that meaning. If a reasonable person could not determine the meaning then the contract will be void for mistake:

Raffles v Wichelhaus (1864) 2 H & C 906

3. Unilateral mistake

 

In unilateral mistakes, only one of the parties is mistaken. There are two categories within unilateral mistakes: mistakes relating to the terms of the contract and mistakes as to identity. The contract is void.

POSITION UNDER CONTRACTS ACT 1950

Section 21 covers both common and mutual mistakes. Just a few cases reported where the Malaysian courts have considered the scope of Section 21. The basis for making agreements void under Section 21 would tend to be that there was either no free consent between the parties in such cases or that the consent was nullified (Copyright Act Section 14(e)).

It must be one 'essential to the agreement' in order for a mistake to be operative under Section 21. The conditions in which a fact can be deemed 'essential to an agreement' are not made clear by the Act:

Sheikh Brothers Ltd v Ochsner [1957] AC 136 (Eastern Africa)

A mistake of fact made by both parties may occur in the following circumstances:

i) Mistake as to the existence of the subject matter 

- Illustration  (a),(b) and (c) of Section 21

When unknown to both parties the subject matter of the agreement had ceased to exist or has never been in existence at all at the time of the agreement, the agreement is void;

Galloway v Galloway (1914) 30 TLR 531

ii) Mistake as to the identity of the subject matter 

Usually arises where one party intends to deal with one thing and the other with a different one;

Falck v Williams [1900] AC 176

iii) Mistake as to the quality of the subject matter 

- The contract is still valid.

- Refer Explanation to S.21 

There is a valid contract despite the mistake, as the subject matter (oats) only differs in some quality, not substance;

Smith v Hughes (1871) LR 6 QB 597

iv) Mistake as to the possibility of performing the agreement 

Consent may be nullified if both parties believe that the contract is capable of being performed when this is not the case. The impossibility may arise either physically or legally or commercially;

Sheikh Bros v Ochsner(1957) AC 136

Unilateral contract in Contracts Act 1950

A mistake made by one party is not an operative mistake under the Contracts Act. The contract is valid. Refer Section 23 of the Contracts Act. This is because to protect bona fide purchaser for value without notice. An operative mistake will render the agreement void and the effect is that the subsequent bona fide purchaser will have no title to the goods. 

Inter absentes

 

Where the parties are not physically present when the contract is made, eg where the contract is made through dealings through the post, telephone or over the internet, the courts will only make a finding of mistake if the claimant can demonstrate an identifiable person or business with whom they intended to deal with. A mistake as to their attributes will not suffice:

 

Cundy v Lindsay (1878) 3 App Cas 459          

 

King's Norton Metal Co Ltd v Edridge; Merrett & Co Ltd (1897) 14 TLR 98    

 

Shogun Finance v Hudson [2003] 3 WLR 1371 

Inter praesentes

 

Where the parties contract in a face to face transaction the law raises a presumption that the parties intend to deal with the person in front of them:

 

Phillips v Brooks [1919] 2 KB 243                   

 

Ingram v Little [1961] 1 QB 31                      

Lewis v Avery [1971] 3 WLR 603 

Mistake as to the law

Referring to Section 22 of the Contracts Act 1950 and the illustration to the section, the contracts are considered as valid if the mistake is happened as to the law in Malaysia. It is different from the mistake happens as to foreign law. Mistake as to foreign law will be regarded as void. Mistake with regards to foreign law will be treated as a matter of fact, ie whether it is essential to the agreement, if yes, Section 21 of the Contracts Act applies.

EFFECT

The contract is void under Section 21. For a unilateral contract, the contract is invalid under Section 23. Except one that relates to the terms of the contract or one that relates to the identity of the person In such a case, there is no consensus ad idem between the parties.

REMEDY

Under Section 66 of the Contracts Act 1950, the party is entitled to get restitution. Also, under Section 30 of the Specific Relief Act, the claimant can get the rectification of a written document.