BILATERAL MISTAKE AT COMMON LAW

(i) Mistake as to Galloway v Galloway Validity of 2nd marriage. A mistake may be sufficiently fundamental to
Existence of the (1914) avoid the contract where both the parties are mistaken as to the existence
subject matter of the subject-matter of the contract.
(Res Exincta) Couturier v Hastie Captain sold the wheat elsewhere. Held: contract void.
3 explanation. 1, Total failure of consideration from seller’s side
2. Term of the contract was breached.
3. McRae (Australian case) situation: The ship never existed at the place
where the rescue mission held. The contract was NOT void for mistake,
but there was a contract so McRae could get damages despite there being
NO subject matter.
s. 6 of Sale of Goods “Where goods without the knowledge of the seller have perished at the
Act, 1979 time when the contract is made, the contract is void.”
S. 6 will apply where the subject matter of the contract have been
damaged so that they no longer meet the description in contract.
(ii) Mistake as to Nicholson v Smith Both believed that the Handkerchief “with crest of Charles I and authentic
identity of the Marriott property of that monarch’, turned out be Georgian, not belonging to
subject matter Charles I. Held, Mistake as to identity.

iii) Mistake as to the possibility of performing the contract

a. Physical Sheikh Bros. v The land was not fertile enough to produce 50tons of grass and neither
impossibility Oschner (UKPC) party had assumed the risk of non- performance. Mistake.
b. Legal Cooper v Phibbs Mistakenly he was dealing his own land thinking it belongs to any other
impossibility person. One person cannot buy his own land. Legally incapable of
performance/ Void. (Res sua).
c.Commercial Griffith v Brymer Coronation coronation procession of Edward VII and the hotel room was
impossibility (1903) booked to witness it. Contract concluded after procession had been
cancelled. The changed circumstances might undermine the commercial
object of the contract rendering the contract void.
(iv) Mistake as to quality of the subject-matter
Bell v Lever Professor Cheshire, Fifoot and Furmstone argue that it is very rare to identify such sort of common
Bros. mistake in law, if it exists at all. 1st contract (at the beginning) - No compensation will be given if
any personal property earned. 2nd contract (at the end) - compensation agreement.

Mr Bell and Snelling was the managing director for five years of a company that was
owned by Lever Bros Ltd. Mr Bell and Snelling had traded for personal profit during their
employment, which was contrary to contract with the company. Without knowledge of this,
Lever Bros Ltd made an offer of redundancy to Mr Bell and Snelling, terminating his
contract and offering a £30,000 & £20,000 payment as compensation. The Jury in that civil
matter case, believed that Bell and Snelling forgot about the compensation agreement.

The HOL held by a majority of three to two that the claimants could not recover the money
as the mistake was NOT sufficiently fundamental (3:2) to avoid the contract. According to
Court, Lever Bros was lost to Bell because of a bad bargain. But, court did not explain
what could be sufficiently fundamental.

Lord Atkin, A wants to buy a sound horse. A likes B’s horse, checks the horse but do not
find anything bad. B knows about the problems of his horse but remain silent. A buys the
horse and later when he found the unsoundness od the horse, A wants to void the contract
for a mistake. But, common law will not call such mistake as fundamentally enough.
Great Peace Both parties assumed – 35miles apart, but in reality distance was 410miles.
Shipping Ltd v Held: Not a sufficient mistake to void the contract, as it was possible to go 410miles.
Tsavliris It was suggested that the following elements must be present before a common mistake can avoid a
Salvage contract.
 International 1. There must be a common assumption as to the existence of a state of affairs
Ltd [2003] 2. There must be no warranty/term by either party that the existence of a stake of affairs
3. The non-existence of the state of affairs must not be attributable to the fault of either party.
(no party was at fault)
4. The non-existence of the state of affairs must render performance of the contract
impossible. (impossible to perform)
5. The state of affairs may be the existence or a vital attribute, (important)
Dany Lions ltd v It was impossible to set an automatic gearbox to a vintage car.
Bristol Cars But the mistake was on a promise/term; not an ‘assumption’.
(2013) There is no ‘lack of warranty’ to call it a mistake.
Court held, it was not a mistake. Thus the contract was not void.
(v) Mistake of Cross-purpose
Raffles v Buyer thought Peerless ship of October and seller thought peerless of December. There was no
Wichelhaus contract here because there was no consensus between the parties: this lack of consensus was the
(1864) fault of neither party.
Mistake in EQUITY
Grist v Bailey Where the mistake is not sufficient enough to be a mistake as to common law, there it may be a
(1967) mistake in equity.
Timeline
Pre 1949 Mistake as to Law Bell v Lever Bros (1932) HoL
1949 - 2003 Mistake as to Law + Equity Sole v Butcher (1949) CA,
Grist v Bailey ,
Magee v Pennine 1969
Associated Japanese Bank
Post 2003 back to ‘pre 1949’/ Great Peace Shipping.
Mistake in equity is not possible anymore.
Principles
Sole v Butcher Lord Denning introduced the Mistake in Equity. There was a mistaken belief that the rent was not
(1949) CA subject to the control of the Rent Acts and both parties agreed on 250GBP per annum. Later it was
discovered that the flat was subject to controlled rent of 140GBP per annum. Mistake in Equity
held the contract void.
Grist v Bailey The house sold for 850 GBP but was worth of 2250GBP. Mistaken belief was there is a protected
(1967) tenant. The contract was set aside as mistake in equity.
Associated First, Court will find whether there is a mistake as to common law. If not then Court must consider
Japanese Bank whether the contract can be set aside in equity.
Great Peace There is no equitable jurisdiction to rescind on the ground on common mistake while a contract is
Shipping still valid at law.
Differences between Mistake in Common law and Mistake in Equity
Equity Common law
Structure Test No one should be allowed to get Mistake must be so fundamental
unconscientious profit by law.
3rd party rights Contract will be ‘voidable’. So, 3rd party rights Contract will be ‘void’. 3rd party rights may not
can still be protected. be protected.
Caldwell: 3rd party rights were protected
Flexibility Greater remedial flexibility as the contract is No flexibility as the contract will have to be
‘voidable’ ‘void’. More stringent.

Remedies in Mistake in Equity

4 Rescission Sole v Butcher;
kinds Grist v Bailey;
Rectification Chartbrook v Persimmon: The parties had intention to continue and the rectification was
sought to the court.
Specific Denny v Hancock;
performance Tamplin v James
Damages
Unilateral Mistake at Common Law: Only one part is in mistake
1, Unilateral mistake as to identity of the person
1, In distance transaction, the mistake will be These presumptions are rebuttable by
operative. evidences. Such as, in distance transaction, if
Presumptions
2, In face to face transaction, mistake will be the seller knew the rough already, then it
inoperative. may not be a mistake.
Distance transaction:
Cundy v Lindsay A rogue named Blenkarn sent a letter signed like a famous businessman ‘Blenkiron’. The contract
(1878)- was void for unilateral mistake as the claimant was able to demonstrate an identifiable existing
business with whom they intended to contract with.
Kings Norton v A rouge ordered goods from the claimant using a printed letter, claiming to be a company called
Edridge; ‘Hallum & Co’. The rough disappeared without paying after he sold it to a third party, who bought
it in good faith. No such company existed in name of ‘Hallum & Co’. Held, No mistake. The
Merrett claimant wanted to contract with the person who wrote the letter as there was no mistake in it.
Difference In Cundy v Lindsay, the rough pretended to be someone else. So, the claimant did a mistake as to
between Cundy the identity of the buyer. Claimant was mistaken thinking the rough as another company.
and Norton But, in Kings Norton, the rough did not pretended to be someone else. The claimant believed the
rough but claimant did not make any mistake as to the identity. Claimant was not mistaken by
thinking the rough any other company.
Shogun v 2 judges (LJ Millet, LJ Walker) expressly, 2 judges (LJ Nichole, LJ Phillips) impliedly overruled
Hudson Ingram and 1judge was silent. Damages will not be divided between claimant and respondent
(denied Ingram). Shogun judges applied all or nothing approach (claimant and Defendant will not
have to share the loss)
Followed Hector Claimant were dealing with ‘a car dealer’, Court held he was a ‘mere intermediary’, not an agent of
v Lyons (1988) the rough company. At first, Defendant argued that it will be an issue of face to face, thus
inoperative mistake. But, court found Rouge was communicating through documents, so it was a
distance transaction.
Face to Face Transaction
Phillips v Brooks Presumption = Face to Face dealing = No mistake. Court upheld the presumption.
Ltd [1919] The rough pretended to be Sir George Bullough, took a ring worth 450GBP in Credit. Then
pledged it to a bona fide 3rd party. The ring was not possible to recover from the 3rd party.
Ingram v Little Held, contract is void. One of the lady checked the identity from telephone directory. Thus, court
1961 got the understanding that the presumption was displaced.
Claimant did not want to contract with the rough, but they wanted to contract with person rough
was pretending.
LJ Devlin, in dissenting judgment said, it will be an issue of Offer and acceptance analysis,
Claimant argued, they offered to ‘Mr. (real) Hutchinson’, so the rouge cannot accept of the offer.

Court suggested that, claimant and 3rd party will share the loss in between them. Jill Poole also
supported that. But the Law commission did not approve this as it will give too much discretion to
Court.
The rough used the name of Hutchinson, brought a car and sold it to bona fide 3 rd party. Though,
from legal point of view, the contract should not have been void.
Shogun v Hudson held, Ingram is wrongly decided.

In Shogun, dissenting judgment says, the presumptions are unsatisfactory. Contract should be void
in these circumstances, whatever the mode of communication is. [This is a vital point to highlight
in the essay question]
Car Universal Presumption= In face to face, there will not be mistake and the contract will not be void. But, it can
Finance still be an issue of misrepresentation and the contract is ‘voidable’.
Claimant can go to any reliable 3rd party (such as, Police, any Organization) to make the contract
v (between claimant and the rough) void.
But, claimant must go to police before the rough performs the 2 nd contract (between rough and the
Caldwell 3rd party). If claimant complains before rouge’s 2nd contract, then the 1st contract can be void. And,
if the first contract is void, innocent 3rd party will get nothing. [Advise claimant to go to police as
soon as possible]
 There was no operative mistake in contract between A [claimant] and B [pretending to be X].
The goods are successfully passed and the contract is valid between B to C [innocent 3 rd party] if
before that A did not complained to Police/other reliable

Lewis v Averay The claimant sold his mini cooper to a rogue claiming to be the actor Richard Greene (who played
Robin Hood in a series at the time). A cheque for £430 which was later dishonoured. The rogue
sold the car on to Mr Avery for £200 claiming to be the claimant. The claimant sought return of the
car on the grounds that the contract was void for mistake.
The contract was not void for mistake.
City Bank Every case will be decided fact to fact. But, this leads to an uncertainty, what is a violation of rule
of law.
2, Unilateral mistake of as to Subject-matter (assumption or promise)
Statoil ASA v The general rule at common law is that if one party has made a mistake as to the terms of the
Louis Dreyfus contract, then the contract is not binding.
(2008)
Smith v Hughes Smith showed Hughes samples of green oats and H agreed to buy. Later, H thought it was old oats
(1871) and when the supply came H refused to pay for the oats.
Held, No mistake. His subjective belief to be mistaken was not sufficient.
(When interpreting the contract and its terms, you need to look objectively at the conduct of the
parties. Unilateral mistake will generally not enable one party to get out of the contract.)
Hartog v Colin Contract to buy 30,000 rabbit skins. By mistake, the price was offered by weight rather than per
& Shields [1939] piece. Mistake as to the Terms of the contract.
Court held it a mistake as to the terms of the contract.
Scriven Bros v Objective Test Approach. The defendants brought two containers. One of them contained hemp of
Hindley high price. Seeing that the defendants immediately mistakenly assumed that the other container
also have hemp, but in reality it contained tow of lower price. The auctioneer knew about the
mistake but did not disclose. Later, the defendants refused to pay for the second container and the
auctioneer claimed to court.
It was clear that a reasonable person would have been misled as to the nature of the commodity.
The contract thus held void.
Objectivity [can be applied to identify parties’ intention]
AG of Belize v Belize The intentions of the parties on contractual content are also assessed by reference to
Telecom (2009) UKPC objective criteria.
Only Objective
Meaple Leaf v Rouvroy; Applied the Objectivity check of Belize
Dhanani v Crasnianski
Rainy Sky v Kookmin Court will determine by, What a reasonable person would have understood interpreting
[UKSC] the language used in the contract
Reformulated Lord Hoffman’s judgment in Belize.
Marks and Spencer v BNP Not only objectivity, but also will have a subjective touch.
Paribas [2015] UKSC Court will be concerned about what a notional reasonable person would have done in the
position of the parties in the time of formulating the contract.
Wood v Capita [2017] Where there is two possible rival/conflicting interpretation of the language/conduct used
in contract; court will accept that interpretation, what is more commercially appropriate.