MISTAKE: ENGLISH LAW

INTRODUCTION

‘Mistake’ refers to a misunderstanding, a misapprehension, a misconception or an erroneous belief

regarding a fact fundamental to a contract.

A mistake of fact renders the ‘contract’ void.

English law has recently recognised that a mistake of law may also render a ‘contract’ void.

(Mistake of law was recognized very recently in English law)

Void ‘contracts’ are not contracts at all i.e. they do not create any contractual obligations at all i.e. they
are nullities (invalid) ab initio (from the outset).

Since void contracts do not create any contractual obligations they cannot be enforced and hence are
said to be ‘unenforceable’.

This is in contrast to voidable contracts, which are valid until and unless rendered unenforceable by
rescission at the option of the party who has been placed under duress, or who has been unduly
influenced or who has been misrepresented to.

(Difference from others: void if can prove!)

If a contract is void for operative mistake, then the parties to the contract will as far as possible be
restored to their original positions (as in the case of voidable contracts that have been avoided).

(Aim: restitution) To their original positions as if the contract has been performed.

Importance of Distinction between ‘Void’ and ‘Voidable’ Contracts

Void contract = nullity, therefore unenforceable from the outset.

Voidable contract = valid, until and unless avoided, but upon avoidance becomes unenforceable.

VOID CONTRACT between owner of Property (A) VOIDABLE CONTRACT between A and B
and another (B)
Ownership (title) of property cannot in law pass Title passes from A to B, but title reverts to A if A
from A to B under the contract. (if void, bars avoids the contract on grounds of duress, undue
don’t apply) influence or misrepresentation PROVIDED that A
rescinds the contract ‘in time’. (bars apply)

B cannot in law pass title to another person (C) Until and unless A avoids the contract, B will have
even if C (i) has provided consideration to B and good title and can in law pass title to C either as a
 (ii) has acted in good faith without knowledge of gift or for consideration so long as C has acted in
B’s lack of title. good faith and without knowledge that B’s title
was voidable.
C will have to return the property to A, leaving C C can keep the property leaving A with remedy
with a remedy against B only against B only.

If B becomes insolvent whilst the property is still Here B’s creditors will have rights against that
in his possession, B’s creditors do NOT have any property if A has not avoided the contract before
rights against that property since it remains that B’s insolvency.
of A.

Mistake may prevent formation of the contract – no consensus ad idem

• This occurs in cases of

(1) mutual mistake (perhaps more accurately, cross-purpose mistake) – both parties are mistaken
BUT on different matters; and

(2) unilateral mistake – only one party is mistaken.

• This is because in such cases, the parties cannot be said to have reached agreement in the true
sense.

Agreement reached but contract void

• Sometimes parties may have reached agreement but in doing so they made a mistake on the
same matter fundamental to the contract.

• These are cases of common mistake.

Non est factum –applies, if at all, to written contracts

• Sometimes a mistake may be made because a party does not understand the written contract
he has signed.

• The question to be answered “Is non est factum a defence available to the mistaken party?”

(‘It is not my deed’, It becomes void if proven)

Mistake in recording agreed terms – applies, if at all, to written contracts

• Sometimes parties may reach agreement without any mistake in the formation, but they make a
mistake in recording the terms of the agreement in the written contract.

• The question to be answered “Is rectification possible?”

 • Rectification is an equitable remedy allowing the court to correct the mistake by ordering the
document so as to reflect the actual terms agreed.

(Misrep: ractification not possible, but here can)

Mistake and consensus ad idem

• Mistake may overlap with the concept of consensus ad idem.

• If a party enters into an agreement because of mistake this can be said to negate the consensus
ad idem, since any consensus could not be genuinely held in such a case.

Mistake and Misrepresentation

• Mistake may also overlap with misrepresentation – a party might claim to be mistaken because
of the misrepresentation of the other when entering into the contract.

• This situation is often encountered in cases of unilateral mistake as to identity of the party.

(courts will decide which one to follow, mistake is easier to prove)

• A ‘contract’ entered into because of a mistake induced by a misrepresentation is clearly

voidable at the option of the party misled. But sometimes it is more advantageous to the party
misled to claim that the contract is void for mistake.

• The distinction between ‘voidable’ and ‘void’ can become important especially in sale of goods
transactions where a third party may claim to have acquired rights to goods as an exception to
the nemo dat quod non habet rule.

Reluctance of the law to give a remedy for Mistake

The doctrine of mistake operates within a very narrow scope in English contract law. (floodgates)

• A law of contract which is based on the subjective meeting of the parties’ mind will see a very
significant role for the doctrine of mistake.

• But English law uses an objective test to determine whether a contract has been formed, and if
so, on what terms.

• So, introducing a doctrine of mistake into a system of contract based on the objective definition
of a contract creates a significant tension. Hence the doctrine of mistake operates within a very
narrow scope in English contract law.

(What might be a mistake for you might not be a mistake for someone else– should be very subjective!)

Policy of English contract law - protecting security of contract generally

 • Per Lord Atkin in Bell v Lever Bros Ltd [1932] AC 161:

• “it is of paramount importance that contracts should be observed, and that if parties honestly
comply with the essentials of the formation of contract…they are bound, and must rely on the
stipulations of the contract for protection from the effects of facts unknown to them…it is of
greater importance that the well established principles of contract should be maintained than
that a particular hardship be redressed.”

Classification of Mistake
Unilateral Mistake – no consensus ad idem

• Unilateral mistake

(i) occurs when one party makes a mistake as to (a) the terms of the contract or (2) identity of the
other party and the other party knows or ought to have known of this mistake; and

(ii) prevents formation of contract as there is no consensus ad idem.

 A common theme in such cases is that one party is taking advantage of the mistaken party.

Unilateral Mistake as to Terms

The courts adopt an objective test in deciding whether or not there has been a unilateral mistake
sufficient to prevent agreement from being reached.

(i) “Snapping up” offers – mistake by offeror in offer made – no contract formed

Hartog v Collin & Shield [1939] 3 All ER 566

 Parties had been negotiating the price of goods on a per piece basis but D mistakenly sent an
offer on a per pound basis.

 P “accepted” the offer. D did not deliver the goods. P sued for damages for breach of contract.

 D contended that his unilateral mistake rendered the contract void as P was aware of D’s
mistake as to a term of the contract and was trying to take advantage of such mistake.

(Party who wishes to enforce the contract knew or ought to have known that the other party had made
a mistake in its offer. Buyer knew mistake. Seller (mistake maker)/offeror didn’t. seller didn’t sell, so
buyer sued. Void!)

Held: no contract had come into existence

 Since P was aware of D’s mistake P could not snap up the mistaken offer.

 “The offer was wrongly expressed, and the defendants by their evidence, and by the
correspondence, have satisfied me that the plaintiff could not reasonably have supposed that
that offer contained the offerers' real intention.”

Watkin v Watson-Smith (1986) Times 3, July 1986 (HC)

  Issue: did the seller, an elderly man (since deceased) intend to sell his property (market value in
excess of £25,000) to Watson-Smith at £2,590.00?

 Trial judge found, on the evidence, that the seller was confused about the decimal point and
thought he was selling at £25,900.

(Actually could be ractified, but the buys usually don’t want to)

• WS ought to have known that the deceased was making a fundamental error as to the price at
which he was contracting to sell the bungalow.

• WS knew that she had taken advantage of a serious mistake by the deceased.

• If one party knew or ought to have known of a unilateral mistake as to the terms of the offer
by the other party, there is no contract.

• An intending purchaser is not permitted to 'snap up' an offer which he knows to have been
made under a mistake.

(ii) Smith v Hughes (1871) LR 6 QB 597 – mistake by offeree

 D wanted to buy “old” oats. He thought P was selling old oats but made no inquiry
regarding this.

 In fact P was selling “new” oats. Although P did know that D wanted to buy “old” oats it was
never a term of the contract that the sale was to be for “old” oats.

 On the facts, P did not do anything to lead D to this mistaken belief (i.e. no fraud by P) and
sold him oats that were new.

Held: No operative unilateral mistake; D bound by the contract

• “If, whatever a man’s real intention may be, he so conducts himself that a reasonable man
would believe that he was assenting to the terms proposed, and that other party upon that
belief enters into a contract with him, the man thus conducting him would be equally bound as if
he had intended to agree to the other party’s terms.”

• I.e. objectively speaking, D had agreed to buy whatever P had offered him. D’s unilateral mistake
related only to the quality of the subject-matter and not to a term of the contract.

Per Cockburn CJ

 “where a specific article is offered for sale without express warranty or without circumstances
from which the law will imply a warranty…if [the buyer] chooses to act on his own judgment, the
rule caveat emptor [let the buyer beware] applies”

Per Blackburn J

 “there is no legal obligation on the seller to inform the buyer that he is under a mistake
which has not been induced by the act of the seller.”

(iii) Mistake by offeree caused by fault of offeror

 Scriven Bros v Hindley [1913] 3 KB 564 (HC)

P wanted to sell one lot of hemp and another lot of tow separately at an auction whilst D wanted to
buy hemp only.

However, P’s auctioneers’ catalogue did not distinguish between hemp and tow, and marked both
lots as “SL”.

Accordingly D mistakenly bid for both SL lots thinking they were for hemp and they were knocked
down to him.

D subsequently refused to pay for the lot of tow relying on his unilateral mistake of fact.

 Parties were never ad idem as to the subject matter, therefore, no contract existed between
them.

 “A contract cannot arise when the person seeking to enforce it [P, the seller] has by his own
negligence or by that of those for whom he is responsible caused, or contributed to…the
mistake.”

 P could not enforce the sale of the lot of tow against D.

(Auctioneer only facilitates so the fault of auctioneer)

Denny v Hancock (1870) 6 Ch App 1 (CA)

• P offered land for sale by auction but annexed a misleading plan to the particulars of sale.

 D relied on that plan when he offered to purchase, and later refused to complete sale on
grounds of mistake.

 P sued for specific performance.

 Held: Specific performance would be refused since D’s mistake was caused by P’s misleading
plan

Unilateral Mistake as to identity of contracting party

• Often the mistake as to identity is caused by the misrepresentation of one of the parties.

• The issue then is whether the contract is void (nullity) for mistake or merely voidable for
misrepresentation.

(overlapping … if this is void of mistake, third party has to return good…. if misrepresentation, voidable,
third party keeps the good (bona fide purchaser))

Usual Scenario
 • A contracts to sell goods to B in the mistaken belief that B is C because B misrepresented that he
is C.

• Issue: Is the contract between A and B

• VOID because of A’s unilateral mistake, or

• merely VOIDABLE because of B’s misrepresentation?

• If, on discovering his mistake, A wants to recover the goods (or their value) from B, it does not
matter whether his contract with B is void or voidable.

• But, if B has gone on to, say, sell the goods to D who buys them in good faith and without
knowledge of what B has done, A can recover the goods (or their value) from D only if his (A’s)
contract with B was void. [See Slides 7 & 8 above].

• Under the common law of sale of goods, the general rule is that only the owner of goods could
pass title (ownership) to another i.e. a person with a void title to goods cannot legally pass title
to another person – nemo dat quod non habet.

• S. 21 Sale of Goods 1893 enacted this common law rule which is now reproduced in S. 21 Sale
of Goods Act 1979: “…where goods are sold by a person who is not their owner, and who does
not sell them under the authority or with the consent of the owner, the buyer acquires no better
title to the goods than the seller had…”

(‘If an owner does not have possession of goods, he cannot pass it to another person’– only applicable
when void)

Contracts inter absentes and contracts inter praesentes

In deciding whether the contract between A and B is void, case law draws a distinction between

(i) contracts inter absentes i.e. where A and B have concluded the contract not in the physical
presence of each other; and

(ii) contracts inter praesentes i.e. where A and B have concluded the contract in each others’
presence – usually face-to-face but also possibly when communicating over the phone.

Contracts Inter absentes

• Courts seem more ready to find the contracts inter absentes void for unilateral mistake.

• In particular, where inter absentes contracts are concluded in writing between A and B the parol
evidence rule will mean that the ‘mistaken’ party (A) will not be allowed to contradict the
written contract i.e. the parol evidence rule will NOT allow A to lead evidence that he intended
to contract with C.
 • But, if the inter absentes contract is concluded orally case law suggests that the contract will be
void only if C is in fact an existing person.

• In such cases, the question that needs to be answered is:

• Did the claimant (i.e. the mistaken party) (A) intend to contract with some existing and
identifiable person (C) other than the one with whom he has entered into the contract (B)?

• I.e. the identity of the person with whom the claimant (A) intended to contract (C) must be of
fundamental importance to the claimant.

Cundy v Lindsay (1878) 3 App Cas 459 (HL) – void

 A fraudster called BLENKARN ordered goods from Lindsay by signing his orders “BLENKIRON &
CO”.

 Lindsay knew of an existing Blenkiron & Co and sent goods on credit terms to the address given
by Blenkarn, mistakenly thinking that he was dealing with Blenkiron & Co.

 Blenkarn’s address and that of Blenkiron & Co was in fact different.

 Blenkarn sold goods to Cundy (who bought them in good faith without knowledge of what
Blenkarn had done), and disappeared without making payment to Lindsay.

 Lindsay sought to recover the goods from Cundy.

Held: contract was void for mistake

• No contract was concluded between Blenkarn and Lindsay due to Lindsay’s mistake i.e. contract
was void.

• Lindsay intended to contract with Blenkiron & Co, not Blenkarn (order form was signed
‘Blenkiron & Co’ and Lindsay knew ‘Blenkiron & Co’ by reputation)

• Cundy was therefore liable to Lindsay for the value of goods because Blenkarn could not pass
title to those goods to Cundy.

Per Lord Cairns, LC

“…the whole history of the transaction lies upon paper. The…parties concerned…never came in contact
personally; everything that was done was done by writing… by the form of the signatures to the letters
which were written by Blenkarn, by the mode in which his letters and his applications to [Lindsay] were
made out, and by the way in which he left uncorrected the mode and form in which in turn he was
addressed by [Lindsay]…by all those means he led, and intended to lead, [Lindsay] to believe, and they
did believe, that the person with whom they were communicating was not Blenkarn, the dishonest
and irresponsible man, but was a well-known and solvent house of Blenkiron & Sons, doing business in
the same street…”

“Of him [Blenkarn] they [Lindsay] knew nothing, and of him, they never thought. With him they never
intended to deal. Their minds never for an instant of time rested upon him, and as between him and
them there was no consensus of mind which could lead to any agreement or contract whatever.”
King’s Norton Metal Co v Edridge Merrett & Co Ltd (1897) 14 TLR 98 (CA)

• A rogue called Wallis, identifying pretending to be a creditworthy firm called ‘Hallam & Co’
ordered goods in writing from K which K delivered on credit terms.

• ‘Hallam & Co” in fact, did not exist.

• Wallis sold the goods to E, who bought them in good faith and without notice of Wallis’ actions.

• K brought an action against E to recover the goods on grounds that that the contract between K
and Wallis was void for mistake, and so Wallis could not pass title to E.

Held: contract was voidable for misrepresentation

• K intended to contract with the writer of the letter ordering the goods i.e. Wallis, whoever he
might be, and not ‘Hallam & Co’.

• Per AL Smith LJ: “If it could have been shown that there was a separate entity called Hallam &
Co, and another entity called Wallis, then the case might have come within the decision of
Cundy v Lindsay” . But, on the facts there was “only one entity, trading it might be under an
alias, and there was a contract by which property passed to” the person who wrote the letters
(i.e. Wallis).

• K could NOT recover the goods from E.

Contracts Inter praesentes

• Courts are very reluctant to find contracts inter praesentes void for unilateral mistake, instead
regarding them as voidable for misrepresentation.

• Rationale: there is a rebuttable presumption that a person (A) intends to contract with whoever
he is dealing with face-to-face (B) i.e. identity is not fundamental to the contract i.e. the
presumption is that A does not really care whether B is B or B is C.

Shogun Finance v Hudson [2004] 1 All ER 215 (HL)

if the contract between A and B is

(i) made inter absentes and

(ii) is reduced into writing stating that the contract is between A and C, the rebuttable presumption
is that the contract between A and B is void for mistake

but, if the contract is made orally in a face-to-face dealing between A and B, there is a rebuttable
presumption that A intended to contract with the person who was actually in front of him whatever his
true identity i.e. B, so that the contract between A and B is voidable for misrepresentation.

• It is harder to prove operative unilateral mistake if the contract is made face-to-face.

 • The courts are reluctant to accept that a person does not intend to contract with the person
standing in front of him, even though he may have been under some misapprehension as to that
person’s attributes or qualities.

• Indeed, there is a rebuttable presumption that one intends to contract with the person in front
of one.

• Void for mistake, could recover, parole evidence rule

• It’s in writing, so face to face rule doesn’t apply

Phillips v Brooks [1919] 2 KB 243 (HC) – voidable for misrepresentation

• North, a rogue, bought some goods at Phillips’ shop. He wrote out a cheque as payment, saying
to Phillips “You see who I am, I am Sir George Bullough” giving him an address in St James’
Square.

• Phillip checked this information in a directory which confirmed that a certain Sir George was
listed at the address given by North, and allowed North to take the goods away.

• North pledged the goods with Brooks who, in good faith, advanced North some money.

• When North’s cheque was dishonoured Phillips brought an action for the value of the goods
against Brooks.

Held

• The contract between Phillips and North was not void for mistake but voidable for
misrepresentation because Phillips intended to deal with North, the person in front of him, not
Sir George.

• North therefore could pass title to Brooks under the voidable contract, which had not been
avoided when North pledged the goods with Brooks.

• Phillips had no claim against Brooks.

Ingram v Little [1961] 1 QB 31 (CA) – void for mistake (Inter presentee)

 This case is widely regarded as being decided on its particular facts, or indeed, wrongly decided.

 Plaintiffs (two sisters) advertised the sale of their car.

 A fraudster (R) visited them and agreed to buy the car by giving them a cheque as payment.

 When they refused to accept a cheque, R, claiming to be one PGM Hutchinson, gave them
particulars of his address and place of business.
  One of the sisters then checked the telephone directory and found that there was such a person
living at that address.

 They then accepted his cheque.

 R sold car to D who bought in good faith.

 When R’s cheque was dishonoured, the plaintiffs sought to recover the car or its value from D.

Held: (2:1) contract was void for mistake

• The offer to sell on payment by cheque was made only to the person (Mr P G M Hutchinson)
whom the swindler had represented himself to be, and, as the swindler knew this, the offer was
not one which was capable of being accepted by him.

• Therefore there had been no contract for the sale of the car by the plaintiffs and they were
entitled to recover the car or damages from the defendant.

• There is a rebuttable presumption that a party intends to contract with the person in front of
them.

• However, on the facts, the plaintiffs intended to contract with PGM Hutchinson, not R, the
person in front of them [the plaintiffs by making checks regarding PGM Hutchinson showed that
their intention was to contract with PGM Hutchinson and not the person in front of them.]

Per Sellers LJ

• “Where two parties are negotiating together…the normal and obvious conclusion would no
doubt be that they are the contracting parties. A contrary finding would not be justified unless
very clear evidence demanded it.

• The mere presence of an individual cannot, however, be conclusive that an apparent bargain
which he may make is made with him.

• the circumstances may justify a finding that, notwithstanding some fraud and deceit…a bargain
was struck with the person present or on the other hand they may equally justify, as here, a
finding the other way.”

The presumption rebutted here

Per Pearce LJ

• “Each case must be decided on its own facts. The question in such cases is this:

• Has it been sufficiently shown in the particular circumstances that, contrary to the prima facie
presumption, a party was not contracting with the physical person to whom he uttered the offer,
but with another individual whom (to the other party's knowledge) he believed to be the physical
person?

• The answer to that question is a finding of fact.”

Per Devlin LJ (dissenting)

• The point on which this case turns is the effect of deception about the identity of a contracting
party. It is a difficult point on which I have the misfortune to differ from my brethren.

• The presumption that a person is intending to contract with the person to whom he is actually
addressing the words of contract seems to me to be a simple and sensible one…[but] I do not
think that it can be said that the presumption is conclusive

• In my judgment there is everything to show that Miss Ingram would never have accepted
Hutchinson's offer if she had known the truth, but nothing to rebut the ordinary presumption
that she was addressing her acceptance, in law as well as in fact, to the person to whom she was
speaking.

• I think therefore that there was offer and acceptance in form.

• …it therefore becomes necessary to consider next whether there has been a mistake that vitiates
the contract

• The fact that Miss Ingram refused to contract with Hutchinson until his supposed name and
address had been “verified” goes to show that she regarded his identity as fundamental. In this
she was misguided.

• She should have concerned herself with credit-worthiness rather than with identity.

• The fact that Hutchinson gave Mr P G M Hutchinson's address in the directory was no proof that
he was Mr P G M Hutchinson; and, if he had been, that fact alone was no proof that his cheque
would be met. Identity therefore did not really matter.

• Nevertheless, it may truly be said that to Miss Ingram, as she looked at it, it did. In my judgment
Miss Ingram's state of mind is immaterial to this question.

• When the law avoids a contract ab initio, it does so irrespective of the intentions or opinions or
wishes of the parties themselves.

• It is for the court to determine what in the light of all the circumstances is to be deemed
essential. In my judgment, in this case Hutchinson's identity was immaterial.

• Devlin LJ then suggested that there should be legislation apportioning the loss between the 2
innocent persons rather than putting the entire loss on one person depending on whether such
a contract was void or voidable. (who is the better person? How is it going to be apportioned?)

• To-date Devlin LJ’s suggestion has not been implemented.

Lewis v Averay [1972] 1 QB 198 (CA) – voidable for fraudulent misrepresentation

• Lewis had advertised for the sale of his car. He was visited by a rogue (R) claiming to be Richard
Greene, a famous actor.

• R wrote a cheque, signed “R A Greene”, as payment.

 • Lewis asked him for proof of identity.

• R produced a Pinewood Studios pass bearing the name “Richard A Greene” with an official
stamp and showing his photograph.

• Lewis then allowed R to take car away who sold it to Averay, who bought in good faith.

• When R’s cheque was dishonoured Lewis brought action in conversion against Averay.

• The fraud perpetrated by R rendered the contract between L and R voidable and not void.

• Where a transaction had taken place between a seller (L) and a person physically present before
him (R) there was a presumption that the seller (L) was dealing with that person (R) even
though, because of the latter’s (R’s)fraud, the seller (L) thought that he was dealing with another
individual (Greene) whom he believed to be the person physically present (R).

• In the present case there was nothing to rebut the presumption that L was dealing with R.

Held further

• L had also failed to show that at the time of offering to sell his car to R, he regarded his identity
as a matter of vital importance; it was merely a mistake as to the attributes of R, ie his
creditworthiness.

• Accordingly, since L had failed to avoid the contract before R with the property in the car to A,
the latter having bought the car bonâ fide and without notice of the fraud, had acquired a good
title thereto and the action failed.

 Ingram v Little was decided on its own special facts.

Per Megaw LJ

• “…it must be established that at the time of offering to sell his car to the rogue, Mr Lewis
regarded the identity of the rogue as a matter of vital importance.

• In my view…the mistake of Mr Lewis went no further than a mistake as to the attributes of the
rogue.

• It was simply a mistake as to the creditworthiness of the man who was there present and who
described himself as Mr Green.”

Per Lord Denning MR

 “There are two cases in our books which cannot, to my mind, be reconciled the one with the
other. One of them is Phillips v Brooks, where a jeweller had a ring for sale. The other is Ingram v
Little, where two ladies had a car for sale. In each case the story is very similar to the present.”

 “…it has been suggested that a mistake as to the identity of a person is one thing; and a mistake
as to his attributes is another.

 A mistake as to identity, it is said, avoids a contract; whereas a mistake as to attributes does not.

 But this is a distinction without a difference.

  A man's very name is one of his attributes.

 It is also a key to his identity.

 If then, he gives a false name, is it a mistake as to his identity? or a mistake as to his attributes?

 These fine distinctions do no good to the law.”

 “I think the true principle is that…when two parties have come to a contract—or rather what
appears, on the face of it, to be a contract—the fact that one party is mistaken as to the identity
of the other does not mean that there is no contract, or that the contract is a nullity and void
from the beginning.

 It only means that the contract is voidable, that is, 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.”

Shogun Finance Ltd v Hudson [2004] 1 AC 919, House of Lords

• A fraudster (F) visited a car dealer (D) to buy a car on hire-purchase.

• F impersonated a certain Mr. Durlabh Patel by showing D Mr. Patel’s stolen driving licence as
proof of identity on which he (F) had forged Mr. Patel’s signature.

• D kept a stock of Shogun’s pre-printed unsigned hire-purchase ‘agreements’.

• These pre-printed written ‘agreements’ had the following offer and acceptance clause:-“You are
offering to make a legal agreement by signing this document. We can reject your offer, or accept
it by signing it ourselves. If we sign this document it will become legally binding at once (even
before we sent you a signed copy)…”.

• [Note: this document, although printed by Shogun Finance, was drafted in such a way that it
amounted to an offer by a customer, who had signed it, to Shogun to enter into an agreement
with Shogun, which Shogun could reject or accept by signing it.]

• F signed one of these as Mr. Patel, which D faxed to Shogun together with a copy of the driving
licence.

• Shogun carried out a credit check on the real Mr. Patel, and being satisfied, in turn signed the
agreement and faxed it back to D, and then allowed F to take the car away.

• The following day F sold the car to Hudson, who bought it in good faith. Shogun did not receive
any payment from F.

• Shogun then brought an action in conversion against Hudson.

• Hudson counterclaimed for a declaration that he had acquired a good title to the car under S. 27
of the Hire-Purchase Act 1964.

• There are two contracts involved in a hire-purchase transaction:

 (i) sale of goods by a dealer, who owns those goods, to financier [Shogun] , whereupon the
financier becomes the owner of those goods; and

(ii) hire-purchase agreement between the financier [Shogun] and the hirer.

• A hirer is not the owner of the goods until and unless he exercises the option to purchase the
goods . Therefore, under common law a hirer cannot pass title to a third party until and unless
he exercises the option.

• However, S. 27 Hire-Purchase Act 1965 created a statutory exception: a hirer (who is not yet the
owner of the goods) could pass title to a bona fide purchaser for value.

• The question to be answered was therefore, who was the true hirer (called the “debtor” under
S. 27)? Was it F or was it Mr. Patel?

• If F was truly the “debtor” under the hire-purchase agreement then Hudson could get good title.
Otherwise, Shogun’s claim would succeed, and Hudson would have to return the car to Shogun.

• Hudson argued that F was the true debtor, and not Mr. Patel, because the hire-purchase
agreement was concluded in a “face-to-face” transaction so that the presumption that a person
intends to contract with the person in front of him applied.

Held (3:2 majority): Shogun could recover the car

• F was not the “debtor” under S. 27 Hire-Purchase Act 1964 because:

 the written hire-purchase agreement in the offer and acceptance clause showed clearly
that it was Durlabh Patel, and not F, who was a party to the agreement with Shogun,
and

 applying the parol evidence rule, no evidence could be led to contradict this to show
that in fact F was a party (on the facts none of the exceptions to the parol evidence rule
applied).

• Where a contract has been reduced into writing and states who the parties are, the “face-to-
face” principle would not apply.

• In any case Shogun did not deal with F face-to-face, because D (who dealt face-to-face with F)
was NOT SHOGUN’S AGENT in the transaction but a mere ‘facilitator’.

• F therefore could not pass title to Hudson and he was liable to Shogun in conversion.

• In a consumer credit transaction, the identity of the customer was fundamental to the whole
transaction because identity was essential to check the credit rating of the customer to whom
credit is to be given.

• Shogun was only willing to do business with a person who had identified himself in the way
required by the written document so as to enable Shogun to check that he met its credit
requirements before it entered into any contract with the proposer.
 • Correctly identifying the customer making the offer was an essential pre-condition of Shogun’s
willingness to deal with that person.

• There had not been the necessary consensus ad idem between F and Shogun.

• F was a thief as he stole the car from the possession of D and therefore did not acquire any title.

• D’s authority was to deliver the car to Mr. Patel, not to anyone else.

• Moreover, it was not a delivery under a hire-purchase agreement as there was no agreement
between Shogun and F. [Such agreement was void for unilateral mistake as to identity].

The Minority view in Shogun

Lord Nicholls & Lord Millett:

(1) It is not logical to draw a distinction between written contracts and face-to-face contracts.

(2) Devlin LJ’s (minority) approach Ingram v Little and Lord Denning MR’s broad approach in Lewis v
Averay that in all cases involving fraudulent misrepresentation (whether as to identity or
otherwise) the agreement with the fraudster should be regarded as voidable rather than void,
should be adopted.

(3) Cundy v Lindsay should no longer be followed and Ingram v Little should be overruled.

Cross-Purpose Mistake – no consensus ad idem

Cross-purpose mistake (also called mutual mistake):

(i) Both parties are mistaken but on different matters relevant to the formation of a contract

(ii) prevents formation of contract as there is no consensus ad idem.

• The parties only appear to be in agreement but are in fact at cross-purposes. Thus the ‘contract’
is void.

• Also called ‘mutual’ mistake.

• Here both parties make a mistake but on different material matters.

• No consensus ad idem; mistake prevents formation of the contract i.e. the ‘contract’ is VOID.

Raffles v Wichelhaus (1864) 2 H&C 906

• Sellers offered cotton for sale on board vessel called “Peerless”; they had in mind the “Peerless”
that was sailing in December from Bombay.

• Buyers accepted offer but they had in mind another ship also called “Peerless” that was sailing
in October from Bombay.
 • Neither party clarified matters further.

• Buyers sued the sellers for non-delivery.

• Held:

◦ The “contract” suffered from a latent ambiguity [arising from the cross-purpose
mistake] such that the parties could not be said to have reached agreement.

Per Pollock CB

• ‘…parol evidence may be given for the purpose of showing that the defendant meant one
“Peerless” and the plaintiff another. That being so there was no consensus ad idem and
therefore no binding contract.’

Common Mistake – there is consensus ad idem but…

Common mistake (sometimes also called mutual mistake!):

 Both parties are mistaken as to the same matter that is fundamental to the performance of the
contract.

 Prevents formation of contract as there is no consesnsus ad idem

 The parties only appear to be in agreement but there is infact cross..

 Parties are in agreement but the mistake renders performance either impossible or
fundamentally different from what was mistakenly agreed.

 Accordingly the contract is regarded in law as void.

 Common mistake arises when both parties make the same mistake i.e. a mistake as to the same
matter .

 A contract induced by common mistake may be void if the mistake is “fundamental”.

 A common mistake is fundamental if it renders performance of the contract essentially or

radically different from what the parties had supposed the performance to be.

 A common mistake as to (a) the existence of the subject-matter or (b) as to the identity of the
subject matter is regarded as fundamental. But, if the subject matter has been correctly
identified and the common mistake is only to the quality of the subject-matter, then the mistake
is not fundamental.

But a contract will not be void for common mistake if:

 Mistake is due to the fault of one of the parties; or

 Contract allocates (provides for) expressly or impliedly who takes the risk if the parties
are mistaken.
VOID BECAUSE FUNDAMENTAL

Great Peace Shipping v Tsavliris Salvage [2003] QB 679 (CA)

Elements of common mistake rendering contract void:

(1) common assumption as to existence of a particular state of affairs

(2) no warranty by either party that that state of affairs exists

(3) non-existence of that state of affairs not attributable to fault of either party

(4) non-existence of that state of affairs renders performance of contract impossible

(5) the state of affairs in issue may be in relation to the existence of a vital attribute of the
consideration to be provided or circumstances which must subsist if performance of contract is
to be possible.

Mistake as to Existence of Subject Matter (Res Extincta) (fundamental)

• Cases of res extincta refer to those where the subject-matter did NOT exist at the time of
contracting.

• Contract is void because neither party would contract for something that did not exist if they
knew the facts.

Couturier v Hastie (1856) 5 HLC 673

• Buyer agreed to buy a cargo of corn in transit on a particular ship from the seller.

• However, both parties did know that before their agreement, the captain of the ship had sold
the cargo to some third party.

• The seller sued the buyer for the price of the corn.

Held

• At the date of the contract the parties contemplated that there was in existence a cargo to be
bought and sold, but in fact at that date there was no such cargo.

• Therefore, the buyer was entitled to repudiate the contract and the action against the buyer
failed.

[Note: This principle is now found in S. 6 Sale of Goods Act 1979: “Where there is a contract for specific
goods, and the goods without the knowledge of the seller have perished at the time when the contract is
made, the contract is void.”]

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, High Court of Australia
No operative mistake because one party had warranted the existence of the subject-matter

• (approved by English CA in Great Peace v Tsavliris)

• CDC invited tenders for the purchase of a wrecked oil tanker that CDC said could be found on
the “Jourmand Reef”.

• CDC accepted McRae’s tender.

• In fact, both CDC and McRae were mistaken in that there was no such tanker.

• McRae incurred expenses in trying to locate the tanker before finding out it did not exist and
brought an action for recovery of these expenses.

• CDC claimed that they were not liable as the contract was void for common mistake.

• CDC was liable to repay McRae’s expenses.

• On a proper construction of the contract there was an implied warranty by CDC that the tanker
did exist at the position specified.

• CDC could not, therefore, assert that no contract had been concluded on the basis that the
subject-matter did not exist.

• “…a party cannot rely on [common] mistake where the mistake consists of a belief which is…
entertained by him without any reasonable ground, and…[which is] deliberately induced by him
in the mind of the other party.”

• “…[CDC] cannot in this case rely on any mistake as avoiding the contract, because any mistake
was induced by the serious fault of their own servants, who asserted the existence of a tanker
recklessly and without any reasonable ground.”

Mistake as to identity of the subject-matter (fundamental)

• No English case on point.

• But, principle and the Canadian case Diamond v British Columbia Thoroughbred Breeders
Society (1966) 52 DLR (2d) 146 both suggest that such a mistake may be sufficiently
fundamental to avoid the contract.

Mistake as to the Quality of the Subject Matter (not fundamental)

(1) Usually a mistake as to quality (attributes) of the subject matter/bargain will NOT make the contract
void (caveat emptor applies).

(2) Doctrine operates within a narrow scope.

(3) Equity may not intervene to render a contract voidable for mistake.
Harrison & Jones v Bunten & Lancaster [1953] 1 QB 646 (HC)

Contract concerned sale of kapok mistakenly believed by both parties to be of a certain purity.

• Held: Contract was not void for mistake. Buyer had no right to relief in the absence of
misrepresentation or breach of warranty as to the purity of the kapok by the seller.

Bell v Lever Brothers Ltd [1932] AC 161(HL)

• Lever Bros (LB) employed Bell (B) as chairman and Snelling (S) as vice-chairman.

• B and S committed breaches of their employment contracts which would have justified LB
terminating their contracts of employment without compensation, but LB was unaware of such
breaches, and B and S continued to be in their employment.

• Many years later, because of a corporate merger LB no longer required their services, and
parties entered into an agreement to compensate them for voluntarily resigning from their
positions.

• The compensation agreements were made on the genuine but mistaken belief that the
employment contracts of both B and S were still binding and thus compensation was payable to
them to achieve a lawful termination of their employment.

• After entering into the compensation agreements, LB discovered B’s and S’ breaches of their
employment contract, and sought to avoid compensation agreements on grounds of common
mistake.

Held: agreement not void (3:2 majority)

• The contract would be void only if both parties were mistaken “as to the existence of some
quality which makes the thing without the quality essentially different from the thing as it was
believed to be”.

• Here, the mistake made was not sufficiently fundamental to render the compensation
agreements void.

• LB had simply made a bad bargain but in essence they got what they wanted – the removal,
via resignations, of B and S.

Per Lord Atkin

“it would be wrong to decide that an agreement [i.e. the compensation agreement] to terminate a
specified contract [i.e. the employment contract] is void

if it turns out that [the employment contract] had already been broken and could have been terminated
otherwise…

the party paying for the release [i.e. Lever Bros] gets exactly what he bargains for…

immaterial that [LB] could have got the same result in another way, or that if [LB] had known the true
facts [LB] would not have entered into [the compensation agreement].”
Great Peace Shipping v Tsavliris Salvage [2003] QB 679 (CA)

• A ship was in danger of sinking in the Indian Ocean. TS hired The Great Peace from GPS to
provide rescue support for the ship.

• Both parties mistakenly believed that The Great Peace was only 35 miles away from the stricken
ship (and so could get to it quickly). In fact The Great Peace was 410 miles away.

• When TS discovered the true state of affairs they secured the services of another ship nearer to
the stricken ship and then unilaterally cancelled the agreement with GPS.

• GPS sued TS for the hire amount.

• TS argued that the agreement was

(i) void for common mistake at common law; or alternatively,

(ii) voidable for common mistake in equity (relying on the decision in Solle v Butcher).

Held: contract not void at common law

• There was a common assumption by the parties that the GP and the stricken vessel were close
enough to “enable GP to carry out the service that she was engaged to perform”.

 But, although the common assumption was mistaken, it “did not mean that it was impossible
to perform” what had been agreed. The GP could still perform the contract except that it
would reach the stricken vessel later.

VOID BECAUSE Mistake relating to impossibility of performance of the contract

Physical impossibility

Sheikh Brothers Ltd v Oschner [1957] AC 136

• Sheikh Brothers (S) granted Oschner (O) licence to cut, process and manufacture all sisal
growing on S’ land in Kenya in consideration of O manufacturing and deliver minimum 50 tons of
sisal fibre per month to S from that sisal.

• Both parties mistakenly believed that the leaf potential of the sisal growing area could support
manufacture of the specified minimum amount when, in fact, it could not.

• Issue – whether the licence agreement was void for mistake.

• Held: the contract was void because the mistake of the parties related to a matter which was
essential to the agreement and which was impossible to perform.
Legal impossibility

Cooper v Phibbs (1867) LR 2 HL 149

• C took a 3 year lease of a fishery from P.

• Both parties mistakenly believed P was the owner of the fishery.

• In fact C (!) was the owner of the fishery.

• C applied to set aside the agreement.

• If parties contract under a [common] mistake and misapprehension as to their relative and
respective rights, that agreement is liable to be set aside as having proceeded upon a common
mistake.

Commercial impossibility

Griffith v Brymer (1903) 19 TLR 434

• At 10am King Edward VII’s coronation process was cancelled.

• At 11am, both parties, unware of the cancellation, concluded an agreement to rent a room for
the purpose of viewing the coronation.

• Held: the cancellation had undermined the commercial object of the contract and it was void.

The Limited Role of Equity in Mistake

(1) Equity cannot order Rescission of a contract on grounds of mistake.

(2) Equity can order Rectification of a contract on grounds of mistake.

(3) Equity can refuse specific performance of a contract on grounds of mistake.

Solle v Butcher [1950] 1 KB 671, CA

 Denning J suggested that the doctrine of common mistake in equity is different from doctrine of
common mistake at common law in that

(i) it is wider in scope because definition of “fundamental” mistake in equity is more liberal; and

(ii) therefore mistake in equity rendered a contract voidable and courts of equity could set aside a
contract entered into under common mistake “on terms”.

• This approach was, however, rejected by the CA in The Great Peace Case and it is doubtful
that Solle v Butcher will now be followed.
Associated Japanese Bank v Credit du Nord SA [1989] 1 WLR 257 (HC)

This was a case decided before The Great Peace case, and the court suggested that correct approach in
cases of common mistake was as follows:

• Step 1: construe the contract to see who bears risk of relevant mistake (if one party expressly or
impliedly bears the risk, contract will not be avoided) (see McRae v Commonwealth DC)

• Step 2: but if upon the true construction of the contract it is silent as to who bears the risk then

• consider if contract is void for mistake at common law;

• only if the contract is not void at common law, consider if it is voidable in equity [But
note: since the Great Peace decision this stage of Step 2 will probably not be needed.]

Great Peace Shipping v Tsavliris Salvage [2003] QB 679 (CA)

Held:

 There was no equitable jurisdiction to grant rescission for common mistake in circumstances
that fell short of those in which the common law held a contract void

 It is not possible to distinguish between a common mistake which was fundamental in equity
but not at common law under the test set out in Bell v Lever Brothers.

 Accordingly, since the supposed doctrine of equitable rescission was irreconcilable with the
House of Lords’ decision in Bell v Lever Brothers Ltd, the court was free to disregard its earlier
decision in Solle v Butcher.

Rectification of Written Contracts due to Mistake

• Equity allows a court to re-write (rectify) a written contract that does NOT accurately record
what the parties had agreed.

• The party seeking rectification must satisfy the court:

(1) that a complete and certain agreement had been reached;

(2) that this agreement remained unchanged up to the time it was reduced into writing; and

(3) what had been agreed is not correctly reflected in the written contract.

Craddock Bros Ltd v Hunt [1923] 2 Ch 136

• C agreed to sell his house to H. Both agreed that the sale would not include an adjoining yard.

• However, by mistake, the yard was included in the conveyance.

• C sought rectification of the conveyance leading evidence to show the parties’ actual intention.

Held:
 • C was entitled to have the conveyance rectified to reflect the actual intention and agreement
reached between the parties.

Oral evidence will be considered

Refusal of Specific Performance of contract

Specific performance may be refused due to a mistake even if the mistake does not render the contract
void: Tamplin v James ((1880) 15 Ch D 215 (CA)

The Defence of Non Est Factum

(1) Non est factum means “this is not my deed”.

(2) This defence is available, in principle, to a person who does not understand a document that he
has signed.

(3) If this defence is established, such person is NOT bound by the document.

(4) The burden of proving the defence is on the person who raises it.

(5) The defence can only rarely be established by a person of full capacity

(6) Although it is not confined to the blind and illiterate any extension of the scope of the plea
would be kept within narrow limits.

(7) In particular, it is unlikely that the plea would be available to a person who signed a document
without informing himself of its meaning. Carelessness in signing the document would preclude
non est factum on the principle that no man may take advantage of his own wrong.

Requirements of defence

• Party who raises the defence must prove:

(1) Inability to understand the document that he had signed

(2) No fault on his own part (i.e. must not have signed document carelessly or simply without
reading it)

(3) There is a real or substantial or fundamental or radical difference in the nature of the
document actually signed and the document which he thought he was signing.

Saunders v Anglia Building Society [1971] AC 1004 (HL)

• Gallie wanted to make a gift her property to Parkin, her nephew.

• She gave the title deeds to Parkin knowing that he needed it to raise some money in
collaboration with Lee, his business associate.
 • Some time later, Lee asked Gallie to sign a document, which she could not read because her
glasses were broken.

• Gallie asked L what the document was.

• When Lee said it was a deed of gift of her property to Parkin, she signed the document without
reading it.

• In fact, it was an assignment of her interest in the property to Lee supposedly for £3,000.

• Lee then mortgaged the property, based on the assignment, to ABS, failed to make repayments,
and ABS sought to take possession of the property.

• Gallie brought action against L and ABS to avoid the deed of assignment on ground of non est
factum.

Held

• Non est factum applies to persons “who are permanently or temporarily unable through no fault
of their own to have without explanation any real understanding of the purport of a particular
documents”.

• But such persons must take such precautions as they reasonably can in the circumstances when
signing the document.

• Further, non est factum is not available where the mistake is as to the legal effect of the
document.

 For non est factum to be available there must be a radical or fundamental or serious or very
substantial difference between what he signed and what he thought he was signing – the
nature of the transaction must be different from what he intended.

 On the facts, non est factum was not established.

Mistake of Law

Brennan v Bolt Burdon & others [2005] QB 303, CA:

• Contracts may be vitiated by common mistake of law just as much as common mistake of fact
(following Kleinwort Benson v Lincoln City Council)

• However, a mere doubt as to the correct state of law may not amount to an operative mistake
of law.
MISTAKE: MALAYSIAN LAW
Requirement of Free Consent

An agreement is a contract only if inter alia it is “made by the free consent” of the parties [S. 10(1)
CA 1950].

2 or more persons are said to consent when they agree upon the same thing in the same sense [S.
13 CA 1950] – consensus ad idem.

Consent is said to be free when it is not caused by inter alia mistake, subject to S. 21, 22 and 23 [S.
14 (e) CA 1950]

S 21 – Mistake of Fact by both parties

Under S. 21, an agreement is void if both the parties to the agreement are under a mistake as
to a matter of fact essential to the agreement.

However, “An erroneous opinion as to the value of the thing which forms the subject-matter of
the agreement is not to be deemed a mistake as to a matter of fact.” (Explanation to S. 21)

S 22 – Mistake of Law

“A contract is not voidable because it was caused by a mistake as to any law in force in
Malaysia” does not render a contract “voidable” (this is different from English law), but a
mistake as to law not in force in Malaysia has the same effect as a mistake of fact.”

S. 22 – Contract is S. 22 – Same effect

mistake as “not mistake as as mistake
to Malaysian voidable” to Foreign as to fact
law (i.e. valid) law (i.e. void)

S. 14 (e) S. 10 S. 14 (e) S. 10

S. 13 S. 13

S 23 – Unilateral Mistake of Fact

S. 23, prima facie, suggests a radical departure from English law with regard to unilateral
mistake of fact.

Read literally, s.23 suggests that any and all types of unilateral mistakes do NOT render the
contract “voidable” i.e. despite a unilateral mistake, the contract is valid and not even voidable.

This raises the question: when, if ever, does a unilateral mistake of fact render a contract void in
Malaysian law, or has s. 23 excluded this possibility?
 S. 23 – Contract is
unilateral “not
mistake of voidable”
fact (i.e. valid)

S. 14 (e) S. 10

S. 13

Mistake of Fact by Both Parties

Section 21 CA 1950: “Where both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement, the agreement is void.”

“Explanation: An erroneous opinion as to the value of the thing which forms the subject-matter of the
agreement is not to be deemed a mistake as to a matter of fact.”

S. 21 clearly covers common mistake

Illustrations to S. 21

“(a) A agrees to sell B a specific cargo of goods supposed to be on its way from England to
Kelang. It turns out that, before the day of the bargain, the ship conveying the cargo had been
cast away and the goods lost. Neither party was aware of the facts. The agreement is void.”
[Res extincta]

“(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of
the bargain, though neither party was aware of the fact. The agreement is void.” [Res extincta]

“(c) A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the time of
the agreement, but both parties were ignorant of the fact. The agreement is void.” [Res
extincta]

All 3 illustrations to S.21 clearly relate to situations of

(i) common mistake; and

(ii) where the subject-matter of the contract, unknown to both parties, has ceased to exist at the
time the contract is made, and are similar to Couturier v Hastie.

Does S. 21 cover cross-purpose mistakes?

In Raffles v Wichelhaus both parties made a mistake and were thereby at cross-purposes. Does
S. 21 cover such a mistake?

No direct case law. The Illustrations to S. 21 do not cover cross-purpose mistakes.

Cross-purpose mistake is covered under S. 13

A cross-purpose mistake would seem to fall within the scope of S. 13 because the parties
being at cross-purposes cannot be said to have “agreed on the same thing in same sense” (i.e.
consensus ad idethem is lacking).

If so, there is no “consent” as required by S. 10, and therefore the agreement is not a contract
i.e. void (unenforceable).

Elements:

1) “Both parties” must be mistaken

Ho Weng On v Bindev Sdn Bhd [2007] 7 MLJ 607 (HC)

S. 21 does not apply if only one party makes a mistake. Both parties must be mistaken.

Ho agreed to purchase a house to be built by Bindev.

In fact, a year earlier Bindev had already sold the very same house to someone else.

Ho sued Bindev for specific performance or damages in lieu and Bindev contended that their
agreement was void for mistake under S. 21 CA.

For S. 21 to apply “both” parties must have been mistaken as to availability of the particular
house.

Here only Ho was mistaken – Bindev knew or ought to have known that the house was not
available for sale.

Further, Bindev could not rely on mistake to render the contract void in the present case when
clearly the mistake was a direct result of Bindev's own wrongdoing.

Specific performance in Ho’s favour was not possible as Bindev had already sold the house to
someone else. Bindev was ordered instead to pay damages to be assessed to Ho.

2) “Matter of fact” & “Opinion as to value”

M. Pakiam v YP Devathanjam [1952] 1 MLJ 58

MP had been tapping rubber for 5 years under a month-to-month tapping contract with the
owner of a rubber estate.

On 15 Nov 1950 – MP entered into an agreement with YPD, assigning MP’s tapping contract to
YPD for 3 months for a consideration of $10,500. However, MP retained the right to terminate
the agreement

(i) either by returning the $10,500 at the end of the 3 months to YPD or

(ii) to make the assignment permanent by keeping the $10,500.

 On 30 Nov 1950, ownership of estate changed and the new owner terminated MP’s month-to-
month tapping contract, whereupon YPD sued MP for the return of the $10,500.

Although YPD did not raise the issue of mistake, the trial judge decided “there was a complete
misunderstanding and mistake between the parties as to the nature of the transaction between
them and what was actually being transferred from one to the other” and declared the
assignment void and ordered MP to refund the $10,500 to YPD.

MP appealed to the FMS Court of Appeal.

Held: contract was not void for mistake under s. 21

Per Thomson J

…even assuming that both parties mistakenly expected the tapping contract to continue
indefinitely “…can it be said that that [mistaken expectation] was anything more than an
erroneous opinion as to the value of the tapping contract which formed the subject matter of the
agreement? And such an erroneous opinion, by virtue of the ‘Explanation’ to section 21… ‘is not
to be deemed a mistake as to a matter of fact’.”

Therefore, there was no mistake as to a matter of fact.

Per Briggs J:

“…the mistake must be of a much more fundamental character than this to enable this court to
say that no agreement was in fact reached. Here the parties knew what they were dealing with,
and both intended to deal with the same thing…there was [no] mutual** mistake which would
have rendered the contract void under section 21…”

**[i.e. “common” mistake]

3) “Essential” to the agreement

The mistake must be as to a fact “essential” to the agreement, but “essential” is not defined in
S. 21.

 Illustrations to S. 21 are limited to situations where subject-matter of agreement has ceased to

exist before or at time of contract. But clearly there can be other facts that are essential to the
agreement.

 Obviously, whether a fact is “essential” to the subject-matter of the agreement is a question of

fact depending on the circumstances of individual cases.

Sheikh Brothers Ltd v Oschner & Anor [1957] AC 136 (PC)

S granted O a licence to cut, process and manufacture all sisal growing on S’ land in Kenya and
O undertook to manufacture and deliver a minimum of 50 tons of sisal fibre per month to S.

Both parties mistakenly believed that the leaf potential of the sisal area could support
manufacture of the minimum amount specified.
 Issue – whether the licence agreement was void under S. 20 of Indian Contracts Acts [in pari
materia with S. 21 CA 1950]

“Having regard to the nature of the contract …it was the very basis of the contract that the sisal
area should be capable of producing…50 tons a month…It follows that the mistake was as to a
matter of fact essential to the agreement.”

“[Common] mistake** within section 20 having been found to exist at the date of the licence
agreement, it necessarily follows that the licence agreement is not a contract within section 10.
Neither can it be an agreement enforceable by law. Therefore…it is a void agreement, see
section 2(g)”

**this is a case of “common mistake” since both parties made the same mistaken assumption
(although the law report uses the words “mutual mistake”)

United Asian Bank v Chun Chai Chai & 5 Ors [1988] 2 CLJ 253 (HC)

UAB agreed to rent premises from Chun for their banking business.

Both parties were unaware of the need to build a sub-station on the premises to provide
adequate electricity for banking business.

When parties became aware of this, they were unable to agree as to who would bear the costs
of building the sub-station.

UAB then terminated the tenancy and sought a refund of the rental deposit paid.

There was a common mistake as to a matter of fact, namely the failure to recognise the need
to build a sub-station.

Since the premises were being rented to enable UAB "to commence its banking business"
obviously there was a need for adequate electricity supply to the premises for such business, so
that the need for a sub-station which was to be the source of such supply was a fact essential
to the agreement.

The agreement was void under s. 21 Contracts Act 1950 and UAB was entitled under S.66 to the
refund of the deposit as claimed.

MISTAKE OF FACT BY ONE PARTY

S.23 : “A contract is not voidable merely because it was caused by one of the parties to it being
under a mistake as to a matter of fact.”

What does “not voidable” mean? Is it that the contract is valid? Or is it that the contract is void?

What is the significance of the word ‘merely’ in s. 23?

Sinnadurai, Law of Contract (4ed), para 6.27

The next few slides show how Sinnadurai has interpreted s. 23.

His argument is that in some instances, a unilateral mistake of fact could render a contract void,
even though the express provisions of s. 23 seem to suggest that the contract is valid and is not
voidable.

He starts of by expressing the view that a contract“…falling within the ambit of section 23 is
valid…

[This is because] unlike section 21, where it is provided that where both the parties are under a
mistake of fact, the agreement is void, section 23 on the other hand, provides that where the
mistake is made by one party as to a matter of fact, the contract is ‘not voidable’.”

He, then, however, goes on to express the view that section 23 does not apply to all unilateral
mistakes of fact, and that unlike s. 21 which covers mistakes essential to the agreement, “…
section 23 merely covers cases where the mistake is one that is not ‘a matter of fact essential
to the agreement’...”

He, thus, draws a distinction between unilateral mistakes of fact “essential” to the agreement,
and unilateral mistakes of fact that are “not essential” to the agreement.

Thus, if it is a unilateral mistake relating to an essential fact e.g. one party making a mistake as
to the terms of the contract or the identity of the party to the contract, then s. 23 has no
application at all.

But, obviously, in such a case neither would s. 21 (since S. 21 applies only to a mistake by both
parties).

So what position should Malaysian courts take when faced with a unilateral mistake as to an
essential matter of fact? Sinnadurai suggests that Malaysian courts would be inclined to
follow the common law on unilateral mistake.

Sinnadurai suggests: “Where the [unilateral] mistake is one that relates to the terms of the
contract, or one that relates to the identity of a person, the Malaysian courts may be inclined to
follow the approach adopted by the English courts. Therefore, in cases of mistake as to identity…
the courts may approach this issue by holding such agreements to be unenforceable [void] on
the ground that there is no agreement between the parties, based on the general principles of
law governing offer and acceptance, and hence there was no binding contract between the
parties: see section 2(a) and (b) of the Contracts Act.”

“In such cases [i.e. unilateral mistake as to identity], the question to whom the offer was made
by the offeror becomes crucial: did the offeror intend to contract with A alone and no one else,
or it did not matter whether the offer was accepted by A, or anyone else. If the offeror intended
to contract with A alone, and the offer is purportedly accepted by B, did B have knowledge that
the offer was intended for A alone…?”

[B refers to the person who has misrepresented to the offeror that he is A, thereby inducing a
unilateral mistake as to identity.
 (Literal meaning is valid. Only applies if the unilateral mistake is not essential to the contract,
and then the contract is still valid.

Differentiated between terms which are essential to contract, and what are not essential to the
contract

If essential wouldn’t fall under s23.

So what is essential? UM to identity.. Or with regards to the terms of the contract.

Anything outside this can be interpreted as not essential.

So where does essential ones fall? Look at common law if essential unilateral mistake!)

M. Packiam v YP Devathanjam [1952] MLJ 58, CA

Sinnadurai’s suggestion in the previous slides that unilateral mistake may render an agreement
void is supported, albeit on a different ground, by the following obiter dicta of Briggs J in M
Pakiam v YP Devathanjam:

“Where a mistake exists in the mind of one party its effect is of course that no contract ever
comes into existence at all, and neither section 21 nor section 23…is in point. The relevant
provision is section 13.”

[Thus, based on s. 10, since there is no consensus ad idem, there is no contract.]

Lim Wie Tie v Koh Heng Jin [1983] 1 MLJ 239

Further support for this view may be found in the following dictum in the above case:

“Mistake may mean lack of consensus ad idem…Consensus ad idem also involves the concept
that there should not be a mistake of a fundamental nature excluding the reality of a true
consent.”

The Golf Cheque Book Sdn Bhd v Nilai Springs Bhd [2006] 1 MLJ 554 (CA)

Gopal Sri Ram, JCA’s following dicta also support this view:

“This issue, namely, unilateral mistake, is a very serious point and one that must be thoroughly
investigated at the trial. If the trial judge finds that the identity of the person with whom the
defendant was seeking to contract with was, objectively speaking, of importance to the
defendant, then the contract would, as a matter of law be void for unilateral mistake (see Cundy
v Lindsay…)

However, no reference was made to S. 23 CA in this case. Further, this statement was made in
the context of a striking out application.

MISTAKE OF LAW
S. 22 CA 1950: “A contract is not voidable because it was caused by a mistake as to any law in force in
Malaysia but a mistake as to a law not in force in Malaysia has the same effect as a mistake of fact.”

illustration to S. 22

“A and B make a contract grounded on the erroneous belief that a particular debt is barred by limitation;
the contract is not voidable.”

Two limbs of S.22

Mistake as to law in force in Malaysia

Contract is “not voidable”.

View of most commentators – “not voidable” means “valid”. Illustration to S.22 supports this
view.

Since Brennan v Bolt mistake as to law renders a contract void in English Law

Mistake as to law NOT in force in Malaysia

Has the same effect as a mistake of fact.

Not clear whether here “mistake of fact” refers to a common mistake under S. 21 or unilateral
mistake under S. 23.

Cheong May Fong - it refers to S. 21 mistake i.e. such a contract is void.

Cheong May Fong: “The reason that notwithstanding…a mistake [as to a law in force in Malaysia] a
contract is [valid] may be said to be reflected in the phrase that ‘ignorance of the law is no excuse’ and
that a person is expected to know or find out the applicable law in Malaysia that affects his contractual
dealings.”

[But, note, this sort of reasoning was not followed in England in Brennan v Bolt Burdon]

RELIEF FOR MISTAKE

Under S. 21 the effect of an operative mistake by both parties is to render the agreement void but S. 21
does not state what would be the effect of the agreement being void.

However, there are 2 relevant restitutionary provisions in the CA 1950 that relate to the relief afforded
for operative mistake, namely S. 66 and S. 73.

(a) Section 66 CA 1950

S. 66 CA 1950:
“When an agreement is discovered to be or when a contract becomes void any person who has received
any advantage under the agreement or contract is bound to restore it, or to make compensation for it to
the person from whom he received it.”

“Discovered” to be void

An agreement is “discovered” to be void when parties, having entered into an agreement, subsequently
become aware of facts that renders their agreement void.

E.g. they have made an operative mistake under S. 21, or an unlawful consideration has been provided
for the entry into the agreement under S. 24.

Illustration (a) to S. 66:

“A pays B RM1,000 in consideration of B's promising to marry C, A 's daughter. C is dead at the time of
the promise. The agreement is void, but B must repay A the RM1,000.”

This is an example of restoration of benefit received under an agreement discovered to be void for
mistake under S. 21 CA 1950.

“Becomes” void

“A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”: S.
2(j) CA 1950.

I.e. a contract that becomes void is originally a valid contract.

Examples of contracts that “become void” for the purposes of S.66:

(i) Contracts that are valid but voidable – upon rescission by the innocent party for coercion,
undue influence or misrepresentation (Yong Mok Hin)

(ii) Contracts that are valid but are frustrated (to be covered in a later topic)(see illustration (d) to
S. 66);

(iii) Valid contracts that have been validly terminated [rescinded] by the innocent party for breach
of contract under S. 40 (to be covered in a later topic) (see illustrations (b) and (c) to S. 66).

United Asian Bank Berhad v Chun Chai Chai [1988] 2 CLJ 253

◦ Illustration of operation of S. 66.

◦ Tenancy agreement discovered to be void because of mistake by both parties as to a matter of

fact essential to the agreement – supply of electricity required construction of sub-station.

◦ Landlord was ordered to refund deposits paid by tenant.

(b) Section 73
 “A person to whom money has been paid, or anything delivered, by MISTAKE or under COERCION
[we have discussed this under coercion], must repay or return it.”

But, note that this provision appears wide enough to recover money paid under a mistake of fact or
of law.

Sri Sri Shiba Prasad Singh v Maharaja Srish Chandra Nandi (1949) 76 IA 244 (PC)

Lessee under a mining lease mistakenly made certain payments to the lessor and upon
discovering the mistake sought recovery of the overpayments under S. 72 Indian Contracts Act
(which is in pari materia with S. 73 CA 1950).

The lessee had mistakenly believed that the payments were legally due under the mining lease
i.e. he had made a mistake of law.

“Payment by mistake…[refers] to a payment which was not legally due and which could not have
been enforced: the ‘mistake’ is thinking that the money paid was due when in fact it was not
due.”

“The money [in this case] was paid under the belief that it was legally due. This belief was
mistaken…that is sufficient to bring the case within [S. 72 Indian Contract Act which is in pari
materia with S. 73 Malaysian Contracts Act 1950]…”

“There is nothing inconsistent in enacting that on the one hand that if parties enter into a
contract under mistake in law that contract…is enforceable [this is a reference to unilateral
mistake under the Indian S. 22], but, on the other hand, that if one party acting under mistake
in law pays to another party money which is not due by contract or otherwise, that money
must be repaid.”

However this “judgment does not imply that every sum paid under mistake is recoverable no
matter what the circumstances may be. There may in a particular case be circumstances which
disentitle a plaintiff by estoppel or otherwise.”

Bank Bumiputra (M) Bhd v Hashbudin bin Hashim [1998] 3 MLJ 262 (HC)

A customer of BBMB (C) had issued and handed over several cheques drawn on BBMB to HH.

4 Dec 1992: C telephoned BBMB to stop payment on one of the cheques dated 5 Dec 1992

9 Dec: HH presented the cheque dated 5 Dec 1992 for payment.

10 Dec: BBMB cleared the cheque & paid $ to HH

BBMB brought this action under S. 73 CA against HH to recover the money paid to him

Held: BBMB entitled to recover under S. 73

HH had received the payment of RM25,000 from BBMB which was not legally due to HH as
payment on the cheque had been countermanded by BBMB’s customer before payment.
 Shiba Prasad Singh was applied in reaching this decision.

The Court also referred to dicta from another Indian case which stated: “If mistake either of law
or of fact is established, [the person making the payment] is entitled to recover the monies and
the party receiving the same is bound to repay or return them irrespective of…whether the
monies had been paid voluntarily...”

NON EST FACTUM

CA 1950 makes no specific provision relating to the defence of non est factum

However, English law has been applied by the Malaysian courts in such situations.

Polygram Records Sdn Bhd v The Search & Anor [1994] 3 MLJ 127, HC

Per Visu Sinnadurai J:

“There is no [general]principle of law which states that where a party does not fully understand
certain terms of a contract, the contract may be vitiated…[Refers to L’Estrange v F Graucob
[1934] 2 KB 394]

However, “One exceptional circumstance under which a party to a written contract may seek to
set it aside is on the grounds of non est factum, which by itself is difficult to establish.”

Awang bin Omar v Haji Omar bin Ismail & Anor [1949] MLJ Supp 28

D2 induced his brother D1 to sign an agreement with P in English “as witness” to D2’s signature.

In fact, the document was an agreement between P and D2 containing a clause that D1 was
equally liable as D2 to P.

When P sued D1 and D2 for damages for breach of that agreement, D raised the defence of non
est factum.

On the facts, the defence of non est factum was available to D1 and the claim against him failed.

“Owing to a misplaced but natural confidence in his brother’s allegation as to the nature of the
document he was to sign, and the fact that he could not read English, 1 st defendant was induced
to sign this contract thinking it was a matter of witnessing his brother’s signature. In his mind
therefore he was assuming no liability and making no bargain with plaintiff at all. He cannot
therefore be held liable…on the contract…”

Nallamal & Anor v Karruppanan & Anor [1993] 3 MLJ 476 (HC)

N, a rubber tapper, let K have possession of the title deeds to her land believing that he needed
it for some construction works, provided that K would return the title within a month or two.

Upon K’s request, N also affixed her thumb print on a document in English which she did not
understand. K did not explain to her the nature and content of the document.
 K showed the document to a Bank, and deposited the title with the Bank to take a loan, and the
Bank then a lodged lien-holder’s caveat over the land as security for the loan.

The document stated that N allowed K to hand the title to a Bank and for the Bank to lodge a
caveat against the land as security for a loan taken by K from the Bank.

Two months later N asked K for the return of her title. He gave her some excuses but promised
to return it to her soon. This sort of discussion went for more than a year, and finally, K told N
about the loan and the caveat.

N brought this action for the removal of the caveat and delivery of the document of title to the
land back to her.

The defence of non est factum was available to N and the caveat was ordered to be removed.

“…in Saunders v Anglia Building Society…it was held that in exceptional cases, the plea was
available so long as the person signing the document had made a fundamental mistake as to the
character or effect of the document. [There must be a] disparity between the effect of the
document actually signed and the document as it was believed to be…the disparity must be
'radical', 'essential', 'fundamental', or 'very substantial'.

[An unsatisfactory aspect of this case: the law report does not make it clear why the court was
of the view that N was not negligent in placing her thumb print on a document that she did not
understand for no apparent reason. In English law, one of the requirements for the availability
of non est factum is that the person seeking to rely on it must have acted reasonably and not
negligently.]

Kiong Man v Kishen [1971] 1 MLJ 54

 P sued for specific performance of a written agreement for purchase of D’s land.

 D admitted signing document but argued that he thought it was an agreement leasing his land
to P

 Both P and D were illiterate and the agreement had been drawn up by a petition writer.

 “Strong and clear evidence” is required to discharge the burden of proving non est factum.

 D had to prove that “had he known the class and character of the document in question, he
would not have signed it.”

 On the facts, D had failed to discharge the burden because on D’s “own admission…he was an
extra careful man when dealing with documents written in English. [Therefore] he would not
have signed unless he was satisfied with the contents…”

MISTAKE AND REFUSAL OF SPECIFIC PERFORMANCE

The rule that in cases of mistake Equity may refuse specific performance is found in S. 20(1)(h) and
S. 27(c) Specific Relief Act 1950.
 S. 20 Specific Relief Act 1950:

“Contracts not specifically enforceable.

(1) The following contracts cannot be specifically enforced:

….

(h) a contract of which a material part of the subject-matter supposed by both parties to exist,
has, before it has been made, ceased to exist.”

S. 27 Specific Relief Act 1950:

“Specific performance cannot be enforced against a party thereto in any of the following cases:

(c) if his assent was given under the influence of mistake of fact, misapprehension, or surprise.