Mistake

There are some vitiating elements which will strip a purported contract of its binding nature. One of these vitiating elements is mistake. Mistake as to the nature of a contract will make a party under such a contract free from obligations.

Mistake as a legal term under the law of contract is narrower in scope than the concept of mistake to a lay man. What may be considered mistake to a lay man will very often not be considered mistake in law. Mistake refers to when one or both of the parties are allowed to repudiate a contract on the ground that if they had known the true facts, they would not have entered such a contract. Lord Atkin elaborated on the concept of mistake in Bell v Lever Bros Ltd. when he gave the following practical illustrations.

1. A buys B’s horse, he thinks that the horse is sound and pays the price of a sound horse. He certainly would not have bought the horse if he had known for a fact that the horse is unsound. If B has made no representation as to the soundness of the horse and has not contracted that the horse is sound, A is bound and cannot recover the price.
2. A buys a picture from B, both A and B believe it to be the work of an old master and a high price is paid. It turns out to be a modern copy. A has no remedy in the absence of misrepresentation or warranty.
3. A agrees to take a lease, or to buy from B an unfurnished dwelling house. The house is in fact uninhabitable. A would never have entered into the bargain if he had known the fact. A has no remedy and the position is the same whether B knew the facts or not, so long as he made no representation.
4. A buys a roadside garage business from B abutting on a public thoroughfare. Unknown to A, but known to B, it has already been decided to construct a bye-pass road which will divert a substantial amount of traffic from passing A’s garage. A has no remedy.

To a casual observer, all four instances are premised on mistakes. However, the general rule in law is that there is no mistake in such situations. In all of the cases, A got what he contracted to get, that is a horse, a house, a picture and a particular roadside garage. The law is not concerned with the quality of the subject matter which A did not spell out to B either expressly or by implication. For example, A should have told B if a sound horse was what he wanted. Mistake will only be taken to exist where the horse had died, the picture had been destroyed, or the picture had been stolen as at the time the negotiation was concluded. In such a situation, the agreement is void since the subject matter is not in existence.

The view expressed by Lord Atkin is the common law position, which is quite restrictive. In equity, if one party is labouring under a mistake to the knowledge of the other party, the contract could be void under equity for unilateral mistake. This was the case in Cunday v Lindsay, where a fraudster ordered goods from Lindsay pretending to be someone else, and then sold to Cundy. The court held that Lindsay could take back the goods because the contract with the fraudster was void for unilateral mistake.

Mistake is usually classified into three kinds, for the sake of clarity of thought and easy understanding. There is the common mistake, mutual mistake and unilateral mistake.

1. Common mistake: In a common mistake, the parties conclude the contract being mistaken as to some fact that lies at the base of the contract. The mistake is common in the sense that both parties made the mistake and the mistake was as to the same subject matter. An example is if A is contracting to buy a car from B, when the car has been destroyed in an accidental fire unknown to both parties.
2. Mutual mistake: This is a scenario where the parties are mistaken about the terms of the contract. This often occurs when one party makes an offer, and the other party accepts an offer which is fundamentally different from the offer made. For example, if A has two cars, one being a Toyota car and the other being a Mercedes, and he then offers to sell one of his cars to B with the intention of selling the Toyota, while B accepts the offer believing it is the Mercedes to be sold to him. Such a scenario will be a case of mutual mistake.
3. Unilateral mistake: In unilateral mistake, only one party is usually mistaken. An example is when a rogue walks into a car store and obtains a car on credit by pretending to be the manager of a company.

Common mistake

Common mistake, as already stated, is when both parties are mistaken concerning the same thing as regards a subject matter. There are different kinds of common mistake depending on the nature of the mistake.

Res extincta: non-existence of the subject-matter of the contract

A mistake as to the existence of the subject matter of the contract renders it void. The go to case for this illustration is Couturier v Hastie, where X sold a cargo of corn on board a ship at sea to Y, whilst unknown to the two parties, the cargo of corn had earlier become over-heated and fermented due to bad weather conditions and had been sold in a port along the sea route. It was held that there was no contract between the two parties. The Sale of Goods Act 1893 has also adopted this position to provide that where there is a contract for the sale of specific goods and the goods without the knowledge of the seller, have perished at the time the contract is made, the contract is void.

In Barrow, Lane v Philips & Co. Ltd., a contract for the sale of an “indivisible parcel” of 700 bags of nuts was held void because, unknown to the parties, only 591 bags were in existence. The remainder had been stolen. Strickland v Turner is another case of res extincta where a plaintiff bought and paid for an annuity on the life of a man who, unknown to both parties, was already dead. The court held that the contract was void and the purchaser was entitled to recover his money.

It is not always compulsory for the subject matter to be tangible. In Galloway v Galloway, a separation deed between a husband and a wife was declared void when it was discovered that their marriage was void. The contract was entered into on the false but fundamental assumption that there was a valid marriage between the parties. Also, in Griffin v Brymer, an agreement to hire a room for the purpose of watching the coronation ceremony was held to be void when, unknown to the parties, the ceremony was canceled before the contract was concluded.

Res sua: absence of title in seller of subject-matter

Where the subject matter of the contract, unknown to both parties to the contract, already belongs to the purchaser, the contract shall be void for mistake under the concept of res sua. In real life, such circumstances are very few compared to res extincta.

In Cooper v Phibbs, a person agreed to take a lease of a fishery which unknown to both parties, already belonged to him. It was held that the agreement ought to be set aside for having been concluded on the basis of common mistake. The contract was also held to be void for common mistake when the purchaser attempted to by what already belonged to him in Abraham v Chief Oluwa.

Basis of the doctrine of common mistake

Some have adopted the view that a contract which is concluded under a false and fundamental assumption about a certain state of facts by both parties is void for mistake. However, this view has been criticized in McRae v Commonwealth Disposals Commission where the High Court of Australia held that it is a matter of construction whether an agreement in such circumstances is void or valid. The facts were that the respondent commission made that advertisement to the effect that an oil tanker had run aground in a place called Jormund Reef, off the Island of Papua in the Pacific Ocean, and they asked for tenders. The appellant made a tender of 285 pounds which was accepted by the respondent. The appellant then incurred considerable expenditure in modifying a vessel they owned for salvage work, purchasing equipment, engaging a crew, amongst other things.

It turned out that there was no such tanker, and the place called Jormund Reef did not exist. Although the respondents did not make the statement fraudulently, the statement had been grossly negligent. When the appellants sued for breach of contract, the respondent relied on the contract being void for mistake. It was held by the court that the contract was a valid one, and not void for mistake, distinguishing it from Couturier v Hastie because the subject matter in this case never existed.

The decision should not be taken to mean that a contract cannot be void for mistake if the subject matter never existed. The decision in McRae’s case was largely influenced by the fact that the respondent assured the appellants that it existed. In the absence of such an assurance, such a contract would have still been void for mistake.

Mistake as to quality

So far, all that has been addressed is a situation where the subject matter of the contract ceases to exist, never existed, or cannot be transferred because it already belongs to the purchaser. What about where the subject matter exists, but there is a mistake as to the quality of the subject matter? The case of Bell v Lever Bros. Ltd. is authority for the principle that while mistake as to subject matter of the contract could give rise to mistake in law, a mere mistake as to the quality of the subject matter cannot.

In Bell v Lever Bros. Ltd., Bell and Snelling had agreed with Lever Bros to serve for five years as chairman and vice chairman of a company controlled by Lever Bros. Before the end of the period, Lever Bros wished to terminate the service contracts and the parties entered into compensation agreement under which Bell and Snelling received 30,000 pounds between them for loss of office. Lever Bros found out that Bell and Snelling had broken their service agreements in a way that would have justified summary dismissal without compensation. Bell and Snelling had forgotten about these breaches when the compensation agreements were made, and so they were not guilty of fraudulent concealment. The argument was on whether Lever Bros could get the 30,000 pounds back since they believed that the contract of employment was valid and not voidable. The court held that mistake of quality, even as to fundamental quality, cannot make the contract void unless that quality is regarded as essential by both parties.

In Nicholson Venn v Smith Marriot, the defendants put up for an auction the sale of a napkin with the crest of Charles I and the authentic property of the monarch. The napkin was bought for 747 pounds, but it turned out that the napkin was Georgian and worth only 105 pounds. The court held that the contract could be held void for mistake as the mistake as to quality was fundamental, since both parties believed in their minds that they were contracting over a napkin with the crest of Charles I and being authentic property.

Mutual mistake

A mutual mistake occurs when one party makes an offer, and the other party accepts something which is fundamentally different from what was offered. In the creation of a contract, it is important that there is consensus ad idem, which is the meeting of the minds. In a situation where there is a mutual mistake, there is no consensus ad idem, and so the contract is void.

In deciding whether there is indeed a mutual mistake, the court will use the objective test of what a reasonable man who witnessed the transaction would infer from the surrounding circumstances. The application of this objective test will prevent a party from pleading mistake when such a plea is inconsistent with the test, such as in Wood v Scarth. In this case, the defendant offered in writing to let a public house to the plaintiff for 63 pounds per annum, which the plaintiff accepted. In actual fact, the defendant intended that a premium of 500 pounds, a premium being the sum payable in advance on a lease, be included. However, this was never mentioned to the plaintiff, who believed that his liability was limited to 63 pounds per year. The defendant subsequently refused to execute the contract. The plaintiff sued for specific performance, and the defendant unsuccessfully raised the defence of mutual mistake. The court held that there was no mutual mistake as a reasonable man who witnessed what transpired could not have interpreted the agreement to mean anything other than a simple lease agreement for 63 pounds per year.

Similarly, in Riverlate Properties v Paul, the plaintiff granted a lease of a house for ninety-nine years to the defendant, intending that the defendant lessee should pay half the cost of exterior and structural repairs. But the lease did not contain any provision to this effect, neither was the lessee aware of the lessor’s intention. The lessor now claimed for the rectification of the agreement to include this term, or alternatively for the contract to be rescinded for mistake. The court held that the lessor was entitled to neither remedy, as the agreement had no ambiguity on the surface and so there was no mutual mistake.

Also, such a mistake must be fundamental to make the contract void. Such a mistake must result in a complete difference in substance or quality between what the mistaken party bargained for and what he actually got. In Tamplin v James, the defendant believed that he would have access to a garden if he bought the adjacent inn and its outbuildings at an auction sale. His belief was based on the fact that he knew the sellers had access to the garden. The court held that the defendant could not rely on mutual mistake to make the contract void because the plans were available and did not include the garden.

Where, however, the parties are genuinely at cross purposes about the subject matter of the contract and the terms of the offer and acceptance are so ambiguous that it is not possible to point out the one or the other of the conflicting assertions of the two parties as the more probable, the court will hold that the contract is void for mistake. In Denny v Hancock, the defendant thought that a mass of shrubs and an iron fence were part of the property he wanted to buy. Because the plan of the property was ambiguous and aided his belief, the court held that the contract was void for mutual mistake. The court also held that there was mutual mistake in Raffles v Wichelhaus where there was a contract to buy a consignment of cotton which was to arrive “ex Peerless from Bombay.” It turned out that one ship named Peerless left Bombay in October, and another did in December. The defendant was able to successfully plead mistake because he thought the cotton he was purchasing was on the Peerless leaving in October.

Unilateral mistake

The most important element which distinguishes unilateral mistake from other kinds of mistake is that only one party is entering the contract under a mistaken belief in unilateral mistake. Usually, the mistake would have been by the other party, and this kind of mistake is also sufficient to make a contract void.

With regards to the mistaken party, the test is subjective. It is called subjective in the sense that it is not what a reasonable man in the mistaken party’s shoes would believe that would be accepted by the court, but whether or not the party was actually mistaken. The test for the unmistaken party, on the other hand, is objective. It is objective because even when the mistake was not induced by the other party, the court will presume that the other party knew of the mistake where a reasonable man would have known of the mistake.

In Hartog v Colin and Shields, the defendants contracted to sell to the plaintiff 3,000 Argentinian hare skins, but mistakenly offered them at a price per pound instead of per piece. It was established at the trial that the price per piece was roughly one third of that per pound, and that the negotiations leading up to the sale had proceeded throughout on a price per pound, as this was the usual practice of the trade. When the plaintiff brought an action to enforce the sale, Singleton, J. held that the plaintiff should have known that the defendant was contracting under a mistaken belief. There was also a similar case in Abdul Yusuf v Nigerian Tobacco Company, where the defendant was allowed to escape contractual liability since there was unilateral mistake.

Very often, the unilateral mistake is usually mistake as to identity. This usually happens when one party induces the other party to enter the contract by pretending to be someone he is not. The law presumes that a person intends to contract with the person with whom such a person apparently contracted, and the burden is on that person to show unilateral mistake. In order to show that there was a mistake as to identity, the party alleging mistake must show the following.

• That the person intended to contract with someone else.
• That the unmistaken party knew of this intention.
• The identity of the unmistaken party must have been of importance in the contract.
• The mistaken party must have taken steps to verify the unmistaken party’s identity.

All of the above must be proved by the party who alleges mistake to escape liability, and they are all equally important. In King’s Norton Metal Co. Ltd. v Edridge, Merrett & Co. Ltd., a rogue named Wallis used a fictitious name, Hallam & Co., to obtain goods on credit from the plaintiff which he promptly sold to the defendants who had no knowledge of his fraud. The court held that the contract was not void as the plaintiff had not proved that they wanted to contract with someone else, since Wallis and Hallam & co. were the same person.

It is also important for the unmistaken party to know of the mistake to make the contract void for unilateral mistake. In Boulton v Jones, Boulton accepted an order made from Jones to someone else, and so the court held the contract void. However, in Upton-on-severn R.D.C. v Powell, the contract was still valid as the plaintiff had no knowledge of the defendant’s mistake before performing the contract.

Beyond a mistake as to the identity, it is also important that the identity is crucial enough that the mistaken party would have never entered the contract if they had known the true identity of the other party. In Lewis v Averay, a rogue posing as Richard Green, a well-known actor, called on the plaintiff who advertised his car for sale and offered to buy it at 450 pounds. He then signed a cheque “R.A. Green” and was allowed to take the car away after producing a false identity card showing that he was indeed Richard Green. The cheque proved worthless and the buyer turned out to not be Richard Green. The rogue sold the car to Averay who had no notice of the fraud. The plaintiff brought an action against Avery for conversion. In holding that there was a valid contract, albeit voidable before the rogue sold the car to an innocent third party, Lord Denning stated the following.

When a dealing is between a seller like Mr. Lewis and a person who is actually there, present before him, then the presumption of the law is that there is a contract, even though there is a fraudulent impersonation by the buyer representing himself as a different man than he is. There is a contract made with the very person there, who is present in person. It is liable no doubt to be avoided for fraud, but it is still a good contract under which title will pass unless and until it is avoided.

Based on this, it seems to be the position that a person who contracts physically with another cannot rely on mistake as to identity.

It was emphasized in Ingram v Little that verification is important, and lack of verification will very often prevent the mistaken party from voiding the contract.

Mistake in equity

The origin of equity lies in an attempt to reduce the harshness of common law, and this is also why there is a concept of mistake in equity. The concept of mistake exists in equity to broaden the narrow scope of common law’s mistake. In Smith v Hughes, the defendant was required to pay for new oats which he did not want at all, and in Bell v Lever Bros., the respondent paid 30,000 pounds to terminate a contract which he was entitled to terminate without paying any money. In Cundy v Lindsay, an innocent third party suffered severe loss. All of these injustices were due to the narrow scope of common law. In the cases, common law emphasized the need for commercial certainty over the importance of justice for the parties in each individual case.

In expanding the scope of mistake, equity also seeks to apportion loss in a way common law cannot. Through the apportioning of loss, the loss is shared between innocent parties, unlike common law where one party suffers all of the losses as in Cundy v Lindsay.

Forms of equitable relief

The forms of equitable reliefs concerning mistake include rescission, refusal of specific performance and rectification.

a. Rescission

Sometimes a mistake might not be void at common law because such a mistake is not fundamental enough, however such an agreement could still be set aside by the court if enforcing the contract will be unfair or will create undue hardship. Or if the party requesting for the enforcement of the contract should have known that the other was mistaken.

In Solle v Butcher, a flat was extensively altered and modernised by the defendant, who thereafter let it to the plaintiffs for seven years at 250 pounds a year. Both parties believed at the time of the contracting that the alterations had so changed the identity of the flat as to make it a “new” dwelling house, and therefore no longer covered by the Rent Restriction Act under which it would have been illegal for letting it out for more than 140 pounds per year. It turned out that the parties were wrong in this assumption. When the plaintiff brought an action against the defendant for overpaid rent, the defendant counter-claimed, claiming that the contract was void for common mistake. The court held that while the contract was not void for common mistake, it would grant equitable relief by setting aside the contract and giving the plaintiff the choice to either pay the full amount or accept the rescission of the lease.

Also in Harris v Pepperell, a vendor mistakenly added a piece of land he had not intended to sell was not bound by the contract when the defendant claimed he had intended to buy that piece of land. The court gave the purchaser the option of either having the contract annulled or accepting the contract in the original form which the vendor intended.

b. Refusal of specific performance

It has already been stated that a mistake in common law may only void a contract when the mistake is fundamental. However, the court will refuse to grant specific performance in some instances where granting specific performance will cause hardship or injustice. In Day v Wells, the court refused to decree specific performance on goods sold at an auction when the owner intended a reserve price and they were sold below the reserve price.

The court might also refuse to grant specific performance where one party takes advantage of a mistake by the other party. This was the case in Abdul Yussuf v Nigerian Tobacco Company. Also in Webster v Cecil, the court refused to decree specific performance where Cecil, who had previously refused to sell his land to Webster for 2,000 pounds, mistakenly wrote to Webster offering to sell it for 1,500 pounds instead of 2,500 pounds which he had intended.

The decree of specific performance is a discretionary power of the court. However, in using this discretion, the court would usually consider justice and fairness. It has been stated that it shall be injustice to force a person to take a property which such a person does not desire, while it shall not be injustice to make a person take a property which is less extensive than that person believed it was.

c. Rectification

The court will sometimes allow a written agreement to be rectified if there was a mistake in putting down such an agreement. For the purpose of rectification, it is necessary that there was a previous oral agreement, as the courts will only rectify an instrument which contains a mistake and the court will not rectify an agreement.

In Craddock Bros. v Hunt, a vendor orally agreed to sell to the purchaser a certain piece of property. By mistake, the written contract embodying the agreement included an adjoining yard which the parties had exempted from the sale, and the subsequent conveyance actually conveyed this land to the purchaser. The court ordered that the conveyance should be rectified to bring it in line with the agreement of the parties.

Documents Mistakenly Signed: Non Est Factum

It is a general rule in law that a person is bound by whatever they sign, whatever the content. There is an exception where a person is induced by fraud or misrepresentation to sign a contract which is radically different from what he thought. In such an instance, the person could be allowed to plead non est factum to escape the contract. Non est factum literally means “it is not my deed.” In Foster v Makinon, the court stated the following.

Such a contract is invalid not merely on the ground of fraud, where fraud exists, but on the ground that the mind of the signer did not accompany the signature, in other words, that he never intended to sign and therefore in contemplation of the law never did sign the contract to which his name is appended.

Originally, the doctrine was used by those who could not read. In Thoroughgood’s case, an illiterate man executed a deed to waive arrears of rent owed to him by a tenant, and the tenant and his friend read the contract out to him to that effect. When it turned out that the contract was not only to waive the rent, but also to transfer the property to the tenant, the court did not enforce the contract.

This principle is of importance in a place like Nigeria with quite a number of the population being illiterate. One easy example is the case of Adegbokun v Akinsanya and two others where an illiterate man had conveyed the wrong property to a man who knew of his true intention and did not have the contract properly explained to him. The court held the contract void.

The court laid down the two essential conditions to plead non est factum in Foster v Makinnon, where the court stated that the signer would only be allowed to plead such when the document is entirely different in nature from the one he had intended to sign and there was no negligence on the part of the signer. The two conditions shall now be discussed.

a. Nature of the contract signed

The plea of non est factum will fail where the person trying to rely on it was only mistaken as to the content of the contract and not the character or the nature. In Oluwo & Another v Adewale, the plaintiff mortgaged his property to one Dada to secure a loan of 2,000 pounds. When Dada wanted to exercise his power to sell the property due to the plaintiff’s inability to pay, the defendant offered to takeover Dada’s mortgage by advancing the plaintiff a total sum of 3,200 pounds. The defendant presented to the plaintiff, who was on the sick bed, a document for his signature which he presented as the receipt of the loan of 3,200 pounds, when it was in fact an outright sale of the property. When the plaintiff’s executors tried to rely on non est factum, the court held that they could not as the nature was not different. He had thought he was signing a contract to transfer legal estate of the property to the defendant, with an equity of redemption, when it was really an absolute transfer.

Lord Denning criticized the distinction between class and nature of the document on one hand and content on the other hand in Saunders v Anglia Building Society. He stated that a difference in content might also cause a fundamental difference. The modern approach is now for the court to see if there was a radical or fundamental difference between what the person wanted to sign and what the person actually signed. In Barclays Bank of Nigeria Ltd. v Mrs. Okotie-Eboh & others, the court held that the first defendant was sufficiently literate to have an idea of the meaning of the word guarantee in bold print on the document. The document was therefore not of a fundamental difference from what she thought she had signed.

b. Negligence

Negligence could be fatal to a person’s plea of non est factum, as the presence of negligence will very often prevent a party from relying on the plea.

In Aro v Kadiri, the court found that the plaintiff’s replies and demeanors indicated that he understood English Language even though he claimed to be illiterate. The court stated in that case that if a person of full age signs a document presented before such a person without bothering the read it, the person cannot plead non est factum. Also in Gallie v Lee where a woman of 78 signed a document because her glasses were broken and so she could not read it, she was not allowed to rely on non est factum to make an innocent third party suffer for her negligence.

Also, non est factum can only be pled by the person who signed to document, and not by someone else with an interest in the subject matter. In Omorode v Chief Ibru & 14 others, the plaintiff brought an action to set aside a deed on the grounds of irregularity, amongst other things. The court was asked to set aside and declare null and void the grant of community land made by 14 elders in favour of the defendant, and he claimed that the document was not properly explained to the elders. The court held that he was not in the position to make that plea.