Summary
Summary 6. Mistake (LAWS1042)
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Topics include - Different types oof common mistake - Mutual mistake - Unilateral mistake - Non est factum - Rectification of mistakes above - Case summaries
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6. MISTAKEVARIETIES OF MISTAKE
Mistake
Common When each party makes the same error about some fact or circumstance fundamental to the contract
such that the achievement of the contractual adventure is rendered impossible.
Mutual When the parties are at cross purposes with each other about some matter fundamental to their
agreement
Unilateral One party makes an error concerning the existence or meaning of a contractual term and entrees into the
agreement while the other party has knowledge of the first party’s error or is responsible for inducing it.
Identity A species of unilateral mistake and occurs when one party intends to enter into a contract with a particular
person, but mistakenly concludes the agreement with someone else.
1. COMMON MISTAKE
A common mistake at common law occurs when each party makes the same error about some fact or circumstances
fundamental to the contract such that achievement of the contractual adventure is rendered impossible. An operative
common mistake will have the effect of rendering the agreement void ab initio, with the result that no contractual
obligations arise and no interest in property can pass between the parties. The seriousness of this result, especially for
third parties who may have acquired an interest in the subject matter of the contract, ensures that common mistake in
common law is confined to relatively narrow circumstances.
1.1 RES EXTINCTA
Where the subject matter of the contract no longer exists at the time when the contract is made. Specifically, res extincta
refers to a mistake as to the existence of the subject matter of the contract.
Couturier v Hastie (1856)
Facts The respondent shipped a cargo of corn and employed the appellant to sell it. The appellant “sold” the cargo
to Callender but it had already been sold by the mater of the ship as it was rotting. Callender repudiated the
sale as there was no subject matter. The appellant was a “del credence” agent which meant he guaranteed
payment if the buyer defaulted. The respondent sued the appellant for the price arguing that Callender was
liable to pay, since he had bought a “risk” rather than a cargo, and that, t Hereford, the appellant was liable
for Callender’s default.
Held The dispute was all the way to the House of Lords which decided that Callender was not liable to pay and
that, therefore, the appellant was not liable.
Reason Although there was no specific mention of mistake, the court considered that common sense dictated that
the subject matter of the contract did not exist at formation, then the contract did not exist either.
1.2 RES SUA
Res Sua refers to a shared mistake as to the ownership of the subject matter of the contract.
Cooper v Phobos (1867)
Facts The complainant, Mr Cooper, was the nephew of the owner of the salmon fishery near Ballysadare, Ireland. He leaded
his salmon fishery from his Uncle. When his uncles died and the lease came up for the time of renewal, the complainant
renewed the lease for the salmon fishery with his Aunt. However, it was later found out that in the Uncle’s will, Mr
Cooper as his nephew, had been given life tenancy of the salmon fishery. This meant that there was no need for the
lease that existed between him and the Aunt and the dispute arose when the next rental payment was due.
Issue Whether Mr Cooper was the owner of the salmon fishery and whether the lease would be void.
Held It was held that the contract and lease that existed between the complainant and the defendant was voidable, rather
Reason than void. This was due to the claim being in equity, as Mr Cooper had beneficial ownership of the salmon fishery and
not legal ownership. This case concerned ‘res sua’ and it was a mistake as to the title of the property; Mr Cooper was
already the beneficial owner of the salmon fishery and there could not be a lease. It was held that such an agreement
would be set aside due to a common mistake by both parties as to ownership.
Chloe T 33
, 1.3 MISTAKE AS TO THE QUALITY
A mistake as to quality refers to a mistake of ‘some quality which makes the thing essentially different from the thing it
was believed to be’
Bell v Lever Bros Ltd (1932)
Facts Bell was the managing director for five years of a company that was owned by Lever Bros Ltd. Bell had traded
for personal profit during his employment, which was contrary to his contract with the company. Without
knowledge of this, Lever Bros Ltd made an offer of redundancy to Mr Bell, terminating his contract and
offering a $30,000 payment as compensation.
Issue Whether the redundancy contract that was created and accepted by mr Bell, could be void by common
mistake, due to later finding out about his personal trading. Lever Bros Ltd argued that this concealment
and misconduct was a breach of his duty that was detailed in his employment contract.
Held The contract was not void, as the mistake was not an ‘essential and integral’ part of the contract. The
Reason personal trading that had happened during the employment was not related to the subject matter of the
contract and was said to be minor compared to the profits Bell had made for Lever Bros Ltd. Only a mistake
to the identity of the parties or of subject matter to the contract, as well as an item’s quality, would be able
to successfully negate consent and therefore void a contract, as if it had never existed. The mistake must be
essential to the identity of the contract.
1.4 FIVE ELEMENTS OF COMMON MISTAKE
The English Court of appeal has more recently revised and tightened the test for establishing common mistake. The Great
Peace requirements are so strict that very few cases will qualify. This case is the followed in Hong Kong in Tony
Investments v Fung Sun Kwan.
Great Peace Shiping Ltd v Tsavliris Salvage (International) Ltd (2003)
Facts The defendant company that offered salvaging facilities to ships in the South Indian Ocean that needed
assistance. A ship called the Cape Providence required help after it had endured structural damage at sea.
The defendants looked for any merchant vessels that were nearby to assist them. The complainants, Great
Peace Shipping Ltd, said they were the closest to the ship, being around 30 miles away. On this information,
the defendants commissioned the complainants to help the ship. In fact, this was a mistake and the
complainants were around 400 miles away from the ship. Since the Cape Providence was in desperate need
of help, as it was sinking, the defendants cancelled the contract with the complainants and asked another
ship for assistance.
Issue The claimant had sued for their contract fee with the defendants. The defendants argued that the distance
from the Cape Providence was a common mistake and this would invalidate the contract that they had
providing assistance. The issue was whether this was a common mistake and if it could void the contract.
Held It was held that this was not a common mistake that would void the contract between the complainant and
defendant. It was a matter of quality of the performance of the contract. The miles did not matter and it did
not make the contract impossible to perform. A common mistake requires an element to make contract
performance impossible and mileage was not fundamental enough to render the contract void.
Reason “76. [T]he following elements must be present if common mistake is to avoid a contract: (i) there must be a
common assumption as to the existence of a state of affairs; (ii) there must be no warranty by either party
that that state of affairs exists; (iii) the non-existence of the state of affairs must not be attributable to the
fault of either party; (iv) the non-existence of the state of affairs must render performance of the contract
impossible; (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be
provided or circumstances which must subsist if performance of the contractual adventure is to be possible.”
There is, therefore, a five-part test that falls to be satisfied before a contract is void for common mistake:
1. There must be a common assumption as to the existence of a state of affairs;
2. There must be no warranty by either party that the state of affairs exists;
3. The non-existence of the state of affairs must not be attributable to the fault of either party;
4. The non-existence of the state of affairs must render performance of the contract impossible;
5. The state of affairs may be the existence, or a vital tribute, of the consideration to be provided or circumstances
which must subsist if performance of the contractual adventure is to be possible.
Chloe T 34
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