Introduction to the Doctrine of Mistake
There is always a consensus ad idem (meeting
of the minds) between parties that enter into a contract. What this means is
that both parties to a contract are thinking of the same thing when they enter
into a contract. Thus, when a party enters into a contract on a mistaken
assumption of some fundamental facts, the consensus ad idem is
lost. This then justifies the contract being voided for mistake.
To a layman, any obvious misunderstanding
of the contract by either party could be categorized as a mistake. However this
is not the case. Mistake in the law of contract only applies to fundamental
facts that go to the root of the contract.
The effect of mistake in a contract
was well espoused by Lord Atkin in
the case of Bell & anor vs. Lever Brothers Ltd All ER 51.
In this case, Lord Atkin stated:
“If mistake operates at all, it
operates so as to negate or in some cases, nullify consent”.
From the above, if consent is
nullified in a contract, its effect is to render the contract ineffective.
Thus, the effect of a mistake in a contract would be to render that contract
void.
Categories of Mistake
Under the common law, it is generally
accepted to be of three types:
- Common Mistake
- Mutual Mistake
- Unilateral Mistake
In contrast to the above
classifications, some other authors have classified it into mistake at common
law and mistake at equity. Others still classify it into mistake in common law
and equity, with mistake in common law being further divided into mutual and
unilateral mistake. These various views of mistake can still be seen as
different ways of looking at the same thing. However, the categorization that
will be adopted is the one by Cheshire and Fifoot which classifies it into
common mistake, mutual mistake and unilateral mistake. Mistake in equity would
also be separately discussed.
Some Preliminary Considerations in the
Doctrine of Mistake
Before one delves further to fully discuss the doctrine of mistake in
the law of contract, there are some preliminary issues that should be ironed
out in order to make the understanding of the doctrine clearer. These issues
would be highlighted below:
- An Objective Test: What
this means is that before the court would determine whether or not there
is a mistake, an objective test would be carried out. This objective test
is to see what a reasonable man would think the parties were contracting
about. The court doesn’t concern itself with the subjective views of the
various parties to the contract. Rather, it is concerned with the
objective view of a reasonable man.
- Mistake Must Precede the
Contract: For the act of mistake to be valid, it
has to be one that precedes the formation of the contract. Any mistake
that is alleged to be after the formation of the contract would be held to
be of no effect by the courts.
- Mistake Must Induce the
Contract: Mistake is only valid in nullifying a
contract if it induces the contract. A person cannot claim that he was
mistaken as to particular facts if he has just a suspicion of the state of
affairs. It must be expressly evident to an objective man that the reason
for entering into the contract was because of the alleged mistake.
- Mistake of Fact and Mistake
of Law: A mistake as to the facts of a case can
operate to avoid a contract. On the other hand, a mistake of law cannot
operate to void a contract. This is due to the principle of law expressed
in the Latin maxim Ignorantia Juris non excusat.
However, in England, this position of
the law has been reviewed. This was done in the case of Kleinworth
Benson Ltd vs. Lincoln City Council. In this case, the plaintiff bank
paid money to the defendant city authorities under a transaction that it
believed was legal. Subsequently, it was discovered that this transaction was
one that had been made void by law. Thus, the plaintiff sued to recover its
money. The House of Lords was unanimous in holding that the age long
distinction between mistake of law and mistake of fact was no longer relevant.
If there is a mistake, whether it be of fact or of law it would operate to make
the contract void. Thus, in the instant case, the remedy of restitution was
allowed in order for the plaintiff to recover its funds.
It is however worthy of note that the
decision given above is not binding on courts in Nigeria. This is due to the
fact that decisions made by courts of foreign jurisdictions after 1stOctober
1960 are only of persuasive effect in the Nigerian Courts.
Common Mistake
This occurs when both parties to
the contract are mistaken about the same state of affairs. This state of
affairs could either be a mistake of subject matter or of title. For example,
if A buys a car from B while unknown to them, the car had been destroyed, it is
a common mistake.
Common mistake is generally of the
following classification:
- Mistake as to the existence
of the Subject matter (res extincta): This
is embodied in the example given above, where the car was destroyed. Thus,
mistake as to the existence of the subject mattes occurs when both parties
contract under the mistaken belief that the subject matter existed, when
in fact, it did not.
In the case of Couturier vs.
Hastie both parties entered into a contract for the sale of a cargo of
corn. Unknown to both parties, during the voyage the corn got fermented and it
was subsequently sold off by the captain of the ship. When the seller sued for
the contract price, the court held that this was a case of res
extincta, as a result, the contract was voided.
Also, in the case of Galloway
vs. Galloway, both parties entered into a marriage settlement
contract. Subsequently, it was discovered that their marriage was void ab
initio (it never existed in the eyes of the law). The court held that
since there was never a marriage, there can’t be a marriage settlement.
- Mistake as to Title (res
sua): This occurs in a situation in which parties to
the contract are mistaken as to the title of the goods being sold. It
usually occurs when the buyer of the goods is also the owner of such
property unknown to him. In the case of Cooper vs. Phibbs, X
agreed to take lease of a fishery from Y, unknown to both parties, the
fishery already belonged to X. It was held that in this situation, the
agreement of lease was void for mistake.
Also, in the case of Abraham
vs. Chief Amodu Tijani Oluwa, the defendant attached a writ of fi.fa to
a land that he believed belonged to his judgment debtor. The plaintiff wasn’t
sure of his title and as a result, he bought the land. Subsequently, he
confirmed that the land was really his own. He thus sought a refund of the
price he paid. The court held that the initial sale was void due to the fact
that there was a mistake as to title.
Mutual Mistake
Mutual mistake occurs in a situation
in which both parties make the error. However, unlike common mistake, it occurs
when both parties are mistaken about different things. For example, in a
situation in which A agrees to sell
his jeep to B. If A intended to sell
his Lexus but B thought it was a Toyota, there is a no required consensus
ad idem between the parties. As a result, the contract is void for
mutual mistake.
It should however be noted that
mutual mistake would only be applicable if the error made was a reasonable one.
Unilateral Mistake
This occurs when one party is
mistaken concerning the facts of the contract and the other party is aware of
this and exploits it to his own advantage. If this is discovered it would
render the contract void. Most cases of unilateral mistake concern mistake of
identity and mistake concerning the terms of the contract.
Mistake of Identity
This occurs when the mistaken
party goes into the contract due to a misconception concerning the identity of
the other party. In order for a plea of mistaken identity to succeed, the
following conditions must be fulfilled:
- That the mistaken party
intended to contract with a person different from the person with whom he
contracted with.
- That the person who
contracted with him knew or ought reasonably to have known that he
intended to contract with a different person.
- That at the time of the
contract, the plaintiff regarded the identity of the other party as being
crucial to his entering into the contract.
- There was no opportunity for
the plaintiff to truly verify the identity of the party with whom he
contracted.
In the case of Cundy vs.
Lindsay the respondent was defrauded into selling goods on credit to
an impostor who was representing another person that he intended to deal with.
Unfortunately, before the vice was discovered, the impostor sold the goods to a
third party. When the owner discovered that he had been duped, he brought an
action to retrieve the goods from the third party. The court held that due to
the unilateral mistake, the property in the goods had not yet passed to the
impostor, hence he could not transfer same to the third Party. Therefore, the
goods were returned to the plaintiff.
Mistake Concerning the Terms of the
Contract
This occurs where one party is
mistaken regarding the terms of the contract and the other party, knowing this,
intends to exploit it to his own advantage. In the case of Hartog vs.
Colin & Shields the defendant was a trader of animal skins. He
mistakenly sold the products at a price per pound instead of per piece; this
made the price of the products unduly cheap. The plaintiff, on seeing this
opportunity, readily accepted the contract. When the defendant discovered his
error, he refused to supply the products. As a result, the plaintiff brought an
action to enforce the contract.
The court held that this was a case
of unilateral mistake and a result, the contract was not enforceable.
It should be noted that a contract
would be valid despite the error of the other party had no idea that it was an
error. In the case of Centrovincial Estate Plc vs. Merchant Investors
Assurance Company Ltd, a landlord offered to renew his tenant’s lease
at a rate of £65,000 per annum instead of £126,000. The tenant, oblivious of
this error, accepted the contract. When the landlord discovered his error, he
wanted to rescind the contract. The court held that this was not a case of
unilateral mistake since the other party was not aware of the error.
The Rationale for Equitable Remedies
As can be seen from cases like Cundy
vs. Lindsay, the common law doesn’t pay much attention to the interest
of third parties in a contract. If it can just be proved that there was a
mistake, the contract would be made void. Due to this rigidity and harshness,
equity has stepped up to provide some remedies in order to ameliorate the
plight of the parties. These equitable remedies in cases of mistake include:
- Rescission
- Rectification
- Refusal of Specific
Performance
In order for any of these equitable
remedies to be granted, the stipulations by Lord Denning in the case of Solle
vs. Butcher have to be met:
- Where the mistake is common
or mutual, it must be fundamental in nature and neither flimsy nor minor.
- Where it is a unilateral
mistake, it must have been induced by the other party, or he had
constructive knowledge of the mistake.
- It must be inequitable for
the party seeking to enforce his strict rights under the law to have the
law enforced in his favour.
Rescission
The remedy of rescission is used in
order to set aside a contract entered into on the basis of a mistake. The
court, in this case effectively releases the parties from any obligations
regarding that contract, making it unenforceable. In the case of Cooper
vs. Phibbs ¸the court rescinded contract when it was discovered that the
mistaken party bought what already belonged to him.
However, there are some limitations
to the applicability of the right of rescission:
- Lapse of Time: The
equitable remedy of rescission would not be applicable if there has been a
lapse of a reasonable period of time after the agreement of the contract.
This is embodied in the equitable maxim: “delay defeats equity”. The test
of what is a reasonable time depends on the circumstance of each
individual case.
- Third Party Rights: The
equitable remedy of rescission would not be applicable if the goods have
been acquired for value by an innocent third party before the application
for rescission.
- Impossibility of
Restoration: The equitable remedy of rescission would not
apply where restitutio in integrum cannot be achieved due
to the destruction, consumption or modification of the subject matter.
Rectification
The equitable remedy of rectification
is used when the written contract doesn’t convey the real intention of the
parties to the contract. Iin this case, the court would order a modification of
the written document in order to make sure that it reflects the real intention
of the parties.
In the case of Joscelyne vs.
Nissen, a father agreed to let his daughter take over his car hire
business on the condition that she would take care of certain household
expenses. However, due to a mistake, the written agreement did not place these
responsibilities on the daughter. The court ordered a rectification of the
agreement in order to make it reflect the true intention of the parties.
In order for this remedy to apply,
the following requirements have to be met:
- There was a prior agreement
between the parties before the written agreement.
- The intention of the parties
must remain unchanged from the time of the prior agreement till the time
of the written agreement in contention.
- The written agreement must
be different from what the parties originally intended.
- The evidence for mistake
must be clear and unambiguous.
Refusal of Specific Performance
The court would refuse to order the
specific performance of a contract when it can be proved that the person
applying for it is acting to exploit the mistake of the other party.
In the case of Abdul Yusuf
vs. Nigeria Tobacco Company, the defendant made a typographical error
in drafting the contract of the plaintiff in transporting some of its goods.
Due to this mistake, the price to be paid was unduly high. The defendant
requested the plaintiff and other drivers to return their contracts for
correction. The plaintiff refused and sought to have the contract enforced. The
court refused to grant the equitable remedy of specific performance based on
the fact that it would be inequitable to do so since the plaintiff was trying
to exploit the defendant’s mistake.
It should however be noted that in a
scenario in which the terms of the contract are clear and unambiguous, the
contract would be enforced. In the case of Tamplin vs. James, the
defendant bid for and bought an inn auctioned by the plaintiff on the belief
that since the plaintiff owned an adjacent garden he would also sell it with
the inn. However, during the auction, the plan of the inn to be sold was
clearly displayed and it did not include the garden in question. The court held
that in this situation, the terms were clear and unambiguous. As a result, the
contract had to be enforced.
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