The Doctrine of Mistake at Law

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:

1. 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.
2. 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.
3. 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.
4. 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 1^stOctober 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:

1. 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.   

2. 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:

1. Rescission
2. Rectification
3. 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.