Examine the different circumstances in which the doctrine of 'mistake' may arise in making a contract and explain the effect in each case. An operative mistake means a mistake which operates so as to avoid a contract; this is the only mistake which could be recognised by law. There are four types of operative mistake. First of all is the Mistake Relating to Documents, in another word is the documents that has been mistakenly signed. In general, if a person has signed a document or a contract, whether this person has read and understood all its terms, he is bound by it; L'Estrange v.
Graucob1. If a person has been induced to sign the contract by fraud or misrepresentation, the transaction will be voidable. In this kind of situation, the person may be able to use Non Est Factum2 as a defence. This was originally used to protect those who are quite old and not quite educated people, but now it can be used to all kinds of persons who have signed some documents which is totally different from what it actually was. Foster v. Mackinnon is a quite good example for it, where the plea of non est factum succeeded.
However, in order to prevent abuse of the plea, the courts have set two restrictions: first, the mistake made by the signer must be fundamental or radical to the document he signed; and second, the signer must take reasonable care when signing the document. Regarding to the first one, the test first used in Howatson v. Webb3 showed that it was not realistic, so in Saunders v. Anglia Building Society4, the House of Lords substituted the test.
The test they apply now is looking for the fundamental or radical difference between the document actually signed and what the signer believed it to be. The second test was first used in Carlisle and Cumberland Banking Co v. Bragg, CA, 1911, where the Court of Appeal had ruled that negligence on the part of the signer only defeated the plea if the document was a negotiable instrument. After Saunders overruled Bragg's case, the position is now changed to that if a signer was careless he cannot raise the plea.
The remedy of rectification may be applied where based on the agreement between contractual parties on the terms of the contract, an incorrect made by mistake occurred in a subsequent written document. The court can rectify the error and specific performance of the contract may be granted as rectified. The next type of operative mistake is called Identical or Common Mistake, that is, the parties have entered into a contract on the basis of a false and fundamental assumption. As both parties make the same mistake, it is not quite necessary to avoid the contract at common law. The case can be categorised into four types:
Mistake as to the existence of the subject-matter that, if unknown to the parties, the subject-matter of the agreement does not exist or has ceased to exist, the contract will be void at common law; Couturier v. Hastie5. In Galloway v. Galloway (1914) is similar, but the parties contracted on the basis of a false assumption which underlies the contract, the contract was likewise void. In another rare situation where one party agrees to transfer property to the other which the latter already owns and neither party is aware of the fact, the contract will also be void at common law.
This could be illustrated by Cooper v. Phibbs6 that, A had agreed to lease a fishery to B, but unknown to either, the fishery was already owned by B, the House of Lords set aside the agreement. There is authority that an identical mistake as to the quality of the subject-matter is not operative at common law. As in Leaf v. In. Galleries7, both parties mistakenly believe the painting has been painted by Constable but in fact it is not, the contract still held as valid. The leading case for this is Bell v.
Lever Bros8, an employee of Lever was dismissed with an agreement of i?? 30,000 compensation, but later they found that it is unnecessary to give him the compensation due to certain breaches of contract by him, which he had forgotten. The House of Lords held the contract valid under common mistake as to quality. Finally, identical or common mistake in equity, where a contract is void for identical mistake, the court, exercising its equitable jurisdiction will refuse specific performance.
Alternatively, the court may set aside any contractual document between the parties, and impose terms if justice is to be dealt. In Solle v. Butcher9, it shows that, although the agreement is valid at law, it is apparently voidable in equity. For justice reason, terms were imposed that the plaintiff should either give up the flat or stay on at the maximum rent chargeable by law. In cases, rescission for mistake is subject to the same bars as rescission for misrepresentation.
In William Sindall Plc. V. Cambridgeshire County Council10, Evans L. J.suggested that the common law rule is limited to mistake with regard to the subject matter of the contract, whilst equity can have regard to a wider and perhaps unlimited category of "fundamental" mistake. The third type is called Mutual Mistake.
The leading case is Raffles v. Wichelhaus11, the defendants agreed to buy cotton from the plaintiffs ex the ship "Peerless" from Bombay. There are two ships with the same name were due to leave Bombay in different time, both plaintiff and defendant were holding different ideas of the ship. The court held that the transaction was too ambiguous to be enforced as a contract.