LLB202 Study Guide - Final Guide: Cape Schanck, Anglia Building Society, Non Est Factum
1. Mistake –
For a mistake to affect the validity of a contract it must be an "operative mistake", ie, a
mistake which operates to make the contract void. The effect of a mistake is:
At common law, when the mistake is operative the contract is usually void ab initio, ie, from
the beginning. Therefore, no property will pass under it and no obligations can arise under it.
Even if the contract is valid at common law, under equity, a mistake will give the mistaken
party the right to rescind the contract. The same limitations on the right to rescind under
misrepresentation also apply to mistake
-Three types of mistake; common, mutual, unilateral
11.1 Common Mistake
Common Law
A common mistake occurs when both parties have made the same mistake
For example, Y offers to sell his painting of Salisbury Cathedral to X, and X accepts, but,
unknown to either, the painting has been destroyed by fire earlier the same day.
In order for the common law to grant a remedy for common mistake, it must be proven that:
(i) There was a common assumption as to the existence of a state of affairs
(ii) There was no warranty made by either party that the state of affairs exists
(iii) The non-existence of the state of affairs must not be 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 consideration or the circumstances which must exist for
performance of the contract to be possible
Australian Estates Pty Ltd Cairns City Council Atkinson J
Types of Common Mistake
11.1.1 Res Extincta
Where the subject matter of the contract no longer exists but this is not known to the parties
(Couturier v Hastie)
If one party guarantee that the subject matter is in existence, the party making the
representation may be liable in breach of contract (McRae v Commonwealth Disposals
Commission).
In Couturier v Hastie [1843-60] All ER 280 it was the view of the House of Lords that everything
depended on the construction of the contract.
See s 9 Sale of Goods Act (Qld) ‘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 when the contract is made, the contract
is void’.
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Common mistake as to the qualities or attributes of the specific subject matter of the contract,
does not make the contract void at common law:
Bell v Lever Bros. Ltd (1932) AC 161
11.1.2 Res Sua
The buyer or lessee of the property is already the owner but this is unknown to the parties
(Bell v Lever Bros Ltd).
11.1.3 Mistake as to subsisting circumstances
Parties made the contract on the basis of a common assumption that circumstances which
existed at the time, would continue to exist once the contract had been made (Griffith v
Brymer).
11.2 Equity
Equity requires an unconscionable act, but this may be satisfied merely by the party being
benefited by the mistake, seeking to uphold the agreement (Lukacs v Wood).
Those contracts declared void for mistake at common law will also be regarded as void in
equity (Bell v Lever Bros). It has been held that there are, however, two other instances in
which equity will intervene
Voidable
Rescission
In order for the contract to voidable under equity, three elements must be shown:
(i) A common misunderstanding as to facts or the parties’ rights
(ii) When is of a fundamental nature
(iii) the party alleging mistake is not at fault
(Solle v Butcher)
A mistake may be described as fundamental if it concerns the nature or quality of the subject
matter (Grist v Bailey)
Note, however, that in England Solle v Butcher was overruled by the Court of Appeal in
Great Peace Shipping Limited v Tsavliris (International) Limited [2003] QB 679. This case
involved a ship at risk of sinking in the South Indian Ocean. A contract for evacuation
services, with a right to cancel upon payment of a cancellation fee, was entered with Great
Peace Shipping, under the common mistake that the vessel Great Peace was the nearest boat.
Once the contract was made it was discovered that the Great Peace was not the closest ship
(instead of being 35 miles away it was in fact 410 miles away). Accordingly the contract was
cancelled and a fresh contract entered into with the closer ship. Great Peace Shipping claimed
the cancellation fee while the owners of the ship in distress claimed that there had been a
common mistake of a fundamental fact that entitled them to rescind the contract.
It was held that when Lord Denning MR in Solle v Butcher formulated the view that in equity
the contract was voidable, he did not pay sufficient notice to the statement in the House of
Lords in Bell v Lever Bros stated above that equity only intervened in the circumstances
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Document Summary
For a mistake to affect the validity of a contract it must be an "operative mistake", ie, a mistake which operates to make the contract void. At common law, when the mistake is operative the contract is usually void ab initio, ie, from the beginning. Therefore, no property will pass under it and no obligations can arise under it. Even if the contract is valid at common law, under equity, a mistake will give the mistaken party the right to rescind the contract. The same limitations on the right to rescind under misrepresentation also apply to mistake. Three types of mistake; common, mutual, unilateral. A common mistake occurs when both parties have made the same mistake. For example, y offers to sell his painting of salisbury cathedral to x, and x accepts, but, unknown to either, the painting has been destroyed by fire earlier the same day. Australian estates pty ltd cairns city council atkinson j.
