Mistake Common Mistake A common mistake occurs where both parties make the same mistake as to some underlying and fundamental fact about the subject matter. This is a question of the construction of the terms of the contract: Couturier v Hastie. Common Law Where a common mistake has been made, it will render the contract void ab initio. There are two circumstances in which the courts are prepared to declare a contract void due to common mistake: 1. Res extincta Where the specific subject matter of the agreement has been destroyed or ceased to exist without the fault or knowledge of the parties prior to contract formation. However, if a party to a contract guarantees/warrants that the subject matter exists, the contract will not be void and the other party can recover damages: McRae v Cth Disposals 2. Res Sua Where the subject matter, usually land, is already owned by the purchaser, unknown to both parties: Bell v Lever Bros. Regard must be had to s 9 Sale of Goods Act (Qld) which provides that ‘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’. Equity Compared to the rigidity of common law, Equity can intervene on the ground of common mistake by setting aside a contract on such terms as it thinks best or order the rectification of the written agreement which has not been accurately expressed, thus reflecting the party’s true intention. Set Aside Equity may set aside a contract if the elements set out in Solle v Butcher are satisfied: 1. The parties are under a common misapprehension as to the facts or relative rights. 2. The misapprehension must have been fundamental - the party would not have entered into the contract if the truth of facts were known. The misapprehension can relate to the attributes of the subject matter of the contract – nature, quality or value of the subject matter. 3. The party seeking to set the contract aside is not at fault. Failure to take reasonable care to investigate and discover the mistake can constitute fault: Svanosio v McNamara. Rectification Where a contract is inaccurately recorder in a written document due to a clerical error of some kind, equity can rectify the document so as to bring it into line with what the parties had agreed upon and intended to record. It is concerned purely with rectifying the written document and not making a new contract thus only applies when the parties intentions are not accurately represented. This is an exception to the payrol evidence rule and allows extrinsic evidence to be given to show that the real intention of the parties was and how the written document should be corrected. The onus of proving that an order for rectification should be made rests with the party seeking such an order who must establish: 1. an agreement between the parties in regard to a particular provision or aspect of the proposed contract; 2. a common continuing intention carried through to the moment when the parties executed the formal contract to include the particular provision agreed upon; 3. that through a common mistake, the particular provision was omitted from the formal agreement; 4. that there is ‘convincing proof’ that the concluded contract does nto represent the common intention of the parties; and 5. the omitted provision must be capable of proof in clear and precise terms. Being discretionary in nature, the court will consider the conduct of the party seeking rectification in determination of whether rectification will be granted. The court may not order rectification if third parties' rights will be affected: Smith v Jones. Mutual Mistake Mutual mistake occurs when the parties entering into a contract are at cross purposes and its terms are not sufficiently clear for a court to resolve the conflict between them. Common Law In deciding whether mutual mistake has occurred, the courts use an objective test of what a reasonable person would believe to be the true intention of the parties: Smith v Hughes. If, upon a reasonable construction of the conduct between the parties, a particular meaning to the agreement can be inferred, that will be the meaning imputed to it: Goldbrough Mort & Co v Quinn. However, where it is not possible for a reasonable third party to prefer one meaning over another, the mutual mistake will render the contract void: Raffles v Wichelhaus. Equity As either party does not know of the others mistake, there is no unconscionability to justify equitable relief. Therefore, the meaning assigned at common law will be upheld in equity. Unilateral Mistake Unilateral mistake occurs when only one party is mistaken as to some fundamental term of the contract and the other party is aware, or should be aware, of that mistake. Common Law The appropriate test to determine unilateral mistake is an objective test and the application of such a test means the contract is not void at common law: Taylor v Johnson Therefore, only in cases of mistaken identity and non est factum can a unilateral mistake render a contract void. Mistaken Identity Unilateral mistake will sometimes arise as to the identity of the other contracting party. Where one party claims to be mistaken as to the identity of the other party such agreement will be void if: 1. at the time of the apparent agreement the identity of the other party was material; 2. there was an intention to contract, not with the other party, but with a separate entity; and 3. this intention was known or ought to have been known to the other party. If a contract is void on the basis of unilateral mistake as to identity, then title in the goods will not be able to pass to a third party. However if the contract is not void for mistake but only voidable for a fraudulent misrepresentation that induces the mistake, then it will only be able to be set aside at the instance of the mistaken person, so long as this is done before third parties have, in good faith acquired rights under it. There is a presumption in face to face contracts that the contract is with the person physically present: Lewis v Avery. That presumption may be rebutted by showing sufficient steps were taken to verify the identity of the other party: Phillips v Brooks Merely seeking to confirm an alleged identity by reference to a directory will be insufficient: Phillips v Brooks. Attempting to rely on identification proffered by the other person will not be sufficient: Lewis v Avery. Where the parties negotiate at a distance, the presumption is easier t o rebut: Cundy v Lindsay If the presumption is rebutted the contract is void: Taylor v Johnson. However, however regard should be had to Lewis v Avery in which Denning say the better view is the contract is voidable in consideration of third party rights If not, the contract will still be on foot. Non Est Factum Where one party alleges that the document signed was of a wholly different nature to that which he intended to sign a plea of non est factum will be successful and the contract will be void, with any interest acquired by any other party by virtue of that document being defeated. Three conditions are necessary: 1. The claimant must belong to the class of persons, that is, the class of who are permanently or temporarily unable through no fault of their own to have without explanation any real understanding of the purport of a particular document, whether that be from defective education, illness or innate incapacity": Saunders v Anglia Building Society; 2. The claimant must show that the document was signed in the belief that it was radically different from what in fact it was. It is a question of fact determined subjectively as to whether the document is radically different: Petelin v Cullin. 3. Against innocent persons, the failure of the claimant to read and understand must not be due to carelessness on his part: Petelin v Cullen The claimant's mistake may be as to the character of the document or as to its contents but not as to its legal effect: Gallie v Lee. Equity In unilateral mistake, equity may treat the contract as voidable, rectify the contract or withhold the remedy of specific performance. Voidable Contract Equity will set aside the contract in a case of unilateral mistake where the court is of the opinion that there has been a sharp practice, where one party knows the other is acting under a mistake and deliberately sets out to ensure the other does not learn of the mistake: Taylor v Johnson. Rectification Equity may rectify a written document where only one party mistakenly believes that the document accurately reflect the parties’ agreement and the party who is not mistaken engages in unconscionable conduct or ‘sharp practice’. The four elements set out in Thomas Bates & Sons v Windhams Lingerie are: The plaintiff wrongly believes that the written document contains a particular term or does not contain a particular term; The defendant is ware of the plaintiff’s wrong belief; The defendant says nothing to correct the plaintiff’s wrong belief; and The mistake either provides an advantage to the defendant or is a detriment to the plaintiff.