Mutual mistake

This occurs where the parties are at cross-purposes. They have different views on the facts of the situation, but they do not realise it. However, an agreement will not necessarily be void simply because the parties to it are at cross-purposes. In order for mutual mistake to be operative, that is, to make the contract void, the terms of agreement must comply with an objective test. The court will try to decide which of the competing views of the situation a reasonable person would support, and the contract will be enforceable or unenforceable on such terms.

                In Smith v Hughes the plaintiff offered to sell oats to the defendant, Hughes. Hughes wrongly believed that the oats were old, and on discovering that they were new oats he refused to complete the contract. It was held that the defendant’s mistake as to the age of the oats did not make the contract void.

            In Scriven Bros v Hindley & Co the defendants bid at an auction for two lots, believing both to be hemp. In fact, one of them was tow, an inferior and cheaper substance. Although the auctioneer had not induced the mistake, it was not normal practice to sell hemp and tow together. It was decided that, in such circumstances, where one party thought that he was buying hemp and the other thought that he was selling tow, the contract was not enforceable.

            If the court is unable to decide the outcome on the basis of an objective ‘reasonable person’ test, then the contract will be void, as was illustrated in Raffles v Wichelhaus  where the defendants agreed to buy cotton from the plaintiffs. The cotton was to arrive ex Peerless from Bombay. There were, however, two ships called Peerless sailing from Bombay, the first in October and the second in December. Wichelhaus thought that he was buying from the first, but Raffles thought that he was selling from the second. Under the exceptional circumstances, it was impossible for the court to decide which party’s view was the correct one. It was decided, therefore, that the agreement was void for mutual mistake.

In respect of mutual mistake, equity follows the common law.

In Tamplin v James James purchased a public house at auction.  Hehad

wrongly believed that the property for sale included a field which the previous publican had used. The sale particulars stated the property for sale correctly, but James did not refer to them. When he discovered his mistake, James refused to complete the transaction. It was held that, in spite of his mistake, an order of specific performance would be granted against James. Objectively, the reasonable man would assume that the sale was made on the basis of the particulars (see also Centrovincial Estates plc v Merchant Assurance Co Ltd and Great Peace Shipping Ltd v Tsavliros Salvage Ltd

            The role of equity was considered in Clarion Ltd v National Provident Institution  where one party’s mistake as to the effect of the terms of a contract did not allow the contract to be rescinded. It was held that equity did not provide a remedy simply because of a bad bargain; mistake would only operate in equity where it related to the subject matter of the contract, the terms of the contract or the identity of the contracting party. The decision has been the subject of criticism as its effect is to narrow equitable relief to the same circumstances as common law.