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Elements in a Contract XVI - End of Contract - Mistake II

Updated on July 30, 2017

There are a few factors that influence a court’s decision when it comes to determining if a mistake had been made or otherwise. The mistake must precede the contract i.e. the mistake must be made prior to the contract coming into existence or before the contract is entered into. In Amalgamated Investment & Property Co Ltd v John Walker & Sons Ltd (1977) the seller sold the buyer a warehouse knowing that the buyer intended to redevelop the property. A day later the Department of Environment designated the property a listed building – a mechanism that is used to protect buildings of historic importance or significance.

The buyer brought an action in court to render the contract void on the grounds that a mistake had been made. The court held that there was valid and enforceable contract. At the time the parties entered into the contract neither of the parties knew that the building was to become a listed building.

The mistake must have induced the party to enter into the contract. In Couturier v Hastie (1856) a cargo of corn was on board a ship sailing from the Mediterranean to London. During the journey, due to extensive heat, the crew discovered that the cargo was going bad and sold the corn at the nearest port. In the meantime, the seller and buyer who were not aware of the fact that the corn had been sold, entered into a contract under the assumption that the corn was still on board the ship. It was held that the contract was void because the subject of the contract did not exist. In a contract for the sale of goods if the goods perished without the knowledge of the seller, at the time the contract was entered into, the contract is void.

The mistake could either be a mistake of fact or a mistake of law. In Hartog v Colin and Shields (1939) the defendants were in possession of hare skins which they intended to sell at a price per piece as dictated by custom but instead quoted the price as per pound. When the defendants realized their mistake, they tried to stop the sale and the plaintiffs sued. The court held that the contract was void. The defendants had made a mistake of fact.

In Kleinwort Benson Ltd v Lincoln City Council (1999) a bank had paid a local council for certain financial transactions which at the time of making the payments, the bank was under the impression that such payments were legal. It later turned out that the payments were illegal and the court ruled that the payments should be returned to the bank. The bank had made a mistake of law.

In addition to mistake as to the terms of the contract, mistakes can also include mistakes of identity. In Cundy v Lindsey (1878) the plaintiffs received an order by post for handkerchiefs from a Mr. Blenkarn whose address was the same as a highly reputable firm with a similar name (Blenkiron & Co) that was located on the same street, as the address Mr Blenkarn had provided. The order was signed in a manner that was identical to that of Mr. Blenkiron from the above-mentioned firm of Blenkiron & Co.

The plaintiffs thinking that it was Mr. Blenkiron who intended to purchase the handkerchiefs dispatched the goods and Blenkarn sold the handkerchiefs to the defendant. By the time the plaintiffs had discovered the mistake most of the handkerchiefs had been sold. The court held that there was no contract with Mr. Blenkarn because the plaintiffs had intended all along to deal with Blenkiron & Co.

In King’s Norton Metal v Edridge Merrett & Co (1897) the defendant, using an alias, ordered some goods by post using a company letterhead that he had created purporting to be a large company with various subsidiaries. The plaintiffs sent the goods on credit but the defendant never paid for them. The plaintiffs sought to recover the outstanding payment from the defendant and brought the matter before the courts. The court held that the plaintiffs had intended to enter into a contract with the defendant and that the contract was valid and enforceable. The defendant was liable.

In Shogun Finance v Hudson (2003) a rogue entered a showroom and agreed to buy a car on hire-purchase. The rogue pretended to be someone else and produced a driver’s license and other documents in the name of the person he pretended to be. The documents were in fact stolen.

He paid the down-payment of 10% and soon after sold the car to another person. Shogun Finance traced the car down to the new owner and sought possession of the car. The court held that Shogun Finance was entitled to reclaim the car and that the hire purchase agreement was void. Therefore, there was no title to pass and the new owners could not claim ownership of the car.

© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward


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