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Hi and welcome back to my blog!

Today, I'm going to share with you another topic which is mistake. We all happen to make mistakes sometimes, after all, we're human. Therefore, mistakes can happen anywhere including in a contract. Without further ado, let's jump into it!

What is a mistake?

According to  Section   21   of   Contracts   Act   1950,   when both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Mistake can be divided into two types, which are mistake by law and mistake by fact. This will be discussed later.

Categories of mistake

At common law, mistake is divided into three categories which are;

  1. Common mistake
  2. Mutual mistake
  3. Unilateral mistake

What is Common Mistake?

                                      

The common mistake happens when both parties make a  mistake as to a fact fundamental to the agreement. It must relate to a matter of existing fact or law and can affect the contract in two basic ways. First, it can prevent an agreement from being reached either through the parties’ failure to produce a matching offer and acceptance on a matter essential for an agreement. Secondly, the parties may have reached an agreement, but they share an error with respect to some important contextual circumstance. 

For example,   Maleficent entered into a contract to sell a dress to Aurora, when it is unknown to both of them, the dress was destroyed and no longer exists. Here, it can be said that there was a common mistake because both of them were unaware that the subject matter of the contract had already perished at the time of the contract. 


What is Mutual Mistake?

                                     

It happens when the parties misunderstand each other and are cross purposes. Mutual mistakes involving an important fact will enable either party to avoid the contract. In order to have the courts declare a contract void because of mutual mistake,  it is required more than just establishing the making of any sort of common mistake. 

For example, Harry Potter intends to offer his Volkswagen  Polo Red in colour for sale, but Hermione believes that the offer relates to the Volkswagen Polo Black in colour also owned by Harry Potter. Similarly, Professor Dumbledore owns a few apartments situated at different locations. He contracted to sell one of them to Voldemort. Professor Dumbledore intended to sell his apartment situated in Johor Bahru whereas Voldemort thought that he was purchasing the apartment situated in Shah Alam. Both parties made a mutual mistake as to the important fact ie, the subject matter of the contract. Either party will be able to avoid the contract under the circumstances. 

This can be seen in the case of Chop Ngoh Seng v Esmail & Ahmad Bros, where the subject matter of the contract was not in existence. This fact was not known to both the parties when they entered into the contract. It was held that the contract is void.


Unilateral Mistake

                                       

It happens when only one of the parties is mistaken while the other party know of the mistake.  A  unilateral mistake is such an error that is held by only one party and not shared by the other party. Unilateral mistakes can occur with regards to any of the terms and provisions contained in a  contract.  Most unilateral mistakes involve the definition of a  phrase or word.  

For example,  in a   contract for  the  sale of screws,  one  party may  incorrectly  believe  that  the   word  “screw”   refers  to Phillips-head screws, when in fact the term refers to standard-type screws. If only one party holds this mistaken belief, but the other is clear on the meaning of “screw”, then this could be called a unilateral mistake. On the other hand, if both parties believed that the word “screw” referred to nails, then this is an example   of   a   mutual   mistake.   

Unilateral   mistakes   also   frequently   involve prices, quantities, dates, and the description of goods or services. This can be seen in the case of  Freeman v Kiamesha Concord Inc, whereas a  guest at a  resort  hotel  misread  an advertisement  concerning  the memorial Day weekend entertainment and believed that a popular entertainer would be performing for three nights during the weekend rather than just one.Upon   learning   from   the   truth,   he   sought   to   cancel   part   of   his   three   days reservation.  The   court  held   that  his   mistake  was   a factual   one  and   it  was unilateral. Therefore, although he checked out of the resort before the end of the three days reservation, he remained obligated to pay his hotel bill in full.

Mistake by law

                                   

Mistake of law is covered by Section 22 of Contracts Act 1950. Under this section, a contract is not voidable merely because it is caused by a mistake as to any law in force in Malaysia, but mistake as to law not in force in Malaysia has the same effect as mistake of fact. 

Mistake of fact

                                       

A   mistake   of   fact   by   both   parties   to   the   agreement   may   occur   in   the   following circumstances;
  1. mistake as to the existence of the subject matter of the contract, 
  2. mistake as to the identity of the subject matter,
  3. mistake as to the quality of the subject matter, and
  4. mistake as to the possibility of performing the contract. 

Mistake as to the existence of the subject matter of the contract

It stated in Section 21 of Contracts Act 1950, when unknown to both parties the subject matter of the contract had ceased to exist or has never been in existence at all at the time of the contract, the consent of the parties is said to   be   nullified.   There   is   common   mistake   here   as   to   the   existence   of   the subject matter which is a matter of fact essential to the agreement. Thus, the agreement is void.

To illustrate to this provision, one example can be seen when Josh agrees to buy from Becky a certain horse, it turns out that the horse was dead at the time   of   the   bargain,   though   neither   party   was   aware   of   the   fact.   Here,   the agreement is void

Referring to the case of  Strickland v Turner, whereas a buyer bought and pay annuity scheme on X life. The fact that X has already passed away is unknown to both the buyer and the seller. It was held that the contract is void, the subject matter of the contract.

 Mistake as to the identity of the subject matter

Also stated in  Section   21  of   Contracts  Act   1950,  mistakes usually arises where one party intends to deal with one thing, and the other with a different one.

For example, Danial intends to offer his Proton Saga 1.3cc for sale but Bakar believes that offer relates to the Proton Saga 1.5cc owned by A. In this situation, there is a mutual mistake as to identify the subject matter. Both parties are at cross purposes that they do not reach an agreement and there is no contract between them. 

Referring to the case of  Raffles v Wichelhaus,  Raffles agreed to sell cotton to Wichelhaus. The agreement provided that the cotton was to arrive in England  from   Bombay.  However,   there were two  different   ships regularly sailing from  Bombay to England, one  leaving in October and  the  other in December. Raffles shipped the cotton on the December ship, and defendantWichelhaus refused to accept the cotton. Raffles sued on the alleged contract. Wichelhaus argued that it understood the shipment would be shipped on the October ship. The court was held that there was no binding contract. Since the parties meant different ships and there  was a mistake  by both  Raffles and Wichelhaus. 

Mistake as to the quality of the subject matter

Mistake as to the quality of the subject matter of the contract, generally means whether the contract can be void if the subject matter of the contract in reality does not have the quality it is believed to be had by the parties of the contract. 

Referring to the case of Nicholson v Smith. In this case, a contract gets formed between A and B according to which A has to sell Charles I Napkinsto B. A gathers some napkins and sells them to B. At that time both parties think that  those Napkins belong  to  Charles  but  actually it  is  not  so.  They belong to King George. It was held that reversal of considerations can be made i.e. avoiding the contract.

Mistake as to the possibility of performing the contract

Generally, it can be defined when both parties think that it is possible to perform the contracts. But actually, it will be an impossible event. In such case the contract gets discharged.

For example, Izzat has to pay RM 10, 000 to Janie and for that Janie has to marry Tony. While entering into the contract, Izzat and Janie think that Tony is alive. But actually, Tony was dead five years ago. So, the mistake as to the possibility of performance can be seen soon after formation, the contract gets discharged due to impossibility.

Referring to the case of Sheikh Brothers v Ochsner, where the appellant company granted to the  first respondent  a license and authority to cut and manufacture all sisal growing on 5,000 acres of land in Kenya, and to deliver to appellant  50 tons per month of the sisal fibre for sale. Respondent was then unable to do so as the leaf potential of the sisal was not sufficient to produce that much. It was held that the basis of the contract to produce such amount which cannot be done because it was essential to the agreement, therefore the agreement was void.

Effects of mistake




Pursuant to  Section 14 of Contracts Act 1950, where a contract is void for mistake there will be no title or rights can pass under it and neither party is under any obligation to perform it. Section 66 also stated that any person who has received any advantage under the agreement is bound to restore it or to make compensation for it to the person from whom he received it.

And that's a wrap! It may seem complicated, but as soon as you had understood the gist of each category of the mistake, it will be so much simpler! 

That's all for today, till then! Have a good day~ 😊

 







Hi and welcome back to my blog! Today, I'm going to share another important topic which is misrepresentation. 

What is misrepresentation?

In a simple word, misrepresentation is a false statement made by a party that will induce another party to enter into a contract. The statement may be false in fact or in law and must be made during the process of negotiations as a representation. When the statement turns out to be untrue, we can file an action for misrepresentation.

There are three types of misrepresentation:-

  1. Fraudulent misrepresentation
  2. Negligent misrepresentation 
  3. Innocent misrepresentation


Fraudulent misrepresentation

The significance of a misrepresentation being classified as a fraudulent one is that the measure of damages may be greater under certain circumstances. There are two remedies available for fraudulent misrepresentation: recession and damages.

Representees should attempt a claim for fraudulent misrepresentation with caution, as the courts impose a much higher standard of proof due to the serious allegations. There may also be penalties in the event the claim is not made out.

A fraudulent misrepresentation was defined in Derry v Peek(1889) 14 App Cas 337 as a false statement which is ‘made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false’.

In order to assess whether a statement has been made fraudulently, you should consider whether:

  1. The statement maker knows that the statement he has made is false
  2. The statement maker has reasonable grounds to believe his statement is true even if it is false
  3. In the case of a, there will clearly be a fraudulent statement.

In the case of 2, if the statement maker has made a false statement, but has reasonable grounds to believe his statement, it will not amount to a fraudulent statement, as it has not been made recklessly or carelessly. A statement made recklessly or carelessly needs to be a statement made which the statement maker has no belief in the truth of (but does not know for sure that it is true or false).

Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573 clarified that where a statement is made where the statement maker has no idea whether or not it is true or false, this statement would be fraudulent due to the recklessness asserting it is true when it may not be.


Negligent misrepresentation

An alternative approach to a claim for negligent misrepresentation is to pursue the claim under statute. The Misrepresentation Act 1967 Section 2(1) allows for such a claim and contains the key components.

The significance of a negligent misrepresentation claim under statute is that the burden of proof from the common law claim is reversed. The representor cannot escape liability simply by proving that he was not negligent, it must be proven that he had reasonable grounds to believe the statement -Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574.


Innocent misrepresentation

With the development of the Misrepresentation Act the claim for innocent misrepresentation is extremely limited. A claim for innocent misrepresentation will arise when a claim for negligent misrepresentation under the Misrepresentation act has failed. The remedy for an innocent misrepresentation will usually be rescission of the contract.


The remedies for misrepresentation

1. Rescission

When a contract has been induced by misrepresentation of any kind, the contract does still confer obligations upon the parties, but the contract will be voidable. Voiding the contract as this stage is using the remedy of rescission. There are a number of restrictions to the use of this remedy. These are known as ‘bars’ to rescission.

2. Affirmation

Affirmation refers to an affirmation of the contract, whereby despite the misrepresentation, the representee had held themselves out to be happy with the contract as it is, therefore affirming the misrepresentation (Long v Lloyd [1958] 2 All ER 402.

In the event of a misrepresentation, it is expected that the representee, if they are not happy with the contract, will take action to remedy the contract.


Lapse of time

There is a differing approach by the courts for different types of misrepresentation.

In the case of fraudulent misrepresentation, the lapse of time will begin at the time the fraud was either discovered, or could have been discovered.

As for misrepresentation which is negligent or innocent, the lapse of time will begin from the date of the contract - Leaf v International Galleries [1950] 2 KB 86.


Restitutio in integrum

This bar to rescission refers to where a rescission of the contract is no longer possible. This is the case where the goods under the contract have been used, consumed or have perished - Clarke v Dickson (1858) 120 ER 463.

In the event that the goods have only been partially consumed rescission is a more complicated issue - TSB Bank plc v Camfield [1995] 1 WLR 430. In De Molestine v Ponton [2002] 1 All ER (Comm) 587 this approach was rejected, and it was argued a partial rescission may be possible where you can split the contract into multiple parts.


Damages

The measure of damages differs for each of the types of misrepresentation, therefore each will be considered in turn.


Fraudulent misrepresentation

A fraudulent misrepresentation requires a high standard of proof. Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 is authority to the effect that damages are awarded on a tortious basis, aiming to put the aggrieved party in the position they would have been if the misrepresentation was true.

This standard is usually subject to a test of ‘reasonable forseeability’, where a loss will only be claimable if the statement maker could have reasonably foreseen that the fraudulent statement would have resulted in such a loss.


Negligent misrepresentation under the common law

Negligent misrepresentation claimed under Hedley Byrne v Hellerand the tort of deceit are extremely limited in comparison to those for fraudulent misrepresentation. Unlike damages for fraudulent misrepresentation, under the tort of deceit the damages are limited by the test of remoteness.

The test of remoteness, from Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co (The Wagon Mound))[1961] AC 388, only allows damages to be claimed that are “reasonably foreseeable”.

If the claimant has also been negligent to some extent, damages may be reduced by way of contributory negligence, apportioning some of the blame to the claimant.


Negligent misrepresentation under the Misrepresentation Act

Under Section 2(1) of the Misrepresentation Act, damages are awarded on exactly the same basis as fraudulent misrepresentation. Therefore, the statement maker will be liable in damages for all consequential losses as a result of the statement, irrespective of their foreseeability - Sharneyford Supplies Ltd v Edge [1987] Ch 305.

Section 2(2) of the Misrepresentation Act clarifies the relationship between rescission and damages. The courts have identified that rescission can often result in unfair consequences, and therefore, damages may be awarded as an alternative to rescission. This means that there cannot be a claim for rescission and damages; it must be one or the other.


Can liability from misrepresentation be excluded in the contract?

In order for liability for misrepresentation to be excluded, Section 8 of the Unfair Contract Terms Act 1977 rules that the term must be:

  1. Reasonable
  2. Clear and precise as to the exclusion of misrepresentation

That's it on the misrepresentation! It may be a little long but rest assured that these cases will be handle by legal counsel. As a normal citizen, we only need to be aware of the contract that we enter is misrepresentation or not? If so, don't be panic we may bring action for that! 

See you on the next topic!

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Asma Izzati
2nd year student of Bachelor in Law University Sultan Zainal Abidin
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Mistake

Hi and welcome back to my blog! Today, I'm going to share with you another topic which is mistake. We all happen to make mistakes someti...

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