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;
- Common mistake
- Mutual mistake
- 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;
- mistake as to the existence of the subject matter of the contract,
- mistake as to the identity of the subject matter,
- mistake as to the quality of the subject matter, and
- 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~ 😊
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