We now embark on the next "excuse" area, that is, a doctrine which may allow a party to rescind a contract because of something which has gone wrong during the negotiations for the contract. This area is about mistake. We must explore the extent to which the law allows a party to a contract to cancel the contract on the basis that he or she has made a terrible mistake. You can probably guess that the traditional response to such an argument - "Oh dear! I have made a terrible mistake." - is one which would reflect laissez-faire philosophy and the underlying notion of survival of the fittest, namely, "Too bad." And, indeed, the law has traditionally been pretty unsympathetic to someone who argues that he or she has made a mistake. One justification for this unsympathetic response is, of course, that it is too easy to assert that one has made a mistake.

Despite this, the law has responded, at least to some extent, to a plea of mistake. In doing so it has found it extremely difficult to distinguish between mistakes which should be the basis for relief and those which should not. This is one of the messiest areas of the law of contract in terms of trying to find a neat and tidy structure and neat and tidy rules. It is an area which has generated endless debate but which, in practical terms, is not very often litigated.

The endless debate has been generated because mistake raises some very thorny issues. One issue is the question of morality. Suppose I sell you a roadside service station and I do not mention that the road is soon to be diverted. I know it and I also know that you do not know it and that you are making a terrible mistake in buying the service station. Should I speak up? Remaining silent about such a matter is not misrepresentation or misleading conduct, so long as I have not said anything which may lead you to believe that you will enjoy years of fruitful future business. So, mistake would be the only basis for a remedy.

Another, quite separate, issue is that mistake in one sense goes to the heart of what contract is all about, namely a consensual arrangement. If one of the parties would never have consented had he or she known the truth, then you might be tempted to argue that the parties were never of one mind - there was no consensus ad idem. But, of course, this would be to apply a subjective test to ascertaining agreement and this the courts will not do, as a rule.

You may recall from 1st semester the famous case of Raffles v Wichelhaus (HPH 141). That was the case in which there was a contract for the sale and purchase of a quantity of cotton described as "ex Peerless from Bombay". The "Peerless" was a ship in which the cotton was being transported from India. The purchaser was to pick up the cotton from the quay once it had been unloaded. There was, you will recall, a problem: there were two ships called the "Peerless" coming from Bombay, one which sailed from Bombay in October and one in December. The purchaser claimed that he understood the cotton that he was buying was that carried on the October ship. The seller understood the cotton to be the cotton on the December ship. The seller refused to deliver the October shipment to the buyer and the buyer refused to accept the later cotton. (There must have been a fall in the price of cotton, so that it was advantageous for the buyer to pull out.)

We looked at it in 1st semester to see if the objective test would work to solve the problem and found that this was a rare case where it was more or less meaningless to apply the objective test. Accordingly, the court had to resort to a subjective test and ask each party what he meant. The result of that enquiry was that what was offered was never accepted and so there was no contract. This case is categorised in different ways in the text books. It is sometimes said that it is a case of mistake; or of latent ambiguity; or of simply an application of the rules of offer and acceptance. This type of case is unusual and apt to mislead contract students who might be tempted to think that if one party subjectively offers one thing and the other party subjectively accepts something else, then there is no contract. But this would be a mistake (ha ha) because it is not right to apply a subjective test to the issue of whether agreement has been reached. In most cases the objective test will either yield a result or the language is beyond hope and the contract is void for uncertainty.

Another difficulty with the law of mistake is that there are so many little sub-branches of it with different analyses. These sub-branches are basically determined by the type of mistake which has been made. You can see these categories in the headings in your reading guide.

Before embarking on an examination of mistake cases it is necessary to deal with some terminology which crops up in the mistake cases. One way of categorising mistakes is as follows. A mistake may be a:

Yet another difficulty with the law of mistake is that there is a divergence between the way the law approached mistake cases and the way in which equity approached mistake cases. We will turn to that distinction now.

Mistake at law and in equity

The casebook (HPH at pp 988-989) is not all that clear in explaining the basic distinction between mistake at law and mistake in equity.

The case book (HPH p 988) does draw attention to a very basic fact situation which is of great importance in various areas of the law. A sells goods to B (contract 1). B then sells the goods on to C (contract 2). Thus:
 

Let us focus on contract 1 and assume that A has made a terrible mistake in agreeing to sell to B, for example, A has by mistake sold the family jewellery. If, as a result of the mistake, contract 1 is merely voidable and not void then B gets good title to the goods. If A acts quickly and rescinds the contract before contract 2 is made, then there is no reason why the transaction cannot be undone and A gets his goods back and B gets her money back. Because contract 1 is merely voidable it does exist until rescinded and this means that B then has the ability to pass good title to C when she makes a contract with C. If in fact contract 2 goes ahead A's ability to rescind contract 1 is immediately lost because of the rule that once a third party has an interest in the subject-matter of the contract then A can no longer rescind. The consequence is that C gets good title to the goods.

On the other hand, if contract 1 is void (not voidable) then B gets nothing under contract 1 and cannot pass good title to C. Contract 2 is therefore ineffective to pass title and C has nothing. The consequence of this is that C is holding goods which still belong to A and A can sue C in the tort of conversion or the tort of detinue. The effect, therefore, of declaring contract 1 to be void in this situation is to defeat the rights of an innocent third party, C.

What would be the position if A in contract 1 was induced by a fraudulent misrepresentation to sell to B?

As I have already said, this basic situation is of some importance in various areas of the law and so you will come across it again in other courses. We will revisit it in our discussion of mistake.

Types of mistakes

I have already mentioned that mistakes cases tend to be categorised according to the type of mistake made. This is not altogether satisfactory because one would look for some universal principle and the tendency to separate mistake cases according to types of mistake has the effect of producing special rules which apply to one type of mistake but not to another type of mistake. Anyway, we are stuck with this way of looking at mistake. Academic commentators over the years have tried to develop grand principles for contractual mistake cases with a view to providing some overarching doctrine of contractual mistake but generally these efforts have had little impact on the way the cases are decided.

Another strategy used by some academic commentators is to argue that really there is no law of mistake in contract. You can see an example of that sort of approach on p 989 in the discussion of Patrick Atiyah's approach in his book An Introduction to the Law of Contract. He argues that almost every mistake case can be explained by resort to some other contract principles, such as uncertainty, offer and acceptance, misrepresentation, implied terms and so forth. There is some truth in this, as we will see when we look at the cases, but nevertheless there are some cases which can only be explained by resort to some kind of doctrine of mistake.

Before looking at each category under the general heading of types of mistake, let us just take a quick look by way of overview so that you can see the kinds of problems the law of mistake deals with.

The first category - mistake as to the existence of the subject-matter - is self-explanatory. It can easily happen if, say, goods are somewhere else, such as on the high seas, and unknown to both parties, they have perished. Incidentally, you can see that that would be a common mistake - both parties make the same mistake.

The second category - mistake as to the quality of the subject-matter - is one of the most difficult areas. If one person says: "I thought I was getting a left-handed double acting widget and you have delivered a right-handed single acting widget" and what was actually negotiated was "a widget", then you can see that one response might be (again) "Too bad". This would be a unilateral mistake - only one party is mistaken.

The third category - mistake as to the terms - is also a difficult area but the High Court has brought some order to the area in the case of Taylor v Johnson.

The fourth category - mistake as to title - is a rather special area and is concerned with the case where one person sells something to another and both think that the first person has good title to sell.

The fifth category - mistake as to the identity of the other person - is also a rather special area and has given rise to great difficulties and differences of views. If A contracts with B thinking that he is contracting with C, what result?

The sixth category - mistake in signing a document - where the person signing says "I thought it was a letter not a contract" or something along those lines - may allow that person to get out of the usual effect of signature which we saw in L'Estrange v Graucob Ltd.

The final category - mistake about the contents of the document - that is, the document incorrectly records the transaction because of a slip of the pen, attracts a special equitable remedy called rectification under which a court may order that the document be rectified to accord with what the parties had agreed to.

So these are the many forms of mistake. We must now embark on the somewhat tortuous journey of finding out how the courts have dealt with the problems generated by the natural human failing of making mistakes.

This kind of problem arose in the High Court in

The Commonwealth argued in relation to the contractual claim that the contract was void for mistake. Of course, if this argument was successful then there simply can be no damages for breach of contract. All that McRae would get, on this argument, would be the return of £285 he paid as the tender price. The Commonwealth's argument necessitated an examination of the law of mistake in relation to non-existent or perished goods. The leading authority was a case called Couturier v Hastie which you will see discussed in detail. The problem with Couturier v Hastie was that it was open to a number of interpretations. It was a case about sending some corn by sea. In such transactions, the obligation of the seller is to hand over the shipping documents to the buyer. The buyer can then go and claim the corn by showing the shipping documents when the corn arrives on the ship. The seller did hand over the shipping documents as required by the contract. The corn had meanwhile been sold because it had started to ferment. The defendant buyer refused to pay for the corn. The plaintiff seller sued for the price. The case went through many vicissitudes but the eventual result in the House of Lords was in favour of the buyer. One interpretation of this case is that a contract for non-existent or perished goods is void for mistake. But Dixon and Fullagar JJ in the High Court chose to see the case as one of interpretation of the contract rather than as a mistake case. See the extract from Lord Atkin in another famous mistake case Bell v Lever Bros Ltd on p 993 "In these cases..." The analysis is that there is a contract and it has been broken rather than that there is no contract (ie it is void) because of the mistake.

You will see a reference to the misleading and confusion expression "total failure of consideration" in the extract from Lord Atkin's judgment. This does not mean that there is no consideration (which would, of course mean no contract) but, instead, means a total failure to perform. In sale of goods cases, this means non-delivery and the buyer is entitled to get his or her money back.

Applying their reasoning to this case the judges concluded that the Commonwealth was simply in breach of contract - see end 1st para p 995 "The only proper construction..." This meant, of course, that McRae could sue for damages for breach and that meant he could recover not just the amount he had tendered for the tanker but also the wasted expenses in fitting out an expedition to go and find the tanker. (This case is an important case in relation to contract damages. Usually, the victim of breach seeks to recover damages representing the expectation loss, that is, loss of profits, but in some cases, such as this one, it is impossible to know what profit would have been made and so the court awards reliance loss instead.)

They also said that if this was a case of mistake, then it is impossible for the party who has caused the mistake to argue that the contract is affected by the mistake. The Commonwealth was at fault in advertising a non-existent tanker for sale. It was precluded from arguing mistake. See p 995 half way down "If, on the other hand..."

You will see reference to a third possible analysis, namely, that a condition precedent to the existence of the contract was that the goods in question were in existence. But this analysis was rejected. If it was followed it would mean that there was no contract and therefore no basis for suing for damages.

Finally, there is a rather awkward provision in the Sale of Goods legislation which is generally regarded as codifying the decision in Couturier v Hastie. See p 995 3rd last para. The judges in McRae simply said that the section did not apply to the facts of the present case. The section is restricted to cases where the goods have perished and does not apply to a case where the goods never existed. Here is a prime example of what I pointed out at the beginning of the discussion of mistake, namely, that it is not possible to find a neat and tidy set of rules. Why should there be a difference in result between a case where the goods have perished and where the goods never existed?

Overall, McRae is one indication that the courts try to find some solution other than resort to a doctrine of mistake. Nowadays, the facts of McRae could be dealt with not only on the basis of contract, as the High Court did, but also on the grounds of negligent misrepresentation or on the basis of misleading conduct.

It should be noted that Lever Bros tried to argue that Bell had been guilty of fraud but this was not established. So, we have to work on the assumption that Bell was honest. This may seem surprising but the breaches were very technical ones and did not involve moral turpitude so that it was quite plausible for Bell to be unaware that he had committed breaches of his employment contract.

Lever Bros sought to recover their money by arguing that the termination payment contract was void for mistake, that is, mistake at law was operative in this case. The case ended up in the House of Lords. Lord Atkin's judgment is generally regarded as one of the leading pronouncements on the law of mistake - at least as it operates in law as opposed to equity - but, even so, it leaves a number of questions unanswered. He starts out very optimistically

"My Lords, the rules of law dealing with the effect of mistake on contract appear to be established with reasonable clearness." Ha!

His language is not all that easy to follow. He says that the effect of operative mistake is to either negative or to nullify consent. The difference between the two is not self-evident. Yet one leading English text book writer, Treitel, based his whole mistake chapter on this distinction. To negative consent means that the process of offer and acceptance has not taken place. Lord Atkin illustrates with the example: A intends to contract with B but in fact makes a contract with C. To nullify consent appear to mean the process by which a court will declare that a contract is void for mistake. That is, the court, after the event, decides that there is operative mistake. But, of course, this gets us no closer to the answer to the question: when will a court declare a contract to be void for mistake?

Lord Atkin then goes through the various areas of mistake - the mistaken identity cases, the existence of the subject-matter cases, mistake as to title cases. In some cases he argues that a contract solution is appropriate, that is, the case is not explained by reference to mistake so much as there being simply a breach of contract.

He turns to mistake as to quality cases on the bottom of p 997 and he does acknowledge that these are more difficult to deal with. On page 998 he comes to the conclusion that in this case Lever Bros got what they bargained for, namely, the termination of a contract of employment. So, there was no operative mistake in this case. Lord Atkin justifies this conclusion by resort to a number of hypothetical cases which have been much referred to in subsequent mistake cases. These are on p 998 just over half way down - the case of the horse thought to be sound but which is unsound; the purchase of a painting thought to be by an old master but which is a modern copy; the sale of a roadside garage which is about to be by-passed - in all these cases there is, according to Lord Atkin no operative mistake so that the purchaser has to lump it. (Generations of not-very-careful law students have cited these hypothetical examples as actual cases!)

The rest of Lord Atkin's judgment on pp 999-1000 makes comparisons between mistake cases and frustration cases. There are some parallels but the crucial difference between the two is that in mistake cases the mistake exists at formation of the contract. In frustration cases, the event which constitutes frustration of the contract occurs after the contract has started to run. The same event may be the basis for a mistake remedy or a frustration remedy, depending on whether it happened before or after contract formation.

All in all, the conclusion we can draw from Bell v Lever Bros Ltd is that mistake as to quality is very unlikely to be operative in law. That is, it is extremely unlikely that such a mistake will render a contract void from the outset.

This then leads to the next question: what about mistake in equity which renders the contract not void, but voidable? This is taken up in

So, the result was that Solle had agreed to a rent of £250 but was now trying to get the premises for £140. As far as the law of mistake is concerned, the parties had made a common mistake which was analogous to the mistake made in Bell v Lever Bros Ltd. This could be characterised as a common mistake as to the quality of the subject-matter.

One response to this case is that the type of mistake made was a mistake of law. We have come across the law/fact distinction already in the law of misrepresentation and we saw that that distinction has now been discarded in Australia in the David Securities case. At the time of Solle v Butcher this distinction was alive and well and, indeed, Jenkins LJ in dissent based his reasoning on this distinction and held that the mistake was not an operative mistake because it was one of law because it was about the application of the rent-control legislation. Nowadays, after what the High Court said in the David Securities case, this distinction is no longer good law.

Lord Denning in Solle v Butcher adopted a new approach to mistake cases. He said that the mistake made here would not render the contract void, that is, adopting the law's approach, the mistake was not of the kind which was operative in law. But, he said, this kind of mistake could be operative in equity so as to render the contract voidable. The contract could be set aside (rescinded) on suitable terms. The core of his judgment is on pages 1002 and 1003, particularly the paras 2 and 3 on p 1003 which draw the distinction between mistakes at law and mistakes in equity.

In the 4th para, Lord Denning went on to point out that if a mistake is caused by a misrepresentation, then equity can set aside the contract. This is, of course, just the law of misrepresentation at work. He then went on to say that, if one party has made a mistake about the terms of an offer or about the identity of the other party, that is, he or she has made a unilateral mistake, then, so long as the other party knows of the mistake, it is operative in equity so that the contract may be set aside.

In the 5th para on page 1003, he made the point that if both parties have made the same mistake - that is a common mistake - equity will again treat that as an operative mistake if it is "fundamental".

In the course of his discussion, Lord Denning referred to a lot of old cases which have been the subject of controversy over the years. He reinterpreted some of the cases in the light of the equitable approach to mistake, including Bell v Lever Bros Ltd which, he suggested, proceeded on a misconceived basis because the law Lords did not understand about mistake in equity.

In applying this approach to the present facts, Lord Denning said that this was an appropriate case for equitable intervention (p 1004 3rd para). He dealt with the possible objection that the rule in Seddon's case may preclude rescission (last para p 1004) and dismissed the rule. I pointed out at the time of discussing this rule under the old law of misrepresentation that it had been subjected to vigorous criticism, particularly at the hands of Lord Denning. This is one example.

If the contract of tenancy was to be set aside, it must be done on just terms. The tenant must not be left without somewhere to live but, at the same time, Lord Denning saw no merits in the tenant's claim to paying rent of only £140 when he had agreed to a rent of £250. So, he set about fashioning an order which would enable the tenant to stay at the higher rent. To do this legally under the legislation, it was necessary to end the old tenancy, give a proper notice and then enter into a new tenancy.

The significance of this case is the introduction of the mistake in equity approach which is of some importance in that it provides a court with a much more flexible option than does mistake in law. One approach which has been advocated in some text books (including in Cheshire & Fifoot's Law of Contract (7th Aus ed)) is that the mistake in law should be discarded altogether and that all mistake cases should be dealt with on the basis of equitable mistake. We will see shortly that the High Court has certainly made a strong move in that direction in Taylor v Johnson. However, we will also see that this is not yet possible to discard mistake in law because there are pockets of mistake which still render the contract void.

The next case represented a step backwards as far as abolishing mistake in law is concerned.

Was the contract of guarantee affected by the mistake? The connection between the contract and the mistake was less direct than in most of the mistake cases. The contract in question was the contract of guarantee not the contract of lease. The defendant bank guaranteed the rental payments under the lease contract for non-existent machines. If it could argue mistake then it could not be sued successfully on the guarantee.

Steyn J first of all employed an argument which we saw mentioned in McRae v Commonwealth, namely, that the contract of guarantee was subject to an implied condition precedent that the machines existed. As this condition was not satisfied, the contract was void for this reason. This type of argument is somewhat artificial and is getting into the same territory as we saw when we looked at Masters v Cameron which, you may recall, was about "subject to contract" meaning that a contract could not come into existence until a formal contract had been executed. That was OK when the parties had expressly negotiated "subject to contract" but here we are talking about an implied condition precedent.

Anyway, Steyn J also considered whether the contract may be affected by mistake, in other words was there an operative mistake? And if there was, did it operate in law to render the contract void or did it operate in equity and render the contract voidable? This was a common mistake because the two parties to the contract of guarantee had assumed that the machines were in existence. He turned to what Lord Atkin had said in Bell v Lever Bros Ltd. He recognised the developments in the equitable doctrine of mistake since Solle v Butcher. Significantly he said:

He turned his attention to mistake in equity which, on his own analysis, was not necessary because of what he said about only turning to mistake in equity when mistake at law has not worked. He said that, had he not found that the contract was void at law, he would have set it aside in equity.

The consequence was that the guarantee could not be enforced.

One of the most famous cases in this area is the case of Smith v Hughes which you will see mentioned frequently in judgments. It is on p 1019 of the case book. The plaintiff seller offered to sell oats which were shown to the buyer. The defendant buyer agreed to buy some oats at 34s per quarter. The buyer later refused to accept the oats and was sued for the price. The defendant buyer said that he thought he was buying old oats whereas these were new oats. The buyer knew he was selling new oats. The outcome of the case is never known because the court ordered a new trial because the trial judge's direction to the jury was wrong.

But the case has been much discussed and is the subject of very different analyses. One way of looking at it is to apply an objective test: a reasonable bystander would have thought that the buyer was simply buying the oats which had been displayed and which he had seen. His private thoughts about what he thought he was getting are irrelevant. You can see a classic statement of the objective test in the judgment of Blackburn J on p 1019 just after he refers to Freeman v Cooke. "If, whatever a man's real intention . . . "

Another way of looking at it is to argue that maybe the seller gave the impression that he was selling oats warranted to be old and that the buyer's misapprehension was not a private expectation about what sort of oats he was getting so much as a reasonable interpretation of the terms on which the oats were being offered.

Yet another way of looking at the case is to ask whether the law should intervene if it can be shown that the seller knew that the buyer was making a mistake and kept quiet. This analysis at least is based on a doctrine of mistake whereas the other two are simply application of the objective test to ascertain what was the contract made between the parties. There is clearly a moral dimension to this last type of analysis. To what extent should the law impose an obligation to look out for the interests of the other party?

The case book deals with these problems on p 1017-1018.

These kinds of issues came before the High Court in what is Australia's leading case on mistake.

The case turned on the issue of whether or not Mr Taylor knew that Mrs Johnson was mistaken. The trial judge said that Mr Taylor did not know and so the judge said that the contract was binding. The NSW Court of Appeal, rather curiously, reversed this crucial finding and held that Mr Taylor did know that Mrs Johnson was mistaken and that the contract should be set aside. This a very odd thing for an appeal court to do because a question of this kind very much turns on the trial judge's assessment of the credibility of the parties. The Court of Appeal did not see the parties in the witness box and it has often been said that an appeal court should be very slow to change what the trial judge has decided on questions of evidence. There was a very vigorous dissent by Dawson J in the High Court on this point.

Mr Taylor appealed to the High Court.

By a majority the High Court upheld what the Court of Appeal had decided, that is, that Mr Taylor knew that Mrs Johnson was mistaken about the terms, or, more precisely, the crucial term dealing with the price. It is important to note that the majority judges found not only that Mr Taylor knew of the mistake which Mrs Johnson was making but also deliberately set out to ensure that she did not discover her mistake. This, then, was a case of unilateral mistake known to the other party who acted unconscionably in ensuring that the mistake was not discovered.

The High Court had an opportunity to say some important things about the law of mistake in contract. They covered some of the classic cases on mistake in their discussion on pp 1021-1025. The most important point which they make is the recognition of the operation of mistake in equity which renders a contract voidable. They unequivocally adopted Solle v Butcher whereas in earlier High Court cases, the judges had been a bit wary of Solle v Butcher. The discussion of mistake in equity is linked to the objective theory. It seems surprising that as late as 1983 the High Court thought it necessary to reiterate the objective theory but, nevertheless, that is what was done in this case. The connection between the objective theory and the use of equity in mistake cases is that the objective theory is used to ascertain whether the parties have reached agreement and then the equitable doctrine of mistake is used to ascertain whether that agreement should be set aside. This is discussed on p 1022. See in particular the last sentence of 2nd last para p 1022 "The important distinction ..."

In embracing the idea of mistake in equity, the majority judges make it clear that the test of whether the court should set aside the contract depends in the end on whether it would be unconscionable for the unmistaken party to take the advantage provided by the contract. Thus the moral dimension has taken a firm hold in the law of mistake. There is a significant quote from the United States contract writer Corbin on p 1025 "There is practically..." The judges chose to state a narrower principle in the end in the 3rd para on p 1025. The principle is narrower than Corbin's because it is necessary to show that the unmistaken party actually knew of the other's mistake and took deliberate steps to make sure that the other party did not find out about the error. It is sufficient under Corbin's principle that the unmistaken party either knew or ought to have known about the other party's mistake and there is no requirement of sharp practice, such as deliberately concealing the mistake.

Turning to the facts of this case, the judges held on p 1025 that the contract of sale of Mrs Johnson's property should be set aside.

It is significant that the law of mistake in Australia is moving towards a doctrine which is based on the notion of unconscionability. We have seen that estoppel is based on a similar idea and we will see that other doctrines which render contracts voidable are based on the idea of unconscionability.

Taylor v Johnson was a case of unilateral mistake. Would the High Court adopt the same approach, that is, a distinct preference for mistake in equity, in a common mistake case? The answer to this seems to be pretty clear because of their endorsement of Solle v Butcher which, it will be recalled, was a common mistake case.

In cases other than sale of land, the sorts of cases where there is a mistake as to title are really very unusual and are of little consequence. An example is

Obviously this kind of case is going to be extremely rare and, as I have already said, is of little consequence. Far more common are sale of land cases where there is a problem about title. A good illustration of the traditional approach is the next case.

There is really no need to go into this case in any detail because it is in some ways out of date because of the later High Court case of Taylor v Johnson. All that we need to note is that it would be very difficult to argue that the contract and conveyance are void at law and it would be almost as hard to argue that it was voidable in equity. Nevertheless, the latter must be possible after the later decision of Taylor v Johnson. At the time of Svanosio v McNamara the idea of mistake in equity was regarded as an idea coming from the controversial Lord Denning and you can see that the judges in this case are not very enthusiastic about Solle v Butcher.

One case mentioned by the judges in the course of their discussion is worth noting. It is just over half waydown p 1010, the case of Scott v Coulson. In that case someone bought a life insurance policy on the life of a Mr Alfred Timothy Death. It turned out that, unknown to both parties, Mr Death was in fact dead. This is one of the old cases where it was held that the contract was possibly void at law or some say it was a case where the contract was set aside in equity.

We have seen that in sale of land cases, the buyer after conveyance is going to have a very hard time trying to argue operative mistake, as exemplified by the decision in Svanosio v McNamara. After the case of Taylor v Johnson, we might speculate that this hard line might be modified if it could be shown that there had been unconscionable conduct of some sort by the unmistaken party. A case which arose before Taylor v Johnson and which sorely tested the hard line in relation to mistake of title in sale of land cases was

All this can be seen in the facts of Lewis Averay. Lewis was the bunny. He was persuaded to sell his Mini Cooper to a "Richard Greene", supposedly the famous television actor who played Robin Hood. Lewis accepted a cheque from the so-called "Richard Greene". The rogue then quickly sold the car on to Averay. Meanwhile his cheque bounced and Lewis was left with no car and no money. The rogue was nowhere to be found. Lewis found Averay and "his" car and brought an action in tort to recover the car or its value.

Lord Denning in this case decided to take a bit of a stand, given the irreconcilable cases from the past. He decided in favour of the third party Averay. This meant of course that the original contract between Lewis and the rogue was not void but voidable. Of course, he (Lord Denning) was rather keen on the idea of mistakes rendering contracts voidable rather than void, given his judgment in Solle v Butcher. But he also put forward a very practical reason why he rejected the idea that the contract between the seller and the rogue should be void. Of the two innocent parties who dealt with the rogue, who should bear the loss? The only possible solutions are that it should be borne entirely by Lewis or entirely by Averay. There is no mechanism known to the law which would allow the loss to be shared. Lord Denning, applying a risk analysis, came to the conclusion that the loss should be borne by the person who took the risk. It was Lewis who accepted a cheque from the rogue. He could have very easily insisted on either getting a bank cheque or not parting with the car until the cheque had been cleared. Whereas Averay was entirely innocent and had not taken any risks. So, on this risk analysis, Lord Denning came to the conclusion that the loss should be borne by Lewis. You will see the nub of his argument on p 1030 in the 2nd para.

This case, it seems to me, produces the only possible satisfactory result and it accords with the emphasis which the High Court has now given to mistake in equity in Taylor v Johnson.

The doctrine goes back a long way and applied to circumstances when people were illiterate and therefore could not read what they were signing. The doctrine of course applied to deeds as well as contracts and it provided a remedy when a document had been forged, when it was quite literally true to say that "it was not my deed". But the doctrine also applied to situations where someone had signed but their signature had been procured by fraud or else it was very obvious that they had no idea what they were signing.

One of the points which has emerged in the caselaw on non est factum is that it is possible to defeat third party rights by successfully invoking this plea. Many of the cases involve fraud, that is, the person signing the document is induced by fraud to sign it. This, of course, renders the contract voidable. But, if the rogue has quickly dealt with the property or goods so that third party rights have intervened, then it is to no avail for the original signer to argue fraud because the right to rescission has been lost. Accordingly, the only strategy left to the signer is to argue non est factum.

Because the doctrine does have the effect of rendering a contract void, it is quite difficult to invoke and as a consequence it has some rather stringent rules. The rules were laid down in modern times in a House of Lords case called Saunders v Anglia Building Society also known as Gallie v Lee in the English Court of Appeal. What emerged from this case is that for someone to be able to argue non est factum successfully they must show that:

The High Court had occasion to consider the doctrine of non est factum in

Could Petelin plead non est factum with the consequence that the contract would be void? The High Court held that he could. In doing so the Court examined the doctrine of non est factum and broadly endorsed the formulation put forward by the House of Lords in Saunders v Anglia Building Society. As far as the first element was concerned - that Petelin must have a very good excuse for not understanding what he was signing - he of course had language difficulties but it was alleged that Petelin had been careless in signing and we have already seen that a person who has been careless cannot invoke non est factum. But the High Court made the point that this is so if the plea would defeat third party rights. But in this case the contest is simply between the two parties to the contract. In such a case the element of carelessness is not so important. See p 382 3rd para "The insistence that such precautions ..."

The Court also found that there was a radical or fundamental difference between what Petelin signed (an option to buy his land) and what he thought he was signing (a receipt).

Non est factum is an area of mistake which still renders a contract void and therefore stands in the way of getting rid of mistake at law altogether, as suggested earlier. In a situation where the plea of non est factum is used to defeat third party rights, there seems to be little justification for its continued existence. In a situation where it is used against the other party to the contract (as in Petelin v Cullen) then it would be sufficient and preferable if it merely rendered the contract voidable. But, the present law is that it renders the contract void.

• The auctioneer announced before the auction started that the vendor would provide finance for the balance of the purchase money at 8% over 3 years. In fact the contract provided that the whole purchase money had to be paid in full at settlement.
• There was also mention of a special condition which required the vendor to demolish the building at its expense - special condition 23. The vendor made it clear that the buyer could choose whether to take advantage of this special condition; in other words it provided the buyer with an option to have the building demolished. This is not what special condition 23 actually said.

For rectification to be made by a court it is necessary to satisfy two elements:

1. The person arguing for rectification must show that there was a common agreement or intention before the written document was executed; and
2. Both parties intended that the executed document should record their prior common intention or agreement but that it failed to do so.

Mason J provided a useful statement of the law of rectification on bottom p 391 to half way down p 392. He pointed out (on page 392 5th para "What is of importance ...") that most rectification cases are cases of common mistake, that is, both parties think that the written document is a true record of their prior agreement. But it is also possible for rectification to operate in respect of a unilateral mistake. The requirement is similar to what we saw in Taylor v Johnson, namely, that one party is mistaken and the other knows of the mistake. This was argued as an alternative ground for rectification in this case but it was rejected by Mason J (p 393 3rd para) because it was not the case here that one party was mistaken. As we have already seen the buyer was under no misapprehension about what the contract said.

In the result, the buyer’s claim for rectification failed.

Note the dissenting view of Barwick CJ. He dissented because he interpreted the facts differently. He thought that the parties did have a common intention to sign a contract which recorded the oral agreement and that the buyer’s representative in particular intended this. This is a bit hard to argue in the light of the "take it or leave it" conversation.

Before we finish with rectification, remember that a court of equity will rectify a contract if

• it can be shown that there was a slip in the contract document so that it does not record the parties’ common intention (common mistake); or
• there is a slip in the contract and one of the parties knows about the error but he or she keeps quiet about it. Thus one of the parties does not know and the other does know but keeps quiet. In such a case, it would be unconscionable to allow the unmistaken party to take advantage of the mistake (unilateral mistake).