Mutual Mistakes in Contract:
These are mistakes that occur when both parties in a contract make a mistake, and the mistakes of the two parties are different. For instance, when one party offers to sell property X to another party, yet the other party accepted the offer but believes the offer is in respect of property Y. The offeree would be mistaken about the content of the offer, and the offeror would equally be mistaken about what is being accepted.
Effect of Mutual Mistake in a Contract:
When there is a mutual mistake, thus the parties are not in actual agreement on the terms of the contract, then there is no contract between the parties.
Determining if there was an Agreement between the Parties:
The courts use the reasonable man test (or objective test) to determine if there was an agreement between the facts. The question that is usually asked in applying the reasonable man test is “would a reasonable man, upon considering the facts, words, and conduct of the parties, conclude that there was an agreement between the parties?” If a reasonable man answers in the affirmative to the above question, then the courts will hold that there was an agreement between the parties, else there was no agreement between the parties.
The reasonable man test is seen as a better alternative to the hitherto “consensus ad idem” standard which stipulates that there is an agreement if there is a meeting of the minds. Owing to the difficulty in ascertaining the mental states of the parties, words, the conduct of the parties, and other outward appearances are now used as the basis for ascertaining whether or not there was an agreement.
The Reasonable Man Test and Mistake:
Despite the existence of a mistake, the courts will hold the contract binding if it is established that a reasonable, upon the consideration of the conduct, words and other outward appearances of the parties, would understand that there was a contract between the parties.
In the case of Tamplin v James, the plaintiff believed the property he was purchasing included some other adjacent property even though the documentation provided by the offeror clearly stated the limits of the property on offer which excluded the adjacent property. Since a reasonable man would have understood the contract as one that excludes the adjacent property, the court held that the plaintiff could not rely on his own mistake as a basis for evading the performance of the contract.
Similarly in Smith v Hughes, a horse trainer ordered the delivery of oats after he was shown a sample of the oats. The sample shown to the horse trainer was new oats and there was no express discussion of old oats. When the seller supplied new oats to the horse trainer, he rejected the oats on grounds that he had intended to buy old oats. The courts held that a reasonable person would understand the contract to be one involving the sale of new oats.
Whilst a mistake would not render a contract void after it is established by a reasonable man that the parties had an agreement despite the mistake, the following exceptions would negate the contract and render it void.
1. Mistake induced by the conduct of the other party: When the mistake of the mistaken party was induced by the conduct of the non-mistaken party, there is no agreement. In the case of Scriven Bros v Hindley & Co, the defendant contributed to the mistake of the plaintiff by similarly packaging given to the bales of hemp and tow.
2. If the offeree knows that the offeror’s offer does not represent his real intentions: If an offeror makes a mistake in his offer, and the offeree is aware of this, the resulting contract would not be upheld by the courts. In the case of Hartog v Colin & Shields, the defendant quoted the price of a hare at 10d per pound instead of the customary quoting of per skin. The court held there was no contract. In a similar case of P.Y Atta & Sons, the court changed the written agreement to give effect to what they considered the true intention of the parties.
3. When there is ambiguity in the terms of the offer not caused by the mistaken party, the mistaken party can rescind the contract after its conclusion. In Falck v Williams, the terms of the offer were rendered ambiguous due to a misunderstanding of the telegraphic code. Since no reasonable person could conclusively say what the terms were, there was no agreement between the parties. In Raffles v Wichelhaus, the parties had entered into a contract for delivery via a ship named Peerless. The fact that two ships were named Peerless, unknown to the parties, rendered the contract ambiguous and it was declared void.