REVISION – MISTAKE
Hussain inherits two chairs from his grandfather. They look identical but one of
them is an antique and is worth RM5,000. Hussain doesn’t like the chairs very
much and decides to sell them.
Vimala hears that Hussain has chairs for sale and pays him a visit. She offers him
RM500 for one of the chairs and Hussain accepts. Some time later, Hussain
discovers that he has sold the antique chair and seeks to recover it from Vimala
on the grounds of his mistake.
Advise the parties.
Issue
The issue is to determine whether Hussain can set aside the contract for the sale
of the chair on the grounds of mistake.
Introduction to defence
Mistake is a defence that can be argued if a party wishes to set aside a contract, it
is used in a very narrow scope. The mistake must be operative, enough to render
the agreement void and not enforceable by law. The rationale for this effect is
that an operative mistake would mean that there was no real consensus to the
agreement between the parties.
Law
Mistake is defined under section 21 Contracts Act 1950 (CA 1950) as when both
the parties to an agreement are under a mistake as to a matter of fact essential to
the agreement, rendering the contract void. The conditions required for this
defence to be successfully raised are if the mistake was made by both parties, the
mistake was to a matter of fact, and said fact was essential to the agreement. This
is further clarified by examples given in illustrations (a), (b), and (c) to section 21.
Under section 21 CA1950 an agreement is void if the mistake was made by both
parties, this was demonstrated in the case of Ho Weng On v Bindev Sdn Bhd
where it was determined the defendant alone was mistaken hence, the contract
was not void for mistake. The next condition under this section is that the mistake
was made as to a matter of fact, this is explained in explanation to section 21
CA1950, states that an erroneous opinion as to the value of the thing which forms
the subject matter of the agreement is not deemed to be a mistake as to a matter
of fact.
The third condition to this section is that the fact was essential to the agreement.
A mistake of fact made by both parties to the agreement may occur in the
following circumstances which are mistake as to the existence, identity, quality of
the subject matter, and to the possibility of performing the agreement.
When both parties are commonly mistaken as to the existence of the subject
matter of the contract, it nullifies their consent and renders the agreement void.
This can be seen in the case of Galloway v Galloway. The second circumstance
usually arises where one party intends to deal with one thing and the other with a
different thing, in other words both parties are at cross-purposes. Although at the
time it may seem like both parties apparently consented, a mistake to the identity
of the subject matter is a substantial error that renders the agreement void. This
further explained in the case of Falck v Williams, where both parties were at cross
purposes, the court held that there was no contract.
In the third circumstance, if said quality of the subject matter was not a term of
the contract, and if there was no false representation made, a mistake as to the
quality of the subject matter does not nullify consent thus the contract remains
valid. This principle was defined in the case of Bell and Lever Bros Ltd. The last
circumstance can be explained in the case of Sheikh Bros Ltd v Ochsner. Both
parties made a mutual mistake as to the possibility of performing the contract,
and the court held that the agreement was void on those grounds.
If a contract is discovered to be void under mistake, the remedies available
would-be restitution under section 66 CA 1950, in which case parties who
received advantages under the void contract would be bound to restore or
compensate it to the respective party. Additionally, if a mistake was made when
the contract was made into writing, according to the case of Zakaria Daud v Siti
Hussain, the party seeking rectification must provide evidence that the document
to be rectified was not in accordance with the parties’ true intentions at the time
of its execution, but also that the document in its proposed form does accord
with their intentions.
Application
From the situation above, it is clear that the contract was for the sale of the chair,
and the mistake was made by both parties. Furthermore, as the mistake was to
the quality or value of the subject matter of the agreement, Hussain would not be
able to use this defence. This is further explained in the case of Bell and Lever
Bros Ltd the which held that if the quality was not a term of the contract and if
there was no false representation made, a mistake as to the quality of the subject
matter does not nullify consent and the contract remains valid.
Additional explanations on the law
On the other hand, even if a unilateral mistake had been made, whether it be to
the subject matter of the agreement or the other contracting party, would not
have been accepted as a valid argument in court as under section 23 CA1950,
unilateral mistakes regarding anything would not render a contract void, such can
be seen in the case of Ho Weng On v Binder Sdn Bhd. If a mistake was made by
both parties as to foreign law, and the fact was essential to the agreement, the
contract would be void under section 21 CA 1950.
Therefore, Hussein may not be able to plead the defence of mistake, and the
contract would likely remain valid.
