Page 40 - DMGT407Corporate and Business Laws

Unit 2: Consent, Indemnity and Guarantee Acts

An erroneous opinion, however, as to the value of thing which forms the subject matter of the Notes
agreement is not to be deemed a mistake as to a matter of fact.

Example: A buys an article thinking it is worth ` 10,000 while it is actually worth ` 5,000
only. Later he wants to avoid the agreement on the ground of mistake as to the price of the
subject matter. The agreement cannot be avoided on the ground of mistake. It is only erroneous
opinion as to the value of the subject matter and is not deemed a mistake as to a matter of fact.
2.6.2 Meaning and Effect of ‘Unilateral Mistake’

There is a unilateral mistake where only one party to a contract is under a mistake as to a matter
of fact. Generally speaking, such a contract is not invalid.

Example: A sold rice to B by sample, and B thinking that they were old rice, purchased
them. In fact, the rice were new. B cannot avoid the contract.

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Caution Where a person due to his own negligence or lack of reasonable care does not
ascertain what he is contracting about, he must bear the consequences.

Exceptional cases in which agreement is void even when there is a unilateral mistake.
Firstly, where the unilateral mistake is as to the nature of the contract. Thus, in Foster v. Mackinnon
(1869) LR 4 C.P. 704 an old illiterate man was made to sign a bill of exchange by means of a false
representation that it was a guarantee. Held, the contract was void. The old man did not intend
to enter into the contract relating to bill of exchange but through the fault of another and
without any fault of his own made a mistake as to the nature of the contract.
Secondly, where the unilateral mistake is as to the identity of the person contracted with. Where
A intends to contract with B but by mistake enters into a contract with C believing him to be B,
the contract is void. In Cundy v. Lindsay and Co. (1878) 3 App. Cas. 459, one Blenkarn, knowing
that Blenkiron & Co. were the reputed customers of Lindsay & Co. ordered some goods from
Lindsay & Co. by imitating the signature of Blenkiran. These goods were then sold by Blenkarn
to Cundy, an innocent purchaser. In a suit by Lindsay & Co. against Cundy for recovery of goods
it was held that as Lindsay & Co. never intended to contract with Blenkarn there was no contract
between them and as such even an innocent purchaser of the goods from Blenkarn did not get a
good title and must return them or pay their price to Lindsay & Co. Similarly, in Lake v
Simmons (1927) A.C. 487, a lady X induced Y to deliver possession of two pearl necklaces falsely
representing that she was the wife of baron Z and that she wanted them to be shown to her
husband for approval. Held, Y intended to contract only with the wife of the baron and not with
X herself. Hence the contract was void and X could not convey any title even to a bona fide buyer.
Thirdly, a contract may be avoided where there is a unilateral mistake as to quality of performance.

Example: A held an auction for the sale of some lots of hemp and some lots of tow.
B thinking that hemp was being sold, bid for a lot of tow for an amount which was out of
proportion to it, and was only a fair price for hemp. B could avoid the contract.

2.6.3 Mistake of Law

It may be (i) mistake of law of the land, or (ii) mistake of foreign law. In the first case the rule is
“Ignorantia juris non-excusat”.

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