CHAPTER 3 - MISTAKE

introduction
§ The most basic question that arises on the
topic of mistake are:
§ If both parties to an agreement enter into it
under some misunderstanding, in certain
circumstances, the Court will permit them
to allege that the contract is defective:
§ If they’ve known the true facts they
would’ve not entered into the
agreement.
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Section 21 of the Section 22 of the Section 23 of the
Contracts Act Contracts Act Contracts Act

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 Contracts Act 1950
21. Where both the 22. A contract is 23. A contract is not
parties to an agreement not voidable voidable merely
are under a mistake as to
a matter of fact essential because it was because it was
to the agreement, the caused by a caused by one of
agreement is void. mistake as to any the parties to it
Explanation—An law in force in being under a
erroneous opinion as to Malaysia; but a mistake as to a
the value of the thing
which forms the subject- mistake as to a law matter of fact.
matter of the agreement not in force in
is not to be deemed a Malaysia has the
mistake as to a matter of same effect as a
fact.
mistake of fact.

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1. Mistake made by
both parties
Section 21 of Contracts Act

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§ Under section 21 of the Contracts Act 1950, a
mistake renders an agreement void if it is made by
both parties as to a matter of fact essential to the
agreement. The situations fall under essential to the
agreement are not clear under the Act.
§ It seems from the illustration under the section that
only a mistake as to the existence of the subject
matter of the agreement is a matter of fact essential
to the agreement. However, in Sheikh Bros Ltd v
Ochsner [1957] AC 136 the Privy Council extended
the scope of mistake under s 21 to cover the
circumstances where both parties made a mistake
as to the possibility of performing the agreement.

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 Circumstances of Mista
ke s

1) Mistake as to the existence of the subject matter

of the agreement;
2) Mistake as to the identity of the subject matter;
3) Mistake as to the quality of the subject matter;
and
4) Mistake as to the possibility of performing the
agreement.

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Mistake as to the existe
nce of the subject ma
tter
§ Illustration (b) under Section 21 of Contracts Act:
“(b) A agrees to buy from B 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. The agreement is void.”
§ When unknown to both parties the subject matter of
the agreement had ceased to exist or has never
been in existence at all the time of the agreement,
the agreement is void.

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§ The existence of the subject matter is the underlying
assumption of the agreement. It was a matter of
fact essential or fundamental to the agreement.

§ In Bell v Lever Bros [1932] AC 161, discussed on

common mistake where in common mistake there is
consent between the parties but the mistake nullifies
their consent. There was nothing for them to agree
on. Thus the agreement is void.
§
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Mistake as to the identi
ty of the subject matte
r
§ Such mistakes usually arises where one party
intends to deal with one thing and the other with
a different one. Here there is a mutual mistake as
to the identity of the subject matter.
§ In Bell v Lever Bros [1932] AC 161, for mutual
mistake there is apparent consent but the mistake
negatives such consent and in fact there never
was any agreement at all between the parties.

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§ Where the subject matter of the contract lacks
some quality which it is believed to have, the first
question is whether the quality forms part of the
contractual description of the thing, that is, is the
said quality a term of the contract or that one party
has represented that the subject matter has that
quality.

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§ If it is a term of the contract and the article sold does
not answer the description, the contract is valid and
the party who gave the description is in breach of a
term of the contract as explained in the case of
Gompertz v Barlett (1853) 2 El 849 where the
representation was false, the party who gave the
false representation is liable for misrepresentation or
fraud.

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§ Henry Gompertz v Thomah Bartlett. November 14th, 1853. An
unstamped bill of exchange, indorsed in blank, purporting to be a
foreign bill, was sold, without recourse, by the holder, who was not a
party to the bill. It proved to have been drawn in this country, and
was therefore unavailable for want of a stamp, and could not be
enforced against the parties. The vendor and purchaser at the time
of the sale were both alike ignorant of this defect. Held : that the
purchaser was entitled to recover back the price from the vendor, on
the ground that the article sold as a foreign bill did not answer the
description by which it was sold. Though it would have been
otherwise (the sale being without any warranty, and there being no
fraud) had the latent defect been one consistent with the article
being a foreign bill.

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§ If it is not a term of the contract or if there was no
false representation made, a mistake as to the
quality of the subject matter generally does not
nullify consent under the Act. The contract is valid.
§ For example: A buys B’s horse; he thinks the horse is
sound and pays the price of a sound horse. He
would certainly not have bought the horse if he had
known, as the fact is, that the horse is unsound. If B
has not contracted that the horse is sound and has
made no representation as to soundness, A is bound
and cannot recover the price.

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Mistake as to the possib
ility of performing
the agreement
§ In Sheikh Bros Ltd v Ochsner [1957] AC 136, a Privy
Council appeal from Eastern Africa, the appellant
company granted a license to A, later assigned to
the respondent, to cut and manufacture all sisal
growing on 5,000 acres of land in Kenya. Under the
agreement, the respondent was to deliver to the
appellant 50 tons of sisal fibre for sale per month. The
respondent was unable to do so as the leaf
potential of the sisal was insufficient to produce so
much monthly.
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§ There was a dispute between the parties and the
question arose whether the agreement was void
under the Indian Contract Act 1872 by reason of a
common mistake of fact.
§ The Privy Council held that having regard to the
nature of the agreement, which was a kind of joint
venture, it was the very basis of the agreement that
the sisal area should be capable of producing an
average of 50 tons a month throughout the term of
the license. There was a mistake as to a matter of
fact essential to the agreement and thus the
agreement was void.
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2. Unilateral Mistake
Section 23 of the Contracts Act

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§ The other party knows, or must be taken to
know, of the mistake.
§ A mistake made by one party is not an
operative mistake under the Act. The contract
is valid. Section 23 of Contracts Act 1950
provides:
“A contract is not voidable merely because
it was caused by one of the parties to it
being under a mistake as to a matter of
fact.”
§ The use of the word ‘not voidable’ is
ambiguous whether the contract is void or
valid. The better view is that the contract is
valid.
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§ The reason why a unilateral mistake between A
and B does not render a contract void under
the Act is that the law protects a subsequent
purchaser of the goods who is bona fide
purchaser for value without notice.
§ An operative mistake renders the agreement
void from the very beginning and the effect is
that the subsequent bona fide purchaser will
not have title to the goods.
§ The law in Malaysia protects the bona fine
purchaser for value without notice by providing
that the agreement is valid.
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Mistake as to the identity of the person

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§ Mistake of this sort can only occur where A
contracts with B, believing him to be C, that is,
where a party has in contemplation a definite and
identifiable person with whom he intends to
contract.
§ Further the identity of the other party must be
material at the time when he makes the contract.
One party must regard the identity of the other
party as a matter of vital importance.

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§ In Cundy v Lindsay (1878) 3 App Cas 459, the Court
held that there was no contract since the plaintiffs
did not intend to deal with the buyer Blenkern, but
with Blenkiron & Co.
§ The defendants (subsequent buyers) were
accordingly liable for conversion, although they
were bona fide purchasers and had no notice of
what transpired between the plaintiffs and Blenkern.

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§ The state of the English Law on unilateral mistake as to
the identity of the other contracting party is undesirable.
It is detrimental to a bona fide purchaser for value
without notice. The contract between the original
parties being void for mistake, the party receiving the
goods has no title to it and therefore could give none on
resale to a third party. The principle that one cannot
transfer that which one does not have applies. This
means that the third party does not own the goods and
would have to return them to the true owner.
§ Mistake as to the identity of a contracting party is the
mistake of one party only. Under s 23 of the Act, such a
contract is valid and enforceable. As stated earlier, the
Malaysian law protects the bona fide purchaser for
value without notice.
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Mistake as to the attribute of the person

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§ Mistake as to the attribute of the person is not an
operative mistake and the contract remains valid
and enforceable.
§ In the case of King’s Norton Metal Co Ltd v Edridge,
Merret & Co Ltd (1897) 14 TLR 98, the plaintiffs
received an order for wire from ‘Hallam & Co’,
described on the letterhead as a substantial firm
having a large factory in Sheffield and depots in
various other places. In fact ‘Hallam & Co’
consisted solely of an impecunious rogue called
Wallis.

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§ The plaintiffs sent the goods to ‘Hallam & Co’ on
credit. Wallis took possession of them, failed to pay,
and sold them to defendants. The court held, the
plaintiffs had contracted with ‘the writer of the
letters’. Thus title to the goods passed to Wallis, so
that he could pass it to the defendants, who were
accordingly not liable for conversion. As Wallis and
‘Hallam & Co’ were one and the same person, the
plaintiffs had not made any mistake as to identity,
but only to the credit-worthiness of the other party,
‘Hallam & Co’. It was a mistake as to attribute of the
other contracting party. The essential point was that
‘Hallam & Co’ was Wallis.
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Mistake as to Law

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§ It is difficult to distinguish between mistake of law
and mistake of fact.
§ Section 22 of the Contracts Act and Illustration.
§ The second clause in Section 2 provides that
foreign law is a matter of fact and must be proved
and admitted .
§ If the mistake is by both parties, Section 21 will
apply and the agreement is void. If the mistake is
only by one party, Section 23 of the Act applies
and the contract is valid.
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RELIEF AND REMEDIES

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 restitution
§ Although under s 21 of the Contracts Act the effect
of an operative mistake is that the agreement is
void, section 66 of the Act provides the remedy of
restitution to parties of a void contract.
66. When an agreement is discovered to be void, or when a contract
becomes void, any person who has received any advantage under the
agreement or contract is bound to restore it, or to make compensation
for it, to the person from whom he received it.

§ Thus, any party who has received any advantage

under he void agreement must restore it to the
person from whom he received it.
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 SECTION 73
73. A person to whom money has been paid, or anything delivered, by
mistake or under coercion, must repay or return it.

§ Section 73 provides the restoration of money paid under

mistake.
§ The court in Shiba Prasad Singh v Chandra Nandi (PC
India) (1949) 76 IA 244 includes money paid under
mistake of law, Section 22. The Privy Council observed
that s 72 of the ICA 1872 [Malaysian s 73] makes no
distinction between mistake of fact and mistake of law,
and thus declined to follow the then prevailing position
under English common law which denied recovery for
mistake of law.
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ENGLISH LAW
§ Under English law, it was held in Bilbie v Lumley 102
ER 448 that the payment made under mistake of
law is irrecoverable.
(Note: Bilbie v Lumley rule has been overruled by the House of Lords in Kleinwort
Benson Ltd v Lincoln City Council (and other cases consolidated) [1999] 2 AC
349.

§ In Kiriri Cotton Co Ltd v Ranchhoddas Dewani

[1960] AC 192, it was held that the fact that a
transaction is illegal does not disbar a person
whom the legislation is intended to protect from
recovering money paid over in pursuance of the
transaction.
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 Rectification of a writte
n contract
§ This is the situation where a mistake is made not at
the time of entering into the contract but when the
parties were putting the oral contract into writing
pursuant to Section 30 of Specific Relief Act 1950.
§ In Oh Hiam v Tham Kong [1980] 2 MLJ 159, the
parties entered into an oral contract for the sale of
certain pieces of land in Gombak only, certified as
rubber land. However, the written contract and the
transfer dealt not only with the rubber lands in
Gombak but also a land in Setapak on which stood
a house.
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§ The court set aside the sale and transfer of the land
in Setapak on the ground that both parties did not
intend to include Setapak land in the written
contract of sale. There was already a valid oral
contract between the parties for the sale of the
pieces of land in Gombak only. Subsequently the
written contract wrongly included the piece of land
in Setapak, which the parties thereafter signed.
§ The court held the contract by deleting any
reference to the Setapak land and cancelling the
transfer of the Setapak land to the plaintiff.
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§ The former Federal Court reversed the decision
but on appeal, the Privy Council upheld the trial
judge’s order for rectification of the written
contract and cancelling the transfer of the
Setapak land to the plaintiff. This was a case of
mistake common to both vendor and purchaser.
§ The whole contract was not void under s 21
because the parties made the common mistake
not at the time of entering into the contract but
at the time of putting the oral contract in writing
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§ It was further held in Southwind Development Sdn
Bhd v Hass Plantation Sdn Bhd [1996] 5 MLJ 85 that
for rectification to be granted by the court, the
contracting parties must have an antecedent
agreement; the parties can only rectify the
agreement to conform with terms initially agreed
upon during the formation of the contract.

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