CONTRACT LAW PART 5: Mistake,

Rectification & Misrepresentation

Posted on January 17, 2008 by Civillawinfor

MISTAKE
"There is great uncertainty

about what the present Anglo-Canadian

law of mistake is. No two authors agree in their analysis and the
same confusion exists in the case law. Ontario Law Reform
Commission, 1987
A contract requires a meeting of the minds, which Roman law called a consensus ad
idem.
If one or both parties have been mistaken about an element of the contract, then
there is no consensus ad idem.
But that does not necessarily mean that the contract is void.
Such a rule could breed abuse.
So the common law has tried to develop a fairly sophisticated set of rules for dealing
with mistake. Unfortunately, as with so much of contract law, the final determination
of what those rules are is still up in the air, moving with the changing currents of the
courts.
In Seppanen v. Seppanen 59 BCLR 26, British Columbias Supreme Court
summarized the law by stating:

In common mistake, both parties make the same mistake. Each

knows the intention of the other and accepts it but each is mistaken
about some underlying and fundamental fact. In mutual mistake,
the parties misunderstand each other and are at cross purposes. In
unilateral mistake, only one of the parties is mistaken. The other
knows, or must be taken to know, of his mistake.
The court went on to use the example where, for instance, that Alan agrees to buy
from Bob a specific picture which Alan believes to be a Picasso but which in fact is a
copy. If Bob is ignorant of Alans erroneous belief, the case is one of mutual mistake.
But if he knew of it, it is a unilateral mistake.
When both parties are mistaken on a basic and fundamental element of the contract:
the contract is void from the start if the mistake is of such significance that, in the
words of English case law, it is a false and fundamental assumption of the contract

(R. v. Ontario Flue-cured Tobacco Growers, 1965). For example, if the identity of a
contracting party is a fundamental element of the contract, such as an athlete or
artist, a mistake in this regard will void the contract. Another example is a contract
involving something that, unbeknownst to the parties, has been destroyed.
"Where there is a contract for the sale of specific goods, and the goods
without the knowledge of the seller have perished at the time when the
contract is made, the contract is void." {Section 10 of the B.C. Sale of
Goods Act, 1996.}

Sometimes, only one party will be in error. If the other party is aware of the
misperception or should have been aware of the mistake, the contract may not be
enforceable, even if the enlightened party did not cause the mistake. The law books
call this a unilateral mistake.
Mistakes of law would not give rise to judicial interference with a contract. Everyone
is presumed to know the law (but see cases like Solle and Capital Quality summarized
in subsequent pages).
One kind of mistake that give the courts difficulty involves a party who mistakes the
kind of contract being signed. Because this type of mistake could be abused, it is
severely limited by the common law.
There is a legal maxim, non est factum, which means not his deed and a special
defence in contract law to allow a person to avoid having to respect a contract that
she or he signed because of certain reasons such as a mistake as to the kind of
contract.
For example, a person who signs away the deed to a house, thinking that the
document signed was only a guarantee for another persons debt, might be able to
plead non est factum in a court and on that basis get the court to void the contract.
Non est factum cannot be relied upon if the party could have easily have read the
contract in question or if the party had a general idea as to the nature and purpose of
the contract.

It will not do for a man to enter into a contract and, when called
upon to respond to its obligations, to say that he did not read it
when he signed it, or did not know what it contained. If this were
premitted, contracts would not be worth the paper on which they
are written.
Upton v Tribilcock (1875, USA)
The person pleading non est factum would also have to prove that they sincerely
believed that the document they thought they were signing was fundamentally
different from the one they actually signed. In order to protect the commercial
system, the courts have consistently shown that in the presence of a signature by a

person endowed with the capacity to contract, non est factum is a very difficult
defence to hold in court.
Smith v. Hughes (1871)
unilateral mistake not enough
Defendant, a horse trainer, refused to accept a shipment of new oats from plaintiff,
saying that the contract had been for old oats. The plaintiff could recall no such
reference.
The court ordered the contract performed because it appeared that the words old
oats were never used at the moment of meeting of minds. There is no legal
obligation on the vendor to inform the purchaser that he is under a mistake, not
induced by the act of the vendor.
A unilateral mistake does not prevent the acceptance of an offer unless (1) the
mistake is as to the terms of the contract (as opposed to motivation) and (2) the
mistake is known to the offeree at the time of purported acceptance. Some members
of the court were also impressed with the fact that the defendant had been given a
sample of the oats which he held in his possession for two days. Mistaken
assumptions are immaterial to a contract.

If, whatever a mans real intention may be, he so conducts himself

that a reasonable man would believe that he was assenting to the
terms proposed by the other party, and that other party upon that
belief enters into a contract with him, the man thus conducting
himself would be equally bound as if he had intended to agree to the
other partys terms.
Bell v. Lever Brothers Ltd. (1932)
a heavy onus
A severance payment was made to senior executives of a subsidiary of Lever Brothers
Ltd. At the time, Lever Brothers was unaware that the senior executives had been in
breach of their fiduciary duties as directors of the subsidiary. They tried to have the
court void the severance contract claiming it was paid under a mistake of fact.

Mistakes as to the quality of the thing contracted for raises

difficult questions. In such a case a mistake will not affect assent
unless it is the mistake of both parties, and as to the existence of
some quality which makes the thing without the quality essentially
different from the thing as it was believed to be.
But in this case, the court concluded that the identity of the subject-matter was not
destroyed by the mutual mistake. Once a contract has been made, when both parties

have agreed with sufficient certainty in the same terms on the same subject matter,
then the contract is good unless set aside for failure of a condition precedent or
fraud. Neither party can rely on his own mistake even if the mistake was, to his mind,
fundamental.
Solle v. Butcher (1950)
voidable mistakes under equity
A high rent was given to Solle by Butcher in the mistaken belief, shared by both, that
the amount would have been permitted under rent control legislation. Solle later
sued Butcher claiming reimbursement of the difference between the control level and
the actual rent paid. Butcher counter-claimed asking for rescission which, in the final
analysis, the court granted. This case is best known for its extensive review of the law
of mistake. The court said that a mistake can be of the kind which renders a contract
void from the start or ab initio. These mistakes are the purview of the common law
and are to be considered in light of the Lever Brothers decision (see above). Other
mistakes are the purview of equity and make a contract voidable if to do so renders
no injustice to a third party and if it would be unconscientious for the other party to
avail himself of the legal advantage which he had obtained.
Unconscientiousness was defined as a mistake induced by a material
misrepresentation even though not fraudulent or fundamental, or if one party is
aware of the others mistaken belief and does not correct it. Equity, the court added,
can also set aside a contract based on mistake if the parties were under a common
misapprehension either to the facts or as to their relative and respective rights,
provided that the misapprehension was fundamental and that the party seeking to
set it aside was not himself at fault. In this case, the mutual mistake of fact made the
contract voidable and it was consequently rescinded.
Toronto-Dominion Bank v. Fortin (1978)
equity, part II
A receiver exceeded his authority by trying to sell a company and during the course
of his attempts, he accepted a non refundable deposit of $25,000 from a prospective
purchaser. When the purchaser decided to back out of the deal, he negotiated with
the receiver and had his deposit reduced to $10,000. When a court later found that
the receiver did not have the authority to sell the company, the prospective purchaser
claimed the return of the entire deposit, arguing that the money was paid under a
mistake of law.
The court ruled the compromise agreement though not a nullity at (common) law, is
liable to be set aside in equity.
McRae v. Commonwealth Disposals Commission (1951)
Relying on rumours, the Commission sold to McRae the remains of a marooned oil
tanker. But there was no tanker at the specified location and, apparently, never had
been. McRae sued the Commission for breach of contract and damages. The

Commission tried to say that the contract was based on a mistake but the court noted
that the Commission:

took no steps to verify what they were asserting and any

mistake that existed was induced by their own culpable conduct.
In these circumstances it seems out of the question that they should
be able to assert that no contract was concluded.
R. v. Ron Engineering & Construction (Eastern) Ltd. (1981)
An error in calculations in the contract A of a tender process was held not to
invalidate the contract. The contractor intended to submit the figures he submitted
right up to and including the moment of submitting the tender, which formed
contract A (see summary of facts).
Calgary v. Northern Construction Co. (1986)
snapping it up
An error in calculations was made by a clerk of a tenderer, resulting in a bid
$180,000 less than it should have been. It was only after the tender had been
selected that the contractor discovered his staffs mistake. But the court found that
the error was:

to motive and not to terms. The tender sum sent to the city was
the term which Northern intended to offer. It decided to offer that
term because of a mistake, a mistake which offered it a false reason
or motive to make that offer. By the traditional rule, then, the
construction contract is enforceable notwithstanding this mistake.
The court then declined to interfere with the contract under equity because it could
not find the contract unconscionable as there was no grossly disproportionate
burden upon the tenderer.
Lindsey v. Heron & Co. (1921)
Lindsey offered stock in Eastern Cafeterias of Canada to defendant who gave
$10.50 each. But when the defendant discovered his mistake (he really wanted
Eastern Cafeterias Limited stock, a different company), he tried to argue that there
was no contract. The court disagreed.

Judged by any reasonable standard, the words used by the

defendants manifested an intention to offer the named price for the
thing which the plaintiff proposed to sell, i.e., stock in Eastern
Cafeterias of Canada Limited.
Staiman Steel Ltd. v. Commercial & Home Builders Ltd. (1976)

reasonable man
A purchaser bid for steel at an auction thinking it was a mix of new and used steel,
when it was really only used steel. The court said that since the one party thought
that the lot included new steel and the other that it did not, that this was a mutual
mistake. In these cases,

the court must decide what reasonable third parties would infer
to be the contract from the words and conduct of the parties. It is
only a case where the circumstances are so ambiguous that a
reasonable bystander could not infer a common intention that the
court will hold that no contract was created. In this case a
reasonable man would infer the existence of a contract to buy and
sell the bulk lot without the building steel and therefore there was
a contract to that effect binding on both parties, notwithstanding
such mutual mistake.
Glasner v. Royal LePage Real Estate (1992)
If a party tries to slip in an important amendment.

and if the circumstances are such that the amendment might

readily be missed, he should be particularly reluctant to assume
knowledge (of that amendment by the other party). Equity will
relieve against performance of a contract obtained by a party who
knew the other side was mistaken about a material fact and who
took advantage of that mistake.
Lewis v. Averay (1972)
beware the conman
A person managed to con a person selling a vehicle that he was a famous actor and
made off with the car leaving a forged cheque in the actors name. The con-man then
sold the vehicle to another unsuspecting man who was looking for a car, this time
assuming the identity of his first victim.
The court held that the first contract, though voidable for fraud or mistaken identity,
was valid until so voided and the contract stands before third parties who have, in
good faith, acquired rights under it. Thus, valid title was conveyed to the second
victim and the loss was absorbed by the first victim.
Saunders v. Anglia Building Society (1971)
read it!

A plea of non est factum will fail if the signing of the document was due to his own
negligence (meaning) carelessness.
For example, failing to read a contract before signing it. As far as the kind of
difference required between the document believed in, and the contract in reality, the
court said that the difference would have to be fundamentally radically or
totally different.
Marvco Color Research Ltd. v. Harris (1982)
I said read it!
Through no fault of the bank, defendants signed a loan guarantee without reading
the document first and relying on the representation of the loan debtors word that
they were only signing an insignificant administrative document. When the bank
tried to collect from the defendants, the latter pleaded non est factum.
The court said no. The carelessness of the party requesting non est factum should not
be allowed against an innocent third party when it was through his own carelessness
that he failed to discover the misrepresentation.

The party who, by the application of reasonable care, was in a

position to avoid a loss to any of the parties, should bear any loss
that results when the only alternative available to the courts would
be to place the loss upon the innocent appellant.
RECTIFICATION
If between the parties, the terms are clear enough, but there has been a drafting error
that was not caught before signature, then there is a separate judicial procedure
called rectification which should be used (although the parties are better off to
amend the original contract themselves then pay the cost of judicial rectification).
This would not entail voiding the contract but correcting or amending it under
judicial supervision.
Bercovici v. Palmer (1966)
nice try
A lawyers inexplicable error extended a conveyance of real property to include a
cottage. One of the parties later tried to assert that the inclusion was intended but the
trial judge did not believe this evidence and concluded that he was satisfied beyond
any fair and reasonable doubt that the (cottage) was not intended by either party to
be included in their transaction.
On appeal, the court added that in cases where rectification is an issue, it is within
the purview of the court to consider conduct subsequent to the contract.

Coderre (Wright) v. Coderre (1975)

In this case, the Alberta court of appeal was not satisfied beyond a reasonable doubt
that the agreement alleged by the plaintiff was entered into orally by the parties.
Rectification usually results from a common mistake (when parties share the same
mistaken belief in some important element of the contract). But rectification may
also be available in circumstances of unilateral mistake if the party in the know
takes advantage of the mistake and that the taking advantage of it would amount to
fraud or misrepresentation amounting to fraud.
Augdome Corp. v. Gray (1975)
A court can order rectification even if it has not been specifically pleaded. Also,
although rectification is not granted when the rights of third parties are affected, this
does not apply when the third parties are before the court.

MISREPRESENTATION
Misrepresentation is when one of the parties to a contract made a wrong statement
about some material element of the contract and, because of this statement, the other
party entered into the contract. Contract common law treats fraudulent
misrepresentation differently from innocent misrepresentation.
In his book The Law of Contracts in Canada, 1994, p. 295, Professor G. Fridman
says there are four conditions that must be met before a court will accept that there
has been fraudulent misrepresentation:

(1) that the representations complained of were made by the

wrongdoer to the victim (before the contract); (2) that these
representations were false in fact; (3) that the wrongdoer, when he
made them, either knew that they were false or made them
recklessly without knowing whether they were false or true; and (4)
that the victim was thereby induced to enter into the contract in
question (a legal presumption exists in this regard).
Notice that the courts will not entertain a request to rescind a contract if the
representation was merely a puffed-up opinion on a particular product. Parties
should know better than to give full credence to commercial aggrandizements.
Nor will a misrepresentation on the law be a cause for judicial intervention under
this heading, and for the same reasons as given above: everyone is presumed to know
the law. Silence can be construed as misrepresentation in certain circumstances.
Redgrave v. Hurd (1881)
A lawyer agreed to buy a law office from another based on exaggerated
representations made on the value of the practice. When the practice proved to be

utterly worthless, the purchasing lawyer sued for rescission of the contract. The
court allowed the rescission saying:

If a man is induced to enter into a contract by a false

representation it is not sufficient answer for him to say, If you had
used due diligence you would have found out that the statement was
untrue. You had the means of discovering its falsity, and did not
choose to avail yourselves of them."
Smith v. Land and House Property Corp. (1884)
A leased property was sold on the representation that the tenant was a most
desirable tenant. Turns out the tenant had been defaulting on his rent and before
the deal was closed, actually filed for bankruptcy. The purchaser asked the court to
rescind the contract and the court agreed. Where the facts are equally known to both
parties, then representations between the parties are mere opinions.
But representations become material facts where the facts are not equally known,
as was the case in this situation (statements on a subject as to which prima facie the
vendors know everything and the purchasers nothing).
Bank of British Columbia v. Wren Developments Ltd. (1973)
A corporate secretary renewed a personal guarantee on a company loan on the belief
that collateral deposited as security when the guarantee was first signed, was still
with the bank as security. It was not, having been released by the bank to the
company president.

When he signed the second guarantee, (defendant) was misled by

the words, acts and conduct of the plaintiff into believing that there
had been no change in the collateral securities held by the plaintiff,
and otherwise he would not have signed it. Defendant is not liable
to the plaintiff.
Kupchak v. Dayson Holdings Ltd. Kupchak (1965)
Properties were exchanged between the parties including a motel. When the new
owner of the motel found out that the stated past earnings of the motel were false, he
sued for rescission of the contract. The court found that there was fraud and went on
to say that rescission is a equitable remedy and while it is true that a court, under
equity, cannot award damages as such, it can order one party to pay compensation to
the other. The court preferred to order compensation because the party that had
committed the fraud had already made permanent changes to the real property they
had acquired by the contract. On the defence of laches, the court stated that this is
feasible where:

 the party has, by his conduct, done that which might fairly be
regarded as equivalent to a waiver of it, or where by his conduct and
neglect he has, though perhaps not waiving that remedy, yet put the
other party in a situation in which it would not be reasonable to
place him if the remedy were afterwards to be asserted. Two
circumstances, always important in such cases, are the length of the
delay and the nature of the acts done during the interval.
The court denied the defence of laches because several lawyer letters had transpired
(in spite of long delays between those letters) and the institution of court action.
Redican v. Nesbitt (1924)
A house was sold without prior inspection. The keys were exchanged for the cheque
and when the purchaser saw the property for the first time, ordered a stop-payment
on the cheque. The vendor sued for payment and the purchaser defended by suing
for rescission.

Innocent misrepresentation (i.e non-fraudulent but such as

renders the subject of sale different in substance from what was
contracted for), such as will support a demand for rescission in
equity will serve as a good equitable defence to a claim for
payment under contract as well as afford ground for a counter-claim
for rescission.
The court first decided that the property did not differ to that extent from the
representations made about it. Considering the circumstances of the case,
notwithstanding that the cheque was stopped, the contract was executed (for
innocent misrepresentation (i.e. non-fraudulent), rescission is not possible where the
contract has been executed).
Heilbut, Symons & Co. v. Buckleton (1913)
A company underwriting a new share offering was contacted by a client and was
asked if the new company was alright. The underwriter replied that we are
bringing it out, from which the client implied a warranty. When the shares did not
do well, the client sued based on fraudulent misrepresentation. The court could not
find a collateral contract related to the character of the new company.
The courts said these contracts are very rare, will be interpreted strictly and one must
show animus contrahendi (i.e. an intention to contract) on the part of all parties to
them. In order to succeed, the plaintiff must prove fraudulent misrepresentation or
what is equivalent thereto, must be made recklessly, not caring whether it be true or
not.
Dick Bentley Productions Ltd. v. Harold Smith (Motors) Ltd. (1965)

Harold sold Dick a car saying that it only had 20,000 miles since major repair.
Harold bought the car. Turns out the car had done much more then 20,000 since the
last major repair. The court said:

An affirmation at the time of sale is a warranty, provided it appear

on evidence to be so intended. The question whether a warranty
was intended depends on the conduct of the parties, on their words
and behaviour, rather than on their thoughts. If an intelligent
bystander would reasonably infer that a warranty was intended,
that would suffice. In this case the representation was made for the
purposes of inducing the sale. The court said that it was thus prima
facie ground for inferring that the representation was intended as a
warranty. It is not necessary to speak of it as collateral.
The court went on to say that the defendant could rebut this presumption by showing
that his representation was innocent. In this case, the vendor made the statements
without checking them out and so the representations were not innocent.
Leaf v. International Galleries (1950)
A gallery sold a painting representing it as being done by a famous painter. Five years
later, while trying to resell the painting, the purchaser found out that it was not done
by that painter.
The vendor honestly believed the identity of the painter to be that which he had
represented. The plaintiff sued for rescission of the contract but his claim was denied
because for five years he had held on to the painting without rejecting it.

Here the question arises as to how could a person protect his/her interests in these day-today situations which have monetary implications?

There is a legal maxim non est factum, which means "not his deed" and is a special defence
in common law or law of torts to allow a person to avoid having to respect a contract that he
or she never formed because of certain reasons such as a mistake as to the kind of contract.

A contract requires a meeting of the minds, which Roman law called consensus ad idem. If
one or both parties are mistaken about an element of the contract, then there is no
consensus ad idem. But that does not necessarily mean contract is void. Such a rule could
breed abuse.

Mistake can be analysed into common mutual mistake, where both parties make the same
mistake. Each knows the intention of the other and accepts it but each is mistaken about
some underlying and fundamental fact. In a mutual mistake, the parties misunderstand each
other and are at cross purposes.

When both parties are mistaken on a basic and fundamental element of the contract, the
contract is void ab initio (that is, from the inception) if the mistake is of such significance that
it forms a false and fundamental assumption of the contract.

In a decided case, a commercial contract provided for sale of cotton by A to B `ex-Peerless

from Bombay'. In fact, two ships named Peerless sailed from Bombay, one in October and
the other in December. The buyer proved he meant the October vessel, while the seller
meant the December one. Held, the contract was void (Raffles vs. Wichelhaus, 1864).

In unilateral mistake, only one of the parties is mistaken. If the other party is aware of the
misperception or should have been aware of the mistake, the contract may not be
enforceable, even if the enlightened party did not cause the mistake.

For example, Ajit agrees to buy from Brij a specific picture which Ajit believes to be an
original M.F. Hussain work but which in fact is a copy. If Brij is ignorant of Ajay's erroneous
belief, the case is one of mutual mistake. But if he knew of it, it is a unilateral mistake.
Internationally, a landmark judgment depicting such situation is Imperial Glass Ltd vs
Consolidated Supplies Ltd (1960).

Mistake of law would not give rise to judicial interference with a contract as everyone is
presumed to know the law.

In a decided case, an error was made by a clerk of a tenderer, resulting in a bid $180,000
lesser than it should have been. It was only after the tender had been selected that the
contractor discovered his staff's mistake.

The court held that the contractor intended to submit the figures he submitted right up to and
including the moment of submitting the tender, which formed the contract. Held, the contract
was enforceable notwithstanding the mistake (Calgery vs Northern Construction Co. 1986)

Non est factum cannot be relied upon if the party could have easily read the contract or if the
party had a general idea on its nature and purpose. The defence under non est factum is
generally disallowed to a person who has signed a document containing the mistaken fact.
The persons pleading non est factum would also have to prove that they sincerely believed
that the document they thought they were signing was fundamentally different from the one
they actually signed.

This situation has been dealt at length in Ashok Kumar Oswal & Others vs Panchsheel
Textiles Mfg. & Trdg. Co. (P) Ltd & others. In this case `A', the petitioner claiming to have
control over 68 per cent shares in X Ltd, filed a petition that by a clandestine issue of 10,000
shares in X Ltd to `S' & others, the respondents, his controlling interest in X Ltd came down
to 30 per cent and as such his conversion into minority from majority caused a grave act of
oppression and, therefore, he sought cancellation of issue of shares in favour of the
respondents.

The facts were that `R', the Chairman of X Ltd and father of `A' & `S', left behind a will which
stated that an understanding had been reached between him and his two sons that the
ownership and control of X Ltd will be with `A' and that of other two companies will be with
`S'. `A' was the Chairman and Managing Director of X Ltd during the lifetime of `R'. After the
death of `R', `S' proposed himself for being appointed Chairman and Managing Director of X
Ltd. `A' suspected that his brother was trying to throw him out of his post as CMD and
opposed his proposal as being in contravention of the Articles.

Though the proposal was withdrawn, the same was again mooted after three months at a
board meeting. Suspecting some foul play by his brother, `A' made an inspection of records
of the Registrar of Companies and found that 10,000 shares of X Ltd had been allotted `S's
wife (1,000) and his daughter (9,000).

`A' knew nothing about the allotment or the board meeting at which they were allotted. The
issue amount of the additional shares was only Rs 1 lakh, which was very insignificant for
the company. By the allotment, the respondents had acquired 26.2 per cent shares in X Ltd
thus indirectly acquiring control over X Ltd which as per the will of their father was to go to
`A'.

However, it was noted that through a will, control of listed companies could never be
bequeathed and even family settlement cannot be the subject of petition under Section
397/398 of the Companies Act on oppression and mismanagement.

It was also contended that no notice was given to `A' of the board meeting at which the
allotment was made and, therefore, he had no knowledge of such allotment. The document
relied on by the respondents about the petitioner's knowledge was the Annual Report signed
by `A'. The respondents had also produced attendance sheets of several board meetings
printed on blank papers and signed by `A'. However, `A' had never attended those meetings.

The petitioner had stated that he had signed the Annual Report but he had not referred the
annexures, which were fudged by adding figures in ink. However, the defence would not
allow `A' to plead non est factum on the ground of negligence in signing a document.

It was also stated that carelessness on the part of a person signing a document would
preclude him from later pleading non est factum on the principle that no man may take
advantage of his own wrong (cases referred: Saunders vs. Angila Building Society, and
United Dominions Trust Limited Vs. Western).

However, the Company Law Board (CLB), notwithstanding the merits of the case, felt that it
was beyond one's comprehension that a person would voluntarily allow himself to be
reduced to minority by assenting to the allotment of new shares and accordingly, purely on
equitable grounds, the CLB felt that the control of X Ltd should go to `A', the petitioner along
with all its assets and liabilities.

The CLB tacitly did rely on the maxim non est factum and went beyond the apparent facts of
`A' petitioner signing the documents, to the core of the issue and granted relief to the
petitioner whereby on certain requirements being fulfilled the 10,000 new shares issued
would be cancelled reinstating `A' as majority shareholder.

It should be noted that mistaken assumptions are immaterial to a contract. A hypothetical

illustration: A man agrees to purchase through mail order a `Magical Dress' from a trader
who had said that the wearer will see everybody around him, but no one could see or
recognise him. The man paid Rs 5,000 for what he thought was a unique magical dress but
ended up receiving a burkha worth Rs 250!

Unilateral mistake is not enough to prevent the acceptance of an offer unless (1) the mistake
is as to the terms of the contract (as opposed to motivation) and (2) the mistake is known to
the offeree at the time of purported acceptance. The contract is valid despite the mistaken
assumption that a dress would be such that it will make a person invisible to human eye.

The seller relied on human psychology of dwelling in imaginary realm, which would make the
prospective buyer believe that the dress being magical would make him invisible.

Rightly, Miserama est servitus ubi jus est ant vagum, aut incertum meaning miserable must
be the condition of those people where the administration of the law is capricious and
uncertain.

To protect the commercial system, the courts have consistently shown that in the presence
of a signature by a person endowed with the capacity to contract, non est factum is a very
difficult defence to hold in a court. Unfortunately, as with so much of common law, the final
determination of what the rules are for dealing with mistake are still up in the air, moving with
the changing decisions of the courts.

Even globally, this common subject mistake lacks a legislative stamp. With the advent
of e-commerce, it becomes critical to crystallise the law on this.

(The author is Company Secretary and Whole-Time Director of ALSTOM Projects India Ltd
and is based in Mumbai.)