A contract is void for mistake as to quality only if the quality is sufficiently fundamental, without which the thing will be essentially different.
- Niger Company is a subsidiary of Lever Bros (C), dealing with commodities including Cocoa.
- When Niger Company merged with another company, employees D1 and D2 were terminated.
- C entered into severance agreements with D1 and D2 for sums of £30,000 and £20,000 respectively.
- C later discovered that Ds had been trading Cocoa on their own account which would have given them the right to terminate employment contract without compensation.
- C claimed inter alia, that the severance contracts were void for common mistake.
Held (House of Lords)
The common mistake was a mistake to quality that was not sufficiently fundamental to not render the severance agreements void.
Common mistakes that render contract void
- Mistake as to existence: Where subject matter is non-existent the contract is void.
- Mistake as to title: Where buyer is already the owner of what the seller is selling, the transfer of ownership is impossible, the contract is void e.g. Cooper v Phibbs: the claimant agreed to take a lease of a fishery when he actually inherit the title.
Mistake as to quality
- “Mistake as to quality of the thing contracted for raises more difficult questions. In such a case a mistake will not affect assent unless it is the mistake of both parties and is 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.”
- What is essentially different is to be interpreted narrowly.
- For example, if both seller and buyer believe a painting to be the work an old master and a high price is paid but it is a modern copy, buyer has no remedy in the absence of representation or warranty.
- The mistake was not an essential and integral part of the contract.
- The subject matter of the severance agreement is the employment contract, whether it could be terminable with or without compensation was not essential.
- C got exactly what it bargained for (termination); it is immaterial that it would not have entered the contract otherwise.
This is the leading case on common mistake which lays out the categories of common mistake which can render a contract:
- mistake as to an essential quality of goods sold,
- mistake as to the existence of goods sold, and
- mistake as to the title of goods sold.