The meaning and effect of mistake in law

pharmacy

Mainland Maternity Hospital in Lagos places an order for four cartons of Babylee Infant Formula from City Express Stores on 1 June.  The goods are promptly supplied the following day and are paid for by cash upon delivery.

The following week, it is brought to the notice of the Chief Matron of the hospital that the products supplied were affected by a recent government provision.  The National Agency for Food and Drug Administration and Control (NAFDAC) had withdrawn the licences for the importation and distribution of certain products.  Unknown to both parties (Mainland Maternity Hospital and City Express Stores), the list of affected products was published in the month of May and it contained Babylee Infant Formula, among others.

The Chief Matron immediately contacts City Express Stores and demands that they take back their goods and refund all payments made.  The manager of City Express refuses to comply on the following grounds: 1) The hospital specifically requested for Babylee Infant Formula; 2) Since neither party was aware of the development, the transaction was genuine; 3) The NAFDAC provision is very recent and so it can ber overlooked; and 4) The products supplied are still consumable, as the expiration date is not due for another year.

In view of this, what is the legal position of the parties concerning the mistake made in the transaction?

In law, a mistake has a more limited scope than a mistake in ordinary usage.  What may be regarded as mistake by the layman, will in most cases not be so regarded at law.  If it is established that one or both parties entered into a contract under some misunderstanding or misapprehension, the circumstances will be considered to determine the remedies available.

The legal issues to be discussed are:

1. What constitutes a ‘mistake’ in law?
2. The classification of mistakes.
3. The effect of a mistake in a transaction.

The scope of what constitutes a mistake at law is demonstrated by Lord Atkin in the case of Bell v. Lever Bros. Ltd:

“A buys B’s horse; he thinks the horse is sound and he pays the price of a sound horse; he would certainly not have bought the horse if he had known as a fact that the horse is unsound.  If B has made no representations as to soundness and has not contracted that the horse is sound, A is bound and cannot recover back the price.”

To the layman, this illustration would be regarded as a ‘mistake’ on the part of A; but in law, there is no mistake in such situations.  A has got what he contracted for.  It is not the business of the law to help A to define what qualities he had expected but failed to spell out expressly.  However, if unknown to both parties, the subject matter had already been destroyed at the time the negotiation to purchase was being concluded, it would amount to a mistake at law.  According to Lord Atkins:

“An agreement of A and B to purchase a specific article is void if in fact the article had perished before the date of the sale.  In this case, though the parties in fact were agreed about the subject matter, yet consent to transfer or take delivery of something not in existence is deemed useless: consent is nullified.”

There are various ways of categorising mistakes at law but a clear method of classification would be based on the parties involved in the misapprehension and the subject of error.  Thus, we have: a) common mistake; b) mutual mistake; c) unilateral mistake.

A common mistake is one where both parties concluded the contract under the same misapprehension about the same fact which lies at the basis of the agreement.  A mutual mistake is where two parties are mistaken about each other’s terms in the sense that one party makes to the other an offer which the other party “accepts” in a fundamentally different sense from that intended by the offeror.  A unilateral mistake is one where only one party is mistaken or is presumed to be mistaken.

In this case involving Mainland Maternity Hospital, it is apparent that both parties were unaware of the new provision affecting the importation and distribution of the required product.  It is therefore a classic case of a common mistake.

The manager of City Express Stores has expressed several reasons why the contract is valid, despite the NAFDAC provision.  The argument is that a genuine mistake, such as this, may be overlooked in view of the circumstances.  It is noteworthy that the hospital specifically requested for Babylee Infant Formula and they were given what they ordered.

However, in the case of Knight, Frank and Rutley v. Attorney General of Kano State, the state government engaged the services of a firm without cognisance of the fact that the assignment had been affected by the constitution and the Kano State Local Government Edict.  Consequently, after the firm had initiated the services and had been paid an advance fee, the state government discovered the mistake and repudiated the contract.  According to the court, where the subject matter of a contract has, without the knowledge of either party, ceased to exist before the contract was made, the contract is void on the ground of mistake.

From this analysis, even though there was a contract for sale of specific goods, the fact that the contract was preceded by a government provision, which invalidated the sale of such goods, goes to render the contract void ab initio (from the beginning).  In effect, the hospital is entitled to rescind the contract and claim a full refund of payments made.

Principles and cases are from Sagay: Nigerian Law  of Contract