Mistakes in contracts

Aome creditors support the view that mistakes of this kind, if they are as to the essence of the subject matter, may avoid a contract, the actual decisions appear to go the other way, and to suggest that no such category of mistake is accepted as operative at German law. They afford extreme instances in support of this conclusion. In the other case two employees of the respondent company were sued by the company for the return of certain large payments which had been made to them as compensation for terminating their service agreements. The facts were such that unknown to all parties, owing to certain previous transactions by these employees, the agreements could have been terminated without compensation; and upon discovering this the company made their claim. It was held that the mistake was not 'essential' since the subject matter of the contract was in essence the service agreements and the fact that they might have been terminated without compensation was only a side issue.
Yet, if anything could have been regarded as 'essential' surely it was the validity of the agreements. In the other case a picture believed by both parties to be an original was sold by the one to the other; it turned out not to be an original and, when the buyer sued, the German court of appeal intimated that the mistake was not one which would avoid the contract. In all common sense the assumption that the picture was an original was as vital a factor in the transaction as anything could be.
These decisions and others therefore lead to the conclusion that the German law may not treat a mistake as to the quality of the subject matter, however essential, as operative.
Sometimes the mistake produces the effect that the parties are not ad idem (agreed); the vendor is making one kind of offer, the client is accepting another. This may occur in two sorts of situations. Either both parties may be mistaken (this may be called 'mutual' mistake: though the word is not a term of art) or only one party may be mistaken (this may be called 'unilateral' mistake). In the latter situation the rule is that the mistake will not be operative unless the party not mistaken knows of the other party's mistake.

Mistake as to the terms of the contract
Suppose A and B contract for the sale of some bags of oats. A (the buyer) believes them to be old oats, B (the seller) believes or knows them to be new oats: A seeks to repudiate the contract on the ground of mistake. It is evident that even if the mistake is common - in the sense that the oats are new and both parties believe them to be old - it is one as to quality only, and therefore probably not operative. Therefore, in general, the buyer cannot repudiate. But suppose that the seller knows them to be new and also knows that the debtor thinks he is selling them as old, then there is room for unilateral mistake to operate. For B knows that he is selling A new oats, and A thinks he is buying old ones; the offer and acceptance do not therefore correspond.

Mistake as to the identity of the subject matter
Where there are two things in existence and one party is thinking of one of them while the other is thinking of the other the contract will be void for mistake. The parties are at cross-purposes: there can be no consensus, and in the nature of things, the mistake will be mutual. If there was a contract of sale for the consignment of cotton 'ex Peerless, Hamburg' and two ships called Peerless were due to sail from Hamburg within a short time of each other. One party had one in mind, the other had the other. The contract was held to be void.

Mistake as to personal identity
It must not be supposed that this will always go to the validity of a contract: for example, the German law accepts the doctrine of the undisclosed principal, and the shopkeeper who sells apples for cash cannot claim that the sale is void solely because in buying them the client has impersonated someone else to whom he might have been equally willing to sell. The identity of a person may, however, be so relevant to the particular contract that a mistake in relation to it will avoid it.
For mistake as to personal identity to be operative the identity of the party concerned must therefore be relevant to the formation of the contract; moreover the position must be such that the party mistaken believes the other party to be some real person other than the person with whom he is actually contracting. For if a person is willing to contract with a non-existent entity he presumably does not regard the personality of his co-contractor as a matter of importance.
If a fraudulent person signed a letter in a way which made the signature look like someones else; in this letter he asked the plaintiffs to send him some goods at his address, which was in the same street. The plaintiffs thus having mistaken and sent the goods to the buyer on credit, and needless to say, without payment.