Scottish Court of Session Decisions

LORD DUNPARK'S OPINION.—[His Lordship gave the narrative quoted supra, and continued]—

The witnesses adduced for the pursuer were Messrs W. A. and W. R. M'Millan, partners of Messrs M'Millan, Howie, Paterson & Co., and Messrs G. N. L. Jones and W. A. Muir, partners of Messrs Fraser, Brooks & Co. In his evidence Mr W. A. M'Millan stated that, from the time when Mr Jones first telephoned him on 6th September 1971 inquiring as to terms which the pursuer would accept for settlement of the action, he had always had in mind that the defenders should pay interest as concluded for on the principal sum, namely, 10 per cent per annum from 16th March 1969. He was convinced that, when he was replying to Mr Jones's query of 6th September, he had the closed record beside him, but his evidence that he had repeated to Mr Jones what was on the closed record, namely, the principal sum with interest thereon at 10 per cent per annum from 16th March 1969, was prefaced with the qualification "so far as I recollect." Mr M'Millan then undertook to ascertain from his Edinburgh correspondents what sum the defenders would have to pay to cover the expenses of the action. He subsequently ascertained from them that the figure for expenses was £300 and on 8th September telephoned Mr Jones and informed him "around £300" for the expenses. Mr M'Millan explained that he then intended to assist Mr Jones by calculating the approximate amount of interest at 10 per cent on the principal sum from 16th March 1969 and arrived at a figure of £180. The interest at 10 per cent on £7593.75 from 16th March 1969 to 8th September 1971 amounts to about £1818 and Mr M'Millan's explanation for stating the approximate figure of £180 was that he must have erroneously calculated the interest at 1 per cent instead of 10 per cent. He could not recollect whether he had repeated the date, 16th March 1969, to Mr Jones over the telephone on 8th September.

Mr M'Millan's initial insistence that the written offer and acceptance did not truly represent the intentions of the solicitors for the parties was, therefore, based on his firm impression that he had specifically stated to Mr Jones on 6th September that interest at 10 per cent should be paid from 16th March 1969; and accordingly he believed that Mr Muir had erroneously inserted the date 16th March 1971 in his offer letter, and admitted that he himself had made the same mistake in his letter of acceptance. He did not accept the statements in Mr Muir's letters dated 15th September and 22nd September that he (Mr M'Millan) had quoted the date 16th March 1971 as the date from which interest should run. What Mr M'Millan did not then know was that Mr Jones had made a contemporaneous written note of the vital telephone conversation of 8th September in the following terms:

In his evidence Mr Jones said that, when he spoke over the telephone to Mr M'Millan on 6th and 8th September, he had not seen the pleadings in this action: he did not, therefore, know that the pursuer concluded for payment of interest from 16th March 1969: and he had telephoned Mr M'Millan on 6th September at the request of Mr Stewart of the defenders in order to find out what the defenders would have to pay to settle the action. He had then been told the amount of the principal sum by Mr Stewart but he had to ascertain what sums the defenders would have to pay in respect of interest and expenses. He had no recollection of Mr M'Millan stating on 6th September that interest would have to be paid at the rate of 10 per cent from 16th March 1969 and thought that, if Mr M'Millan had said that, he (Mr Jones) would then have taken a note of it, and he had none. He referred to the note made by him on 8th September quoted above. While he had not unnaturally no personal recollection of Mr M'Millan specifically stating the date "16/3/71" noted by him, he maintained that Mr M'Millan must have stated that date, as he (Mr Jones) had written it down at the time. In examination-in-chief he positively excluded the possibility of his having written down "16/3/71" because Mr M'Millan mentioned the date and month, 16th March, without reference to a year. To a question by the Court he stated that it was "just possible" that on 8th September 1971 Mr M'Millan mentioned the date and month, 16th March, only and that he took this as meaning 16th March 1971, but this does not assist the pursuer to prove that Mr Jones knew that the pursuer wanted interest paid from 16th March 1969. As the date incorporated by Mr Muir in the offer letter and repeated in Mr M'Millan's acceptance, namely, 16th March 1971, was the date noted by Mr Jones on 8th September 1971, there is no question of Mr Muir having mistakenly inserted "16th March 1971" for "16th March 1969" in the offer letter. The evidence, therefore, excludes the primary ground upon which reduction is sought, namely, error common to both parties as to the interest date inserted in the written offer and acceptance. Whatever Mr M'Millan may have said to Mr Jones on 6th and 8th September, he certainly did not make it clear to Mr Jones that the pursuer was asking for interest from 16th March 1969.

Counsel for the pursuer conceded that the evidence did not establish a case of mutual or common error and did not ask me to sustain the pursuer's fourth, fifth or sixth pleas in law, but he presented two arguments for reduction of the agreement apparently concluded by the relevant letters, one to the effect that the agreement was voidable, the other to the effect that it was void, but both founded on the fact that Mr M'Millan alone was in error in accepting the offer to pay interest from the stated date of 16th March 1971. Reduction is therefore sought on the ground that an onerous contract, reduced to writing in terms which are clear, unequivocal and not open to construction, is reducible if only one of the parties thereto has misread one of the material terms thereof, although the other party has not in any way contributed to this mistake and has no knowledge, or even grounds for suspicion, that it has been made. This is a startling proposition and I have no doubt that it is not well founded in law. Before I examine it, however, a preliminary question arises as to whether there is anything in the other evidence in this case which corroborates Mr W. A. M'Millan's evidence that he made this mistake.

I fully accept Mr W. A. M'Millan's evidence that he was proceeding upon the assumption that interest would be payable from 16th March 1969 from his first telephone conversation with Mr Jones on 6th September until Mr Muir pointed out to him on 14th September that the date stated in the contract letters was 16th March 1971, but evidence from some independent source is necessary to prove this vital fact. Counsel for the defenders submitted that there was no corroboration of Mr W. A. M'Millan's own evidence of his mistake, because the evidence of Mr W. R. M'Millan was wholly based upon what Mr W. A. M'Millan had told him after the bargain had been concluded. While I think that Mr M'Innes for the defenders is well founded in submitting that there is nothing in the evidence of Mr W. R. M'Millan that can competently be treated as corroborating Mr W. A. M'Millan's evidence of mistake, I do not consider that corroboration of Mr W. A. M'Millan's state of mind at the relevant time (which, in my opinion, is when he signed the acceptance on 13th September) can be obtained only from facts and circumstances occurring at or prior to that time. I find the necessary corroboration in the fact that in the summons interest is concluded for from 16th March 1969 and in the evidence of Mr Muir to the effect that, when Mr W. A. M'Millan telephoned him on 14th September claiming that interest should have been calculated from 16th March 1969, Mr M'Millan did not seem to appreciate that he had agreed to accept interest from 16th March 1971 until Mr Muir referred him to the contract letters. It seems most improbable that Mr M'Millan would have challenged Mr Muir's calculation of the amount of interest due if he had then realised that Mr Muir's calculation had been made in accordance with the terms of the contract letters. I find, therefore, in Mr Muir's evidence of this telephone conversation of 14th September corroboration of Mr M'Millan's evidence that he had erroneously assumed that the agreed date for interest was 16th March 1969 and that he did not realise his mistake until Mr Muir referred him on 14th September to the terms of the contract letters. It being proved, therefore, that Mr M'Millan did make this mistake, the question is whether the agreement ex facie concluded by the offer and acceptance letters can be reduced on this ground.

The first submission by counsel for the pursuer was that the purported agreement was voidable at the instance of the pursuer on the ground that the date, 16th March 1971, stated in the contract letters was a "lingual slip" or an error in expression. Since he had no plea on which to base this argument, I allowed him, with the consent of counsel for the defenders, to add a ninth plea in law for the pursuer for this purpose. He referred me to Gloag on Contract (2nd ed.) at pp. 435-9, but the passages and cases upon which he founded, with one exception, do not support the proposition that, where parties have entered into a written contract in good faith in plain terms that accurately express the intention of one party and are not open to construction, the other party can successfully claim to have that contract reduced solely on the ground that a date or sum of money specified in the written contract is not the date or sum that he intended to specify.

The first sentence of Professor Gloag's chapter on Error at p. 435 refers to cases "where by some slip or blunder the contract is concluded or recorded in terms other than those to which the parties to it consented." This he classifies as "error in expression." I do not quarrel with this sentence if the phrase "the parties" is read, as I think it should be, as meaning "both parties." There is a later passage, however, at p. 439 of Gloag's book which suggests that the learned author may have used "consented" in the sense of "intended," which would let in unilateral error. At best the sentence is ambiguous and, if read in the sense for which counsel for the pursuer contended, is contrary to authority. Most of the cases which Gloag cites under this head are not related to uninduced unilateral error.

On this branch of his argument counsel for the pursuer referred me to five cases. He conceded that the first, Seaton Brick and Tile Co. v. Mitchell, (1900) 2 F. 550, was against him. In that case the defender had contracted with the pursuers to execute certain carpentry work according to specification for a lump sum. Shortly after the contract was concluded, the defender discovered that there were arithmetical errors in his calculations which resulted in the quoted price being less than he had intended. He refused to do the work and was found liable to the pursuers in damages. Lord Moncreiff said (at p. 556):

"Now, I understand the law to be that a party who enters into a contract under a mistake must be held to it unless the mistake was induced by the other party or was brought under the other party's notice before acceptance. That was not the case here; and, therefore, I think that the defender has no good ground for repudiating the contract."

Counsel for the pursuer submitted that this case would not stand with the next two cited cases and that I should not follow it, but the next two cases that he founded on did not, in my opinion, assist him. Jamieson v. M'Innes, (1887) 15 R. 17, and Wilkie v. Hamilton Lodging House Co., (1902) 4 F. 951, were each decided on a point of construction, namely, that a contract which falls to be construed as one for payment for work done in accordance with incorporated schedules and rates entitles the contractors to payment on the basis of the schedules and rates, notwithstanding that arithmetical errors in the application of the agreed rates to the agreed schedule of quantities have produced a lump sum, stated in the contract, of lesser amount than it should have been. No question of construction arises in this case. The next case, Stewart's Trustees v. Hart, (1875) 3 R. 192, was conceded by counsel for the pursuer to be a special case. In reducing that contract on the ground that the purchaser had known and taken advantage of the unilateral error of the sellers, the Court was moved by considerations of equity. No suggestion is, or could be, made after proof in this case that either Mr Jones or Mr Muir had any ground for suspicion, far less belief, that Mr M'Millan had misread the offer letter. Counsel for the pursuer is, therefore, driven back to the elderly case of Sword v. Sinclairs, (1771) M. 14,241, where a written contract for the sale of tea at 2s. 8d. per pound was held to be unenforceable, the seller having refused to deliver the tea on the ground that in his written instructions to his agents not to sell the tea at less than 2s. 8d. per pound the figure of 2s. 8d. had been mistakenly inserted instead of 3s. 8d. The ratio decidendi is not reported. Professor Gloag cites this case at p. 438 of his book in support of the proposition stated on p. 439 "that a man is not bound by a clerical or lingual slip in making an offer, even although the party to whom it is made accepts in good faith." I do not consider that it necessarily supports this proposition. In the first place, it appears from the report that the case was argued on the basis of error in substantial, namely, in pretio. That is a very different situation from the case in which it is proved that both parties have agreed to A but the contract mistakenly records them as having agreed to B and is therefore reducible as not giving effect to the agreement between the parties (see, e.g., Anderson v. Lambie, 1954 SC (HL) 43). Secondly, Gloag concedes that the Seaton Brick case does not support his proposition and states that it is irreconcilable with Sword v. Sinclairs . I do not agree. The Seaton Brick case vouches a proposition which I believe to be sound and well established in the law of Scotland, namely, that if A offers in writing to perform specified services or deliver specified goods at a stated price, and B, having no reason to believe that A has erroneously understated the price, accepts A's offer in good faith, the contract cannot thereafter be reduced on the ground that A has in fact erroneously understated the price. Is it then possible to reconcile Sword v. Sinclairs with this proposition? I think that it is. In the year 1771 the sum of one shilling was substantial, and tea, I believe, was still something of a luxury. I strongly suspect that the Court applied judicial knowledge to the problem and took the view that, whereas 3s. 8d. per pound was a realistic price for tea, 2s. 8d. was not. It is a necessary inference from this view that, in accepting an offer to sell at 2s. 8d. per pound without inquiry, the purchaser did not act in good faith. If this was the ratio decidendi of Sword v. Sinclairs —and it may have been, because none is stated—the case would not conflict with the proposition above stated but would illustrate the application of the equitable principle that, where an offer price is so low as to afford reasonable grounds for suspicion that it has been erroneously and substantially understated, the Court may refuse to allow the offeree to take advantage of the offeror's mistake. It may be said that I am not entitled to speculate as to the true ratio of Sword v. Sinclairs .So be it. But the fact that the ratio is not reported entitles me at least to differ from Gloag's view that the Seaton Brick case and Sword v. Sinclairs are irreconcilable and to treat the latter as an unreliable authority, which I am not bound to follow in this case (see Great Western Railway Co. v. Owners of S.S. Mostyn, [1928] A.C. 57, per Viscount Dunedin at p. 73).

Gloag cites three other authorities in support of his proposition. Two of them are the building contract cases of Jamieson v. M'Innes and Wilkie v. Hamilton Lodging House Co., to which I have already referred, and in my opinion they do not support the learned author's proposition. In each of these cases effect was given to the contract as construed by the Court. They are not examples of rectification of a unilateral error in expression or of a unilateral lingual slip. The other case is the English case of Phillips v. Bistolli, (1824) 2 B. & C. 511. Counsel for the pursuer, perhaps wisely, did not specifically refer me to this case. I do not know whether that single English case is consistent with a line of authority on the effect of unilateral mistake in the English law of contract, and I have made no attempt to find out. Suffice it to say that the doctrine of mistake in the English law of contract is fundamentally different in origin and concept from the Scots law of error in relation to obligations, and I cannot regard this solitary ngtish case as a sound basis for the proposition stated by Gloag. Accordingly I am of the opinion that the proposition stated by Gloag on p. 439 is not well founded on the authorities cited.

As I therefore reject the first branch of the argument for the pursuer, namely, that this contract was voidable, I need not deal with the question whether or not restitutio in integrum is possible except to say that, had I held the contract to be voidable, I see no difficulty in imposing upon the grant of decree of reduction such financial conditions as would cover any liability of the defenders for damages in respect of breach of the contract of sale which they concluded with a third party.

The seventh plea in law for the pursuer is in the following terms:

"Separatim, esto the pursuer and the defenders purported to contract to settle the action on the terms averred by the defenders, which is denied, the pursuer having done so under error as to the price or consideration for said contract, it is void and decree of reduction should be pronounced as concluded for."

I preface my reference to the argument of counsel in support of this plea with the observation that this is neither the time nor the place to air my views on the grounds which render a contract void or voidable according to the law of Scotland. In theory unilateral error in substantials should, by excluding consent of the party in error, render an agreement void, whether or not that error has been induced by misrepresentations of the other party; but the authorities on this matter seem to me to be so confused that any statement of my opinion would be worthless without a detailed examination of this topic. I make no such examination because in this case I am satisfied that the settlement agreement is valid and irreducible. Esto that the unilateral error of one party may be of such a nature and occur in such circumstances that the purported agreement is void, this is not such a case.

I may mention, however, that counsel for the defenders referred me to one sentence at p. 527 of Professor Walker's Principles of Scottish Private Law, vol. i, namely:

"Unilateral essential error does not justify rescission or reduction of an onerous contract unless that error was induced by the other party's misrepresentation."

Lest it set a trap for the unwary, I point out that this sentence must be read in conjunction with the paragraph on the next page (528), headed "Unilateral error wholly excluding consent," where he states that uninduced unilateral error in substantials renders a contract void. This seems to me to demonstrate that on the previous page the learned author relates "reduction" to voidable contracts only. In that paragraph on p. 528 he refers to only two cases relating to onerous contracts. The first is Wemyss v. Campbell, (1858) 20 D. 1090, to which I refer later. The second is Hogg v. Campbell, (1864) 2 Macph. 848, which I read as a case of unilateral error induced by the other party, either fraudulently or innocently. I do not agree with the suggestion made by Professor Walker in foot-note 6 on p. 527 that Stewart's Trustees v. Hart (cit. sup.) and Robertson v. Rutherford, (1841) 4 D. 121, were wrongly decided. In neither of these cases did the Court reduce the contract on the ground of "pure" uninduced unilateral error. The former may reasonably be regarded as an application of the doctrine of personal bar; but in any event the fact that the purchaser's knowledge of the sellers' mistake formed the basis of the ratio decidendi takes it out of the "pure" category. The latter, in my opinion, is a case in which the Court construed the contract to the effect that the seller was unable to deliver the agreed subject-matter.

The rule stated by Lord Watson in Stewart v. Kennedy, (1890) 17 R (HL) 25, at p. 29 (see also Lord Herschell at p. 27), that unilateral error in regard to the nature of obligations undertaken in an onerous contract reduced to writing will not normally give the party in error a right to rescind, seems to me to be equally applicable to unilateral error in relation to a price plainly stated in a written contract. Counsel for the pursuer referred me to the passage in Bell's Principles, section 11, upon which Lord Watson is there commenting, as authority for the proposition that this contract was void because Mr M'Millan's misreading of the date from which interest was to run was tantamount to an error as to price which excluded real consent on his part. While I accept Mr M'Millan's mistake as equivalent to an error as to price, Lord Watson did not construe the passage in the sense for which the pursuer contends. Indeed his interpretation of that section is that Bell was not dealing with the important question "how far in the case of contracts … an erroneous belief entertained by one party only will give him a right to rescind." Lord Watson opines that this right may exist only in exceptional cases; and reference to Lord Watson's qualification of Bell's statement was included by Guthrie in his 10th edition of the Principles.

In my opinion it is essential in the interests of business efficacy that the ordinary rule should be that an onerous contract reduced to writing in plain terms should bind the parties thereto. In Hunter and Another v. Bradford Property Trust Ltd., 1970 S.L.T. 173, Lord Reid said (at p. 184):

"Of course, unilateral error would not be a ground for reduction if the contract was not gratuitous,"

and Lord President Clyde said (at p. 176):

"It is now well settled in the law of Scotland that a person who enters into a gratuitous obligation can reduce the contract if he can establish that he entered into it under essential error. In this respect gratuitous obligations stand in a quite special position. For no such right of reduction would operate in the case of an onerous contract."

These obiter dictareiterate the general rule that uninduced unilateral error will not per se found reduction of an onerous contract, but, unlike Lord Watson, neither Lord Reid nor Lord President Clyde concedes exceptions to this general rule. I have already stated that I do not regard Steuart's Trustees v. Hart as a case of "pure" uninduced unilateral error, but the ratio decidendi of Wemyss v. Campbell, (1858) 20 D. 1090, is an example of such an exception. In that case the Second Division allowed an issue in, inter alia, the following terms:

"… whether the pursuer entered into the said sub-tack under essential error as to the true nature of the said subject, the said tract of ground not being a deer-forest in which such sport could be enjoyed?"

The fact that the defender had advertised the ground to let as a deer-forest when the pursuer averred that there were never any stags on it during the stalking season suggests that the pursuer might have sought reduction on the ground of error induced by the defender's misrepresentation, but there is not a word in the opinions about the advertisement or about misrepresentation. Nevertheless, notwithstanding the ratio decidendi, the facts are not solely consistent with the proposition that "pure" uninduced unilateral error in substantiate will found the reduction of an onerous contract reduced to writing, because, if the defender let the ground in the honest belief that it was a deer-forest and the pursuer proved that it was not, then there would have been common error in substantials, namely, either as to the subject-matter of the contract or at least as to the quality thereof, which both parties obviously regarded as material.

I am not to be taken as saying that no case can ever occur in which equitable considerations require the reduction of a contract by application of the principle suggested by Professor T. B. Smith (see Short Commentary on the Law of Scotland, pp. 819–20; also The British Commonwealth, vol. i, pp. 1009–11) that uninduced unilateral error in substantials may found reduction of an onerous contract provided that the error is justus et probabilis. The fact that no such case has yet found its way into our law reports, while not precluding that possibility, may reasonably be thought to render the prospect less probable, particularly when regard is had to the need for certainty in the commercial world. Counsel for the pursuer did not ask me to apply Professor Smith's test and the essential proviso would in any event be wholly inapplicable in this case, where the mistake made by Mr M'Millan, however understandable, was in my opinion neither reasonable nor excusable.

My researches have failed to unearth any straightforward examples of exceptions to the general rule upon which the pursuer's seventh plea in law might be founded. Counsel for the pursuer based his argument in support of his plea upon the paragraph at p. 450 of Gloag on Contract headed "Error as to price, etc." and upon one of the cases referred to therein, Wilson v. Marquis of Breadalbane, (1859) 21 D. 957. All the authorities cited by Gloag in foot-note 7 on p. 450 are cases in which either no definite price was fixed or no agreed price could be proved. In such cases parties may no doubt reasonably hold conflicting views and there is no proof of a concluded contract. It follows that neither that passage in Gloag nor the authorities cited by him support the pursuer's seventh plea in law, which amounts, according to my interpretation of it as applied to the facts of this case, to the proposition that an error of the kind made by Mr M'Millan, which was not in any way induced by the offeror, and was unknown to, and could not reasonably have been known to, the offeror, will found reduction of that contract at the instance of the party in error.

I do not think it appropriate after proof to sustain the defenders' general plea to the relevancy of the pursuer's averments relating to reduction and to dismiss the action "quoad the second conclusion" of the summons. On the other hand it is too early to grant absolvitor as sought in the other pleas of the defenders directed to this question. In this situation I shall make a finding that the pursuer is not entitled to reduction in terms of the second conclusion of the summons and that parties are bound to settle this action in accordance with the terms of the contract constituted by the offer letter dated 9th September 1971 from Messrs Fraser, Brooks & Co. to Messrs M'Millan, Howie, Paterson & Co. and the acceptance letter dated 13th September 1971 from Messrs M'Millan, Howie, Paterson & Co. to Messrs Fraser, Brooks & Co. As this settlement depends upon payment by the defenders of the price of £7593.75, interest thereon at 10 per cent from 16th March 1971 and £300 for expenses and the delivery by the pursuer to the defenders of a good title, I shall repel such of the pursuer's pleas in law as are inconsistent with my finding, namely, the third to the ninth pleas inclusive, and quoad ultra continue the cause to enable settlement to be effected as agreed. If the sum of £455.62, included in the cheque for £8349.37 sent by the defenders' agents to the pursuer's agents on 21st October 1971, represents interest on £7593.75 at 10 per cent from 16th March 1971 to 21st October 1971, then in my opinion the defenders have tendered all that the said contract required them to pay and no further interest is due.