Taylor v Johnson

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Citation: Taylor v Johnson (1983) 151 CLR 422

This information can be found in the Casebook: Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 792-5 [31.150] or here

Contents

Background facts

  • The Defendant [Johnson] gave the Plaintiff [Taylor] an option to purchase two lots of land, approximately 5 acres, for $15,000.
  • However, Defendant declined to perform, as she was under the mistaken belief that the agreements provided for $15,000 an acre, making the total price $150,000.
  • The Plaintiff claimed specific performance. The Defendant sought an order setting aside the contract of sale.

Legal issues

Judgement

  • Smith v Hughes follows the subjective theory and provides that a contract is void ab initio if one party to the contract enters into it under a serious mistake as to the contract or existence of a fundamental term and the other party has knowledge of that mistake.
  • This is contrasted with the ‘objective’ theory: the law is not concerned with the real intentions of the parties, but with outward manifestations. Under the objective theory, a contract is only voidable.
  • The objective method has traditionally been favoured.
  • Basically, after considering the previous mistake cases, a party who entered a contract upon a unilateral mistake will only be entitled for rescission (voidable) if the other party had acted in an unconscionable way.
    • For example, the other party was aware of the mistake, and sought to profit out of it.
    • Quoting Svanosi v McNamara: "it is difficult to conceive any circumstance in which equity could properly give relief by setting aside the contract unless there has been fraud".[1]
    • By fraud, the court means "the wide equitable sense which includes unconscionable dealing."[2]
    • Rule of law: "a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension."[3]
  • In this case, the Plaintiff was aware that the Defendant is under a serious mistake, and had deliberately sought out to ensure that she would not realise she is mistaken. That is unconscionable, and thus the contract is rightly set aside.

References

  1. (1956) 96 CLR 156, 195-6
  2. (1983) 151 CLR 422, 431
  3. (1983) 151 CLR 422, 432
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