Khan v Mohammed [1982] FJLawRp 25; [1982] 28 FLR 94 (29 August 1982)

[1982] 28 FLR 94

ININ THE SUPREME COURT OF FIJI

FARID KHAN

v

ALI MOHAMMED & 2 OTHERS

Civil Jurisdiction

i>Contractake: Mutual mual mistake – fundamental error – contract unenforceableeable
D. C. Maharaj&#1i>forntifrntiff
I. Khan for Defendant#1r> #160;
The parties were formerly in p in partnership, the plaintiff by agreemenhdrew from the partnership.

By agrt dateddated 10 N 10 November,1981 it was accepted that up to the 11 September 1981, the da dissolution, each partner tner had achieved an operating profit of $14,300 inclusive of his initial capital contribution viz. $2,000. Further it was agreed the plaintiff would receive $8,300 upon the execution of the agreement and the balance of $6,000 would be paid in instalments.

Treement was entered ined into in good faith. However, it transpired that in calculating the nature of work in hand an error had been made. The total profit to the partnership to 10 September, 1981 amounted to only $14,065.86: therefore the plaintiffs share was considerably less than the agreement had provided. The money was not paid, the plaintiff sued for it. The defendants pleaded that the agreement was unenforceable as it was signed under a mistaken view of fact. First and second defendants counterclaimed for a refund of the excess money paid under the agreement and asked for a declaration that the agreement was unenforceable.

As between the parties the learned Judge said the most important question upon which there had to be agreement vas the division of the assumed profit. It was upon this basis that the dissolution was agreed upon, and upmutual mistake.
The fThe fact that these accounts did not represent the true position was a fundamental error going to the root of the contract. The parties therefore could not be bound by what had been agreed upon.

Declar thatagreement dant dated 1ted 10 November 1981 was unenforceable. Plaintiffs claim and defendants' counterclaim dismissed.
ase Red to:

Bell ver Brer Brothers Limited (1A.C. 16C. 161.
<160;
R, Mr Justice

JUDGMENT

On the 3^rd April, 1981 the plaintiff aiff and the defendants becamtnersn enterprise call called the Modern Land Development Companompany. A few months later the plaintiff decided to withdraw from the partip. Hrtners agreed to d to this this with effect from 11^thSeptember, 1981.

By an aent dated the 10he 10^th November 1981 it was accepted that up to the date of dissolution each partner had achieved an operating profit of $14,30lusive of his initial capital contribution of $2,000. It waIt was also agreed that the plaintiff would receive $8,300 upon the execution of the agreement and that the balance of $6,000 would be paid into equal instalments of $ 3,000 each before the 31^st January, 1982 and the 31^st January, 1983 respecti
&

It is accepted tha plai plaintiff and his former partners entered into this agreement in good faith. However, in the case of one partner. Mohammed Sultan Khan, who was the fenginhe had reason enon enough to believe at the time the agreemgreement was executed that the profits as stated therein might not in fact be achieved. Khan was made the third defendant in this action, but, the process was not served upon him.

In the evt transpired tred that in calculating the value of the work in hand Khan had made a gross mathematical error and when this was fy detected, it showed that the profit earned up to the 11^th September, 1981 1981 amoutoed to only $14,065.86 and that the plaintiffs share in that profit was considerably less than the amount he had received on the signing of the dissolution agrt.

The defendants did no tpay the money due unue under the agreement and the plaintiff instituted these proceedings against them. The defendants pleaded that the agreement dated the 10^th November, 1981 is orceable able and ineffective as it was signed under a mistaken belief of fact that the profit recited therein was correctly estimated. The first and second defts counterclaim for a refund of the excess amount paid to t to the plaintiff under the aforesaid agreement and they also ask for a declaration that the agreement is unenforceable.

The nal action was for for $3,000 but, this was amended to $6,000 to take into account the second instalment due to the plaintiff which was likewise not paid. At the commencement of the hearing fr amendments to the pleadineadings were made by both sides which adjusted the figures in the defence and counterclaim. The plaintiff added a plea of estoppel by way of reply and defence to the counterclaim.

This is a in which ther there is no dispute as to the facts. The agreement was signed by the partners in the mistaken belief that the partnership account had been correcrawn up. Mr. Maharaj for the plaintiff was obliged to conceconcede that the mistake occurred, but, he submitted that this should not rebound to the benefit of the defendants. The plaintiff was quite innocent of the true position and Mr. Maharaj submitted that it would be unfair to him if the agreement was set aside. The plaintiff accepted the payment made and promised as consideration for his retirement from the partnership.

Since the don of the Hohe House of Lords in Bell v. Lever Brothers Limited [1931] UKHL 2; (1932) A.C. 161 this diff bult branch of the law has remained to some degree unsettled. Their Lordships decisio not mous and Lord Blad Blanesburg based his opinion largely on the fact that mutual mistake hade had not been originally pleaded. The remaining Law Lords differed on the question as to whether the mistake in that particular case was sufficiently fundamental to avoid the contract.

It was tew of Lord Warr Warrington of Clyffe that the error in Bell ver Brothers Limiteimited waswhich, having regard to d to the matter on which the patties were negotiating was fundamental to the bargain (p. 208). Lordn coned the law at p. 217 et. seq. He concluded at 226t 226:

#8220;We thereforreforeefore get a common standard for mutual mistake, and implied conditions whether as to existing or as to future facts. Does the state of the new facts destroy the identityhe subject matter as it wast was in the original state of facts? To apply the principle to the infinite combinations of facts that arise in actual experience will continue to be difficult, but if this case results in establishing order into what has been a somewhat confused and difficult branch of the law it will have served a useful purpose.”

Lord Thankerton remarked at 235:

"The phrase16;underunderlying assumption by the parties,’ as applied to the subject matter of a act, may be too widely interpreted so as to include something which one of the parties had had not necessarily in his mind at the time of the contract; in my opinion it can only properly relate to something which both must necessarily have accepted in their minds as an essential and integral element of the subject matter."

The particular difficulty with which I am faced in this case is that neither the plaintiff nor the defendants had any reason to believe that the accounts upon which the agreement was might be different than they had assumed them to be. On thOn the other hand, one of the partners who was not joined in these proceedings had by his own error and lack of care induced the mistake in the minds of the other partners.

However, it cann deniedenied that the most important question upon which agreement had to be reached, if the dissolution of the partnership was effected to the mutual satisfaction of all concerned, was the division of the assumed prof profits.

The parties had befhem them an account subscribed to by a reputable firm of accountants who had worked them out on the basis of the figures and ests supplied by Mohammed Sultan Khan. The fact that these accounts did not represent the true true position was a fundamental error going to the root of the contract. I do not see how in such circumstances any of the parties can be held bound by what was agreed upon at that time.

Taintiffs action based ased upon that agreement must be dismissed. I grant to the defendants a declaration that the agreement dated the 10^th November, is unenforceable.able. The defendants are not entitled to judgment on their counterclaim for the overpayment as the amount claimed has not been proved to be correct.

The effect os jud is tois to put the pahe parties back in the position that they were in on the 10^th Sber, 1981 when the parhip rhip was dissolved. They will now have either to agree between themselves the mutual divisiovision of capital and income or find some table means of resolving the problem.

There care can be toppetoppel arising in favour of the plaintiff arising from an agreement which has now been declared unenforceable, because it was concluded as a result of a fundamental mistake.

efendare awarded the cthe cthe costs of this action.

Plain#8217;s claim daim dismissed. Counterclaim dismissed.

Rooney, J.
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