Title
Kennedy v. Panama &c. Mail Co. 2 L.R.Q.B. [1867] 580
Content
580

LORD GILBERT KENNEDY v. THE PANAMA, NEW ZEALAND, AND AUSTRALIAN ROYAL MAIL COMPANY (LIMITED)

June 27. 1867

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A company, already carrying the intercolonial mails under contracts with the government of New Zealand, issued a prospectus that they were "prepared to receive applications for new shares in order to enable the company to perform the contract recently entered. into with the government of New Zealand, for a monthly mail service between Sydney, New Zealand, and Panama, in correspondence with the West Indian Mail Company's steamers between Southampton and Panama." K., induced by this statement in the prospectus, applied for and obtained some of the new shares. The contract alluded to in the prospectus had been made by the company with the agent of the New Zealand government, both parties bonâ fide believing that he had authority to make it; but it turned out that he had no such authority, and the government refused to ratify the contract.

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582

June 27. The judgement of the Court (Cockburn, C.J., Blackburn, Mellor, and Shee, JJ.) was delivered by Blackburn, J.

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586

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The only remaining question is one of much greater difficulty. It.was contended by Mr. Mellish, an behalf of Lord Gilbert Kennedy, that the effect of the prospectus was to warrant to the intended shareholders that there really was such a contract as is there represented, and not merely to represent that the company bonâ fide believed it; and that the difference in substance between shares in a company with such a contract and shares in a company whose supposed contract was not binding, was a difference in substance in the nature of the thing ; and that the shareholder was entitled to return the shares as soon as he discovered this, quite independently of fraud, an the ground that he had applied for one thing and got another. And, if the invalidity

587

of the contract really made the shares he obtained different things in substance from those which he applied for, this would, we think, be good law. The case would then resemble Gompertz v. Bartlett1 and Gurney v. Wormersley2 , where the person, who had honestly sold what he thought a bill without recourse to him, was nevertheless held bound to return the price an its turning out that the supposed bill was a forgery in the one case, and void under the stamp laws in the other; in both cases the ground of the decision being that the thing handed over was not the thing paid for. A similar principle was acted upon in Ship's Case.3 There is, however, a very important difference between cases where a contract may be rescinded an account of fraud, and those in which it may be rescinded an the ground that there is a difference in substance between the thing bargained for and that obtained. It is enough to show that there was a fraudulent representation as to any part of that which induced the party to enter into the contract which he seeks to rescind ; but where there has been an innocent misrepresentation or misapprehension, it does not authorize a rescission, unless it is such as to show that there is a complete difference in substance between what was supposed to be and what was taken, so as to constitute a failure of consideration. For example, where a horse is bought under a belief that it is sound, if the purchaser was induced to buy by a fraudulent representation as to the horse's soundness, the contract may be rescinded. If it was induced by an honest misrepresentation as to ita soundness, though it may be clear that both vendor and purchaser thought that they were dealing about a sound horse and were in error, yet the purchaser must pay the whole price, unless there was a warranty; and even if there was a warranty, he cannot return the horse and claim back the whole price, unless there was a condition to that effect in the contract : Street v. Blay.4

The principle is. well illustrated in the civil law, as stated in the Digest, lib. 18, tit. 4. De Contrahendâ Emptione, leges, 9, 10, 11. There,-after laying down the general rule, that where the parties are not at one as to the subject of the contract there is no agreement, and that this applies where the parties have misapprehended

588

each other as to the corpus, as where an absent slave was Sold and the buyer thought he was buying Pamphilus and the vendor thought he was selling Stichas, and pronouncing the judgment that in such a case there was no bargain because there was "error in corpore," the framers of the digest moot the point thus : "Inde quaeritur, si in ipso corpore non erretur, sed in substantiâ error sit, ut, puta, si acetum pro vino veneat, aes pro auro, vel plumbum pro argento vel quid aliud argento simile: an emptio et venditio sit;" and the answers given by the great jurists quoted are to the effect, that if there be misapprehension as to the substance of the thing there is no contract ; but if it be only a difference in some quality or accident, even though the misapprehension may have been the actuating motive to the purchaser, yet the contract remains binding. Paulus says: "Si aes pro auro veneat, non valet, aliter atque si aurum quidem fuerit, deterius autem quam emptor existimarit: tunc enim emptio valet." Ulpianus, in the eleventh law, puts an example as to the sale of a slave very similar to that of the unsound horse in Street v. Blay.1 And, as we apprehend, the principle of our law is the same as that of the civil law ; and the difficulty in every case is to determine whether the mistake or misapprehension is as to the substance of the whole consideration, going, as it were, to the root of the matter, or only to some point, even though a material point, an error as to which does not affect the substance of the whole consideration.

Some cases were referred to on the argument, in which the question was, whether a stipulation in a contract was a condition precedent or not. Those cases are, no doubt, analogous, as the question in such cases very much depends on whether the stipulation goes to the root of the matter or not ; but they are only remotely analogous ; and after all, the decisions can never do more than illustrate the principle, and the question must depend on the construction of the contract and the particular circumstances of the particular case.

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12 E. & B. 849; -23 L. J. (Q.B.) 65.
24 E. & B.133; 24 L. J. (Q:B.) 46.
32 De G. J. & S. 544.
42 B. & Ad. 456
12 B. & Ad. 456.

Referring Principles
Trans-Lex Principle: IV.7.3 - Right to avoid the contract for mistake in fact or law
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