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 Taylor  v  Johnson  [1983] HCA 5; (1983) 151 CLR 422 (23 February 1983)

CATCHWORDS

Appeal - Function of appellate court - Findings of fact by judge sitting without jury - Inferences of fact - Statement by judge that he was not assisted by demeanour of witnesses and had to determine matter on balance of probabilities.

HEARING

DECISION

2. In November 1975, Ann and Peter  Taylor  began proceedings in the Equity Division of the Supreme Court of New South Wales for specific performance of the contract of sale. Mrs.  Johnson , for her part, instituted counter proceedings against them and Mr.  Taylor  seeking rectification of the option agreement and contract of sale or, alternatively, an order setting aside the contract of sale. The proceedings were heard by Powell J. who found that the contract of sale was binding in its terms and ordered specific performance of it. His Honour found that Mrs.  Johnson  had, in fact, mistakenly believed that the consideration specified in both option and contract was $15,000 per acre but also found that Mr.  Taylor  was unaware of her mistake. Mrs.  Johnson  appealed against that decision to the New South Wales Court of Appeal which unanimously upheld her appeal and set aside the contract of sale. The members of the Court of Appeal each reached the conclusion that Mr.  Taylor  believed that Mrs.  Johnson  was probably mistaken as to what the option and the contract stipulated as the price. Mr.  Taylor  and Ann and Peter  Taylor  now appeal to this Court from that decision of the Court of Appeal. It has not been suggested that Ann and Peter  Taylor  are in any stronger position than their father would have been if he had been the purchaser under the contract. (at p426)

3. The first question in the appeal is whether the New South Wales Court of Appeal was, in the circumstances, entitled to substitute its own conclusions as to the knowledge, state of mind and motivation of Mr.  Taylor  for those of the trial judge. The answer to that question depends upon the meaning to be given to a comment of the trial judge that, subject to one presently immaterial qualification, "there was nothing in the demeanour of any of the witnesses which would lead one to conclude that any of them was doing other than endeavouring, to the best of his or her ability and recollection, to tell the truth" and that, in the result, he was "left to determine the matter upon the balance of the probabilities". In the view we take, the members of the Court of Appeal were correct in accepting his Honour's comments as being intended to convey that, in a position where he had derived no significant assistance from observing and hearing the witnesses give their evidence, he had resolved the matter by analysis of the evidence before him. That being so, we consider that the members of the Court of Appeal were correct in taking the approach that, subject to giving due weight to the conclusions of the learned trial judge, they were entitled to determine the matter for themselves. (at p426)

4. To no small extent, the issues between the parties on the argument in this Court are issues of fact. The judgments of the members of the Court of Appeal fully set forth the objective facts and we refrain from repeating them. In some respects, we differ from the Court of Appeal in our views on particular matters or as to the importance which we would attach to particular events or considerations. One example is that the Court of Appeal took the view that, at the time Mr.  Taylor  obtained the option over the subject land, he had in mind the effect which a proposed road diversion would have on a proposal that land which he already owned on the Windsor Road would be rezoned whereas it seems to us that at that time he already knew that the application for rezoning affecting that land had been rejected. Another example is that the view was taken in the Court of Appeal that the reason which Mr.  Taylor  gave to Mrs.  Johnson  for seeking an option, namely that he wished to show it to the Windsor Municipal Council, was false whereas it seems to us that, while Mr.  Taylor 's main purpose for seeking the option was to bind Mrs.  Johnson  to sell the land to him or his nominee at the stipulated price, he may well have wished to have the option available to show to officers of the Council if it became necessary to establish his standing to make the representations which he made a few days later asking the Council to exercise its influence to procure a rezoning of the area in which the subject land was situated. A third, and possibly more important, example is that, on our approach to the overall facts, we would tend to pay slightly more attention to the state of mind of Mrs.  Johnson  and her husband, Mr.  Johnson , than the members of the Court of Appeal appeared to do. It is not, however, necessary that we dwell upon any such differences of detail or emphasis or that we set out the detailed reasons which have led us to the conclusions of fact which we have ultimately reached. It suffices, for the purpose of the appeal, that we identify a number of inferences which we consider are plainly to be drawn from the evidence. (at p427)

5. In our view, a general inference which flows from the evidence is that Mr.  Taylor  and Mrs.  Johnson  each believed that the other was acting under a mistake or misapprehension, either as to price or value, in agreeing to a sale at the purchase price which he or she believed the other had accepted. It is this belief of mistake or misapprehension on the part of the other that explains both the conduct of Mr.  Taylor  in procuring the execution of the option in the circumstances in which it was procured and the alacrity of Mrs.  Johnson  in agreeing to requests by Mr.  Taylor  for an option and for a right of way. It also explains the extraordinary conduct of Mr.  Taylor , on one side, and Mr. and Mrs.  Johnson , on the other, in refraining from again mentioning the purchase price after what Reynolds J.A. in the Court of Appeal called the "idle curiosity" conversation. We also consider that the evidence leads to an inference that Mr.  Taylor , by refraining from again mentioning price and by the manner in which he procured the execution by Mrs.  Johnson  of the option, deliberately set out to ensure that Mrs.  Johnson  was not disabused of the mistake or misapprehension under which he believed her to be acting. (at p428)

6. In the Court of Appeal, the essential question was seen by their Honours as being whether Mr.  Taylor  knew or believed or was aware of facts that would lead any reasonable man to believe that Mrs.  Johnson , at the time she executed the option and at the time she executed the contract, was under a mistake about what the relevant document actually said about the price. Their Honours, after detailed consideration of the facts, each reached the conclusion that Mr.  Taylor  believed that Mrs.  Johnson  was probably under such a mistake. For our part, we find it unnecessary to go beyond the inferences set out in the preceding paragraph of this judgment. (at p428)

7. The judgments of Blackburn and Hannen JJ. in Smith v. Hughes (1871) LR 6 QB 597, at pp 607, 609 provide support for the proposition that a contract is void if one party to the contract enters into it under a serious mistake as to the content or existence of a fundamental term and the other party has knowledge of that mistake. That approach accorded with what has been called the "subjective theory" of the nature of the assent necessary to constitute a valid contract (but cf. Holland, Elements of Jurisprudence, 12th ed. (1916), pp. 264- 265). The "subjective theory", it will be recalled, was advanced by, among others, Mr. T. Cyprian Williams in his Vendor and Purchaser, 4th ed. (1936), p. 748, n. (m), and is that the true consent of the parties is essential to a valid contract. The contrary view, namely that described as the "objective theory", was asserted by, among others, Holmes J. in The Common Law (1881), Lecture IX, and is that the law is concerned, not with the real intentions of the parties, but with the outward manifestations of those intentions. In practice, as between the contracting parties, there is little difference in the result of the application of the two competing theories since allied with any assertion of the "subjective theory" is acceptance of one manifestation of the doctrine of estoppel which would ordinarily operate to preclude one who had so conducted himself that a reasonable man would believe that he was assenting to the terms of a proposed contract, from leading evidence as to what his real intentions were. (at p428)

8. As a matter of legal technique there is a significant difference between the two theories. This is best illustrated by setting out the consequences which flow from the application of each theory to a case in which a contract is successfully impeached on the ground of unilateral mistake. According to the subjective theory, there is no binding contract either at common law or in equity, equity following the common law in this respect. Of course in deciding whether the contract is void ab initio for the unilateral mistake, regard will be had to the doctrine of estoppel in order to determine whether effect should be given to the claim that there has been unilateral mistake. On the other hand, according to the objective theory, there is a contract which, in conformity which the common law, continues to be binding, unless and until it is avoided in accordance with equitable principles which take as their foundation a contract valid at common law but transform it so that it becomes voidable. The important distinction between the two approaches is that, according to the subjective theory, the contract is void ab initio, whereas according to the objective theory, it is voidable only. (at p429)

9. While the sounds of conflict have not been completely stilled, the clear trend in decided cases and academic writings has been to leave the objective theory in command of the field. It is unnecessary to examine the reasons for this. A convenient statement of them can be found in Williston on Contracts, 3rd ed. (1970), vol. 13, s. 1537. In the United Kingdom, the decisive turning point leading to the near eclipse of the subjective theory was probably the speech of Lord Atkin in Bell v. Lever Brothers Ltd. [1931] UKHL 2; (1932) AC 161, at pp 217-227 . In due course, Denning L.J., basing himself on Lord Atkin's speech, formulated a more general proposition than Lord Atkin's comments would, on analysis, warrant (see Lord Atkin's example of a case where "unilateral mistake by the seller of goods will prevent a contract from arising" (1932) AC, at pp 217-218 . In Solle v. Butcher (1950) 1 KB 671, at p 691 , Denning L.J. said:
". . . once a contract has been made, that is to say, once the parties, whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground."
His Lordship then went on to say:
"Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake."
While the mistake in Solle v. Butcher was a mistake of fact which affected the operation of a formal written contract, it is plain that the above remarks of Denning L.J. were intended to extend to a mistake as to the existence or content of an actual term of such a contract. (at p430)

10. In McRae v. Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377, at pp 407-408 and in Svanosio v. McNamara [1956] HCA 55; (1956) 96 CLR 186, at pp 195-196 , which were cases involving formal written contracts, Dixon C.J. and Fullagar J. referred with approval to the remarks of Denning L.J. In Svanosio, their Honours quoted those remarks and continued (1956) 96 CLR, at p 196 :
"'Mistake' might, of course, afford a ground on which equity would refuse specific performance of a contract, and there may be cases of 'mistake' in which it would be so inequitable that a party should be held to his contract that equity would set it aside. No rule can be laid down a priori as to such cases: see an article by Professor R. A. Blackburn in Res Judicatae (1955), vol. 7, p. 43. But we would agree with Professor Shatwell (1955) 33 Can BR, at pp 186, 187 that it is difficult to conceive any circumstances in which equity could properly give relief by setting aside the contract unless there has been fraud or misrepresentation or a condition can be found expressed or implied in the contract."
Denning L.J., in Solle v. Butcher, had likewise expressed the view that, in the absence of fraud or misrepresentation, resort must be had to equity to escape from the terms of the contract on the ground of unilateral mistake. (at p430)

11. McRae and Svanosio, like Solle v. Butcher, were not cases involving a mistake as to the existence or content of an actual term of the written contract. There is, however, nothing in the joint judgments of Dixon C.J. and Fullagar J. which would exclude such a case from their acceptance of the general proposition that neither party to a contract "can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake" (1950) 1 KB 671, at p 691 . Whether that proposition should properly be accepted as applying in the case of an informal contract or in the case where there is a mistake as to the identity of the other party are questions which can be left to another day. It would seem that it does not apply in a case where the mistake is as to the nature of the contract. For the present, but not without hesitation (see, e.g., Robert A. Munro & Co. v. Meyer (1930) 2 KB 312, at pp 333-334 ; Chitty on Contracts, 24th ed. (1977) vol. 1, par. 337; Joscelyne v. Nissen (1970) 2 QB 86, at pp 95-97 , we are prepared to accept it as applicable to a case, such as the present, where the mistake is as to the existence or content of an actual term in a formal written contract. It therefore becomes necessary to consider the scope of the basis upon which relief in equity is available from the contractual consequences of unilateral mistake. Dixon C.J. and Fullagar J. referred, in the above passage from their judgment in Svanosio, to a difficulty in conceiving circumstances in which equity could properly give relief by setting aside the contract unless there had been fraud or misrepresentation or a condition could be found expressed or implied in the contract. Presumably, their Honours were referring to "fraud" in the wide equitable sense which includes unconscionable dealing. If they were not, we do not share the difficulty to which they referred. To the contrary, it seems to us that the reported cases, including Solle v. Butcher itself, readily provide concrete examples of such circumstances. (at p431)

12. In Torrance v. Bolton (1872) LR 8 Ch App 118, at p 124 , James L.J. (with whom Mellish L.J. agreed) explained the basis upon which a contract for sale was set aside in a case of unilateral mistake as being the ordinary jurisdiction of equity "to deal with" any instrument or other transaction "in which the Court is of opinion that it is unconscientious for a person to avail himself of the legal advantage which he has obtained". Special circumstances will ordinarily need to be shown before it would be unconscientious for one party to a written contract to enforce it against another party who was under a mistake as to its terms or its subject matter. In Solle v. Butcher (1950) 1 KB, at p 692 Denning L.J. gave, as examples of such special circumstances, the case where the mistake of the one party has been induced by a material misrepresentation of the other and the case where "one party, knowing that the other is mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him remain under his delusion and concludes a contract on the mistaken terms instead of pointing out the mistake". In Riverlate Properties Ltd. v. Paul (1975) Ch 133, at p 145 , the English Court of Appeal accepted that a conveyance which included a building, due to a mistake on the part of one party which was known to the other party, could be rescinded, though rectification in that situation appeared to be a preferable remedy. (See also, as to rectification for unilateral mistake, Thomas Bates & Son Ltd. v. Wyndham's (Lingerie) Ltd. [1980] EWCA Civ 3; (1981) 1 WLR 505, at pp 514-516; [1980] EWCA Civ 3; (1981) 1 All ER 1077, at pp 1085-1086 ) (at p431)

13. In the United States and Canada, the rule that relief from contractual obligations on the ground of unilateral mistake will be granted where enforcement of the contract would be unconscionable is well established. Indeed, in those jurisdictions the rule is expressed to apply to all contracts, formal and informal, when one party knows or ought to know that the other party is mistaken (see, e.g., McMaster University v. Wilchar Construction Ltd. (1971) 22 DLR (3d) 9, at pp 22 et seq ; Stepps Investments Ltd. v. Security Capital Corp. Ltd. (1976) 73 DLR (3d) 351, at pp 362-364 ; Corbin on Contracts (1960), vol. 3, s. 608, p. 671; Williston, s. 1573). It has been said that the rule applies when one party knows that the other party is, or might well be, mistaken (Stepps (1976) 73 DLR (3d), at p 359 ). The same result ensues when one party causes the other party's mistake (Corbin, s. 610, p. 692; Coleman v. Holecek [1976] USCA10 158; (1976) 542 F (2d) 532, at pp 535-536 ). And it matters not that the mistake is, or may be, due to negligence or want of care on the part of the party who is mistaken when the other party has not materially changed his position and third party rights are not in question (De Paola v. City of New York (1977) 394 NYS (2d) 525, at pp 527-528 ). Professor Corbin (s. 610, p. 692) summarized the United States position as follows:
"There is practically universal agreement that, if the material mistake of one party was caused by the other, either purposely or innocently, or was known to him, or was of such character and accompanied by such circumstances that he had reason to know of it, the mistaken party has a right to rescission." (at p432)

14. The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that 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. What we have said is sufficient to demonstrate the broad basis of support which the authorities provide for that proposition. Moreover, and perhaps more importantly, it is a principle which is best calculated to do justice between the parties to a contract in the situation which it contemplates. In such a situation it is unfair that the mistaken party should be held to the written contract by the other party whose lack of precise knowledge of the first party's actual mistake proceeds from wilful ignorance because, knowing or having reason to know that there is some mistake or misapprehension, he engages deliberately in a course of conduct which is designed to inhibit discovery of it. Our comment can, for present purposes, be limited in its application to the case where the second party has not materially altered his position and the rights of strangers have not intervened. (at p433)

15. Applying the above-mentioned principle to the present case, it is apparent that the appeal must fail. It is now common ground between the parties that, at the time she signed both option and contract, Mrs.  Johnson  mistakenly believed that the relevant document stipulated that the purchase price was $15,000 per acre whereas the stipulated purchase price was $15,000 in total. The stipulation as to price was plainly a fundamental term of the contract (see Webster v. Cecil [1861] EngR 751; (1861) 30 Beav 62 (54 ER 812) ; Garrard v. Frankel [1862] EngR 371; (1862) 30 Beav 445 (54 ER 961) ; Hartog v. Colin & Shields (1939) 3 All ER 566 ). As we have already indicated, we are of the view that the proper inference to be drawn from the evidence is that, both at the time when Mrs.  Johnson  executed the option and at the time when she executed the contract, Mr.  Taylor  believed that she was under some serious mistake or misapprehension about either the terms (the price) or the subject matter (its value) of the relevant transaction. The avoidance of mention of the purchase price after the "idle curiosity" conversation and the circumstances in which Mr.  Taylor  procured the execution of the option, including his wrong statement that he did not have a copy of the option which he could make available to Mrs.  Johnson , lead, in our view, plainly to the inference that he deliberately set out to ensure that Mrs.  Johnson  did not become aware that she was being induced to grant the option and, subsequently, to enter into the contract by some material mistake or misapprehension as to its terms or subject matter. (at p433)

16. It should be mentioned that it was not suggested on behalf of the appellants that, in the event they failed on the appeal, the order of the Court of Appeal should be varied by allowing the purchasers under the contract an option to have the contract rectified to stipulate a price of $15,000 per acre. (at p433)

17. The appeal should be dismissed with costs. (at p433)

DAWSON J. This appeal is brought against a judgment of the Court of Appeal of the Supreme Court of New South Wales setting aside orders made by the judge at first instance for the specific performance of a contract for the sale of land by the respondent to the appellants. The Court of Appeal set aside the contract of sale. (at p434)

2. The land which the respondent, Mrs.  Johnson , contracted to sell to the second and third appellants comprised two lots numbered 3 and 4 on a plan of subdivision of land on the outskirts of Windsor in New South Wales. A half interest in the land had been left to Mrs.  Johnson  in 1965 by a friend, the other half interest being left to the friend's brother. Mrs.  Johnson  had bought out the brother at auction and had then subdivided the land into ten allotments, each comprising approximately five acres. The land is, and has been since 1973, zoned "non-urban 1B" under the Windsor Planning Scheme, save for a small part at the rear which abuts on to the land zoned as industrial and which is itself zoned "industrial 1A". Under the non-urban zoning, the land can only be used for general agricultural purposes. Mrs.  Johnson  had by 1969 sold at a considerable profit all of the allotments except for lots 1, 3 and 4 and lot 10, which was apparently created to accommodate proposals for road widening or realignment. Late in 1972, Mrs.  Johnson  placed lots 3 and 4 on the market. For a time they did not sell, but after some negotiations between Mrs.  Johnson 's husband and the first appellant, Mr.  Taylor , on 27 March 1975, Mrs.  Johnson  signed a form of agreement granting an option to  Taylor  or his nominee to purchase lots 3 and 4 for the sum of $15,000, the option being exercisable on or before 16 April 1975. The option was exercised by  Taylor  on 14 April 1975 and Mrs.  Johnson  signed a contract of sale in accordance with the option, the purchasers nominated by  Taylor  being the second and third appellants, who were his adult daughter and son respectively. Contracts were exchanged on about 8 May 1975. On 20 May 1975, Mrs.  Johnson 's solicitors telephoned  Taylor 's solicitors saying that the option and the contract had been incorrectly drawn to show a purchase price of $15,000, whereas the agreed sale price was $15,000 per acre. This telephone conversation was confirmed by Mrs.  Johnson 's solicitors in a letter the following day asking that the contract of sale be amended or a fresh contract substituted. In a letter from his solicitors dated 26 May 1975,  Taylor  denied that there was ever an agreement for a sale at $15,000 per acre and relied upon the option and the contract for sale as exchanged. Proceedings were commenced, on the one hand by the second and third appellants against the respondent, claiming specific performance of the contract or, alternatively, damages and, on the other hand, by the respondent against all three appellants, claiming rectification of the option agreement and the contract or, alternatively, an order that the contract be set aside. There were also proceedings by the respondent against the second and third appellants seeking the removal of a caveat which had been lodged by them. The claim for rectification was not pursued. (at p435)

3. All proceedings were heard together by the trial judge sitting alone. The basis upon which the respondent, Mrs.  Johnson , put her case was that at all times she had intended to sell the land for $15,000 per acre and that this intention was made known to the first appellant,  Taylor , through her husband who negotiated the sale with him. Since the two allotments contained a little over ten acres, the price for which Mrs.  Johnson  said she intended to sell them was not $15,000 but in excess of $150,000. She said that she did not read either the option agreement or the contract before she signed them and that she signed them in the belief that the purchase price shown was not $15,000, but $15,000 per acre. The reason given by her for not reading the option agreement was that she did not have with her the appropriate glasses. Her husband, who was present but also said he did not read the option agreement, gave a similar reason for not having done so. (at p435)

4.  Taylor , on the other hand, said that the only purchase price mentioned in the negotiations between  Johnson  and him was $15,000 and this was the price which he agreed to pay. He said that the option agreement, which was drawn by him and signed in his presence, was read or apparently read by Mrs.  Johnson  and her husband and set out the agreed price. The contract of sale was prepared by Mrs.  Johnson 's solicitors in accordance with the option agreement. (at p435)

5. The trial judge found that  Johnson  had conveyed an offer of $15,000 per acre but that  Taylor  believed that the full price was $15,000. He found that when the option agreement was handed to them to read, neither  Johnson  nor Mrs.  Johnson  in fact read it and that when Mrs.  Johnson  signed the contract she did so not having read it or not having read it carefully and in the belief that it provided for a purchase price of $15,000 per acre. It was, as the trial judge held, a case in which each party was mutually mistaken as to the other's intention, although any mistake as to the contents of the option agreement was unilateral, being only on the part of Mrs.  Johnson . (at p435)

6. The Court of Appeal rejected the finding of the trial judge that at the time the option agreement was signed  Taylor  believed that the land was being offered for sale at a full price of $15,000. There can be no doubt that his Honour so found, because he specifically found that  Taylor  had such a belief at the time the offer was conveyed to him and it was common ground that price was never thereafter mentioned in the negotiations. Rejecting this finding meant rejecting evidence, significantly that of  Taylor , which had been accepted by the trial judge. The Court of Appeal not having had the advantage of seeing and hearing the witnesses give their evidence, it was an unusual step for them to take in a case involving a dispute as to facts which could only be resolved by believing or disbelieving the evidence of some or other of the witnesses in whole or in part. It was a step which could hardly be supported were it not for a remark made by the trial judge in the course of his judgment. His Honour said:
"Save that, on one occasion . . . I felt obliged to point out to Mr  Johnson  that apparent inconsistencies in his evidence might lead to the impression that he was less careful than he might be in giving his evidence, there was nothing in the demeanour of any of the witnesses which would lead one to conclude that any of them was doing other than endeavouring, to the best of his or her ability and recollection, to tell the truth. I am thus left to determine the matter upon the balance of the probabilities."
The Court of Appeal took the view that:
"This statement frees this court from one of the inhibitions placed on an appellate tribunal in respect of findings of fact and we are able to evaluate evidence in the light of probabilities and unquestioned facts and to draw inferences or decline to do so without the fear and reservation that seeing and hearing the witnesses would have produced a different answer." (at p436)

7. But this is to carry what was said by the trial judge too far. His conclusion that there was nothing in the demeanour of any of the witnesses which would lead him to conclude that any of them was doing other than endeavouring, to the best of his or her ability and recollection, to tell the truth does not, as the Court of Appeal appeared to have decided, mean that the demeanour of the witnesses was therefore irrelevant in determining the facts upon the balance of probabilities. The fact that no evidence could be rejected upon the ground that the witness was apparently untruthful meant that factual issues could not be determined by reference to demeanour on its own. This can only have been what the trial judge had in mind when he said he was left to determine the matter on the balance of probabilities. It did not follow that it was then permissible to construct a version of events which was inconsistent with the evidence given by the witnesses on one side, involving the conclusion that one party was not telling the truth and that the other was, without taking into account the apparently truthful demeanour of the witnesses on both sides. The fact that all the witnesses were apparently truthful did not, as it were, cancel demeanour on both sides out or reduce it to an irrelevance in the determination of issues of fact, particularly where there was a possible version of the facts, such as that found by the trial judge, which was consistent with the finding that all witnesses were apparently truthful. The trial judge, in saying what he did, was indicating that he was unable to decide the case by rejecting the evidence of a witness or witnesses. That did not mean that the truthful demeanour of the witnesses was not then to be taken into account in reaching a conclusion on the balance of probabilities. Even having regard to what was said by the trial judge, in my view it was entirely inconsistent with accepted principle for the Court of Appeal to have concluded, as in effect it did, that one of the parties was untrustworthy in his dealings and untruthful in his evidence, without having seen or heard him and without regard to the fact that the trial judge found that he gave the appearance of a truthful witness. That finding of the trial judge was entitled to weight and it is apparent that the Court of Appeal gave it none. (at p437)

8. What it did was to construct a version of events for itself from the evidence which it regarded as the more probable entirely without regard to, indeed inconsistently with, the finding of the trial judge as to the demeanour of the witnesses, particularly  Taylor . In order to appreciate this it is necessary to refer to some of the evidence in more detail. (at p437)

9. The respondent, Mrs.  Johnson , is a woman in her sixties who, together with her husband, had a farming background. Although their formal education was limited, they were found by the trial judge to lack neither intelligence nor business experience. In particular, the manner in which Mrs.  Johnson , with the help of her husband, had dealt profitably with the land at Windsor, of which the lots in question were part, demonstrated in the view of the trial judge that she was quite an acute woman who was not unacquainted with dealings in real property, matters of finance and the use of the services of a solicitor. It is of relevance to note that the demeanour of Mrs.  Johnson  was clearly something which greatly assisted the trial judge in concluding, as he did, that she was a woman of some capability in business matters. This alone should have made it apparent that the trial judge did not reach his conclusions on the probabilities without regard to the demeanour of the parties. (at p437)

10. The first appellant,  Taylor , is a businessman in his late fifties or early sixties. He had for some years conducted a produce merchant's business with a branch at Windsor and subsequently established and took over the conduct, through several companies and a partnership, of the business of Hawkesbury Valley Motors, which involved the sale and servicing of motor vehicles. The premises upon which the business was conducted were in the main commercial centre of Windsor and had become inadequate for the development of the business. About the end of 1972, through one or other of the companies associated with Hawkesbury Valley Motors, he had purchased a block of land about 1,000 yards to the west of, and closer to Windsor than, lots 3 and 4 in the  Johnson  subdivision. This land was lot 174, presumably on another plan of subdivision, and was also zoned as non-urban. An amendment to the planning scheme, which would have converted non-urban land to industrial land and would have allowed this land to be used for the purposes of the business, was proposed by the Windsor Municipal Council but was rejected by the State Planning Authority in 1973 or 1974. Another proposal was submitted by the Council to convert non-urban land to industrial land in 1974. This proposal did not include lot 174 but it did include lots 3 and 4 on the  Johnson  plan of subdivision. This proposal was also ultimately rejected but the fate of the proposal was unknown at the time the option agreement and contract of sale in respect of lots 3 and 4 were executed. (at p438)

11. There was also a main road deviation which had been proposed by the Department of Main Roads which would have bisected lot 174. This may or may not have been known to  Taylor  at the time the option agreement was executed in 1975. (at p438)

12. The total market value of lots 3 and 4 at the time the option agreement was signed in 1975 was, according to one valuer called as a witness, $50,000 and, according to another, $57,500. One of the valuers gave evidence that had the land been zoned to enable a "motor orientated" business to be carried on upon it, the market value would have been $195,000. (at p438)

13. It was against this background that the Court of Appeal reached a number of conclusions adverse to the appellants which, it held, justified it in substituting its own findings for the findings of the trial judge. (at p438)

14. The Court of Appeal rejected the evidence of  Taylor  and found that he knew at all times that  Johnson  intented to offer his wife's land for sale at a price of $15,000 per acre rather than a full price of $15,000. Of course, the state of  Taylor 's mind at the time the option agreement was signed and at the time contracts were exchanged was crucial. The Court of Appeal reached its conclusion by an elaborate analysis of the evidence and by constructing a version of events which involved  Taylor  not only in fraudulent course of conduct in relation to the acquisition of the land from the  Johnsons , but also in prevarication in the negotiations which took place and subsequently in the witness box. In short, the Court of Appeal took the view that  Taylor , despite his assertions to the contrary, had a particular interest in acquiring land in the vicinity of lots 3 and 4. This, it was said, was because he wished to acquire a site for his business on the outskirts of Windsor, the existing site in the heart of the commercial area having become unsuitable for its needs. Lot 174 was zoned non-urban and attempts to have it rezoned to allow it to be used for the purposes of the business had been unsuccessful. Moreover, so the Court of Appeal found, the proposed deviation of Windsor Road so as to bisect that lot was known to  Taylor  at the time he was negotiating to purchase land from Mrs.  Johnson  and, apart from the zoning, rendered that site unsuitable as a place to relocate the business. There was, however, the second application for rezoning which covered Mrs.  Johnson 's land which would, if successful, have made that land suitable for the relocation of Hawkesbury Valley Motors. According to the Court of Appeal,  Taylor  believed that the outcome of that application was likely to be successful. The Court of Appeal found that the reason given by  Taylor  to the  Johnsons  for wanting an option was specious. He had told the  Johnsons  that he wanted it to demonstrate his interest in the land to the local Council. The Court of Appeal concluded that even after Mrs.  Johnson  signed the option agreement,  Taylor  did not believe that she intended to sell the land for $15,000 and that this belief extended to the time at which the contracts were exchanged. For this reason, so the Court of Appeal concluded,  Taylor  did not give the  Johnsons  a copy of the option agreement so that the mistake could be concealed from them for as long as possible and for the same reason had a document constituting the exercise of the option delivered by the  Johnsons  to their solicitor in a sealed envelope. (at p439)

15. The findings of the Court of Appeal carried with them the clear implication that  Taylor  was dishonest in his dealings with the  Johnsons  and in giving evidence before the trial judge. The trial judge on the other hand had not been prepared to find that  Taylor  acted dishonestly in negotiating for the acquisition of the  Johnsons ' land or in giving evidence before him. Accordingly, as I have said, the trial judge held that at all relevant times  Taylor  believed that the full price of the land was $15,000. (at p439)

16. It is, I think, hardly possible that the trial judge in determining which complexion to place upon the evidence failed to have regard to the honest demeanour of  Taylor . His conclusions indicate that he did. The events which the Court of Appeal regarded as demonstrating dishonesty did not necessarily lead to that conclusion. Moreover, that conclusion leaves unsatisfactorily explained circumstances which point in the opposite direction. (at p440)

17. The fact that the price of $15,000 for the land was clearly set out in the option agreement and that both Mr. and Mrs.  Johnson  were given full opportunity to read that agreement before signing it is inconsistent with any trickery on the part of  Taylor . He could hardly have anticipated that the  Johnsons  would be unable to read the document without their glasses and cannot have known at the time that Mrs.  Johnson , at least, did not read it. (at p440)

18. It does not necessarily follow that the need of Hawkesbury Valley Motors for another site for its business meant that  Taylor  was anxious at the relevant time to acquire land from the  Johnsons . He gave evidence that the business was experiencing liquidity problems and there was nothing to point to the contrary. Moreover, the land was ultimately acquired not by  Taylor  himself or the partnership or companies associated with the business, but by  Taylor 's adult children. It was not an inescapable conclusion that  Taylor  was aware of the true value of the  Johnsons ' land. His business was motor cars, not dealing in land, and the acquisition of land nearly two years previously would have been no sure guide to value. Cleary, $15,000 appeared at the time, as  Taylor  conceded, to be a bargain price but, as events turned out, it was a great deal closer to the true value of the land than the quite inflated value placed upon it by the  Johnsons . It was not such a price as pointed necessarily to a mistake on the part of the  Johnsons , particularly to a person not expert in the valuation of land. The fact that price was not mentioned by  Taylor  or the  Johnsons  after an initial conversation is not surprising. If each thought that he or she had secured an advantageous price it would be unlikely that price would be raised again. It may have been that  Taylor  thought it necessary to have an option to demonstrate to the local Council his interest in lots 3 and 4; he was, shortly after the option agreement was signed, in touch with the Council about the future of the land. The fact that  Taylor  did not give the  Johnsons  a copy of the option and placed the exercise of the option in a sealed envelope carried no inevitably unfavourable implications. On any view of the evidence the  Johnsons  appeared to have read the option agreement before signing it and, in any event, its contents could hardly be kept secret for any length of time. The document exercising the option contained no reference to price and it would have made no difference whether the  Johnsons  had read it or not. (at p440)

19. The circumstances regarded by the Court of Appeal as leading to the conclusion that, to use their term,  Taylor  dissembled in giving his evidence may be regarded as pointing in the other direction. Had he been constructing a story it would have been more convincing to have expressed strong interest in the acquisition of Mrs.  Johnsons 's land for the purposes of the business at the cheapest available price. Even if  Taylor  were anxious to acquire the land, that would not have compelled any conclusion upon the crucial issue, namely,  Taylor 's belief as to the price of the land at the time the option agreement was signed. Nevertheless it would have been more understandable and less likely to arouse criticism than the evidence which he did give. (at p441)

20. Indeed none of the circumstances relied upon by the Court of Appeal compelled any conclusion upon that crucial issue. The fact that the trial judge believed  Taylor 's evidence upon the matter makes it clear beyond question, in my view, that he accepted him as a credible witness. Once  Taylor 's credibility was accepted, then that of itself dictated the complexion to be placed upon any equivocal circumstances surrounding the signing of the option agreement. No doubt it is possible, as the Court of Appeal did, to reach a conclusion adverse to  Taylor  by placing an interpretation upon the surrounding circumstances without otherwise determining whether  Taylor  was a credible witness. But that is not what the trial judge did. He believed  Taylor  upon the crucial issue and did so having formed the view that, having seen and heard him, there was nothing which would indicate that he was an untruthful witness. The Court of Appeal reached its conclusion in disregard of the fact that the trial judge believed the evidence of  Taylor  as to his state of mind at the time the option agreement was signed and in so doing took, in my view, an impermissible course. As was said by Lord Atkin in Powell v. Streatham Manor Nursing Home (1935) AC 243, at p 255 :
"In cases which turn on the conflicting testimony of witnesses and the belief to be reposed in them an appellate Court can never recapture the initial advantage of the judge who saw and believed." (at p441)

21. The manner in which an appellate court is to deal with facts found by a judge sitting alone at first instance was recently dealt with by this Court in Warren v. Coombes [1979] HCA 9; (1979) 142 CLR 531 where the authorities are reviewed. The majority (Gibbs A.C.J., Jacobs and Murphy JJ.) said (1979) 142 CLR, at p 551 :
"Shortly expressed, the established principles are, we think, that in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it."
And they said (1979) 142 CLR, at p 552 :
"The duty of the appellate court is to decide the case - the facts as well as the law - for itself. In so doing it must recognize the advantages enjoyed by the judge who conducted the trial. But if the judges of appeal consider that in the circumstances the trial judge was in no better position to decide the particular question than they are themselves, or if, after giving full weight to his decision, they consider that it was wrong, they must discharge their duty and give effect to their own judgment."
There is nothing in these passages to warrant the course taken by the Court of Appeal. The finding of the Court of Appeal on the state of  Taylor 's mind at the time he signed the option agreement, which was the basis upon which the appeal to the Court of Appeal was upheld, was not a matter of inference from undisputed facts. It was not a matter of inference from facts established by the findings of the trial judge. Indeed, the findings of the trial judge were for the most part to the contrary of those of the Court of Appeal. The Court of Appeal gave no recognition to the advantages enjoyed by the trial judge in reaching his conclusion that  Taylor  was a credible witness. The circumstances in which an appellate court is unimpeded by the findings of a judge sitting alone at first instance in making its own findings of fact are succinctly set out by Isaacs J. in Webb v. Bloch [1928] HCA 50; (1928) 41 CLR 331 . In that case, in which the plaintiff sued in this Court for damages for libel, the Full Court, on appeal, reversed the decision of Starke J. sitting without a jury and imputed malice to the defendants. But that was a case, as Isaacs J. (1928) 41 CLR, at pp 359-360 pointed out, in which:
"Nothing turns on credibility, on demeanour of witnesses, or any other advantage possessed by the learned trial judge. There are no disputed evidentiary facts: the only questions of fact for determination are to be arrived at solely by inferences equally open to the appeal Court as to the primary tribunal." (at p442)

22. This is a very different case. The credibility of the witnesses, more importantly the appellant  Taylor , was significant. Not only was it appropriate that the circumstances in which the relevant transaction took place should be determined having regard to the demeanour, albeit entirely truthful demeanour, of all the witnesses, including  Taylor , but it was also appropriate that any inferences to be drawn from those circumstances should be similarly determined. There is nothing to indicate that the trial judge took any other course. Upon one approach, as the Court of Appeal demonstrated, it was possible to construct a version of the facts which rendered the appellant  Taylor  guilty of at least sharp practice, if not fraudulent conduct, in taking advantage of an innocent mistake on the part of the  Johnsons . But this version was not possible if  Taylor  was to be believed in the essential aspects of his evidence. And he was believed in these matters by the trial judge who saw and heard him give evidence. It is not possible, to my mind, consistently with established principle, for the Court of Appeal to have rejected the view of the trial judge when it had neither seen nor heard the witnesses. No doubt there may be rare cases where an appellate court will be justified in rejecting facts found by a trial judge where credibility is involved. But in such cases it would need to be demonstrable that the trial judge's belief of the relevant witnesses could not be well founded. This is not such a case. (at p443)

23. Accepting, as I think the Court of Appeal ought to have done, the finding of the trial judge that  Taylor 's belief at the time the option agreement was signed and, a fortiori, at the time the contracts were exchanged, was that it was the intention of the  Johnsons  to sell the two lots in question for the full price of $15,000, there is little room for debate as to the legal consequences which follow. The  Johnsons  having intended to sell the land for $15,000 per acre, as the trial judge also found, the case was indeed one of mutual mistake in the sense that each of the parties to the bargain mistook the intention of the other. That did not prevent the formation of a contract. The option and the sale being in writing, there was sufficient evidence of agreement. In a case with not dissimilar features, Goldsborough, Mort & Co. Ltd. v. Quinn [1910] HCA 20; (1910) 10 CLR 674, at pp 695-696 , Isaacs J. expressed the proper approach as follows:
"Therefore the respondent's mistake, however he understood the terms he outwardly approved, and assuming the mistake to be bona fide, must have been due to his own want of care or reflection, in other words to his own negligence, and he is not to be allowed to impeach it to the prejudice of the other contracting party simply because he did mistake it. In such a case his mind must be judged by the external manifestation, which he put forward as the true index of his mental condition, and on the faith of which the other party acted to their own detriment, and to the benefit of the respondent."
See also Slee v. Warke [1949] HCA 57; (1949) 86 CLR 271 . (at p444)

24. Moreover, in the case of a written agreement, the parties are bound by the words which they have used, and, if there is a dispute, whatever interpretation may ultimately be given to them by a court notwithstanding any belief the parties may themselves have held as to their meaning. See Stewart v. Kennedy (1890) 15 App Cas 108, at p 123 , per Lord Watson. The necessity for certainty in commercial dealings requires such an approach. Nor will equity intervene to enable rescission of a contract involving a mistaken intention by one party unknown to the other except in circumstances involving unconscionable dealing by that other. Mistake is not of itself a ground for the rescission of a contract. The Court of Appeal in Riverlate Properties Ltd. v. Paul (1975) Ch 133, at p 140 answered its own questions in the negative when it asked:
"Is the lessor entitled to rescission of the lease on the mere ground that it made a serious mistake in the drafting of the lease which it put forward and subsequently executed, when (a) the lessee did not share the mistake, (b) the lessee did not know that the document did not give effect to the lessor's intention, and (c) the mistake of the lessor was in no way attributable to anything said or done by the lessee?" (at p444)

25. Fraud, misrepresentation or, perhaps, sharp practice falling short of actual fraud (see Riverlate Properties Ltd. v. Paul) will suffice as a basis for rescission in the eyes of equity but, given the finding of the trial judge in this case, there is nothing in the conduct of the appellant  Taylor  upon which such relief could be supported. (at p444)

26. It was submitted on behalf of the respondent that where each of the parties to an alleged agreement is mistaken as to the other's intention, there can be no consensus and no contract, subject to one or other of the parties being estopped from denying the existence of a contract. Such an approach seems to involve the notion of unanimity of mind being ascertainable as an absolute rather than as a conclusion to be drawn from what the parties said and did. Nevertheless, there are echoes of that notion in some of the cases. In Smith v. Hughes (1871) 6 QB 597, at p 607 , Blackburn J. said:
"I apprehend that if one of the parties intends to make a contract on one set of terms, and the other intends to make a contract on another set of terms, or, as it is sometimes expressed, if the parties are not ad idem, there is no contract, unless the circumstances are such as to preclude one of the parties from denying that he has agreed to the terms of the other. The rule of law is that stated in Freeman v. Cooke [1848] EngR 687; (1848) 2 Ex 654, at p 663 [1848] EngR 687; (154 ER 652, at p 656); 18 LJ (Ex), at p 119 . If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms."
The passage referred to in Freeman v. Cooke [1848] EngR 687; (1848) 2 Ex 654, at p 663 (154 ER 652, at p 656) , is from the judgment of Parke B. who says:
" . . . and if whatever a man's real intention may be, he so conducts himself that a reasonable man would take the representation to be true, and believe that it was meant that he should act upon it, and did act upon it as true, the party making the representation would be equally precluded from contesting its truth . . . "
In Williams on Vendor and Purchaser, 2nd ed. (1910), vol. 1, p. 750, and in subsequent editions, the view is expressed that:
" . . . the rule requiring true consent of the parties to a contract is modified by the operation of the general rule of law that every man is taken to intend the natural and reasonable consequences of his own overt acts, including his spoken or written words; he is estopped from showing that what he really intended was something different from what a man of ordinary intelligence would naturally and reasonably infer from those acts or words."
See also Lee v. Ah Gee [1920] VicLawRp 58; (1920) VLR 278 . (at p445)

27. Recognition is, however, given by Williams (see note (i)) to the contrary view that the law has no concern at all with the real intention of the parties to a contract, but can only regard the intention which they have outwardly manifested. The latter view finds clear expression in the cases (see Goldsbrough, Mort & Co. Ltd. v. Quinn [1910] HCA 20; (1910) 10 CLR 674 ), and has a particular application where there is a signed agreement, for, as Mellish L.J. points out in Parker v. South Eastern Railway Co. (1877) 2 CPD 416, at p 421 :
"In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents."
See also L'Estrange v. F. Graucob Ltd. (1934) 2 KB 394 ; Life Insurance Co. of Australia Ltd. v. Phillips [1925] HCA 18; (1925) 36 CLR 60, at pp 76 et seq . (at p446)

28. It appears that the view propounded by Williams has failed to gain acceptance but it is unnecessary in this case to pursue that question because even upon the hypothesis that the law requires true consent for the formation of a contract, it is accepted that if a party seeking to rely upon a mistake has so conducted himself that it is a reasonable conclusion that he has bound himself contractually in a particular manner, he is estopped from showing that his intention was otherwise. In this case, accepting that  Taylor  believed at the time the option agreement was signed and the parts of the contract of sale were exchanged that Mrs.  Johnson  intended to sell the land for $15,000, there was no fraud, no misrepresentation and no sharp practice on his part. Moreover the only reasonable conclusion to be drawn from Mrs.  Johnson 's signature of the option agreement, which was unambiguously expressed and which she apparently read, was, as the trial judge found, that she intended to be bound by its terms and by the terms of the contract of sale which she subsequently signed. (at p446)

29. Nor does it appear that this is a case in which specific performance of the contract ought to be refused. In order to justify the refusal the respondent would, upon general principles, have to show some hardship amounting to injustice so that it would be unreasonable to hold her to the contract. See Tamplin v. James (1880) 15 Ch D 215 ; Preston v. Luck (1884) 27 Ch D 497 1 Goldsbrough, Mort & Co. Ltd. v. Quinn [1910] HCA 20; (1910) 10 CLR 674 ; Gall v. Mitchell [1924] HCA 48; (1924) 35 CLR 222 ; Slee v. Warke [1949] HCA 57; (1949) 86 CLR 271 ; Fragomeni v. Fogliani (1968) 42 ALJR 263 . But the land which was the subject of the contract had no special value to the respondent; it was its worth in money which was of importance to her and having regard to her liability in damages if specific performance were refused, it could hardly be said to be unreasonable that she should be ordered to perform the contract. In so far as there is any indication of the present value of the land, it appears that it is not anything like the value which the respondent placed upon it at the time she entered into the contract and may be less, having regard to its unaltered zoning, than the valuation placed upon it in evidence during the case. (at p446)

30. For these reasons I would allow the appeal. (at p446)

ORDER