Chapter 15: Mistake

Question 1

define mistake

Answer 1

an erroneous belief, in the past or present at contracting, that certain facts are true

Can be used at defence to have contract voided ab initio (there never was a contract)
* Different from voidable: there was a contract until someone voids it

Objective test for intention (reasonable person)

Very fact-dependant

mistake has to be about fundamental/important fact of contract (otherwise mistake is inoperative/not vital to contract)

Question 2

list/describe types of mistake

Answer 2

Common: each party under the same misaapprehension of fact (mistaken about the same thing)
Mutual: each party under a different misapprehension of fact (mistaken about different things)

Unilateral mistake: one party under misapprehension of fact

Question 3

3 types of common mistake

Answer 3

Res Extincta/mistake as to existence of subject matter
* subject matter may have perished before agreement entered into, unbeknownst to the parties

mistake as to quality of subject matter:
both parties wrong in their conception of the quality of the contract
* Narrow interpretation, rarely voids contract, applied very strictly

Question 4

remedies for mistake

Answer 4

common law: no contract ab initio, voided

equity: rescission, with terms if necessary

Question 5

McRae v Commonwealth Disposals Commission

res extincta argument fails; ad for non-existent oil tanker not mistake

Answer 5

1. Res extincta (common mistake of existence): a contract of sale for goods that ceases to exist unbeknownst to the parties at the time of contracting might void the contract but whether a common mistake will be found is dependent on the circumstances and construction of the contract.
2. If one party makes an assertion or assumption recklessly or without reasonable grounds and induces the other party to enter into the contract on the basis of that assertion or assumption, then they are not allowed to say there is no contract due to common mistake

Question 6

Bell v Lever Bros

no common mistake re: employee buyout (trading cocoa on side)

Answer 6

Test for Common Mistake as to Quality: Does the mistake turn the agreement or its subject matter into something essentially different from that which was bargained for? Mistake must be:
1. Made by both parties AND
2. Fundamental with respect to the quality of the subject matter such that it makes the agreement (or it’s subject matter) essentially different in kind from that which it was believed / assumed to be

mistake as to quality of employees, but mistake not fundamental (desired result was achieved, albeit in more expensive way then what was necessary had they known employees could be fired with cause)

Question 7

Bell v Lever Bros

no common mistake re: employee buyout (trading cocoa on side)

Answer 7

Test for Common Mistake as to Quality: Does the mistake turn the agreement or its subject matter into something essentially different from that which was bargained for? Mistake must be:
1. Made by both parties AND
2. Fundamental with respect to the quality of the subject matter such that it makes the agreement (or it’s subject matter) essentially different in kind from that which it was believed / assumed to be

mistake as to quality of employees, but mistake not fundamental (desired result was achieved, albeit in more expensive way then what was necessary had they known employees could be fired with cause)

Question 8

Great Peace Shipping v Tsavliris Salvage

Answer 8

Application of Bell v Lever Bros.

Soile v Butcher still good law in Canada, but struck down in UK

Question 9

Miller Paving v Gottardo Construction

Common Law and Equity Mistake Tests

Answer 9

Common Law:
* there must be a common assumption as to the existence of a state of affairs;
* there must be no warranty by either party that that state of affairs exists;
* the non-existence of the state of affairs must not be attributable to the fault of either party;
* the non-existence of the state of affairs must render performance of the contract impossible;
* the state of affairs may be the existence, or a vital attribute (not that different from essential quality – Bell v Lever), of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.

Equity:
if it is unconsciounable for contract to be enforced and there was a fundamental, common misapprehension as to facts or their respective rights and party seeking void contract not at fault

Question 10

Raffles v Wichelhaus

Mutual Mistake

Answer 10

A mutual mistake will void a contract if:
1. the offer contains a latent ambiguity (ambiguity not realized until later) which can be reasonably interpreted in more than one way AND
2. each party interprets the latent ambiguity in different contradictory ways (no meeting of the minds)

applied very rarely