Contract Law: Mistake

Question 1

Introduction

Answer 1

Mistake is a vitiating factor, it will invalidate or undermine a contract
Mistake can lead to void ab inito meaning it was never in existence in the first place

Question 2

Void or Voidable

Answer 2

Void: Contract is deemed to not have been created
Voidable: Contract was created but can be rescinded
- Remedy: Set the contract aside; either entire agreement or particular terms

Question 3

Types of mistake

Answer 3

• Common mistake (to a. the subject matter or b to the essential quality of the subject matter
• Mutual mistake (communication mistake)
• Unilateral mistake (communication mistake)

Question 4

Communication mistake

Answer 4

• Both parties make a mistake which goes to the root of the contract
• The outcome is that the performance is impossible or very different to what the parties intended
  res extincta: mistake as to the existence of the subject matter

Question 5

Common Mistake (part a)

Answer 5

Existence of subject matter
- Goes to the root of the contract
- Subject matter no longer exists

Question 6

Common Mistake (part a) Case

Answer 6

Couturier v Hastie: Subject matter of the contract did not exist at agreement, no consideration provided, contract was void (led to the adoption of the Sales of Goods Act s.6)

Question 7

Common mistake (part b)

Answer 7

Only void where the mistake is fundamental or renders the contract essentially different to what it is believed to be

Question 8

Common Mistake (part b) case

Answer 8

Bell v Lever Bros 1932: The mistake was not sufficiently fundamental in nature to render the contract void

Question 9

Common Mistake: Requirements

Answer 9

Established in Great Peace Shipping Ltd v Tsavliris 2002:
- Must be a common assumption as to the state of affairs
- State of affairs must exist to make performance possible
- Must be no warranty by either party that such state exists
- Non-existence must not be attributable to either party
- Non-existence renders performance impossible

Question 10

Mutual Mistake

Answer 10

• Both parties are deemed to never have reached agreement )no consensus ad idem)
• Void if central to the contract
• Objective test applied

Question 11

Mutual Mistake cases

Answer 11

• Raffles v Wichellhaus [1864]: no consensus idem, contract void
• Smith v Hughes: sued for misrepresentation and mistake, no misrepresentation (silence) no mistake as no error or fundamental term

Question 12

Unliteral mistake

Answer 12

• One party makes mistake, other takes advantage
• only when one party has superior knowledge and uses this unfairly
• Mistake must be sufficiently important

Question 13

Two types of Unilateral Mistake

Answer 13

• Mistake as to the term of contract
• Mistake as to identity
  Can distinguish between f2f and distanced negotiations

Question 14

Mistake as to term

Answer 14

Sets principal that if an obvious mistake is made, one may not ‘snap up’ the offer

Question 15

Mistake as to term case

Answer 15

Hartog v Collin & Shields 1939: Void for mistake, C must have known the offer was a mistake, no contract existed, buyer took advantage, mistake negates consent

Question 16

Mistake as to identity

Answer 16

• Most common mistake
• Must relate to identity to the person whom they’re dealing with
• Usually involved fraud
• Overlap with misrepresentation
  Ingram v Little 1961: Identity of contracting party of utmost importance, checked identity, identity was fraudulent, claim successful

Question 17

F2F cases

Answer 17

Lewis v Avery 1972: Mere mistaken belief as to the credibility of the other party is not sufficient

Question 18

Negotiations at a distance (incl case)

Answer 18

Seller intends to deal with the person named on the form
Cundy v Lindsay 1878: No agreement, no ownership of the goods. Forced to return goods

Question 19

Negotiations involving third parties

Answer 19

• Contract will be void if claimant is mistake as to the identity of the other party
• Contract will not be void if the claimant intended to contract with the person who made the offer, mistake will be on the other parties creditworthiness

Question 20

Third Parties Case

Answer 20

Shogun Finance Ltd v Hudson: Not formed F2F, finance co could avoid the contract due to mistake, SF dealing with fake Mr Patel, not rogue in question