Mistake

Question 1

What is an operative mistake and its effect?

Answer 1

Mistake recognised in law of contract as preventing a contract from taking legal effect. Void from the outset.

Question 2

Categories of Mistake

Answer 2

1. Common mistake
2. Mutual mistake
3. Unilateral mistake

Question 3

Common Mistake

Answer 3

When both parties to agreement make same misapprehension. Is underlying common mistake sufficiently fundamental to affect validity of the contract?

• Mistake about quality of goods does not void contract, even where affecting utility or value. Ask whether performance rendered impossible or subject matter radically different.

Question 4

Mutual Mistake

Answer 4

Mutual mistake occurs where both parties are mistaken but they are mistaken about different things.

Court will ask what reasonable third party would believe the agreement to be, based on the words and conduct of the parties themselves. If reasonable person would infer existence of contract in given sense, court will hold contract binding.

Question 5

Unilateral Mistake

Answer 5

One party mistaken and other party knows, or deemed to know, of mistake.

e.g as to expression of intention, nature of the document signed (due to blindness, illiteracy, senility or a trick or fraudulent misrepresentation as to nature of document, provided person took all reasonable steps before signing).

Question 6

Unilateral mistake of identity

Answer 6

One party mistakenly believes they are contracting with a person that the other party is pretending to be.

Presumed that party intended to deal with person in front of them identified by sight & hearing. Presumption only rebutted if party can establish their identity, rather than attributes, was of vital importance (e.g creditworthiness is an attribute, not an identity).

If, however, parties contract not face-to-face and intend to deal with identifiable third party (known to them), may be void for mistake. e.g sending to company’s address. NOT where letterhead used (party simply intended to contract with writer of letters).

Question 7

Unilateral Mistake and Innocent 3rd Parties

Answer 7

When contract voidable, e.g misrep title can pass until avoided. Provided 3rd party does not know or have reason to suspect deception, third party acquires good title and claimant cannot take the property back. Where contract void from outset because of identity error, never comes into effect. Third party must return goods to the duped party, even though they are innocent