Mistake Flashcards
What is an ‘operative mistake’ in contract law?
An ‘operative mistake’ in contract law refers to a mistake that affects a contract and renders it void, meaning it has no legal effect from its outset.
What are the three categories of mistakes that can amount to operative mistakes in contract law?
The three categories of mistakes that can amount to operative mistakes in contract law are common mistake, mutual mistake, and unilateral mistake.
Common mistake
This is sometimes known as ‘identical mistake’ or ‘shared mistake’ because both parties have
made the same fundamental mistake.
As with frustration (which is a supervening rather than a preceding impossibility there are strict limitations on the operation of common mistake:
*It will not operate if one party is at fault.
*The contract must not make express provision on the matter.
*The mistake must be fundamental, ie it must render performance of the contract
impossible or radically different from what the parties anticipated.
One instance where the courts will find a fundamental mistake is where both parties are
mistaken as to the very existence of the subject matter of the contract.
Cross- purpose mistake
In the case of cross- purpose mistakes, the problem is that although one or other party may
assert that a contract exists, each on terms favourable to that party, objectively it is impossible
to resolve the ambiguity over what was agreed. That being the case, the only possible
conclusion is that there was no contract.
Unilateral mistake
Unilateral mistake (ie where only one party is mistaken) is often relied on where there has
been a mistake as to the identity of the other contracting party. However, only a genuine
mistake of this nature where the identity of the other party is of vital importance will render
the contract void. If the mistake is as to anything less (eg a mistake simply as to the other
party’s attributes such as creditworthiness) then it will not generally affect the validity of the
contract.
What is the difference between common mistake, mutual mistake, and unilateral mistake in contract law?
Common mistake refers to a mistake as to the existence of the subject matter or a fact/quality fundamental to the agreement. Mutual mistake refers to a mistake as to the identity of the subject matter. Unilateral mistake refers to a mistake as to the identity of the person contracted with.
What is unilateral mistake of identity in contract law?
Unilateral mistake of identity occurs when one party mistakenly believes they are contracting with a person that the other party is pretending to be. Whether or not such a contract is void depends on the precise circumstances.
What is a mutual mistake in contract law?
A mutual mistake occurs when both parties are mistaken, but they are mistaken about different things. In other words, they have negotiated at cross-purposes, resulting in a lack of genuine mutual consent and rendering the contract void.
What is the difference between misrepresentation and mistake in terms of contract validity?
A contract tainted by mistake is void from the outset and has no legal effect. In contrast, a contract affected by misrepresentation is voidable, meaning it may be set aside. This distinction is important when considering the remedies available.
What are the consequences of a unilateral mistake as to the expression of intention?
If the offeror makes a material mistake in expressing their intention, and the other party knows or is deemed to know about the error, the contract is likely to be void.
What is the exception to the general rule that a person is bound by the terms of any instrument they sign or seal?
The exception arises when a person signs or seals a document under a mistaken belief as to its nature. In such cases, the person may raise the defense of non est factum (‘it is not my deed’).
What is the objective test used in determining whether there has been a mutual mistake?
The objective test is used to determine whether a reasonable third party would infer the existence of a contract in a given sense, based on the words and conduct of the parties themselves. If a reasonable person would infer such an agreement, the court will hold that a contract in that sense is binding, even if there was a material mistake.
What is the key distinction between face-to-face dealings and those at a distance in relation to unilateral mistake?
In face-to-face dealings, where one party makes a false statement about their attributes, the contract may not be void if the other party intended to contract with the person in front of them. However, in distance dealings, it is easier to establish that the confusion is about identity rather than attributes, resulting in the contract being void.
What is the presumption in a face-to-face transaction regarding the seller’s intention to deal with the person in front of them?
In a face-to-face transaction, the court will presume that the seller intended to deal with the person in front of them. This presumption can be difficult to rebut and requires the seller to show that identity, not attributes, was of vital importance.
What is the practical implication for a seller when a contract is void for mistake or voidable for misrepresentation?
In practical terms, if a contract is void for mistake or voidable for misrepresentation, the seller may be left without a remedy. They may not be able to recover the goods or the agreed-upon payment if the fraudulent buyer has sold the goods to a third party in good faith.
What happens if the original owner sells goods to a fraudster?
If the original owner sells goods to a fraudster, and the fraudster sells them to an ultimate purchaser, title will have passed to the ultimate purchaser.
A contract which is void (in contrast to voidable) is….
…of no legal effect from the outset.
What is the legal status of the contract where there is a unilateral mistake as to identity in a face to face setting?
The contract will be void if the seller can persuade the court that the identity of the buyer and not their attributes was of vital importance to the contract.
