Part B: Mistake Flashcards
When will a mistake affect the validity of a contract?
Only in exceptional circumstances.
If a mistake has been found - the contract will be void.
There are only limited recognised grounds of mistake however a mechanism needs to be in place to protect parties where an operative mistake has occurred.
Important - the mistake must have existed at the time the contract was formed.
What is an operative mistake?
It can make a contract void and unenforceable.
At common law, it will render a contract as “void ab. Intitio” (never existed at common law)
A void agreement can’t confer any rights upon a third party.
What are the three categories of mistakes recognised at common law?
- Common mistake
Both parties made the same mistake about primary fact of contract.
E.g subject matter, quality of subject matter or title to the goods. - Unilateral mistake
Only one party made a mistake but the other knew. - Mutual mistake
When parties are we cross purposes
What is a common mistake?
It is when both parties make the same mistake.
They may have believed that certain thing existed - but later found it was non-existent.
The mistake must relate to a primary fact of the contract, for example:
- subject matter
- quality of subject matter
- title to the goods
In relation to common mistake, what does existence of subject matter mean?
If the subject matter didn’t exist at the time the contract was agreed - the contract can be void.
Supported by s6 of SGA 1979:
“A contract will be void where there is a contract for the sale of specific goods, the goods without the knowledge of the seller, have perished at the time when contract was made”
CASE: Corn was in transit (by sea) and unbeknown to the parties had started to deteriorate. Contract deemed not to be formed.
However, If the subject matter is non-existence and it was guaranteed by one of the parties - contract will not be void but will be in breach.
CASE: Claimant won a tender for oil tanker but later found out it didn’t exist. Held to be a breach.
What is “Frustration of Contract”?
Closely connected with mistake.
Frustration of contract is when a contract is formed, but without either fault of the party, it is incapable of being performed due to an unforeseen event.
It is often down to the timing of the agreement and position of the subject matter at the time agreement was made as to whether it is a mistake or frustration if contract.
In relation to common mistake, what does mistake as to title mean?
Res Sua (mistake as to title)
It will occur when, unknown to both parties, the item which the seller is trying to sell is already owned by the buyer.
CASE: Purchaser already owned a fishery which he had entered into a lease of for three years. Contract rescinded and held void.
In relation to common mistake, what does mistake as to the quality of subject matter mean?
Subject matter quality related to if quality is different to what it had been when contract agreed.
Courts do not protect against bad bargains and the principle “buyer beware” still important.
Courts look at essence of the contract - contract is only void if the subject matter quality is a fundamental aspect of contract.
CASE: Claimant ordered oats after seeing sample. Oats delivered were new and not old (as per sample). This was not discussed. Quality of subject matter was not fundamental terms.
CASE: Claimant engaged defendant to rescue ship on the basis they were 12 miles away - which was incorrect. The contract was for the charter and did not mention distance. Contract not void.
What is mutual mistake?
It is when it can be shown that the parties to an agreement are at cross-purposes.
Courts take an objective approach to see what conclusion a reasonable person would have reached, having witnessed their words and conduct.
The reasonable person would need to consider whether agreement made on who’s terms, or if unable to do so, may conclude not possible to do so.
If concluded that contract did exist, not withstanding the mistake - court upheld contract.
CASE: Defendant bid at auction for two sets of plants they thought were hemp - two different plants (one for lesser value). Claimant sued when defendant refused to pay.
Claimant intended to sell different plants but defendant intended to buy hemp.
Issue was that claimant didn’t know defendant wished only to by hemp.
Held that contract void by mistake as unable to determine sense of promise.
CASE: Claimant agreed to buy cotton from a ship, but didn’t know there were two ships arriving at different times. Both parties brought evidence o show they each meant different ship.
Held to be ambiguous and no contract.
What is unilateral mistake?
Arise when one party made a mistake but the other knew.
There are two types which can render a contract void at common law:
- Mistake as to the identity
- Mistake concerning the nature of the document
In relation to unilateral mistake, what does mistake as to the identity mean?
This arises when a person makes a contract with another party believing they are someone else and the other person is aware of the mistake.
This is a result of fraud or misrepresentation of identity.
A person will pretend to be someone else, usually a well-known person or a person of good character to persuade another person to do business. The payment will then default.
The seller will then try to recover the goods from an innocent third party to whom the fraudster has sold the goods to as the fraudster has disappeared.
Contract can either be void by mistake or by misrepresentation.
Where a unilateral mistake is being claimed, there are two categories:
- Face to face (inter pracesentes) contracts
- At a distance (inter absentes) contracts
How are face to face contracts dealt with when dealing with mistakes as to the identity?
In face to face transactions, the presumption is that the parties intend to deal with the person in front of them.
If one of the parties is a fraudster - the innocent party will need to rebut presumption.
If the goods have not been passed - the innocent party can rescind the contract for fraudulent misrepresentation.
CASE: Cheque bounced when fraudster brought pearls and ring. Claimant verified name and address. Held that claimant intended contract with the person who was present in the shop. Mistake was not to do with identity but was a misjudgement.
CASE: Claimant sold car to someone claiming to be famous and later the cheque bounced. The fraudster sold it on and the claimant tried to get the car back from the innocent party.
If the seller was content to deal with the person in front of them (even tricking them into believing they were dealing with someone different) - contract unlikely to be void as the presumption has not been rebutted.
How are at a distance contracts dealt with when dealing with mistakes as to the identity?
It is easier to establish an identity mistake where parties negotiate at a distance.
CASE: Rogue, pretending to be a reputable business, made an order. Fraudster sold goods one but the original cheque bounced. Claimant sued innocent party for value of goods.
Court had to consider whether claimant believed they were dealing with the reputable business or the business dealing from the delivery address.
Held that the claimant thought they were dealing with the reputable company and contract void.
CASE: Rogue submitter order pretending to be a company. Held that the contract was valid.
The DIFFERENCE: the Claimant of the second case intended to do business with the pretend company, whereas the Claimant of the first case intended to do business with the actually company (not fraudster).
In relation to unilateral mistake, what are the two categories of mistake as to the nature of the document?
There are two main categories:
- Rectification
- Non-est Factum
In relation to mistake as to the nature of the document, what does rectification mean?
Equitable remedy which allows the document to be amended to reflect common intentions of parties.
CASE: Held to only be awarded if agreement fails to reflect agreement or if a transcription mistake has been made when putting oral agreements in writing.
Courts reluctant to interfere with terms of written document - so parties to prove that document is not accurate.
Parties must prove:
1. Both parties must have common intention to rectify document
2. The document did not reflect common intention - because of a mistake
3. Outward expression of accord.
CASE: Couple shared house with her parents and the basis that her parents would transfer business to her and she would pay their weekly pension.
Later - agreement written down but terms not as they agreed.
Held rectification was allowed.
