Mistake and frustration

Unilateral mistakes:

• Only one party to the contract is mistaken

• Pure unilateral mistake: unknown to the other party

• Known unilateral mistake

Smith v Hughes:

• Sale of oats between farmer and racehorse trainer

• Horses must eat old oats

• Farmer knows they’re new oats but buyer thinks they’re old and buys a batch

• New oats are delivered and sues for breach of contract, he should be able to escape it as he was mistaken

• Blackburn LJ: “the purchaser must take the article he has bought though it does not possess that quality” 16

Unilateral mistake as to terms:

Mistaken party can escape if the other party knows of the mistake

Unilateral mistake assumption:

• No relief from contract

• Autonomy: should look after their own interests

• Morality: possibly people should be able to take advantage of mistakes

• Economic: they should be able to bear cost of own mistakes

Common mistake:

Both parties make the same mistaken assumption

The Great Peace 2002:

• Ship in danger of sinking, Great Peace 35 miles away

• Damaged ship agreed 16.5k/day for 5 days for GP to help

• Shipping service was wrong, GP was further away

• No mistake, not fundamental enough

Test for common mistake:

• Must be fundamental

• Must render expected contractual performance as ‘essentially different’

Cross purpose mistakes:

Both parties mistaken for diff reasons

The Peerless 1864:

• Sale of cotton ‘to arrive ex peerless from bombay’

• 2 ships, oct and dec

• Buyer thinks oct, seller things dec so when cotton arrives in dec, buyer refuses

• “It is essential to the creation of a contract that both parties should agree to the same thing in the same sense”

Test for frustration:

Without default of either party, a contractual obligation has become incapable of being performed- Lord Radcliffe

Effect of frustration:

• Discharge of contract from the point the supervening event occurs

• Law reform 1943:

  • money already paid can be recovered

  • value of the benefits can be recovered