Contract Law - Mistake

what is mistake?

- narrow meaning

- if a contract is affected by mistake in the way the word is used in contract law (operative mistake), then there are serious consequences: the contract is void

what is an operative mistake?

a mistake which is recognised in the law of contract as preventing a contract from taking legal effect; the contract will be void from the outset

what are the 3 categories of mistake?

1) common mistake: both parties to an agreement are suffering from the same misapprehension

2) mutual mistake: both parties are mistaken but they are mistaken about different things (negotiated cross-purposes)

3) unilateral mistake: occurs where only 1 person is mistaken and the other knows, or is deemed to know, of the mistake

what is necessary to be considered for an underlying common mistake?

- consider whether the underlying common mistake is sufficiently fundamental to affect the validity of the contract

what is the test for common mistake?

- in the absence of contractual misdescription, mistake about the quality of goods does not void the contract

- the case even if the mistake as to the quality affects the utility of the goods to the buyer, or, alternatively, affects the value of goods in question

- test to engage = unclear

- subject matter is 'essentially different' from that intended or wether the mistake render the assumed performance 'impossible' or whether subject matter is rendered 'radically different'

which 3 circumstances will common mistake not operate?

1) the mistake was not sufficiently fundamental

2) 1 party is at fault

3) the contract makes provision for the issue

what happens when there is mutual mistake?

genuine mutual consent is lacking; such a contract will be void

what is the test for mutual mistake?

- court will employ an objective test and decide what a reasonable 3rd party would believe the agreement to be

- this would be based on the words and the conduct of the parties themselves

- the result is that, if, from all the available evidence, a reasonable person would infer the existence of a contract in a given sense, the court will hold that a contract in that sense is binding upon both parties, even though there is a material mistake

what happens when there is a unilateral mistake?

- the acceptance does not correspond w// the offer, and there is consequently no real agreement reached

- where the offeror makes a material mistake in expressing their intention, and the other party knows, or is deemed to know, of the error, the mistake is likely to lead to the contract being void

what is the general rule for a person when they sign or even seal a contract and what is the exception to this?

the general rule is that a person is bound by the terms of any instrument which they sign or seal even though they did not read or understand its contents; an exception to this rule is where a person signs or seals a document under a mistaken belief as to the nature of the document which may raise the defence of non est factum ('it is not my deed')

the defence of non est factum may be used when the mistake was due to either:

a) blindness, illiteracy, or senility of the person signing; or

b) a trick or fraudulent misrepresentation as to the nature of the document, provided that person took all reasonable precautions before signing it

what are unilateral mistakes as to the identity of the person contracted with?

1 party mistakenly believes they are contracting w// 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 likely to happen when there is unilateral mistake of identity in accordance w// Lewis v Averay

as long as the 3rd party does not know about or have a reason to suspect the deception, the 3rd party has acquired good title (if brought fraudulent item in good faith) , and the C cannot take the item (car) back; in practical terms, the seller is likely to be left w//o a remedy

what is the different for unilateral mistake of identity where the identity of the buyer is fundamental and the contract is void for mistake?

- then it is void and ineffective from the outset

- the buyer (fraudster) has no title (voidable or otherwise) and cannot give any sort of title to the 3rd party by selling the goods on

- nemo dat quod non habet (no one gives who possess not): you cannot give what you do not have

- as 3rd party has no title, they must return the goods to the duped seller, even if 3rd party paid good money and knew nothing about the deception

what happens if the parties contract through correspondence?

if respondents believed that they were dealing w// someone else and not the fraudster then the contract would be void for mistake as to identity