Mistake

Disclaimer

  • The materials posted are educational in nature only.

  • None of the materials on the course page constitute legal or professional advice.

  • It's advised to consult a professional for legal or specialized advice.

Types of Mistakes in Contract Law

Mistake in Assumption

  • Definition: Mistakes regarding the assumptions under which a contract is entered.

  • Examples Leading to a Void Contract:

    • Mistaken identity.

    • Mistake regarding the existence or quality of the subject matter.

Mistake in Terms

  • Definition: Actual terms of the contract (as written) are incorrect.

Classification of Mistakes

  1. Unilateral Mistake: Only one party is mistaken.

  2. Common Mistake: Both parties have the same mistake.

  3. Mutual Mistake: Both parties misunderstand the situation differently.

  • Court’s Role: The court seeks to honor the reasonable expectations of the parties involved, and the mistake must be significant for the court to intervene.

Case Study: CTI v. Harbour

  • Scenario:

    • CTI provided materials to Harbour for a construction project.

    • Due to deficient billing, both parties are unsure of the amounts owed.

    • They agree on a final settlement amount of $35,000.

    • CTI later discovers a billing mistake and claims an additional $20,000.

  • Legal Outcome: The court ruled that the $35,000 settlement would be upheld, stating that:

    • CTI’s claim of mistake did not result in an unfair or unconscionable outcome.

    • Harbour was unaware of the mistake, and both parties intended the settlement to be final.

Common Mistakes in Contracts

Definition

  • Occurs when both parties are mistaken about a fundamental aspect of the contract's subject matter.

Examples of Common Mistakes

  • A contract may be void if:

    • The subject matter has been destroyed or is owned by one party.

    • Both parties are unaware of this.

  • Mistake regarding the property value is usually not grounds for a common mistake claim; the contract remains binding even upon newfound knowledge.

Remedies for Common Mistake

  • Contracts can be:

    • Voided.

    • Voidable.

    • Rectified (correcting the written agreement).

Rectification Cases

Example Case: Alpha Realty v. Bird

  • Scenario:

    • A verbal agreement includes indoor parking, while the written contract only provides for outdoor parking.

    • Landlord attempts to enforce the written agreement after allowing free indoor parking for years.

  • Outcome: The court ordered rectification to reflect the verbal agreement, allowing free indoor parking.

Mutual Mistake

Definition

  • Both parties misunderstand different aspects of the same issue.

Test for Mutual Mistake

  1. Parties are mistaken about an aspect of the contract.

  2. A reasonable person would conclude that the parties are not in agreement.

  3. The mistake is fundamental, affecting the essence of the contract.

  • Legal Outcome: If these conditions are met, the contract may be void.

Case Study: Raffles v. Wichelhaus

  • Scenario: Shipment via "The Peerless"—two different ships with the same name create confusion.

  • Outcome: The contract was void due to mutual mistake since both parties were unaware of the different ships.

Unilateral Mistake

Definition

  • Occurs when one party makes an obvious mistake, such as an error in calculation.

Key Points

  • Generally, the other party cannot take advantage of this mistake if they were aware or should have been aware of the mistake.

  • Possible remedies include voiding the contract or rectification of the mistake.

Non Est Factum

Definition

  • A mistake regarding the nature of the document signed, meaning the signatory was unaware of what they were signing.

Requirements

  1. Burden of proof lies on the party asserting the defense, which is challenging if they have full capacity.

  2. They must prove the signed document is fundamentally different from what they believed they signed.

  3. The claiming party must not have been careless in informing themselves about the document's nature.

Other Considerations

  • If a misrepresentation by the other party caused the mistake, the burden may shift; however, if a third party caused the mistake, the court must decide whether to void the contract.

Rectification of Contracts

Definition

  • Occurs when a written document fails to reflect the common intention of the parties due to a mistake.

Example

  • Price discrepancy (e.g., written as $75 per pound instead of $75 per kilogram).

  • Corrections to align the document with the common agreement can be made.

Legal Limitations on Rectification

  • Rectification can only fix the document to align with parties' agreed terms, not remedy the failure to achieve intended outcomes such as tax liability avoidance.