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MistakeMistakeA2 Contract Law

Andy Howells

1

Andy Howells www.loretolaw.blogspot.com www.law-exchange.co.uk

What is mistake?What is mistake?

Where a contract entered into under a false assumption

A genuine false assumption (unlike misrep)

If it is a fundamental mistake, it can render the contract void

2Andy Howells www.loretolaw.blogspot.com www.law-exchange.co.uk

Categories of mistakeCategories of mistake

Common mistake – both parties are acting under the same false assumption

Mutual mistake – where the parties are at cross purposes (also known as “shared mistake)

Unilateral mistake – where only one party is mistaken and the other party knows it

Mistake over documents


Common MistakeCommon Mistake

Where the parties are in agreement, but share the same false assumption

The contract is based on a false situationTwo main types:Where mistake over existence of subject

matterWhere mistake over quality of subject

matter


Mistake over existenceMistake over existence

Contract is res extincta – note meaningCouturier v Hastie (1856)Galloway v Galloway (1914)Scott v Coulson (1903)Confirmed void by SGA

(1979) s6


McRae v CommonwealthMcRae v CommonwealthDisposals Commission (1951)Disposals Commission (1951)

Here the courts decided that one party assured the other of the existence of the subject matter

The reef and oil tanker that C paid for salvage rights over did not exist!

C got damages rather than having the contract declared void

Is this case really that different from Couturier v Hastie?


Links with frustrationLinks with frustration

This doctrine is closely linked to frustration – note explanation of this at bottom of p187 (Charman, 4th Ed)


Mistake over titleMistake over title

Res sua (the thing is his own)Cooper v Phibbs (1867) – can’t buy

something you already own!Note use of equity here to achieve fair

outcome


Mistake over quality Mistake over quality

If its just a bad bargain, contract will not be voidBell v Lever Bros (1923)Why did the HoL decide as they did?Note Lord Atkin’s comments – what are the court

looking for?Leaf v International

Galleries (1950) – do you think this case was decided correctly? Why/why not?

Associated Japanese Bank Ltd v Credit du Nord (1988) – note why this case was not res extincta

Note phrase used in William Sindall v Cambridgeshire County Coucil (1994)


TASKTASK

If a person buys an apparently worthless stamp at a flea market and it turns out to be a valuable rarity, should they return it to the seller? Should this be the same if they pay a lot of money for an apparently rare stamp which turns out to be a copy?

Write 250 words in answer to thisNote the criteria set out in Great Peace

Shipping v Tsavliris Salvage (2002)


Mutual MistakeMutual Mistake

Where the parties have different assumptions from the outset

Contract will be held void if there is total ambiguity e.g. Raffles v Wichelhaus (1864)

What happened in Wood v Scarth (1858), and why is this different?


Unilateral Mistake: QualityUnilateral Mistake: Quality

Where one party contracts on the basis of a false assumption and the other party knows about it!

Mistake over quality of goods not enough to void contract – Smith v Hughes

But note Scriven v Hindley (1913) where buyer bought a fabric that he thought was worth a lot more than what he actually got!

If it’s obvious and fundamental – contract can be void e.g. Hartog v Colin and Shields (1939)


Unilateral Mistake: identityUnilateral Mistake: identity

Where someone poses as someone else to make a sale

Note meaning of “inter absentes” and “inter praesentes”


Unilateral mistake: identity (3)Unilateral mistake: identity (3)inter praesentesinter praesentes

Phillips v Brooks (1919)What happened?Why was the mistake

not enough to void the contract?

Ingram v Little (1961)What happened here?Why was it decided

differently to Brooks?


Unilateral mistake: identity (2)Unilateral mistake: identity (2)inter absentesinter absentes

Cundy v Lindsay (1878)Note factsWhy is this an example of inter absentes?What was the outcome, and why?


More on More on inter praesentesinter praesentes

Lewis v Averay (1971)What did Lord Denning decide, and why?In Shogun v Hodson

(2003), whydid the court decide differently?

Make a detailed note.


Mistake over the lawMistake over the law

Used to be no defenceHowever law ever more complex – so now

if a contract is formed based on a mistaken understanding of the law it is no longer a true agreement

Kleinwort Benson v Lincoln CC (1999)Brennan v Bolt Burdon (2005)


Mistake over documentsMistake over documents

If parties sign a document they are bound by it – L’Estrange v Graucob

Non est factum – what does it mean?Foster v Mackinnon (1869)Lloyds Bank v Waterhouse (1990)V limited use – note Saunders v Anglia

(1971) aka Gallie v Lee


Mistake over documents (2): Mistake over documents (2): rectificationrectification

Rectification is a measure used by the courts to amend a contract so as to reflect the intention of the parties’ oral agreement more accurately

Clear evidence of the oral agreement is required

Joscelyne v Nissen (1970)


The doctrine of mistakeThe doctrine of mistake

Still developingNot universally approved ofDo we really need it? Note arguments why

notSheik v Oschner (1957) – why is this a

good example?V little difference between frustration and

mistake other than timing – Amalgamated Investment and Property Co Ltd v John Walker and Sons Ltd (1976)


Documents

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