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Mistake Notes

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This is an extract of our Mistake document, which we sell as part of our GDL Contract Law Notes collection written by the top tier of Cambridge/Bpp/College Of Law students.

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Contract Law: Mistake
?????Misrep---if found, the contract is voidable, but is still valid. It still holds title. The only way void if is too apply to the court for rescission, or act as if rescinding. But until you do that it's a valid contract.
?????If you sell on under a misrep, before rescinding,
?????An operative mistake (so fundamental it voids the contract) will only be found where there has been a mistake of fact, which either: o prevents the formation of a contract (i.e. the parties cannot be said to have reached agreement because of the mistake) o OR: which renders the agreed contract something other than that which was intended.
?????Effect: void an ignition
?????So an exception to the general rule that parties are bound by the terms of their agreement and must rely on the contract for protection from the effect of facts unknown to them.
?????Doctrine of mistake will only apply where the mistake existed at the date of the contract formation: Mistake---basic principles
? A mistake may mean there was no agreement in fact: o Mutual o Unilateral
? Or it may mean that the mistake destroys the nature of the agreement: o Common
? Effect of proving mistake: CONTRACT VOID AB INITIO (unlike misrep---if sold under a mistake, you never get title, you cannot sell that on; CF misrep, where you have title under rescission occurs, you can sell it on until rescission occurs).
? NB, mistake facts must exist before contract concluded (Amalgamated Investment & Property v John Walker). : o Any subsequent event may provide an argument that the contract is frustrate. Mistake---classification
? ?? ? (1) Common: where an agreement has been reached on the basis of a mistake common to both parties.
? ?? ? Where there was a mere appearance of agreement because of
? ?? ? (2) Mutual mistake: both parties mistaken but in different ways.
? ?? ? Or (3) Unilateral mistake: only one party mistaken---the other party knows, or is deemed to know, of the mistake. Eg where 1

C mistakenly offers to sell an item to D at a lower price than C really intended. D, who knows that C has wrongly stated the price, accepts the offer. o The acceptance does not correspond with the offer---so no real agreement reached. o This is the basis for a claim in civil courts for identity fraud. There will be a criminal prosecution as well, but often it's hard to catch the criminal. Egs of mistake:
? (a) Common mistake, re the existence of the subject-matter of the contract.
? (b) Common mistake, re the quality of the subject-matter.
? (c) Mutual mistake as to the identity of the subject-matter of the contract.
? (d) Unilateral mistake by the offeror in expressing his intention---the mistake being known to the offeree
? (e) unilateral mistake re the nature of a document signed or sealed.
? (f) unilateral mistake as to a person's identity. Mutual Mistake as to the identity of the subject-matter
? Both parties mistaken---but mistaken about different things. Where A & B have negotiated at cross-purposes, where A is offering one thing whilst B is offering another---they were never in agreement, mutual consent is lacking.
? i.e. they have negotiated at cross-purposes.
? Eg, A agrees to sell a horse to B. A intended to sell his white horse; but B thought he was agreeing to buy A's grey house.
? Objective test---decide what a reasonable third party would believe the agreement to be, based on the words and conduct of the parties themselves. So it may be decided that the agreement was that which A understood, or that B understood, or that no meaning can be attributed to the agreement at all.
? If a reasonable man would infer the existence of a contract in a given sense ? the court, notwithstanding a material mistake, will hold that a contract in that sense is binding upon both parties.
? Smith v Hughes (1871) -the test for agreement is objective, Blackburn j: o 'If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms'. 2

??

Only if no discernible meaning can be given to the agreement at all will it be void for mutual mistake (The Harriette N (2008)). Raffles v Wichelhaus (1864)---such ambiguity that no agreement could be found o Wichelhaus agreed to buy cotton; paid Raffles. o There was a contract for sale of 125 bales of cotton, 'to arrive ex Peerless from Bombay' (i.e. on the ship the Peerless). o It happened that there were two ships named Peerless leaving Bombay at the same time: the buyer meant one and seller meant the other. o HELD: the contract could be void for mistake, clearly no agreement had been reached, they were talking about 2 different ships (the decision was made as a preliminary point which ended the case thereby). Scriven Bros v Hindley (1913): o At an auction, D bid for two lots thinking that both were lots of hemp, whereas in fact one of them consisted of both hemp and tow, diminishing its value. He refused to pay for this lot and the auctioneers brought an action for the amount bid. o HELD: there was no contract; the D buyer was able to rely on this mistake chiefly because of the misleading nature of the catalogue and the conduct of one of the seller's servants.

Common mistake (very unusual)
? This is agreement but on mistaken facts which existed before the contract was made. Both parties are suffering from the same misapprehension.
? Where this kind of mistake occurs, offer and acceptance correspond, i.e. there has been an agreement between the parties.
? Necessary to consider whether the underlying common mistake is sufficiently fundamental to affect the validity of the contract.
? Eg, X agrees to sell certain goods to Y, and at the time of the agreement, the goods have perished unbeknown to both parties.
? Events which occur after contract are not mistakes but may frustrate the contract. Common mistake as to the existence of the subject-matter
? Twin principles---res extincta and res sua
? Res extincta (subject matter not in existence at time of contract): o At the time of the contract but unknown to the parties, the subject matter of the contract has ceased to exist o Couturier v Hastie (1856), HL:
? A contract for sale of a cargo of corn in transit in the Med. Unbeknown to buyer and seller, the ship's captain

3 had been forced to sell his cargo as it fermented in the hold.
? HL HELD: res extincta, contract void. The outcome depended on a true construction of the contract as to whether the buyer had agreed to buy specific goods, or whether, as argued by the seller, he had agreed to buy a piece of the adventure.
? Decided on former basis---the contract required that something should be bought and sold---since the subject-matter was not in existence at the time of contract---there could be no contract. o This situation now covered by Sale of Goods Act 1979, S6: 'where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract was made, the contract is void.'o McRae v Commonwealth Disposals Commission (1951): where the circumstances are such that the seller is deemed to have warranted the existence of the goods---in that case, no mistake, contract not void-the seller is probably liable to buyer for breach of contract if the goods are not in existence. o [[Reconciling the above two cases]]: o They seem hard to reconcile on face of it. o However---the general view is that the essential factor is to construe the contract to assess which of the parties, if any, agreed to accept the risk of non-existence of the subject matter. o In Couturier v Hastie; the buyer had not assumed the risk that the subject-matter may not exist; also likely that the seller in that case had not assumed the risk; and thus could not have been sued by buyer for non-delivery of the goods. o Explained by Steyn J, in Associated Japanese Bank v Credit du Nord (1989): o 'One must first determine, whether the contract itself, by express or implied condition precedent or otherwise, provides who bears the risk of the relevant mistake. It is at this hurdle that many pleas of mistake will either fail or prove to have been unnecessary. Only if the contract is silent on the point is there scope for invoking mistake. It is only in these rare circumstances, where neither party has accepted the risk, that the contract can truly be declared void. o In McRae---the contract was construed so as the seller had assumed the risk of the non-existence, by giving clear directions as to where it (a ship) was to be found---and as such, was liable for breach of that undertaking. Res sua (subject-matter already belongs to the person attempting to purchase, at time of contract.)

4 o At the time of the contract but known to the purchaser, the subject matter already belongs to the purchaser. o Cooper v Phibbs (1967): a large family; looked after by one solicitors. Mass of paperwork on this family. Cooper was one relation of the family, Phibbs was another. Cooper wanted to buy a fishing lake from Phibbs. Turned out Cooper already owned the fishing lake, which know one had realised due to mass of complex transactions/paperwork within the family. HELD: res sua, couldn't buy it, he already owned it. Common Mistake as to a fact or quality fundamental to the agreement
? General rule: such a mistake does not avoid a contract (in the absence of contractual mis-description). o This is the case even if the mistake is to quality affects the utility of the goods to the buyer; or the value of the goods, so that the seller obtains less than the value of the goods or buyer pays more (Harrison & Jones v Bunten &
Lancaster; Scott v Littledale (1858)).
? UNLESS
? Test in Bell v Lever Bros (1932)---the mistake is so fundamental as to destroy the nature of the agreement
---'Essentially different' test
? Re a redundancy payment. B was under a contract of service with Lever Bros as chairman of a subsidiary company. They entered into a redundancy contract---Bell took the contract, resigned, paid a sum as compensation.
? Turns out Bell had been undertaking his own private trading in cocoa, in direct breach of his employment contract (which, if they had known before, would have allowed him to be fired with no compensation).
? B had always been under the impression that his private trading activities were not such as to entitle Lever Bros to have the service contract set aside, and that the contract could be prematurely terminated only by agreement.
? Went to court, Lever Bros said the redundancy contract should be void, so the compensation should be returned, on grounds that there was mistake.
? HELD HL: no common mistake on the facts---the common mistake that the service contract was not determinable except by agreement merely related to the quality of the subject-mater, and was not sufficiently fundamental to constitute an assumption without which the parties would not have entered the compensation agreement. An agreement to terminate a broken contract is not fundamentally different from an agreement to terminate an unbroken contract. The mistake was not 'operative', the compensation agreement was binding.

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