Mistake Flashcards
Mistake
The courts apply the law regarding mistakes restrictively and will not act to free parties from a bad bargain.
Smith v Hughes
An objective analysis will be taken, whereby it will be asked whether a reasonable observer would realise that a mistake had been made.
John Walker case
mistakes occurring after the contract are irrelevant, they must occur prior to the formation of the contract
Associated Japanese Banks
only where the contract is silent on the allocation of risk is there scope for invoking mistake
McRae case
the courts will engage in mental gymnastics to find an implied term allocating mistake if to do so is necessary to avoid unfair loss to one party
- Unilateral mistake
This is where only one of the parties is mistaken, usually because the other party has deliberately created that mistaken belief. A unilateral mistake occurs where one party to a contract is mistaken as to what they are agreeing and the other party knows or ought to have known this. A party will be taken to know of another mistake where objectively the mistake would have been obvious to a reasonable person.
Philips v Brooks
A rogue purchased jewellery from the p’s shop claiming to be a different person. The rogue then pawned it to the defendant who took the ring in good faith. The p sued the d pawnbroker for conversion. Court found there was no mistake as to identity so the contract was not void, was voidable for fraud however.
Ingram v Little
A different result was reached. Here, three old ladies were trying to sell their car. A rogue offered them a cheque, the ladies called to verify the identity the rogue had given them, and subsequently the cheque had bounced, by which time the rogue had sold the car to a third party. The court concluded that the ID of the person was important enough that there was mistake and therefore the ladies could void the contract on those grounds.
Lewis v Avery
A somewhat similar scenario of college boy trying to sell his car. A rogue buyer, with a fake ID sought to purchase it. The court again held there was no mistake as the ID was not important, it was the person in front of the plaintiff who they were intending to sell it to.
Webster v Cecil
Cecil offered to sell land for 1250 but meant to write 2250. He had already refused an offer for 2000 and therefore webster was aware of the mistake. Webster nonetheless accepted offer and cecil said it was a mistake. Court held no contract was formed, and said that one party cannot profit from anothers mistake.
Merchant Investors
The landlord intended to increase his tenants rent to 142,000 a year, but in error emailed an offer of 52,000 a year, which the tenant then accepted. The court held there was no objective evidence to indicate to the tenant that another offer was intended, and therefore the contract was not found to be subject to unilateral mistake.
- Common mistake
Common mistake occurs where parties to a contract are both mistaken about precisely the same thing.
O’Neill v Ryan set out the test regarding common mistake:
- The mistake is substantively shared by both parties
- The risk has not explicitly or impliedly been allocated; and
- The mistake goes to the nature of the contract
McRae
The courts will first examine whether the parties have explicitly/impliedly provided for the occurrence of the mistake in the contract. As per McRae, if they have, the matter will be dealt with via the contract.
Two main types of Common mistake
- mistake as to the existence of the subject matter
- mistake that alters the performance of the contract
Mistake as to the existence of the subject matter:
Where there is a contract of sale for specific goods which have perished at the time of contract, contract is void.
Galloway v Galloway
a mistake as to the legality of a marriage was shared by both parties and upheld
Mistake as to the performance of the contract
This must be a fundamental mistake which renders the contract impossible to perform or radically different.
Bell v Lever Bros
The lever brothers wanted to get rid of one of their employees, so they gave him a golden handshake. Subsequently they found out the employee in question had been engaging in misconduct to such a degree that they could have fired him. They tried to obtain their money back that they had given him, and argued the agreement was void for common mistake as neither party was aware of the misconduct. The court held the mistake in question was not fundamental enough to have the contract set aside.
Western Potato case
This case involved a contract for the sale of potato seeds whereby both parties believed they were fertile, when they were found out not to be the contract was void for common mistake.
Leaf v International
Demonstrates the strictness of the rule, holding that even where both parties mistakenly believed a painting was done by a famous painter, this was a mistake as to quality and not so fundamental as to undermine the contract.
Fitzsimmons v O’Hanlon
The discovery of extra money after the final agreement of a will was found not to be a mistake as parties were aware that more money would be available.
- Mutual Mistake
Both parties are mistaken, but they do not share the same mistake.
What is at issue with mutual mistake?
The question is whether the parties have reached an agreement at all
