Mistake

Question 1

What is an operative mistake?

Answer 1

A mistake so fundamental that it will render the contract void.

There are no damages available for mistake because if mistake operates, there is no contract in the first place.

The mistake must exist at the date the contract was formed.

An operative mistake is a mistake of fact that:
1. Prevents the formation of the contract; OR
- the parties did not actually reach an agreement because of the mistake

2. Makes the contract something other than intended
   - the contract is entered into, but is then different to what was intended or made possible

Question 2

What are the three categories of mistake?

Answer 2

Common mistake
Mutual mistake
Unilateral mistake

Question 3

Common mistake

Answer 3

Both parties reach an agreement based on the same mistake.

Operative common mistakes:
1. The subject matter of the contract is not in existence (res extincta)
(both parties enter the contract believing the subject matter exists, when in fact it does not)

2. Mistake as to ownership (res sua)
   (both parties enter into a contract over a subject matter, but didn’t realise the subject matter is actually owned by someone else)

The mistakes won’t be operative if:
a.) one of the parties is at fault
b.) the contract makes an express provision on the matter
c.) mistake as to quality doe not count

Question 4

Mutual mistake

Answer 4

Both parties appear to agree but are agreeing on different things.
(e.g., Party A believes he is buying a sock, Party B believes he is selling a shoe)

The test is the reasonable man test:
a) if a reasonable man would believe the terms to be either what party A or party B believed, then those terms will apply and a contract will exist.
b) if a reasonable man would not conclude what either party thinks, no contract is formed, there is a mutual mistake.

Question 5

Unilateral mistake

Answer 5

Only one party is mistaken, and the other party knows this and takes advantage.

Three types - unilateral mistake as to:
1. The terms of the contract
- if the other party knows and takes advantage of this, this will be an operative mistake

2. The nature of the document signed
   To apply:
   - there must be a fundamental difference between what was signed and what the party believed they were signing
   - a trick or fraud
   - signatory must have taken reasonable care to make any checks before signing (i.e., will not be operative if careless)
3. The identity of the person contracted with
   a.) for face-to-face interactions:
   - contract is deemed formed between the mistaken party and the actual party
   - only rebutted if the identity of the person is fundamental to the contract (i.e., would not have entered contract if they knew the true identity of the person)

b.) long-distance / online transactions
- no presumption
- easier to establish operative mistake