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4 Mistake Summary

4 Mistake Summary

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Published by manavmelwani

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Published by: manavmelwani on Apr 19, 2010
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If Mistake is found, the contract is rendered void.
II. Categories of Mistake
Common Mistake
Where both parties to the contract make the same mistake. Each is fully aware of the intention of the other but each person makes a mistake as to some underlying and fundamentalpart of the contract
Mutual Mistake
Where the parties are at cross-purposes, but each believes that the other is inagreement
Unilateral Mistake
Where one party makes a mistake and the other is aware of the error
3 types of mistake but 2 general categories? 
A. Agreement is reached (meeting of minds) but there is something which fundamentally robs theagreement of its efficacy (common mistake comes under this.)B. Agreement is never reached (O and A never coincide. No meeting of minds. A unilateral mistakefalls into this second category where agreement is not reached at all.
III. Agreement is reached but lacks effectiveness
2 things to bear in mind
the mistake must be fundamental. Secondly, the state of affairs mustvebeen in existence prior to the conclusion of the contract. (This second one is really important.Compare lectures on mistake with the doctrine of frustration of contract)
Common Mistake
1. Mistake as to the existence of subject matter -
es extincta
The leading case is
[1856] 5 HLC 673
Contract was for sale of corn in transit whobelieved the corn existed when the contract was formed. However, the cargo was rotten and hadalready been sold by the captain. HL said if the subject matter of the contract did not exist atformation, the contract could never be formed and was void.However, in the case where one party actually guarantees the existence of the subject matter,mistake as to the subject matter has not sufficed to set aside the contract and the contract is valid.
Commonwealth Disposals Commission
(1951) 84 C.L.R. 377 (Australia)So, you can rely on common mistake as to the subject matter where
1. It must be a belief which isunderstood by the party without any reasonable grounds of believing otherwise 2. One of theparties must not be responsible for implanting the mistake in the mind of the other.s6 Sale of Goods Act 1979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 is made, the contract is void
2. Mistake as to ownership of the subject matter of a contract (res sua)In
(1867), cooper agreed to take a lease of a fishery from his uncle but unknown toboth parties, cooper already owned it. HL set the agreement aside and declared it void for mistake.So, if theres a mistake to ownership which both parties commonly share, that will allow the contractto be declared void.3. Mistake as to possibility of performancea. legal impossibility
Cooper v Phibbs (1867) L.R. 2 H.L. 149b. physical impossibility
Sheikh Brothers Ltd v Ochsner 
[1957] A.C. 136In this instance, its not physically possible to get the thing you contracted for. The contract here wasfor the delivery of 50 tonnes of sizol to be delivered per month but the land that it was going to begrown on was not capable of producing that much.c. commercial impossibility
[1903] 19 T.L.R. 434In this case, the commercial venture that was planned was impossible. The contract was made afterthe kings coronation was postponed. And that factor was not known to both parties. The contractregarded viewing the procession but this was impossible.4. Mistake as to quality of the subject matter of the contractNote: this is really controversial for 2 reasons. The questions are is the contract void for mistakewhen theres a mistake as to the quality of the subject matter? Or Is the contract voidable formistake as to the quality of the subject matter? The distinction between the 2 is a remedy atcommon law and the second is a remedy in equity. As mentioned earlier, the difference between the2 is huge. (void and voidable)Common mistake as to quality of the subject matter
in (common) law 
The classic case is
[1932] AC 161. Here, Lever Bros entered into an agreement withBell to leave the company in exchange for £30, 000. It was later revealed that there were groundsfor termination without compensation at the time of the agreement as Bell had previously breachedhis contract of employment. This is a common mistake as the parties share the same one. (LeverBrothers didnt know about the mistake and Bell had forgotten)The HL held that the contract was valid since the mistake was not of such a fundamental characteras to constitute an underlying assumption without which the parties would not have made thecontract they in fact made. What lord Atkin points to is that mistake as to the quality of the subjectmatter will be available if you can show two things. 1. The mistake must be the mistake of bothparties. 2. The mistake must be as to the existence of some quality which makes the thing withoutthat quality essentially different from the thing as it was believed to be.In bell, the difference is between a contract worth £30, 000 and worth nothing, youd think theAtkins test would be satisfied. Youd think a £30, 000 drop would satisfy that test. Lord Atkin said the
change was not sufficiently serious in this case. What that means is that the contract was not voidand carried on so the directors were entitled to the money.Catherine McMillan feels that it was decided the way it was because the courts focused on fraud(directors forgot they did it) and non-fraud. And because it was not fraud, the contract was held tobe okay. And thus itd probably have been differently decided.The leading modern case on Common Mistake as to the quality of goods is
Great Peace Shipping Ltd 
Tsavliris Salvage (International) Ltd 
( The Great Peace) [2003]. Note that it is a CA case.Lord Phillips give 5 criteria to show how common mistake as to the quality of goods will work1.
There must be a common assumption as to the existence of a particular state of affairs.2.
There must be no warranty by either party that that state of affairs exist.3.
The non-existence of the state of affairs cannot be due to the fault of either party. (mustbe unattributable to any party)4.
The non-existence to the state of affairs must render the contract impossible5.
The state of affairs might be a vital attribute of the consideration provided or thecircumstances that must exist in order for the contract to be performed (iow if yourethinking about great peace its the proximity of the vessel in relation to its ability to pickup the passengers)Based on that, Lord Phillips said the contract wouldnt be void at common law as the contract wasclearly not impossible to perform (4) as Tsaviliris knew the contract could kind of be performedwhich is why they didnt immediately terminate the contract.The question also arose whether the contract was voidable for common mistake in equity. Here theCA actually went so far as to say that Denning was wrong in
Solle v Butcher 
[1950] to create aremedy for mistake in equity. (take note that until the SC completely rules it out however, it is stilltechnically around. There is some support for it at the highest level as Dennings decision was evenfollowed by Lord Steyn)Common mistake as to the quality of the subject matter
in equity 
 Invented in
Solle v Butcher 
, followed numerous times but then disapproved of but not overruled in
The Great Peace
IV. Agreement is Never Reached
Mutual Mistake
Here the parties are essentially talking past each other, theyre talking about different things.
(1864) 2 H. & C. 906 (cotton arriving on the ship
from Bombay)The court considered whether a reasonable third party would interpret the contract in line with theunderstanding of one or the other of the parties. Court said parties are talking past each other
thecontract is void for mutual mistake.
(1871) L.R. 6 Q.B 597: (old oats new oats case)

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