Mistake cases
Lec 16, 17 & 18
Definition: where one or both parties enter a contract under a misapprehension/inaccurate
assumption relating to a term of the contract
Highly technical issue (to be actionable):
Must be some statement, fact or event that existed or occurred BEFORE formation
of contract that constitutes OPERATIVE MISTAKE
o Price, quality, subject matter, ID of parties
Operative mistake renders contract void in common law. Courts are reluctant to
allow an argument of mistake to release parties from obligations because:
- Courts keen to enforce agreements
- Not keen to disturb third party rights
- Caveat emptor- errors of judgement, mistakes as to quality don’t avoid
contract. Buyer beware.
Effect of successful action:
An operative mistake= contract void and must be a mistake- concerning some
fundamental fact. The real issue is what is and is not fundamental.
Void= contract never existed between parties
Voidable= contract is valid until ‘avoided’ so continues to bind the parties until it is
set aside (misrepresentation)
TYPES OF MISTAKES: common, mutual and unilateral
1. Common mistake
used where the parties, although apparently in agreement, have made a contract based
on a false and fundamental assumption.
both parties make the same mistake. One party then becomes unable to perform their
part of the contract and seeks to claim that the mistake nullifies the contract.
Position at Common Law:- only two clear situations where contract void.
(a) Res Extincta - mistake as to the existence of the thing contracted for (provided
neither party has warranted existence of the subject matter or agreed to run risk that it
might not exist).
Scott v Coulson [1903]- Contracts for the sale of goods which have ceased to exist.
The contract is void for common mistake if, unknown to the parties, the subject
matter of the contract does not exist, or has ceased to exist, by the time the parties
entered the contract.
Couturier v Hastie (1856) - Unknown to the contracting parties the corn had badly
overheated and begun to ferment, so had been sold in Tunis. Was the buyer liable
for the price? that because of the mistake, the contract was void and the buyer was
not liable for the price. Existence of subject matter destroyed before contract was
performed. Common mistake over existence of subject matter so was void.
Compare ^ with McRae v Commonwealth Disposals Commission (1951)- The
Commission defended the claim alleging that the contract was void for common
mistake - i.e. both parties mistakenly believed a wreck to exist at a named place. that
this was not a case of common mistake - the Commission had impliedly promised
, that there was a wreck at the location. Accordingly, there was a breach of contract
for which the Commission was liable in damages.
(b) Res Sua - person makes contract to buy something which already owns.
Cooper v Phibbs (1867) - Tenant already owned fishery being leased.
Can a common mistake as to quality ever avoid the contract?
A common mistake about the actual existence of the subject matter (or title) is relatively
straightforward. The real difficulty arises where the common mistake is about some
fundamental fact about the subject matter.
the thing contracted for exists, but both parties are mistaken as to some vital/fundamental
fact about it.
the thing contracted for is not of the same “quality” or nature as the parties assumed.
Common mistake as to quality- both parties believe an item to be genuine, but it turns out
to be fake:
Bell v Lever Bros.[1932]- contract was not void for common mistake. The mistake
was one of quality not as to the subject matter of the contract. Lord Atkin stated that
common mistake as to quality might be sufficiently fundamental if “it is as to
existence of some quality which makes thing without the quality essentially different
from thing as was believed to be.”
This view supported in Leaf v International Galleries- The claim for rescission based on
(innocent) misrepresentation failed because of the five-year delay in rejecting the goods;
the claim for rescission for common mistake also failed because the mistake was about the
quality of the painting, not its subject matter
Any scope left for mistake as to quality?
The speeches in Bell particularly of Lord Atkin give 2 possible interpretations.
Narrow View: The identity of the subject matter is destroyed by the mistaken
assumption
Wider view: both parties are mistaken “as to the existence of some quality which
makes the thing without that quality essentially and radically different- Associated
Japanese Bank Ltd v Credit Du Nord [1983] gives some support for the wider view
and quality and existence of common mistake
Quite recently, the Court of Appeal revisited the issue of common mistake in the case of:
Great Peace Shipping Ltd v Tsavliris Salvage (International), The Great Peace [2003]-
The Court approved the approach taken in Bell v Lever Bros and the obiter comments
in Japanese Bank in relation to common mistake as to quality.
Lord Phillips submitted five principles that must be satisfied for a contract to be void for
common mistake:
1. There must be a common assumption as to the existence of the state of affairs
2. There must be no warranty that the state of affairs exists.
3. The non-existence must not be the fault of either party
4. The non-existence of the state of affairs must render performance of the contract
impossible.
5. The state of affairs may be the existence, or a vital attribute, of the consideration to
be provided or circumstances which must subsist if performance of the contract is to
be possible.
Lec 16, 17 & 18
Definition: where one or both parties enter a contract under a misapprehension/inaccurate
assumption relating to a term of the contract
Highly technical issue (to be actionable):
Must be some statement, fact or event that existed or occurred BEFORE formation
of contract that constitutes OPERATIVE MISTAKE
o Price, quality, subject matter, ID of parties
Operative mistake renders contract void in common law. Courts are reluctant to
allow an argument of mistake to release parties from obligations because:
- Courts keen to enforce agreements
- Not keen to disturb third party rights
- Caveat emptor- errors of judgement, mistakes as to quality don’t avoid
contract. Buyer beware.
Effect of successful action:
An operative mistake= contract void and must be a mistake- concerning some
fundamental fact. The real issue is what is and is not fundamental.
Void= contract never existed between parties
Voidable= contract is valid until ‘avoided’ so continues to bind the parties until it is
set aside (misrepresentation)
TYPES OF MISTAKES: common, mutual and unilateral
1. Common mistake
used where the parties, although apparently in agreement, have made a contract based
on a false and fundamental assumption.
both parties make the same mistake. One party then becomes unable to perform their
part of the contract and seeks to claim that the mistake nullifies the contract.
Position at Common Law:- only two clear situations where contract void.
(a) Res Extincta - mistake as to the existence of the thing contracted for (provided
neither party has warranted existence of the subject matter or agreed to run risk that it
might not exist).
Scott v Coulson [1903]- Contracts for the sale of goods which have ceased to exist.
The contract is void for common mistake if, unknown to the parties, the subject
matter of the contract does not exist, or has ceased to exist, by the time the parties
entered the contract.
Couturier v Hastie (1856) - Unknown to the contracting parties the corn had badly
overheated and begun to ferment, so had been sold in Tunis. Was the buyer liable
for the price? that because of the mistake, the contract was void and the buyer was
not liable for the price. Existence of subject matter destroyed before contract was
performed. Common mistake over existence of subject matter so was void.
Compare ^ with McRae v Commonwealth Disposals Commission (1951)- The
Commission defended the claim alleging that the contract was void for common
mistake - i.e. both parties mistakenly believed a wreck to exist at a named place. that
this was not a case of common mistake - the Commission had impliedly promised
, that there was a wreck at the location. Accordingly, there was a breach of contract
for which the Commission was liable in damages.
(b) Res Sua - person makes contract to buy something which already owns.
Cooper v Phibbs (1867) - Tenant already owned fishery being leased.
Can a common mistake as to quality ever avoid the contract?
A common mistake about the actual existence of the subject matter (or title) is relatively
straightforward. The real difficulty arises where the common mistake is about some
fundamental fact about the subject matter.
the thing contracted for exists, but both parties are mistaken as to some vital/fundamental
fact about it.
the thing contracted for is not of the same “quality” or nature as the parties assumed.
Common mistake as to quality- both parties believe an item to be genuine, but it turns out
to be fake:
Bell v Lever Bros.[1932]- contract was not void for common mistake. The mistake
was one of quality not as to the subject matter of the contract. Lord Atkin stated that
common mistake as to quality might be sufficiently fundamental if “it is as to
existence of some quality which makes thing without the quality essentially different
from thing as was believed to be.”
This view supported in Leaf v International Galleries- The claim for rescission based on
(innocent) misrepresentation failed because of the five-year delay in rejecting the goods;
the claim for rescission for common mistake also failed because the mistake was about the
quality of the painting, not its subject matter
Any scope left for mistake as to quality?
The speeches in Bell particularly of Lord Atkin give 2 possible interpretations.
Narrow View: The identity of the subject matter is destroyed by the mistaken
assumption
Wider view: both parties are mistaken “as to the existence of some quality which
makes the thing without that quality essentially and radically different- Associated
Japanese Bank Ltd v Credit Du Nord [1983] gives some support for the wider view
and quality and existence of common mistake
Quite recently, the Court of Appeal revisited the issue of common mistake in the case of:
Great Peace Shipping Ltd v Tsavliris Salvage (International), The Great Peace [2003]-
The Court approved the approach taken in Bell v Lever Bros and the obiter comments
in Japanese Bank in relation to common mistake as to quality.
Lord Phillips submitted five principles that must be satisfied for a contract to be void for
common mistake:
1. There must be a common assumption as to the existence of the state of affairs
2. There must be no warranty that the state of affairs exists.
3. The non-existence must not be the fault of either party
4. The non-existence of the state of affairs must render performance of the contract
impossible.
5. The state of affairs may be the existence, or a vital attribute, of the consideration to
be provided or circumstances which must subsist if performance of the contract is to
be possible.
