Contracts/Mistake: Difference between revisions

Template:ContractLaw In contract law a mistake is an erroneous belief, at contracting, that certain facts are true. It may be used as grounds to invalidate the agreement. Common law has identified three different types of mistake in contract: unilateral mistake, mutual mistake, and common mistake.

Unilateral mistake

A unilateral mistake is where only one party to a contract is mistaken as to the terms or subject-matter. The courts will uphold such a contract unless it was determined that the non-mistaken party was aware of the mistake and tried to take advantage of the mistake.

Leading cases on unilateral mistake are Smith v. Hughes [1871] and Hartog v. Colin & Shields [1939] 3 All E.R. 566.

Mistake of identity

It is also possible for a contract to be void if there was a mistake in the identity of the contracting party. In the leading English case of Lewis v Avery [1971] 3 All ER 907 Lord Denning held that the contract can be avoided only if the plaintiff can show, that at the time of agreement, the plaintiff believed the other party's identity was of vital importance. A mere mistaken belief as to the credibility of the other party is not sufficient.

Shogun Finance v Hudson (2004) is now the leading case on mistake as to identity. In this case, the House of Lords stated there was a strong presumption the owner intends to contract with the person physically present before him and only in extreme cases would the presumption be rebutted.

Mutual mistake

A mutual mistake occurs when the parties to a contract shared an erroneous belief concerning a fact at the time of contracting. A mutual mistake creates a power of avoidance in the adversely affected party where the erroneous fact was a basic assumption upon which the contract was made and had a material effect on the agreed upon exchange of performances, but only if the adversely affected party did not bear the risk of the mistake. See Restatement, 2nd, Contracts Section 152.

The classic case of mutual mistake is Sherwood v. Walker, where the parties were mutually mistaken as to the barenness of a cow. If the cow was barren, it was worth only about $80 - compared to upwards of $1000 if it were able to breed. Sherwood purchased an apparently barren cow, Rose 2nd of Aberlone for 5.5 cents per pound. Before the exchange was completed, Walker discovered the cow was pregnant and refused to complete the sale. The court said that if both parties thought the cow was barren (a question for the jury), the contract was voidable on grounds of mutual mistake. The court used the traditional test of the mistake "relating to the substance of the consideration." In other words, because both parties were mistaken, the consideration failed for the cow as she actually was.

Common mistake

A common mistake is where both parties hold the same mistaken belief of the facts.

The House of Lords case of Bell v. Lever Brothers Ltd. established that common mistake can void a contract only if the mistake of the subject-matter was sufficiently fundamental to render its identity different from what was contracted, making the performance of the contract impossible.

Later in Solle v. Butcher, Lord Denning added requirements for common mistake in equity, which loosened the requirements to show common mistake. However, since that time, the case has been heavily criticized in cases such as Great Peace.

External links

• Mistake in English Law

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