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Contracts/Mistake
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 UK 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 are both mistaken but about different things. They are at cross-purposes. As such, there is no consensus ad idem, and this overlaps with the objective theory of contract, and there is no offer and acceptance.Hence the contract is void.
There is no leading case, because such a mistake is probable but impractical in real life (see Mindy Chen-Wishart, "Contract Law", Oxford University Press).
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.
