How does a mistake invalidate a contract?

  • The subjective test for invalidation: When any party has agreed with eachother on the terms of the contract but ALSO have in their minds the same intentions for the contract, then any mistake would stop them forming a contract.

The objective test (intention test)- in Smith v Hughes it was est that if one of the parties intends to make a contract on one set of terms, and the other wants to make a contract on another set of terms- then there is no contract unless you stop one party from thinking they've agreed to the others terms. If to the reasonable man, it looks like the party agreed to the terms proposed of the contract- it is a contract so parties are bound to agreements in which they prove good assent.

  • Under the OT, contractual liability is defeated when there is no coincidence between terms of the offer and acceptance, there is a mistake in relation to a written document, there is a mistake about the identity of a person. 

Offer and acceptance don't meet at the same time 

  • E.g. in Scriven Bros and Co v Hindley- The bid accepted at the auction was a mistake. H: clear the O&A did not coincide. 
  • Mistakes about promises etc- a contract is invalid if 1 party is mistaken about the promises etc
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Mistake in relation to a written document

  • Non est factum- transaction contained in the document is not merely voidable against just the party in the wrong- but against the whole contract in general. Blay v Polland & Morris- D signed a document but there was a term which hadn't been said in the previous oral agreement and made him liable to idemnify. H: he was bound by signature. 
  • -- This defence is really narrow, and can't be used when you're too lazy. 

Essentially different transaction: 

  • To raise a succesful defence, you must show that the transaction that the document has is essentially different to the one you were expecting.
  • Negligent signs-  Saunders v Anglia Building Society held the test had not been satisfied because even if the document signed was essentially different from what was intended, you won't be able to raise defence unless you show you displayed reasonable care.
  • Documents signed in blank- if someone signs a document in blank, and then awaits for the terms of the contract to be put in- no defence. 
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Recitification of written contracts

  • Recitification for common mistake- when a contract has been reduced to writing or a deed and at the time of that deed doesn't state its intentions when it is made- the court can correct that document to reflect its true intent. Craddock Bros v Hunt- A vendor had agreed to orally sell a purchaser a certain piece of property but by mistake, the written contract had said the agreement included an extra clause that the C did not want. H: court could correct the mistake through conveyancing. 
  • Common intention- the document you want to correct must have failed to express the common intentions of both the parties. There can not be any confusion. There has to be evidence of the parties 'common intention' 
  • Continuing intention- The intention must not change from the time of writing up the contract. Proof of an inner misapprehension is insufficient- Federick v William- 1. Rose got from the ME associates an order to upt to 5hundred tons of morrocon horsebeans. Rose didn't know what they were and asked Pim who said they wer just horsbeans. Rose orally contraacted- a written agreement drawn up. Beans different from expected. H: CofA refused to correct it- the written and oral contractes were for Horsbeans. Denning- rectification is about contracts, not intents
  • Rectification for unilateral mistake- now can be used for unilateral mistakes if 1. other P have knowledge of mistaken P's intent and mistake, mistaken party couldn't draw attention to mistake, and the party who did the mistake would get a benefit not telling other. 
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Equitable remedies for mistakes about terms

  • Refusal/specific perf- For cases to do with transferring property, the equitable remedy is specific performance. This is at the courts discretion and the court wouldn't allow it when a party would face considerable hardship. 
  • Specific performance can also be refused where the mistake is to due with the terms of the contract. Malins v Freeman- an auctioneer bought one lot of land thinking he was buying another, the Court refused to order specific performance because the D's mistake was because of his own carelessness and to not fault of the claimant but the court was prepared to excercise discretion at his favour. 
  • However, in Tamplin v James- D had bought and bid for an inn and outbuildings in the mistaken belief that the lot also included 2 pieces of garden attached thereto. SP given.
  • Recission- there must be fraud or MR to make recission avaliable. 
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Mistake as to identity

  • This is when A contracts with B believing B to be C etc. For the mistake to be completely valid, the other party must see the identity of the person as crucial to making the contract. 
  • A lot of the issues about identity mistakes were settled in Shogun Finance v Hudson, yet the HofL was divided on the proper approach that was to be taken.
  • An offer can be accpted only by who it is adressed to- Boulton v Jones- B had taken over business with who J usually dealt with. J was running an account with the existing business and J went on with his usual course of dealings to which he was unaware had changed the owner, when J found out- he didn't want to carry on. H: J was not liable to pay for goods, it is a rule that you must inform. 
  • No contract will be formed if a person accepting the offer believes reasonably that he is accepting the offer from someone other than the person by whom it has in fact been made, and thsi fact is known to the offeror. Cundy v Lindsay. 
  • Shogun Finance- finance company had agreed to sell a car to a fraudster who then sold it to the D. H: Contract was void for mistake about the fraudsters identity. 

The need for an identifiable 3rd person. 

Exception- no third party in existence

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Written contracts

  • The identity of the parties is established by the names in the written contract. 
  • -- Shogun Finance Ltd v Hudson- the majority of the House of Lords based their decision on the fact that the contract was in writing which therefore meant the only person who could have been a party to a hire purchase agreement with Shogun Finance was Mr Patel whose driving licence had been used as the basis of the credit check.
  • Mr.P didn't sign the agreement- void.
  • Transcations made in the parties presence- when parties deal with each other face to face there is the indication they only wanted to deal with eachother and not one else. 
  • -- Phillips v Brooks- Man pretended to be someone else and the jeweler believed him and let him take the pearls and rings away. H: Horridge J- although the claimant thought the man was a diff person- he had contracted to sell to the person identified by 'sight and hearing. So the K not voidable because of mistake, but because of fraud.
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Mistakes of fact or law about the subject matter o

  • This is when parties have agreed about the terms of the contract, and neither of them makes a mistake about the identity of the other but one of both of them have made a contract in the mistaken belief that a fact which goes to the root of the contract is true- either it is a subject matter or a fact which is to do with the circumsntances surrounding the formation of the contract relevant to the claimants decision to enter. 
  • Unilateral mistakes to fact or law- a unilateral mistake of fact/law is not enough to make to contract void. Smith v Hughes- made a clear distinction between a unlitateral mistake about the terms if the contract which may stop a contract unless the objective test can overide the absence of a subjective agreement. 
  • Common mistakes of facts/law- when both parties have the same mistake which relate to the subject matter of the contract, the contract could be void. The test the courts have made for this is narrow and say the parties are expected to provide in the contract for the allocation of the risk of unknown facts and that a party should be entitled to rely on the doctrine of mistake only for exceptional cases. 
  • Common Mistake at common law- in Bell v Lever Bros- L had gone into 2 agreements with B and S. The first agreements were for service contracts to which B and S appointed as leaders to in the a company board, which was a subsidiary of L for about 5 years The second were compensation contracts by L promising to pay B 30k and 20k. B&S went into cocoa deals which gave L right to dismiss them at any time sans compensation. H: CM- both didn't know about breaches 
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3 elements of common mistake

Res extintca refers to mistake as to the existence of the subject matter of the contract

  • Coutier v Hastie- the contract was for the sale of a cargo of Indian corn in transit. Both parties believed that the corn existed at the time of the contract. Both parties believed that corn existed at the time of the contract. In the voyage, the cargo became overheated and fermented to the extent she was unfir to be carried futher. The captain of the ship sold the cargo. The captain of the ship sold the cargo which wa customary practice. The claimant had then claimed on the basis that the D accepted the risk and should pay for the corn. 

Legal Principle:

  • Court had declared the contract void- although there was no specific mention of the mistake, the court had considered that common sense dictated that if the subject matter of the contract did not exist at the time of formation, then the contract didn't exist either. 
  • Provision contained in SGA 1979 s 6- 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. 
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Res Sua & Mistake as to quality

  • RS refers to  shared mistake as to the ownership of the subject matter of the contract. 
  • -- Cooper v Phibbs- An uncle mistakenly had told his nephew that the uncle was entiteld to a fishery. After the uncle had died his nephew had acted in reliance on his uncle's statement, entered into an agreement to rent the fishery from the uncle's daughter. However, the fishery actually belonged to the nephew himself. 
  • H: HofL held the contract was void at common law. 

Mistake as to quality

  • A common mistake to the quality of the subject matter of the contract is not sufficiently fundamental to be an operative mistake at common law. 
  • -- Leaf v Intl. Galleries- a gallery sold a painting and both the gallery and the purchaser believed that it was by the Constable. 5 years while  trying to reslell the painting had found out it wasn't a constable and therefore worth considerably less. H: Court was valid since the mistake was not of such a fundamental character as to constitute an underlying assumption without which the parties would not have made the contract they in fact made. 
  • However, in Great Peace Shipping v Intl Ltd- there are some indications that the courts may find that a contract is void for common mistake as to quality if the mistake is sufficiently fundamental.
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Mistake and equity

  • If a mistake is not operative, then equity may be used in 3 possible ways. 
  • -- Recission 
  • -- Rectification
  • -- Refusal to make order of specific performance 
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