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Contract Law: Mistake
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Comprehensive notes for Contract law: Mistake.
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MISTAKELecture Notes
Elements of Contract Law
LLB - Year One
,Mistake - Lecture Notes
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INTRODUCTION
Like duress and misrepresentation, mistake is an “excuse” area of contract law which will allow you to get out of contracts.
However, judges are reluctant to allow claims under the basis of mistake. The reasons as to why the courts do allow for
mistakes occasionally is because contracts, at their core, are voluntary agreements between two parties.
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MISREPRESENTATION AND DURESS v. MISTAKE
Misrepresentation and duress render a contract voidable whereas mistake causes a contract to become void. With mistake,
the innocent party has no choice with regards to the termination of the contract. If the judge finds for an actionable
mistake, the contract is automatically void, similar to an illegal contract.
Example: I own a service station, which I intend to sell. The reason for which I want to sell it is that I know that the road
is going to be diverted soon and as a result, there would not be any demand for the petrol anymore. However, the other
party is not aware of this mistake and I know he/she is making a terrible choice.
So long as I have not said anything (eg promising prosperity), it is not going to be an actionable misrepresentation.
In this case, I have just remained silent and mistake would be only the basis to claim for a remedy. With such a scenario,
the courts are most like to hold for mistake because one party knows something that the other party does not. This is a
fundamental error going to the heart of the contract.
OBJECTIVE AND SUBJECTIVE TEST
How do you conceive the presence of a mistake?
➢ Objective Test
✓ Smith v Hughes
➢ Subjective Test
The objective is most likely to apply to a wide range of cases but there are exceptions to this norm.
✓ Raffles v Wichelhaus - This case involved two ships named the ‘Peerless’ which brought cotton from India to
England. One party claimed that they wanted the October ‘Peerless’ and the other had claimed that they had wanted
the December ‘Peerless’. All the contract had stated was that the cargo had to arrive via the ‘Peerless’.
Held: There was no possible way for the court to determine as to whether which ship the contract had meant. This
resulted in rendering the contract void.
In Raffles v Wichelhaus, it was not possible to apply the objective test in this context because it doesn’t matter what a
reasonable person would think in such circumstances. There is no distinction between whether a reasonable person would
think that it was the October ‘Peerless’ or whether a reasonable person would think that it was the December ‘Peerless’.
The reasonable person, hence, would have no basis to make such a distinction.
, Mistake - Lecture Notes
To apply the mistake analysis in Raffles v Wichelhaus, a subjective test needs to be used. The intent of the specific parties
have to be looked into rather than determining things from an objective viewpoint (what would a reasonable person
think).
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COMMON LAW v. EQUITY
Mistake at Common Law
A mistake automatically renders a contract void. The only type of mistake that was available before Lord Denning’s
interference.
➢ Distinction between Mistakes of Law and Mistakes of Facts
Under common law mistake, until recently (1998), the law held that only mistakes of facts could be accounted
for actionable mistakes.
Kleinwort Benson v. Lincoln City Council removed this distinction. This case allowed both a mistake of fact and
a mistake of law to be actionable.
In Brennan v. Bolt Burdon, the COA gave us a principle that there was a possibility to remove mistake of law
bar in the law of contract, rendering them actionable. In this case, however, it is important to note that no
actionable mistake was found.
✓ Brennan v. Bolt Burdon [2004] EWCA Civ 1017 - In this case, B was a local authority tenant and he sued his local
authority, BB, to claim damages for a faulty boiler. B was exposed to injuring caused by poisoning (carbon monoxide)
from the faulty boiler.
When she brought forward the claim, the solicitors for the council told her that she was too late. There was a time
bar on such claims. Instead, a settlement agreement was entered into and as a result she withdrew her claim. She later
found out that there was in fact no time bar for claims of this kind. She had entered into the settlement agreement
on a mistake of law.
Held: The COA admitted that in theory, it was possible to have actionable mistakes of law. However, in this case no
actionable mistake was to be found because the compromise was capable of being performed; the settlement agreement
is still valid and that it could still be performed.
➢ English law v. Other systems
✓ Halpern v. Halpern [2006] EWHC 603 - This inheritance case was subject to arbitration. A settlement agreement
ended up being entered into in Switzerland. As a result, it did not use English Law as a basis of its agreement. Under
the relevant jurisdiction in which this agreement was being entered into the contract would be rendered voidable
rather than void. This made the difference in the law significant.
Issue: Could there be an actionable mistake if the relevant body of law did not recognise the concept of mistake?
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