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Contract Law - Mistake Summary
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Comprehensive summary/exam notes on the rules surrounding mistake in Contract Law. This document covers offer and acceptance mistake (latent ambiguity, mistake as to terms, mistake as to identity), common mistake (mistake as to existence of subject matter, mistake as to quality) and non est factum.

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  • October 6, 2024
  • 5
  • 2022/2023
  • Summary

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Mistake
Two different types of ‘Mistake’:
1. Offer and acceptance mistake,
2. Common mistake.
Also includes Non est Factum.

Offer and Acceptance Mistake:
1. General:
Negatives consent and prevents a contract coming into existence on the ground that
one party is labouring under a mistake, or the parties are at cross-purposes.
Three ways mistakes can operate to negative consent:
- Latent ambiguity
- Mistake as to terms
- Mistake as to identity
2. Latent Ambiguity:
Where the terms of the offer and acceptance suffer from such latent ambiguity that it
is impossible reasonably to impute any agreement between the parties.
Raffles v Wichelhaus – ‘Peerless’
The court concluded that the parties were at cross-purposes.
“Where a key term of the contract is completely ambiguous, the
contract will be void for mutual mistake and lack of consensus ad
idem (meeting of minds).”
Scriven v Hindley – hemp and tow
The HC held that the contract was void – the parties never had a
meeting of minds on the subject matter of the contract. The claimant
had contributed to this by ambiguously describing the lots in the
catalogue.
“A contract can be void for mutual mistake where the subject matter
of the contract is completely ambiguous, and each party thinks it
relates to something different.”
3. Mistake as to Terms:
Where one contracting party is under a mistake as to the terms of the contract, and
that mistake is known to the other contracting party.
In such a case, the party who is aware of the mistake will be unable to
enforce his version of the contract against the mistaken party.
Smith v Hughes –
Buyer purchased from a seller a quantity of oats in the belief that they were
old oats when, in fact, they were new oats and therefore unsuitable for the
buyer’s proposed use. When he discovered the mistake, the buyer refused to
accept the oats, the seller sued for the price.
Court distinguished between two different types of case:
First – where the buyer correctly understands the seller’s offer is an
offer to sell oats, but the buyer mistakenly believes these oats are old
oats, and this mistake is known to the seller.
The seller is not under an obligation to inform the buyer that
he has made a mistake – the rule of caveat emptor applies.
“A seller’s passive acquiescence in a buyer’s mistake is not
enough for a contract to be void for mistake.”
Second – the seller knows that the buyer is mistaken, but this time
the buyer is mistaken as to the terms of the seller’s offer.
The buyer mistakenly believes that the seller’s offer is an
offer to sell old oats, and the seller knows that the buyer has
thus misunderstood the offer.

, In such a case, there is an offer and acceptance mistake,
and the seller is under an obligation to inform the buyer of
the true nature of his offer.
4. Mistaken Identity:
Mistake vs fraudulent misrepresentation
Fraudulent misrepresentation as to identity – makes the contract voidable.
The contract remains valid and can operate to transfer ownership in
the goods until such time as the contract has been set aside.
This is not an attractive option for the seller because the rogue may
have transferred the goods to an innocent third-party purchaser
before he has had the opportunity to discover the truth.
Mistaken identity – makes the contract void on the ground that it had been
entered into under a mistake.
If the contract is void for mistake, the rogue could not have obtained
property in the goods and therefore has no rights in selling it on.
The original seller will be entitled to recover the goods (or their
financial value) from the third-party purchaser.
Important to distinguish between contracts entered into in writing and contracts
concluded orally (e.g., face-to-face transactions).
Shogun Finance Ltd v Hudson –
Where the parties deal with each other face-to-face, the law presumes
that each party to the transaction intends to deal with the party in
front of him.
SO – the fact that one party claims that he is mistaken as to the true
name (and hence identity) of the party who was in front of him will
not suffice to render the contract void.
As in Lewis v Avery – rogue introduced himself as TV actor.
The court treats the mistake as merely relating to the rogue’s
attributes, not a fundamental term of the contract.
If just the name that is differently (e.g., Phil  John) then potentially this
makes sense but in the case of Lewis v Avery, the seller wouldn’t let the car
go until they knew that he was the TV actor.
Can you really say that they merely intended to deal with the person
in front of them?
What is the definition of a term in the contract?
Where the contract has been reduced in writing, the names of the parties
assume greater significance – need for certainty in written contracts.
Lord Phillips in Shogun Finance – “the identity of a party to a
contract in writing falls to be determined by a process of construction
of the putative contract itself.”
Cundy v Lindsay –
In deciding that the contract was void, the HL had regard to
the fact that the order form sent to the claimants was signed
“Blenkiron and Co” and the fact that the claimants knew of a
firm of that name and intended to deal with that firm.

Common Mistake:
1. General:
Where the mistake is common to both parties, the parties have reached agreement,
but that agreement is based upon a fundamental mistaken assumption.
The court may nullify the consent of the parties and set aside the contract
they concluded.
Where frustration cannot be used because “frustrating event” occurred before contract
was concluded.

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