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Law Notes Contracts 2 Notes

Mistake Notes

Updated Mistake Notes

Contracts 2 Notes

Contracts 2

Approximately 189 pages

Detailed notes (primarily case notes) on the topics of Incorporation of terms and construction, factors vitiating a contract and damages and included are super summaries ideal to take into an open book exam....

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The following is a more accessible plain text extract of the PDF sample above, taken from our Contracts 2 Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Mistake

  • If a mistake is positively induced by the other party into the contract – one may claim in misrepresentation/misleading conduct

    • But mistakes that are self-induced or spontaneous are much less likely to afford mistaken parties a remedy

The common law and equity

  • The common law recognizes mistake as a vitiating factor in very few instances – it threatens commercial certainty and it makes an objectively valid contract ab initio which can be inconvenient if performance has already commenced

  • Equity recognizes mistake in more instances since it treats contracts as voidable (can be rescinded at the election of the mistaken party)

    • In order for the contract to be set aside it must be possible to substantially restore the parties to the position they were in before the contract was made

Theories

  • There are competing theories as to whether or not mistake is an independent doctrine – it may well be subsumed under traditional questions of agreement, construction and implied terms (implied condition precedent).

    • Under Roman law mistake was posited as an independent doctrine based on impaired consent

Categorization of mistakes

  • There are two main types of mistakes

    • Common mistakes as to a fundamental matter (e.g. both parties erroneously believe in the existence of a thing)

    • Parties are not in actual subjective agreement – e.g. intending to contract on different terms:

      • If they misunderstand each other it may be a “mutual mistake” but if one party knows of the other’s error or is objectively right the mistake may be regarded as “unilateral”

Parties in Agreement

  • This concerns issues where the parties have reached consensus ad idem but make the same false assumption in respect of a fundamental matter

    • The question is whether the contract should stand, or should it be void/voidable for mistake, or whether the document on which the contract is recorded should be rectified

Mistakes as to the existence of a subject matter

  • There are three constructionist interpretations as to the existence of a subject matter:

    • A promise of existence which places the risk on the promisor – if the thing does not exist the promisor is liable for breach, or in the case it has been paid for the promisee may claim for total failure of consideration

    • The promisee took the risk that the art collection may have perished (e.g. promise to pay for a chance that it existed) – again there is a valid contract but the promisee is liable for breach on non-payment

    • There is an implied condition precedent of existence of the thing

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377

See pg44 for Relevant Facts

Issue: The court had to decide on what basis the two parties contract wrt the existence of the oil tanker

Ratio (Dixon and Fullagar JJ):

  • The court resolved the case of Couterier v Haste (corn shipped to port by party A and became heated/fermented – party B repudiates – Party A was W&A to hand over shipping documents, party B sued for price) court considered that the case was one of construction, not mistake (what was party A actually obliged to do) – it was a total failure of consideration

  • The court rejected to some extent that the civilian doctrine of mistake had no application where the common law basis of contract was a promise supported by consideration – the question being what is the true construction of the promise.

  • They said that even if the case was one of mistake then the Commission cannot rely on their own mistake – they were guilty of the grossest negligence, they had no reasonable grounds for the belief and they deliberately induced the belief

  • But since the case was one of construction:

    • The case was not one in which there was an implied condition precedent (based on the terms and surrounding circumstances). Here the buyers relied and acted upon the assumption that a tanker was in existence – there was no common assumption on the part of both the parties to justify the implication of a condition precedent.

    • While the commission officers made an assumption – the plaintiffs did not. The plaintiffs would have believed that they would accept the Commission’s assurance that there was a tanker in existence

Decision: There was a valid contract in existence - Appeal Allowed

Mistake as to quality of subject matter

Bell v Lever Brothers Ltd [1932] AC 161

Relevant Facts: L held more than 99% of share capital in Niger Co Ltd. If appointed B as managing director of it for five years at an annual salary of 8k. Three years in, Niger was amalgamated and B’s contract had to be terminated. L agreed to pay him 30k in compensation for loss of employment. After this is paid, it was discovered that B committed several breaches of duty that would have entitled L to dismiss without compensation. L commenced an action against B, claiming the compensation agreement was void for mistake and hence it was entitled to recover money paid over. L was successful at first instance, B appealed to the HoL.

Ratio (Lord Atkin):

  • In cases of mistake as to quality the question is whether or not it is a mistake of both parties, and it is a mistake as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be

  • It is wrong to decide that an agreement to terminate a definite specified contract is void if it turns out that the agreement had already been broken and could have been terminated otherwise

    • The contract released is the same, regardless of whether it has been broken or could have been terminated – the party paying for release gets exactly what they bargained for

    • If parties honestly comply with the essentials of formation (agreeing on the same terms, on the same subject matter) they are bound and must rely on the stipulations of the contract for protections from the effect of facts unknown to them

Can this also be expressed as a matter of mutual mistake?

  • The proposition as to mistake amounts to no more...

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