#2157 - Is There Actually A Doctrine Of Mistake At All - Contract Law

Is there actually a doctrine of mistake at all?

The “offer and acceptance” view

• With unilateral mistake

  • Slade: if parties are said to have objectively agreed on something and neither is aware of the others actual intentions

    • Then the contract is formed

      • There is no question of “mistake” unless the conduct of that mistake shows that there is objectively, to a reasonable man, no agreement.

  • Only where V meant to make an offer or acceptance in one sense

    • And E is aware of this

      • Can E not hold V to the contract

        • E.g. Hartog v Colin & Shield’s:

          • Singleton J: the offer was wrongly expressed and D by their evidence have satisfied me

            • that C could not reasonably believe the offer contained the offeror’s real intentions

      • Slade: decision is based not on C’s knowledge of the seller’s mistake

        • But because there was no consensus of the terms of the contract

      • Moi: takes a rather simplistic view of things – surely courts were also looking unfavourably on the “snapping up” of the offer by C which showed clear knowledge of D’s mistake

        • Both, on paper, were agreeing to the same thing.

The “implied terms” view

• Questions of mistake = merely questions of risk allocation which in turn are questions of construction

  • Slade’s view

    • If a contract is avoided then this is because parties have themselves provided this solution impliedly from the contract itself

      • Not because the law has imposed this – courts can only discover what to do from the intentions of the parties themselves

    • Bell v Lever Bros:

      • Lord Atkin: the proposition does not amount to more than this –

        • that if the contract expressly or impliedly contains a term that a particular assumption is a condition of the contract

          • The contract is avoided if the assumption is not true

• Policy reasons dictate this should be the case:

  • Mistake should not be used to get out of a bad bargain/undermine risk allocation of contract

  • Need to promote certainty by upholding parties’ apparent (objective) intention

  • Need to reward more knowledgeable parties and allow them to take advantage of the less knowledgeable in a free market system

  • Means courts don’t appear to be interfering with the contract

• Rejection of this view

  • Chen Wishart:

    • Uncertain

      • When will this “self destruction” condition be implied?

        • Is no clearer than determining when a mistake is fundamental enough to void contracts

    • Illogical reasoning

      • Contract is void (a nullity from the beginning of the contract) because parties have put implied term in void contract that says so?

  • Concepts similar, but distinct

    • Great Peace Shipping Co Ltd v Tsavliris Salvage Ltd [2002]

      • Lord Phillips:

        • Just as the doctrine of frustration only applies if the contract contains no provision that covers the situation,

          • the same should be true of common mistake.

        • If, on true construction of the contract, a party warrants that the subject matter of the contract exists,

          • there will be no scope to hold the contract void on the ground of common mistake

        • BUT The theory of the implied term is as unrealistic when considering common mistake as when considering frustration.

          • Where a fundamental assumption upon which an agreement is founded proves to be mistaken,

            • it is not realistic to ask whether the parties impliedly agreed that in those circumstances the contract would not be binding.

The need for a two stage test when everything can be found in the contract?

Smith’s view:

• Condition precedent = contractual assumption - a fact or event on the occurrence or existence of which the validity of any obligations under the contract depends

• Associated Japanese Bank v Credit du Nord [1988]:

  • Steyn J:

    • First stage of examining this area is to see whether construction of contract provides who will bear the risk of the relevant mistake

      • If contract silent, only then should you move on to next point

        • of whether there is a mistake made by both parties which is fundamental enough to bring down the contract

• Smith

  • Problem: Do we need a two stage test? Can’t we just solve it by looking at the express and implied terms in the contract?

    • Courts job is to imply terms and condition precedent using the usual tests from the intentions of the parties

      • Evidence of mistake is only relevant because it shows what intentions the parties had

        • So if the court had found there was no express or implied condition precedent that machines existed

          • It would then be established that the parties did not intend the contract should be invalidated if it turned out that the machines did not exist

        • Thus there should be no independent doctrine of mistake

          • because if mistake wasn’t relevant to the parties intentions it ain’t relevant at all.

Rejection of this view

• Parties don’t think just in terms of conditions precedent and implied terms

  • The label is useful if nothing else – we don’t void contracts because we’ve found an implied condition precedent

    • We avoid contracts for a fundamental mistake

  • Chen Wishart: Parties don’t intend terms to deal with every mistake

    • So the view...