Business Law Mistake

Topics: Contract, Voidable, Contract law Pages: 8 (2595 words) Published: May 8, 2011
In the Law of Contract the phrase “mistake” & “Misrepresentation” is applied when one or both parties of a contract act under a false or mistaken understanding. Mistake can be defined by Pendleton , Vickery (1998), [1] as; ➢ A misunderstanding regarding a fact, causing one or more parties to hold disagreeing beliefs about the foundation of a contract. Mistakes can be made in the form of a contracts subject matter or as a mistake of identity. There are 3 different types of mistake in Contract Law. ➢ Common Mistake (Subject)

➢ Mutual Mistake (Subject)
➢ Unilateral Mistake (Identity)
Common Mistake
Were both parities are in an agreement however they are both mistaken about an important subject to the existence of the contract. The Law in this area states that if both parties of a contract are truly unaware of a mistake in a contract therefore the contract is declared void[2] for mistake. However as stated in Parker and box[3] if one party promises that a subject matter exists when it actually does not, the party so warranting cannot get out his obligations to the contract by pleading mistake, and may be liable for a breach. The case of Leaf v International Galleries [1950][4] is one example of common mistake, where it was held that there was no mistake on the subject of the contract, however mistake on the identity, which can not be a reason for making a contract void on the bases of common mistake.

Mutual Mistake
As defined by M Peters in Law of Business mutual mistake is a mistake on a fundamental fact concerning the contract. But each party has made a different mistake[5]. If mutual mistake is proven, then the agreement no longer exists the contract is made void and both parties return to their original status quo. Mutual mistake is illustrated in the case of Raffles v Wichelhaus [1864][6] where both parties were mistaken by a fundamental fact on the contract of the delivery of goods. The courts held this contract void on the grounds of mutual mistake.

Unilateral Mistake
Unilateral Mistake is a little bit more complex than mutual mistake and common mistake. In Unilateral Mistake only one party is mistaken and enters into a contract under a false understanding. The mistake can have to do with a subject matter in the contract or a mistake in the identity of the other party. ➢ Subject matter

Unilateral Mistake due to a subject matter is demonstrated in Hartog v Colin & shields [1939][7] where a supplier gave a price for product per unit to their client, however mistakenly contracted for a price per weight. The supplier then was mistaken to this subject matter in the contract. It was ruled that the buyer must have been aware of this fact as the price was a lot cheaper than usual and the contract was there for void. ➢ Identity

The law states that Unilateral Mistake due to the identity of one party before the contract is made can void the contract. However the mistaken party must prove 3 things[8]. 1. The identity of the other individual was significant as it strongly influenced the mistaken party to enter into this particular contract. 2. The mistaken party only planned to enter into the contract with whom they originally thought the other party was. 3. The other party knew, or should have known their identity was being mistaken when entering into the contract. Unilateral Mistake due to identity is usually a case of fraud (if proven is no longer a mistake but misrepresentation) when one party is pretending to be someone they are actually not to enter into a contract. Commonly one party will ruse the other party into the contract based on mistaken identity, however once the offender has the goods in their position they will often sell to an innocent third party. At this stage the crook will disappear and the two innocent parties are left in the awkward situation of who will be at a loss. An argument in court based on the terms of mistake is one that will be better...
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