unilateral mistake contract law essay

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Unilateral mistake in contracts law: comprehensive insights.

Contracts are a fundamental part of business and legal transactions, serving as binding agreements between parties. In the realm of contracts law, the concept of unilateral mistake holds significant importance. In this article, we will provide an in-depth understanding of unilateral mistake, its definition, and explore relevant examples and expert opinions.

Unilateral Mistake in Contracts Law: All You Need To Know

Unilateral Mistake Defined: Unilateral mistake in contracts law refers to a situation in which one party to a contract makes an error or misunderstanding regarding a crucial aspect of the contract, and the other party is aware of this mistake. In such cases, the party who made the mistake may seek relief from the contract, typically through the legal doctrine of mutual mistake.

It’s important to note that unilateral mistake is distinct from mutual mistake, where both parties share an erroneous belief about a critical contract term.

Example: Imagine a scenario where Company A is selling a rare antique to Company B. Company A, believing the antique to be less valuable than its actual market worth, enters into the contract to sell it to Company B. However, Company B is aware of the antique’s true market value. In this case, if Company A later realizes its mistake, it may seek to void the contract based on unilateral mistake, as long as it can demonstrate that Company B was aware of the mistake.

Expert Opinion: Professor E. Allan Farnsworth, a renowned authority on contract law, elucidates the concept of unilateral mistake: “Unilateral mistake is an intricate aspect of contract law. It hinges on the element of knowledge, requiring that the non-mistaken party be aware of the mistake. The courts weigh various factors, such as the materiality of the mistake and whether the non-mistaken party took advantage of it.”

Understanding Unilateral Mistake

To grasp the nuances of unilateral mistake, it is crucial to consider the following key points:

a. Materiality: A unilateral mistake must pertain to a material term or fact of the contract. A minor error or misunderstanding typically does not provide grounds for voiding the contract.

b. Knowledge of the Mistake: The party that is not mistaken must be aware of the mistake made by the other party. If they had no knowledge of the error, the contract generally remains binding.

c. Burden of Proof: The burden of proof typically rests on the party seeking to void the contract based on unilateral mistake. They must demonstrate not only the mistake but also the other party’s awareness of it.

d. Remedies: If a unilateral mistake is proven, the contract may be voided, reformed, or modified to correct the error, depending on the circumstances.

e. Good Faith: Courts often consider whether the mistaken party acted in good faith when determining whether relief should be granted.

Example: In a construction contract, Company X mistakenly specifies the use of a particular type of steel for a project, believing it to be compliant with industry standards. Company Y, the other party, is aware of the mistake but chooses not to correct it. If Company X later realizes the error and seeks to void the contract, the court may grant relief based on unilateral mistake, given Company Y’s knowledge of the mistake.

Expert Opinion: Professor Melvin A. Eisenberg, a leading expert in contracts law, emphasizes the significance of unilateral mistake as a legal concept: “Unilateral mistake is a crucial doctrine in contract law. It strikes a balance between enforcing contracts and ensuring fairness when one party exploits the other’s mistake. The courts carefully scrutinize the circumstances to arrive at equitable solutions.”

Unilateral mistake in contracts law is a complex and nuanced concept that can have significant implications for contractual agreements. Understanding the definition, key elements, and potential outcomes in cases of unilateral mistake is vital for both legal professionals and parties entering into contracts. It underscores the importance of transparency and good faith in contractual dealings and provides a mechanism for addressing errors when they occur.

Unilateral Mistakes in Contracts: Types, Prevention, and Legal Remedies

Unilateral mistakes in contracts can lead to disputes and complications in various legal and business transactions. To navigate this complex aspect of contract law effectively, it is essential to understand the different types of unilateral mistakes, strategies for prevention, and the available legal remedies. In this article, we will explore each of these aspects, providing real-world examples and insights from legal experts.

Types of Unilateral Mistakes

Unilateral mistakes in contracts can take different forms, each with its unique characteristics:

a. Mistake as to the Identity of the Other Party: This occurs when one party mistakenly believes they are entering into a contract with a different individual or entity. For instance, if Company A intends to contract with Company B but mistakenly signs an agreement with Company C, a unilateral mistake as to identity exists.

b. Mistake as to the Subject Matter: In this type of mistake, one party misunderstands or misrepresents a critical aspect of the contract. For example, if a seller mistakenly advertises a product as new when it is, in fact, used, a unilateral mistake as to the subject matter exists.

c. Mistake as to the Terms of the Contract: This occurs when one party misunderstands or misinterprets a significant term or condition of the contract. For instance, if a buyer mistakenly believes that the contract allows for a later delivery date than agreed upon, a unilateral mistake as to the terms exists.

Example: Consider a scenario in which an individual, Alice, intends to sell her antique car to Bob for $10,000. However, due to a clerical error, Alice mistakenly writes $100,000 in the contract. If Bob is aware of this mistake but signs the contract anyway, a unilateral mistake as to the terms of the contract exists.

Expert Opinion: Professor Charles L. Knapp, a leading authority in contract law, highlights the importance of distinguishing between different types of unilateral mistakes: “Recognizing the specific type of unilateral mistake is crucial because it can impact the legal analysis and potential remedies available. The courts carefully consider the circumstances surrounding the mistake.”

Preventing Unilateral Mistakes

Preventing unilateral mistakes in contracts is vital to avoid disputes and costly legal proceedings. Here are strategies to help prevent such mistakes:

a. Thorough Review: Carefully review the contract’s terms and conditions before signing or finalizing the agreement. Seek legal counsel when necessary to ensure a clear understanding.

b. Verification of Identity: When entering into contracts with individuals or entities, verify their identity to prevent mistakes related to the identity of the other party.

c. Clear and Precise Language: Use clear and unambiguous language in contracts to minimize the risk of misunderstandings or misinterpretations.

d. Double-Check Details: Pay close attention to numerical values, dates, and other critical details to prevent mistakes as to the terms of the contract.

e. Documentation: Maintain accurate records and communications related to the contract, including email correspondence and draft versions, to establish the parties’ intentions.

Example: A business owner, David, intends to purchase a piece of commercial property. To prevent a unilateral mistake as to the subject matter, he conducts a thorough inspection of the property, reviews all relevant documents, and consults with a real estate attorney before finalizing the purchase contract.

Expert Opinion: Attorney Michael A. Georgacarakos, specializing in contract law, emphasizes the role of diligence in preventing unilateral mistakes: “Preventing unilateral mistakes often comes down to meticulous attention to detail and consulting legal professionals when necessary. It is essential to leave no room for misunderstandings.”

Legal Remedies for Unilateral Mistakes

When a unilateral mistake occurs, parties may seek legal remedies to address the issue:

a. Rescission: In cases of unilateral mistake, where one party misunderstood a material aspect of the contract and the other party was aware of the mistake, the mistaken party may seek rescission. Rescission nullifies the contract, returning both parties to their pre-contractual positions.

b. Reformation: Reformation is a remedy that may be available when there is a unilateral mistake as to the terms of the contract. The court may modify the contract to reflect the parties’ true intentions.

c. Specific Performance: In some instances, a court may order specific performance, compelling the parties to fulfill the contract as originally intended, especially if rescission or reformation is not feasible.

Example: In the case of the antique car sale mentioned earlier, if Bob, who was aware of Alice’s mistake in writing $100,000 instead of $10,000, refuses to cooperate in resolving the issue, Alice may seek rescission of the contract to return the parties to their original positions.

Expert Opinion: Professor Richard R. Powell, a noted expert in contract law, underscores the significance of legal remedies: “Legal remedies aim to strike a balance between upholding the integrity of contracts and addressing situations where one party’s mistake is taken advantage of by the other. Courts consider factors such as the nature of the mistake and the parties’ knowledge when determining the appropriate remedy.”

Unilateral mistakes in contracts can pose challenges for parties involved, potentially leading to disputes and legal action. Understanding the types of unilateral mistakes, implementing prevention strategies, and being aware of available legal remedies is essential for navigating these situations effectively. Parties entering into contracts should prioritize clarity and diligence to minimize the risk of unilateral mistakes and ensure the enforceability and fairness of their agreements.

Unilateral Mistake in Contracts: A Real-Life Example

Unilateral mistakes in contracts can have significant legal implications, often leading to disputes and questions about fairness and enforceability. To illustrate the concept of unilateral mistake and its impact, we will explore a real-life example in this article. Additionally, we will provide key takeaways to better understand how unilateral mistakes affect contractual agreements.

• Unilateral Mistake Example

To understand the practical implications of a unilateral mistake, let’s delve into a real-life scenario:

The Case of the Typographical Error:

Suppose Company A, a supplier of office furniture, is in negotiations with Company B, a corporate office looking to furnish a new workspace. After weeks of negotiations, Company A provides a formal contract to Company B, specifying the terms and conditions of the agreement.

In the contract, there is a typographical error regarding the quantity of chairs to be supplied. Company A intended to provide 50 chairs at a unit price of $100. However, due to a clerical error, the contract states that Company A will supply 500 chairs at the same unit price.

Company B reviews the contract and notices the error but decides to sign it, believing it is an advantageous deal. Company A, on the other hand, is unaware of the mistake when they both sign the contract.

Several months later, when Company A attempts to fulfill the contract by delivering 500 chairs, Company B refuses to accept the excess chairs, insisting on receiving only the initially agreed-upon 50 chairs.

In this scenario:

• Company A: Unknowingly made a unilateral mistake in the contract by specifying an incorrect quantity due to a typographical error.
• Company B: Was aware of the mistake but decided to sign the contract, presumably believing it to be in their favor.
• Key Takeaways

From this real-life example, several key takeaways emerge concerning unilateral mistakes in contracts:

a. Materiality Matters: Unilateral mistakes that are material to the contract can have significant consequences. In this case, the quantity of chairs was a material term.

b. Knowledge is Crucial: A party’s awareness of a unilateral mistake can affect the legal analysis. In this scenario, Company B’s knowledge of the mistake played a pivotal role.

c. Enforceability is Context-Dependent: The enforceability of a contract with a unilateral mistake depends on various factors, including the nature of the mistake, the parties’ awareness, and the circumstances surrounding the contract’s formation.

d. Legal Remedies Vary: Legal remedies for unilateral mistakes may include rescission, reformation, or specific performance, depending on the specifics of the case and the court’s judgment.

e. Good Faith Consideration: Courts often take into account whether the parties acted in good faith when addressing unilateral mistakes. In this example, Company A had no intention to deceive, as the error was a result of a typographical mistake.

Expert Opinion: Professor Charles L. Knapp, an expert in contract law, highlights the complexity of unilateral mistakes: “Unilateral mistakes in contracts often present intricate legal challenges. Courts must carefully evaluate the facts and circumstances to arrive at equitable solutions. Knowledge of the mistake by one party can significantly impact the outcome.”

Conclusion:

Unilateral mistakes in contracts are real-world scenarios that can lead to complex legal disputes. Understanding the nuances of such cases is vital for both parties involved in contractual agreements. Key takeaways emphasize the significance of materiality, awareness, enforceability, legal remedies, and good faith consideration when dealing with unilateral mistakes. It is essential for individuals and businesses to exercise due diligence in contract formation and seek legal counsel when faced with situations involving unilateral mistakes to navigate them effectively and fairly.

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Unilateral Mistakes in a Contract

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  What Is A Breach Of Contract?

A breach of contract occurs when one party to a valid contract has failed to fulfill their side of the agreement. The terms of a contract detail what the parties must do, and how and when they should do it in order to maintain their promise. If a party does not do what the contract instructs them to do, the non-breaching party will be allowed to take legal action and can file a lawsuit against them in court.

A breach of contract can occur as either a partial or a complete breach. As such, the court will assess whether the breach was substantial or minor. This will help them determine what type of damages the breaching party will have to pay.

There are three categories for which a party can be held liable for breach of contract:

• Anticipatory Breach: Often referred to as anticipatory repudiation, this occurs when the breaching party tells the non-breaching party that they will not be fulfilling the terms of their contract. Once the other party has been notified, they can sue for breach of contract;
• Minor Breach: A minor breach of contract happens when one party fails to perform a small detail of the contract. The entire contract has not been violated and can still be substantially performed, such as when there is a technical error with the contract. An example of this would be the wrong date, price, or typo within the terms of the contract; and
• Material or Fundamental Breach: These are the most common types of breaches that are cited as the basis of a breach of contract action. This occurs when the breach is so substantial that it essentially cancels the contract because it renders performance by either party impossible.

Some other ways that a contract can be breached include:

• When the contract is fraudulent;
• If the contract was formed illegally or is unconscionable; and
• When there is a mistake of fact present in the contract terms, the parties may also include conditions that are unique to their contract, which will specify when a party’s actions would be considered a breach.

State laws and the type of contract may also indicate other ways that a contract can be breached.

What Is A Unilateral Mistake In A Contract?

What are the legal effects of a unilateral mistake, can unilateral mistakes in a contract be prevented, do i need a lawyer for unilateral mistakes in a contract.

In a contract context, the term “mistake” refers to an error associated with either the meaning of the words, laws, or facts within a contract. When a mistake occurs, it causes one or both parties to enter into the contract without fully understanding the outcomes or responsibilities implied by the contract.

More specifically, a “unilateral mistake” is the mistaken belief that is held by only one of the parties, and is not shared by the other party to the contract. Simply put, a unilateral mistake occurs when only one of the parties misinterprets the subject matter or meaning of the terms.

Generally, unilateral mistakes are much more common than other kinds of contract mistakes, such as a mutual mistake. Since only one party holds a mistaken belief, this could give the other party an unfair advantage in the bargaining power that they hold during the contract formation stage. If a contract was entered into on the basis of a unilateral mistake, it could result in a lawsuit that provides the mistaken party with various remedies, such as contract rescission or contract reformation.

Most unilateral mistakes involve one party wrongly assuming the definition of a phrase or word used in the parties’ contract.

An example of this would be how in a contract for the sale of screws, one party may incorrectly believe that the word “screw” refers to a specific brand of screws, such as Phillips-head screws. The term actually means any standard type of screw. If only one party holds this mistaken belief, but the other party is clear on the meaning of “screw,” it could result in a unilateral mistake dispute.

Alternatively, if both parties believed that the word “screw” actually meant “nails,” this would be an example of a mutual mistake. Unilateral mistakes also frequently involve prices, quantities, dates, and errors associated with the description of goods or services included in the contract.

If a unilateral mistake is made during the contracting process, it would be unfair if only one party understands the true meaning implied by the contract while the other party does not.

As was previously mentioned, a court will generally issue one of the following remedies in order to correct the unilateral mistake:

• Rescission : Contract rescission completely cancels the contract. The purpose of this remedy is to restore the parties to the position that they were in before the contract was formed. When rescission is granted because of unilateral mistakes it generally applies to technical errors or when an unfair position in the bargaining power is present; and
• Reformation : Alternatively, contract reformation refers to when the written agreement is changed in order to reflect the parties’ original understanding of the terms of the contract. Reformation is generally reserved for mutual mistakes, but will be granted for unilateral mistakes only in cases in which one party was mistaken, and the non-mistaken party was unaware that the other party was mistaken.

The available remedies largely depend on whether the non-mistaken party knew that the other party did not understand a term in their contract.

In order to prevent unilateral mistakes from happening in a contract, it is essential that the contract be drafted as clearly as possible. During contract negotiations, the parties should review the contract thoroughly, and clarify each other’s interpretation of each clause that is included in the contract.

This can help the parties determine whether there are any existing terms or provisions that they do not agree on, or that could cause misunderstandings resulting in future contract disputes. Any vague or ambiguous language should be replaced by specific descriptions whenever possible. An example of this would be how it is generally preferable that the parties use identification numbers, as opposed to generic descriptions of a product. A contract should never be signed if either party is unclear about any of the terms used in the contract.

Working with a lawyer during the contract formation stage can help the parties avoid making mistakes. They can also assist a party with both drafting and reviewing their contract for any problematic terms. Hiring a lawyer for guidance early on in the process can be beneficial in order to avoid a breach of contract dispute in the future.

If a unilateral mistake was made associated with the terms of your contract agreement, there may be legal remedies available to you. You should contact a local contract attorney in order to discuss your legal rights and options according to your state’s specific contract laws. An experienced business attorney can represent you during settlement arrangements, or can provide representation on your behalf in court as needed.

You may want to hire a business lawyer before contract negotiations even begin. This way, your lawyer can draft and review the contract for you, which can reduce the risk of a future contract dispute.

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In general, a mistake is an error or misconception. This definition also applies in the legal world, but the type of mistake and the circumstances surrounding it decide what legal implications, if any, the mistake will have.

In  contract law , a mistake usually refers to a situation where the parties did not mean the same thing when they agreed to a term or provision. It is different from a misunderstanding , which is due to an ambiguity in the terms where two interpretations are reasonable , whereas a mistake is based on having an incorrect belief about a basic assumption the contract is based on, rather than just being a term that could be interpreted in multiple ways or have multiple meanings. For example, a situation where a rare coin is a fake, but both parties believe it to be genuine qualifies as a mistake. 

There are essentially two types of mistakes in Contract Law: mutual mistakes and unilateral mistakes. Both types of mistakes may make the contract invalid or voidable . In order to use the defense of mutual material mistake , as illustrated in Restatement Second of Contracts § 152, a party must prove that: 

• There was a material mistake, meaning that it must concern one or more basic assumptions on which the contract was made; 
• The party was adversely-affected by the mistake; 
• The mistake was mutual, meaning both parties had the same mistaken belief; and 
• The adversely-affected party does not bear the risk of the mistake (i.e. there is no assumption of risk ) under the rule stated in Restatement Second of Contracts § 154. 

In order to use the defense of a unilateral mistake in order to make a contract voidable, as illustrated in Restatement Second of Contracts § 153, a party must prove the same requirements as the mutual material mistake defense (aside of course from the fact that the mistake was mutual) plus an additional requirement that can be satisfied in three ways: 

• The effect of the mistake is such that enforcement of the contract would be unconscionable , OR
• The other party knew or had reason to know of the mistake OR 
• The fault of the other party caused the mistake.

A mistake also might have legal implications in the field of criminal law . In criminal law, a mistake can serve as a defense that claims either a misconception of the law or a mistake of some fact.  The defense of a mistake of law  almost never succeeds; one exception is when a criminal defendant relies on a misstatement of the law in a statute, judicial opinion, or official statement from an executive officer.  Mistakes of fact  can work as a defense more often, especially if they are reasonable.

[Last updated in July of 2023 by the Wex Definitions Team ]

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Contract Law: Breach, Mutual and Unilateral Mistake Essay

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Introduction

A contract is an agreement that outlines specifics details of an issue between different parties regarding a certain matter; it is usually a written document, although it can also be verbal and is enforceable in a court of law (Kinzie, 2004). For a contract to be considered valid, it must contain seven important elements: consideration, form, intention to create legal relations, agreement, genuine consent, and capacity to implement the contract (Turner, 2008). When a contract has been broken, a breach is said to have occurred; breach of contract in legal terms is used to describe actions that have been undertaken by one of the parties in contravention to the binding agreement as originally agreed between the parties. It is also used to describe cases where the terms of an agreement as entered between various parties are not honored according to the article of the agreement. In general, all forms of contracts reached upon between various parties are governed by the principle of pacta sunt servanda (Yovel, 2008).

One of the essential features of a valid contract that is encompassed by the seven elements discussed above is what is referred to as “vitiating elements” (Vermeesch and Lindgren, 2005); based on common law that governs contract laws, for a contract to be enforceable it must not have any vitiating elements. Vitiating elements imply the presence of any factors that might incline the court to “decide that a contract is void, voidable or unenforceable” (Vermeesch and Lindgren, 2005); it is in this context that the element of mistake can be discussed in contract law. This is because generally, the courts have over time, through precedents, summarized the major forms of vitiating elements found in contracts to be six, which are; mistake, illegality, duress, misrepresentation, undue influence, and what is referred to as non est factum (Parker and Box, 2008). In this case and for the contract in question, it is clear that there are two obvious vitiating elements; that of mistake and fraudulent misrepresentation.

The type of mistake, in this case, is what is referred to as unilateral mistake since it is only one party who was mistaken as to the terms and conditions of the contract, which we realize to have been deliberately orchestrated by the other party. As such unilateral mistake in contract law is defined as “a mistake where only one party to a contract is mistaken as to the terms or subject-matter contained therein under circumstances where it would be unconscionable or unfair for them to be held to perform the contract” (Atkinson, 1999). Additionally, there is an element of fraudulent misrepresentation since “false statement of fact (was) made during negotiations by a contracting party…that was fraudulent and caused loss (Khoury and Yamouni, 2004) Now that we have identified the pertinent issues that are central to this discussion let us now proceed and discuss the implications of these acts from the perspective of the contract law.

Implications of the Unilateral Mistake

Generally, there are two outcomes that result in the event of a unilateral mistake made by any of the parties or what would otherwise be described as a fraudulent misrepresentation; that is, the court can either void the contract or leave it as it is, i.e., valid. The determination of the outcome would depend on various factors that are explicitly outlined in Rule 54 of the Second Restatement that governs many issues that are related to contract laws. According to the Second Restatement, a contract is only voidable where the unilateral mistake is a factor if the person seeking voidability “does not bear the risk of the mistake under the rule stated in 154” (Braucher, 1998) in addition to two other factors. It is for this reason that rules 54 will be our guide in the determination of the implications of the unilateral mistake (Braucher, 1998).

In fact, a keen evaluation of Lord Denning’s ruling on this matter will clearly exemplify that this judgment was made in accordance with this rule. The two other conditions that must be certified are that “the enforcement of the contract would be unconscionable” in addition to probable reason that the victim in a way contributed directly or indirectly to the resulting mistake (Braucher, 1998). Now according to Rule 154, a party would bear the risk of the mistake according to the contract law when any of the following conditions is determined by the court to have applied.

1) “the risk is allocated to him by agreement of the parties, 2) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient and 3) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so” (Rasmusen, 2003).

Now let us go over the circumstances of the case to determine how the court would resolve the issue of the contract validity based on these principles. Foremost, there is no doubt that the court will find the enforcement of the contract to be “unconscionable” given the fraudulent circumstances under which it was based but at the same time, the court needs to determine if the plaintiff in this case who is the buyer “bears the risk” of that mistake (Graw, 2008). Based on the three-prong conditions of Rule 154, it is clear that conditions 2 and 3 outlined above can be determined to have been present at the time of the contract, which will mean the court would most likely not void the contract.

This is because the seller at the time of inspecting the proof of identity documents of the rogue buyer must have been aware that he was not an expert in detecting forgery and must have accordingly “treated his limited knowledge as sufficient” (Graw, 2008). It is on this aspect that Lord Denning observes that the seller did not “regarded his identity (that of the rogue buyer) as a matter of vital importance” (Levellaw.com, 2008) (obviously because he never took extra measures to have it verified. And because of this fault that is attributable to the plaintiff, the court would ordinarily not void the contract except for the fact that in this case, a deliberate act by the buyer to mislead the seller took place which any other ordinary person would have similarly been fooled. So to answer the question, such a mistake caused by fraud would actually make the contract voidable but not necessarily void.

Reasons why Phillips v Brooks Ltd and Ingram v Little rulings cannot be reconciled

Despite their similarity, the court’s ruling on these two cases was fundamentally different, for reasons that Lord Denning attributes to what he refers to as “distinction without a difference” (Levellaw.com, 2008). A brief overview of the facts indicates that in the case of Phillips v Brooks Ltd, the ruling made by judge Horridge did find that the ultimate buyer of the ring that was eventually sold should retain it for the following reasons. One, the court did find that a fundamental aspect of the legality of the entitlement of the good obtained by the defendant existed because the rogue buyer who had duped the original seller into selling the ring had the actually good title of the ring that was consequently obtained by the defendant in good faith and which was consistent with common law.

But to determine this, the judge had to first assess and determine the manner in which the ring passed between the original seller and the would-be rogue buyer. In this respect, the judge observed that the parties did enter into a mutual contract that was proper and valid in all respect if the element of the mistaken identity was to be put aside. Having observed that, the judge concludes that consequently the entitlement of the good must be assumed to have been passed to the rogue buyer because fraud misrepresentation does not, in fact, make a contract void bur rather voidable and states “the fact that the seller was induced to sell by the fraud of the buyer made the sale voidable, but not void” (Levellaw.com, 2008). The implication of this is that the contract would have ordinarily remained valid until the time the plaintiff moved to have it avoided. In making this ruling, judge Horridge cited two cases as relevant precedents that he relied on, that of Cundy v Lindsay 3 App Cas 459 and that of Edmunds v. Merchants’ Despatch Transportation Co (Levellaw.com, 2008).

In the second case of Ingram v Little, the circumstances are the same; a rogue buyer obtains a vehicle from the two sisters and goes on to pass it to a third party who is now the defendant. The court, in its rulings, held that “the sisters only intended to deal with Mr. Hutchinson at the address given because they were not willing to offer a sale for payment by cheque from anyone else” (Lawresources.com, 2010); which in the court’s interpretation implied that the agreement was not valid and consequently that the rogue buyer didn’t have the authority to pass the entitlement of the vehicle to the ultimate buyer. Despite this subtle difference that the court is striving to exemplify, it is clear that in both cases, the plaintiffs were selling the goods to the person before they that were “identifiable by sight and sound” (Lawresources.com, 2010) and for all purposes and intent went ahead and proceeded to complete the contract with that particular person based on the understanding between them. It is for this reason that Lord Denning muses that “In each case, there was, to all outward appearance, a contract” (Lawresources.com, 2010).

In my opinion, the argument of the judge makes much sense when you consider two things; one, that it would be impossible for the law to expect the third parties in such cases which ends up with the goods to be in a position to know of the circumstances that the seller could have obtained the goods. As such, it must be assumed where all conditions of proper and due diligence are done in obtaining the goods that the seller acted in good faith, as has always been the case in all such cases. Secondly, the law wrongly assumes that mistaken identity is solely undertaken by persons for purposes of swindling their contracting parties. But this can, in fact, hypothetically be shown not to be the case when it is assumed that despite the unlawful impersonation, the rogue buyer might actually present a valid cheque but lie about their identity for reasons other than the need to swindle. In such a case, the seller would never get to know about the mistaken identity since the cheque would never bounce, and neither will the law hold that such a transaction was void. It is based on these two reasons that I agree with Lord Denning’s observation that the rulings can’t be reconciled because the legal perspective has clearly shifted on what would have been essentially a similar determination of the same facts.

How the conflict was resolved by the ruling in Lewis v Avery

Having determined how the two cases discussed are similar in facts but yet different in the rulings entered, let us now review and dissect the decision in the case of Lewis v Avery entered by Lord Denning, which certainly appeared to have offered a more reliable application of the legal principles and thereby set a precedent for similar cases that are to occur in future. In making the ruling on this case, Lord Denning opens his remarks by acknowledging that there are in fact two parties to this case that are in no doubt innocent, a clear reference to the original seller of the vehicle and the ultimate buyer, which is an observation that also serves to give us the cue on the inclination of the judge in recognizing the fact that the ultimate buyer can’t be attributed blame under the current circumstances.

By stating this, what the good judge is doing in effect is to verify that the exchange of the goods between the rogue swindler and the ultimate buyer must have been valid and legal based on the law. In fact, later on in his ruling, Lord Denning gives the strongest worded observation in which he states that “it was the seller who let the rogue have the goods and thus enabled him to commit the fraud” (Levellaw.com, 2008); a statement that left no doubt that if there was anyone to blame among the two innocent parties, then it was certainly not the ultimate buyer. And there is a good reason why Lord Denning stated this when you consider that on a comparative basis, the original buyer was in a better position to verify the swindler’s identity and thereby cut the fraud in its bud rather than the ultimate buyer who is now the defendant had; in fact, he had no justification on insisting or even going to great lengths to verify on the same fact of identity.

Based on this reasoning and on In his final summation Lord Denning concludes that the contract is actually valid but voidable, assuming that the original seller realizes so in good time before the goods are passed on to the third party (Levellaw.com, 2008). And because in this case, the goods have passed to a third party whom the court has determined in all respects to be completely innocent, it would be an injustice for the court to nullify what is, in essence, a valid contract between the rogue seller and the final buyer. It is in this respect that Lord Dennings’s ruling resolves the two dissenting rulings made on the cases discussed above.

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Graw, S., 2008. An Introduction to the Law of Contract . 6 th ed. New York, NY: Law Book Company.

Khoury, D. & Yamouni, R., 2004. Understanding Contract Law . 5 th ed. Sydney: Lexis Law Publishing Kinzie, M., 2004. Contract Law and Breach of Contract. Journal of Current Legal Issues , 3 (2), pp. 89-95.

Rasmusen, E. 2003. Mutual and Unilateral Mistake in Contract Law . Web.

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Levellaw.com. 2008. Lewis v Averay . Web.

Parker, D. & Box, G., 2008. Business Law for Business Students . New York, NY: Thomson Custom Publishing.

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IvyPanda. (2021, May 13). Contract Law: Breach, Mutual and Unilateral Mistake. https://ivypanda.com/essays/business-law-cases/

"Contract Law: Breach, Mutual and Unilateral Mistake." IvyPanda , 13 May 2021, ivypanda.com/essays/business-law-cases/.

IvyPanda . (2021) 'Contract Law: Breach, Mutual and Unilateral Mistake'. 13 May.

IvyPanda . 2021. "Contract Law: Breach, Mutual and Unilateral Mistake." May 13, 2021. https://ivypanda.com/essays/business-law-cases/.

1. IvyPanda . "Contract Law: Breach, Mutual and Unilateral Mistake." May 13, 2021. https://ivypanda.com/essays/business-law-cases/.

Bibliography

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Mistake in contract law

Published by a lexisnexis commercial expert.

This Practice Note considers the legal concept of mistake in contract law. It examines common mistake, mutual mistake, unilateral mistake, mistake as to identity and mistake as to the document signed ( non est factum ). It also considers the impact of each of these types of mistake on the contract and the correction of mistakes by rectification or construction.

For guidance on dealing with mistakes in the execution of documents, see Practice Note: Deeds—Failure to comply with formalities and other defects and our Execution toolkit, in particular, The Basics—Q&As—Mistakes in executing documents.

For more guidance where parties choose to correct a mistake by agreeing an amendment to the operative parts of a contract, see Practice Note: Contract variation.

What is a mistake?

A mistake is an erroneous belief held by one or both parties to a contract at the time of its formation. A mistake may arise as to the:

subject matter or terms of the contract

identity of the other party

nature of the transaction

Mistake should

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Related legal acts:

• Sale of Goods Act 1979 (1979 c 54)

Key definition:

Mistake definition, what does mistake mean.

A mistake of fact, though not generally a mistake of law , can afford a defence to a criminal charge and need not be reasonable unless the offence is one of negligence .

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Hall Ellis Solicitors

law of mistake (common, unilateral and mutual mistake)

Types of mistake.

The three types of mistake recognised by the law are:

• common mistake
• mutual mistake, and
• unilateral mistake.

Subject Matter of a Mistake

Only particular types of mistake are actionable by the law of mistake.

They include mistakes relating to:

• the facts which form the background to the contract: ie the factual basis upon which the contract was formed
• the terms of the written agreement
• the identity of one of the contracting parties 
• the law as the parties understood it as at the date of the contract, that is, a mistake of law.

Depending on the type of mistake, a contract may be:

• found to be void, and of no legal effect
• rectified to reflect the true agreement reached by the parties, but for the mistake. In turn, rectification may lead to recovery of money or property to which a party is entitled Rectification is remedy which is only available to written agreements. 

The mistake lies in the written agreement - it does not record the common intention of the parties.

1. Common Mistake

Along with a series of other requirements, the mistake must be fundamental to the contract. It's a shared mistake, by both parties.

It must be a fundamental assumption of a state of affairs - a belief that it exists or does not exist - and the mistake make performance of that fundamental obligation impossible.

The mistake must go to the essence of why the contract was made by the parties: Bell v Lever Bros (1932).  

The modern requirements for common mistake were confirmed by the Court of Appeal in Great Peace Shipping v Tsavliris (International) Ltd (2002). They are:

• common intention : there must be a common assumption as to the existence of a state of affairs
• allocated risk: there must be no warranty by either party that that state of affairs exists
• state of affairs: the non-existence of the alleged state of affairs cannot be attributable to the fault of either party
• impossibility: the non-existence of the state of affairs must render performance of the contract impossible
• nature of state of affairs: the state of affairs may be the existence or a centrally important attribute of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.

Common Intention 

Up to the time of agreeing the terms of the written contract, the parties must maintain a common intention. That common intention is not recorded in the written agreement.

The proof of the intention must be convincing to overcome the presumption that written contracts are a true and accurate record of what was agreed.  In mistake cases, that intention is not recorded in the written agreement and so it does not contain a true record of the agreement reached.

Allocated Risk

The law of mistake is about attributing risk in an agreement where it has not been recorded in written agreement. There can be no common mistake where the contract allocates the risk of the event which is said to be missing from the agreement by mistake. 

Where risk was allocated in the written version of the agreement, the doctrine of mistake has no scope to operate. The risk might be recorded in (the erroneous version of the contract) in the form of an express term, implied term, condition precedent, condition subsequent, provided it states who bears the risk of the relevant mistake.

Mistake as to the existence of the subject matter

In Couturier v Hastie (1856), a buyer bought a cargo of corn which both parties believed to be at sea. Unknown to the parties at the time of the contract, the cargo had been disposed of. The cargo could not be purchased, because it did not exist

The court held that the contract was void because the subject matter of the contract had ceased to exist.

Mistake as to Title

In  contracts for sale of goods, the buyer already owns the property and neither party is aware of it. The contract will be void.

Mistake as to Quality

In Bell v Lever Bros it was said:

A contract may be void if the mistake is as to the existence of some quality which makes the thing without that quality essentially different from the thing it was believed to be

In Leaf v International Galleries (1950), both parties mistakenly believed that a painting was by the artist named Constable.  The court held that the contract was valid. The fact that it was not painted by a particular artist was a matter to a quality or characteristic of the painting: the parties agreed that a painting would be bought, and the painting was sold.

The fact that they thought it was by a particular artist (but it was not made by that particular artist) was nothing to the point.  

Mistake as to the possibility of performing the contract

Where the obligations under the contract are impossible to perform, the contract will be  void.

In Sheik Bros Ltd v Ochsner (1957), the land which was the subject matter if the contract was not capable of the growing the crops contracted for. The contract was held to be void.

2.   Mutual Mistake

In a mutual mistake, both parties operate under a misunderstanding as to each other’s intentions.

They are said to be at cross-purposes with one another.

The mutual mistake negates consent and therefore no agreement is said to have been formed at all.

Mutual mistake as to the identity of the subject matter

There is some ambiguity as to the understanding of the agreement.

To assess whether a mutual mistake has taken place, the court asks what one party thought it meant, as opposed to what the other party thought it meant.

The classic case is Raffles v Wichelhaus (1864). The defendant agreed to purchase Surat cotton to be delivered by the vessel named “Peerless”, which was due to arrive from Bombay. There were in fact two vessels fitting that description at the relevant time. The claimant was referring to one of the ships named Peerless; the defendant was referring to the other ship named Peerless. 

There was a latent ambiguity in the contract - the parties were actually referring to different ships. They were at cross-purposes with one another, and had not reached agreement at all.   

3.   Unilateral Mistake

Unilateral mistake addresses misunderstandings between the parties that relate to the terms of the contract or the identity of the parties to the contract. It does not apply to mistakes about the facts known or assumed by the parties.

In unilateral mistake cases, only one party is mistaken: the other party knows about it and takes advantage of the error. So, it's not a mistake made by both parties to a contract.

In Hartog v Colin and Shields (1939) the seller had made a mistake as to the price of goods. It was held that the buyer must have realised the mistake. The contract was held to be void.

Unilateral mistake does not apply in cases where the mistake relates to a quality of the subject matter of the contract (see above).  

Differences: Common Mistake and Unilateral Mistake

There are a series of differences between common mistake and other forms of mistake.

• the terms of the contract are agreed, but
• the same misapprehension of fact or law,
• which relates to the same subject matter
• The mistake is common between the parties: they make the same mistake.
• the terms of the contract, or
• the identity of the parties

Unilateral mistake does not cater for mistakes of fact. 

• the identity of the contracting parties, or
• the terms of the contract 

The remedy for mistake include:

• rescission , to put the parties in their precontractual positions. This remedy is the one that renders the contract void
• rectification of the written agreement,  so that it reflects actual agreement reached by the parties.

Rescission and rectification may (or may not) be inconsistent with one another. Whether they are or not would depend upon the facts which are disputed between the parties and whether rectification of the written agreement to its true agreed form would result in a right to rescission, and whether the right to rescind was claimed at all as part of the case.

When contracts are rescinded or rectified, consequential further relief may be obtained, such as:

• to correct unjust enrichment of a party
• specific performance of the rectified contract

Rectification: Common Mistake

In order to obtain the remedy of rectification, the party alleging the mistake bears the burden of proof . The claimant must produce convincing proof that the mistake took place.

The claimant must show that either:

• the document fails to give effect to a prior concluded contract, or
• when they executed the document, the parties had a common intention in respect of a particular matter, which the contract does not record.

Both the mistake and the common intention continuing through to the formation of the written contract must be proven.

Damages may also be awarded as part of the remedy of rescission to restore the parties to the original positions before the contract as part of the remedy of rescission.

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Contract Law in Practice

Neil andrews.

This book is a detailed examination of the general doctrines of English law of contract. Cases are analysed precisely, providing quick access to the major authoritative passages in the leading judgments. The coverage is comprehensive. It focuses on English law, but it also provides analysis of assistance throughout the Common Law family of legal systems. It provides up-to-date examination of case law developments. There are nearly fifty ‘evaluation’ sections which provide comment on controversial or unclear topics. Six major principles are identified: Freedom of Contract; Objectivity; the Contractual Bond Principle; Estoppel; Good Faith and Fair Dealing; the Compensation Principle.

Bibliographic Information

Affiliations are at time of print publication..

Neil Andrews, author

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• Table of Contents
• United Kingdom
• New Zealand
• United States
• Table of Statutes
• Table of Statutory Instruments
• International Instruments
• Table of Main Abbreviations
• Preliminary Material
• Bibliography
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