Mistake Lecture - Hands on Example
The following section will provide you with a problem scenario which involves issues relating to the law of mistake. This will test your understanding and knowledge of what you have learnt and allow you put the law into practice. You should now understand the law of mistake, be able to identify the different categories of mistake, and the limitations to each. The problem scenario will cover a variety of issues, and the answers can be found at the bottom of the page.
In order to identify a problem question relating to mistake, you should look out for situations in which one or both of the parties are mistaken as to either some of the terms of the contract, the agreement, or the identity of the individual they are contracting with.
Here is a suggestion approach when tackling a problem scenario on the law of mistake which should allow you to answer the question fully and spot all the relevant issues:
- Have both parties made the same mistake?
- If so, is the mistake as to the terms of the contract or to the agreement?
- If the mistake is as to the terms, does the term fall under any of the pre-determined rules that are fundamental to a contract
- If the mistake is as to the agreement, consider the reasonableness of the interpretation and the fault doctrine
- If only one party has made the mistake, is it in relation to the terms or the identity of a party?
- Apply the corresponding tests for the above
Attempt to apply this approach to the problem scenario below; hopefully it should work for you. Remember, if you are struggling, just refer back to the detailed version in this chapter and refresh your knowledge.
Scenario
Steve is a car dealer who has recently entered into a number of contracts. He is concerned that some of the agreements he has entered into seem to be slightly different than what he was expecting. Focusing only on the principles from the law of mistake, analyse these contracts to see whether if there is anything Steve can do about these contracts.
The first contract Steve is concerned about was for a vintage 1970s Aston Martin. He had negotiated for the car and purchased it for a price of £10,000. Prior to this, he had bid on a ‘lucky dip’ auction online, where he would receive five mystery, pre-determined cars. After he had purchased the Aston Martin, he discovered that one of the five mystery cars was the exact Aston Martin he had negotiated for, he feels cheated because he has essentially paid twice for the same car.
- Would this purchase amount to a mistake of any kind?
The second contract Steve is questioning is a contract for the purchase of a world famous racing driver’s old race winning car. The price is particularly high due to the popularity of the race driver and it is considered a collector’s item. Unfortunately, a few weeks later, Steve discovers it is not actually one of the race driver’s old cars, meaning it is worth 10% of he paid. The seller had no idea of this fact either.
- What type of mistake has been made here, and is it actionable?
The third contract Steve entered into was with a fraud. The fraud wanted purchase a car and to pay on credit and Steve was concerned about his creditworthiness. The fraud claimed to be the son of a famous footballer, and Steve was happy with this after a quick check of his name and address, and let him take the car away. Subsequently, the fraud sold the car to a third party and has disappeared.
- What type of mistake has been made here, and does Steve have any remedy under the law of mistake?
Answer 1: The fact that Steve has purchased property that he already owns indicates it is a non-agreement mistake, under the Res Sua issue, mistake as to ownership. This is a form of non-agreement mistake, whereby a party purchases some property that they already have ownership of. Steve already had ownership of the car through his ‘lucky dip’ auction purchase, and then went on to negotiate for the car on its own. The case of Cooper v Phibbs is authority for the fact a purchase of property already owned would amount to a fundamental mistake as to the terms of a contract, and therefore the contract would be void for mistake.
There is a question of whether or not the seller of the car would have known Steve already owned the property or not, as for the Res Sua exception to apply, both parties must be unaware of the fact the property is already owned by the purchaser; but this is unlikely due to the nature of the auction with the cars being randomly chosen. If the seller was in fact aware that Steve already owned the car, the contract would not be void for mistake.
Answer 2: The type of mistake is a mistake as to the quality of the subject matter. A parallel can be drawn with the example from Lord Atkin in Bell v Lever Bros Ltd. His example was a painting which was painted by a famous painter, but unbeknown to both parties this was not true. This type of mistake will only amount to a mistake if it makes the contract ‘essentially different’ that it was before the discovery of the mistake.
As per Leaf v International Galleries, the discovery of the true owner of the car would not make the contract ‘essentially different’; Steve had contracted to purchase a racing car, and had purchased a racing car. Steve’s remedy should lie in breach of contract as long as one of the terms was as to the car being previously owned by the famous racing car driver.
Answer 3: This mistake was a unilateral mistake as to the identity of a party. The leading authority on face-to-face contracts is Shogun Finance Ltd v Hudson, which confirmed that there is a presumption that in a face-to-face contract, the identity of a party would not be fundamental to the contract, instead the mistaken party would be concerned with the creditworthiness of the buyer.
In Steve’s case, he was clearly concerned about the creditworthiness of the buyer, which he even expressed. Unfortunately, therefore, Steve would have no remedy in the law of mistake, as he mistaken to an attribute of the fraud (his creditworthiness), and not his actual identity.
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