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About Mistake.doc

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Administrative Studies
ADMS 2610
Robert Levine

UNDERSTANDING THE CONCEPT OF MISTAKE Any attempt to understand the concept of Mistake in contract law is made quite difficult by both text writers and a reading of decided cases. This is because both sometimes talk about there being a contract, but one party wants it set aside, suggesting a contract exists and is voidable; and at other times, they talk about a problem with the subject matter of the contract which has the effect of creating no contract at all, so the contract is void. In the first situation, the suggestion is that a contract exists, but it will be set aside by reason of mistake (making it voidable), while in the second situation, what they are trying to say is that, because there was some problem or mistake concerning the subject matter of the contract, there never was a contract at all, and thus, the contract is void ab initio or from the outset or start. The result is that it appears that there is no consensus or agreement on what mistake actually is. However, if you read the case law carefully, what becomes apparent is that with the exception of Public Policy or a specific statute which renders/makes a contract void, the only time a contract is void from the beginning is by reason of one type of Mistake which will be discussed below. Thus, for your purposes, whenever you encounter Mistake, you can consider the contract void or voidable depending on the nature of the mistake. THE TYPES OF MISTAKE MUTUAL MISTAKE: The first type of mistake is what is often called a Common or Mutual Mistake: that is a mistake made by both parties to the contract, usually having to do with the subject matter of the contract or the consideration for it. In such a situation you can consider the contract void. Consider the following examples: 1. A and B are negotiating the sale by A to B of A’s stamp collection. Both A and B believe that it is an ordinary stamp collection with a value somewhere around $ 5,000.00, so they agree on a price of $ 4,700.00, while unknown to either of them, the collection contains a stamp worth $ 100,000.00, making the stamp collection really worth $105,000.00. Here, A would be able to set aside the contract, because there really was no contract at all. That is: both parties were mistaken as to the true nature/value of the collection; or in other words, both parties were mistaken as to the subject matter of the contract and thus the contract is void. 2. A and B are negotiating the purchase by B of shares in a company. A says to B, “ What will you give me for 75 shares of Eastern Cafeterias of Canada.” and B replies “I shall look into it and let you know.” After making some inquiries, B telephones A back and says, “I will give you $ 10.50 a share for your Eastern Cafeterias” and A replies, “ I accept your offer.” Later B says that he made a mistake and meant to buy shares of a company called Eastern Cafeterias Limited. What B is trying to argue is that he and A were never in agreement about the company whose shares A was selling and B was buying. A court, however, would likely hold that there was no mistake: B agreed to buy the shares that A was offering for sale i.e. Shares in Eastern Cafeterias of Canada. What is important here is the principle that both parties have to be of the same mind and agree upon the subject matter of the contract (there must be a consensus ad idem) or else there will be mistake. 3. A and B are negotiating the purchase by A of B’s 1998 Honda Civic car. Eventually, they agree on a price of $ 3,500.00 and B pays it. However, unknown to both A and B at the time of the negotiations and before agreeing on the price so as to form a contract, the car is demolished by a tractor trailor which plows into it. In this case, both parties are mistaken about the existence of the subject matter of the contract, namely the existence of an undamaged 1998 Honda Civic car. Hence the contract is void (although a court would say that B can set the contract aside). UNILATERAL MISTAKE NORMAL UNILATERAL MISTAKE: While Mutual Mistake requires a mistake made by both parties to a contract at the time of its formation, Unilateral Mistake is different and requires only one party to be mistaken or to make a mistake. There are two types of Unilateral Mistake. For want of a better description, the first type can be called a normal Unilateral Mistake and it has two requirements. The first is that one party makes an innocent mistake about either the subject matter of the contract or something related to the contract. The second requirement is that the other party knows that the innocent party has made a mistake (and is taking advantage of it). If both requirements are met, the contract will be considered voidable at the option of the innocent party. Consider the following examples: 1. Let us revisit the first example of the stamp collection given under Mutual Mistake. Now in this case, assume that A does not know that there is a stamp in the collection worth $ 100,000.00, but B does and regardless of this knowledge, takes advantage of A by agreeing to a price of $ 5,000.00 for the collection. Later, however, A finds out the truth about the $100,000.00 stamp. In this case, A will succeed in setting the contract aside, because of his unilateral mistake, since the law will not allow B to take advantage of A. In essence, there was never an agreement as to the true subject matter of the contract or in other words, there was no consensus ad idem, and the contract is voidable at the option or request of A. 2. A offers to sell his 1958 antique Corvette Stingray car to B for $ 65,000.00, which is the approximate value of the car. However, when A sends a written offer to B, instead of $ 65,000.00, he writes $ 6,500.00 and B who knows the value of the car is around $ 65,000.00, realizes that A has made a mistake, but accepts the offer taking advantage of A. Here a court would find that A has made a unilateral mistake, because it is somewhat obvious, and at A’s rquest would set aside the contract. In other words the contract would be voidable. 3. Same example as number 2, however, this time A sends an offer of $55,000.00 instead of $ 65,000.00 and when B accepts it, A takes the position that he has made a unilateral mistake. In order to determine whether there is a contract, you look at the difference between the approximate value of the subject matter and the allegedly mistaken offer. In this case, unlike the first example, the difference between $ 65,000.00 (the intended offer) and $ 55,000.00 (the actual offer made) is not significant. Thus, a court would probably find that there was no real mistake made by A at all (i.e. the contract is not voidable), since B could assume that $ 55,000.00 was within the range of price of an antique Corvette Stingray. NOTE: Examples are given in your text of situations in which there is a call for tenders and one company submits a tender which is accepted and then alleges that it made a unilateral mistake. Here, as in examples 2 and 3 above under Unilateral Mistake, you look to the approximate value of the job or contract, and if the
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