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C.Common mistake
Finally, a contract may be void for common mistake. Common mistake arises where both…
Two key cases demonstrate the courts’ approach to common mistake and the requisite…
In Bell v Lever Bros, the Lever Bros agreed to employ Bell as the chairman…
Lever Bros later discovered the secret speculation and sought rescission of the agreement…
Lord Atkin explained:…
“My Lords, the rules of law dealing with the effect of mistake on contract appear to be established with reasonable clearness. If mistake operates at all it operates so as to negative or in some cases to nullify consent. The parties may be mistaken in the identity of the contracting parties, or in the existence of the subject matter of the contract at the date of the contract, or in the quality of the subject matter of the contract... Mistake as to quality of the thing contracted for raises more difficult questions. In such a case a mistake will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing …
Reasoning as to the facts of the case before him, his Lordship concluded:…
“[O]n the whole, I have come to the conclusion that it would be wrong to decide that an agreement to terminate a definite specified contract is void if it turns out that the agreement had already been broken and could have been terminated otherwise. The contract released is the identical contract in both cases, and the party paying for release gets exactly what he bargains for. It seems immaterial that he could have got the same result in another way, or that if he had known the true facts he would not have entered into the bargain...it is of paramount importance that contracts should be observed, and that if parties honestly comply with the essentials of the formation of contracts—i.e. agree in the same terms on the same subject matter—they are bound, and must rely on the stipulations of the contract for protection from the effect of facts unknown to them.”…
As such, where the mistake does not strike the root of the transaction but merely…
The Court of Appeal confirmed in Great Peace that a contract will not be voided for common mistake unless the mistake relates to a fundamental characteristic of the contract. The appellate court also reversed the previously held thinking that a mistake in equity was wider in operation and could void a contract even in cases where the mistake was not fundamental.In Great Peace, the parties entered into a contract for the hire of a vessel…
Lord Phillips (giving the judgment of the court) explained as follows:…
“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 avoidance of a contract on the ground of common mistake results from a rule of law under which, if it transpires that one or both of the parties have agreed to do something which it is impossible to perform, no obligation arises out of that agreement…In considering whether performance of the contract is impossible, it is necessary to identify what it is that the parties agreed would be performed… it suggests that the following elements must be present if common mistake is to avoid a contract: (i) there must be a common assumption as to the existence of a state of affairs; (ii) there must be no warranty by either party that that state of affairs exists; (iii) the non-existence of the state of affairs must not be attributable to the fault of either party; (iv) the non-existence of the state of affairs must render performance of the contract impossible; (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.”Commenting on the facts, his Lordship continued:…
“We agree with [the trial judge] that, on the facts of the present case, the issue in relation to common mistake turns on the question of whether the mistake as to the distance apart of the two vessels had the effect that the services that the ‘Great Peace’ was in a position to provide were something essentially different from that to which the parties had agreed… It was unquestionably a common assumption of both parties when the contract was concluded that the two vessels were in sufficiently close proximity to enable the ‘Great Peace’ to carry out the service that she was engaged to perform. Was the distance between the two vessels so great as to confound that assumption and to render the contractual adventure impossible of performance? If so, the appellants would have an arguable case that the contract was void”…
3.Mistake as to terms
D.Rectification
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