Business Law Essay

1529 words - 7 pages

A mistake is a false assumption made by one or both parties in the formation of a contract and may be used as grounds to invalidate the agreement. There are three types of mistake in the law of contract. These are common mistake, mutual mistake and unilateral mistake.
A common mistake is where both parties hold the same mistaken beliefs of the facts. A common mistake ca only void a contract if the mistake of the subject matter was sufficiently fundamental to render its identity different from what was contracted, making the performance of the contract impossible. There are two situations of common mistake. These are the case of res extincta and the case of res sua.
In the case of ...view middle of the document...

In the case of res sua, this occurs where person makes a contract about something which already belongs to him without knowing, In the case Cochrane v Willis, Cochrane was the trustee in bankruptcy of Joseph Willis who was the tenant for life of certain estates in Lancaster. Willis had been adjudicated bankrupt in Calcutta where he resided. The remainder of the estate was to go to Daniel Willis, the brother of Joseph, on the latter’s death, with eventual remainder to Henry Willis, the son of Daniel.Joseph Willis had the right to cut the timber on the estates during his life interest, and the representative in Cochrane in England threatened to cut and sell it for the benefit of Joseph’s creditors. Daniel and Henry wished to preserve the timber and so they agreed with Cochrane through his representatives to pay the value of the timber to Cochrane if he would refrain from cutting it. News then reached England that when the above agreement was made Joseph was dead, and, therefore, it is now owned by Daniel. It was held that Daniel was making a contract to preserve something which was already his and the court found, applying the doctrine of res sua, that the agreement was void for a common mistake. In the case
Of res extincta and res sua, equity treats them the same way as common law as it relates to the agreement being void.
A mutual mistake is where both parties of a contract are mistaken as to the terms. Each believes they are contracting for something different. The court usually tries to uphold such a mistake if a reasonable interpretation of the terms can be found. However, a contract based on a mutual mistake in judgment does not cause the contract to be voidable by the party that is affected. In the case of Raffles v Wichelhaus, the defendant agreed to buy from the claimants 125 bales of cotton to arrive ex Peerless from Bombay. There were two ships called Peerless sailing from Bombay, one in October and one in December. The defendants thought that they were buying the cotton on the ship sailing in October, and the claimants meant to sell the cotton on the ship sailing in December. In fact the claimants had no cotton on the ship sailing in October. The defendants refused to take delivery of the cotton when the second ship arrived and were now sued for breach of contract. It was held that since there was a mistake as to the subject-matter of the contract there was in effect no contract between the parties, or at least no contract which clearly identified the agreement made. The claimants’ action failed.
A unilateral mistake is where only one party to a contract is mistaken as to the terms or subject-matter. The courts will uphold such a contract unless it was determined that the non-mistaken party was aware of the mistake and tried to take advantage of the mistake. It is also possible for a contract to be void if there was a mistake in the identity of the contracting party. In the case of Lewis v Averay, Mr Lewis agreed to sell his...

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