Courts are reluctant to find mistake because: -
i) Mistake is often alleged in commercial contracts where the contract is freely entered into by businessmen who should draft their contracts in such a way as to allow for factors that might only come to light after the contract is entered into.
ii) The effect of mistake at common law on innocent third parties.
The mistake must be an operative one and must relate to a fundamental underlying fact that existed at the moment the contract was entered into.
Amalgamated Investment and Property v John Walker (1976)
A contract was made for the sale of a warehouse for £1.7 million, with the sellers knowing the purchasers wanted to re-develop it. The day after the contract was signed, the building became listed for historical interest. Now due to the restriction the land was worth £210 000 and could not be developed. Held contract was valid, as neither part knew the building was going to be listed so there was operative mistake.
The mistake can also be a mistake as to law.
Kleinwort Benson v Lincoln County Council (1998)
A bank paid money to a local authority under a financial transaction, which was thought to legal however it was not so the local authority had to return the money.
The test for mistake is an objective one i.e. what would an onlooker (reasonable person) have thought the parties were agreeing to. The court does not look at what the parties themselves believed they were agreeing to
Smith v Hughes (1871)
The defendant wanted to buy old oats P knew this but sold him new oats. There was no fraud nevertheless the defendant believed the oats he were buying were old. Held despite the mutual mistake the reasonable onlooker would conclude the parties were in agreement with what was being sold.
The three main types of mistake
· Common mistake – both parties make the same mistake (only as to the existence of contract subject matter)
· Mutual mistake – the parties are at cross purposes with each other
· Unilateral Mistake – one party makes a mistake and the other party knows of it. (Element of fraud) same as fraudulent misrepresentation.
