Principles of Business Law Semester 2 2024 PDF

Principles of Business Law Semester 2 2024 TOPIC 8: VITIATING FACTORS MISTAKE Mistake: Types of mistake  The first step in determining whether a contract can be set aside on the basis of a mistake is to identify the type of mistake that has been made.  Different legal rules...

Principles of Business Law Semester 2 2024 TOPIC 8: VITIATING FACTORS MISTAKE Mistake: Types of mistake  The first step in determining whether a contract can be set aside on the basis of a mistake is to identify the type of mistake that has been made.  Different legal rules apply to each type of mistake.  There are three types of mistake: 1. Common/bilateral mistake; 2. Mutual mistake; 3. Unilateral mistake.  The right to set a contract aside on the basis of mistake can be lost if the mistaken party affirms the contract (recall video 8.1). Mistake: Common/bilateral mistake: Overview  A common/bilateral mistake occurs when both contracting parties make the same mistake.  Examples:  Both parties assume the subject matter exists when it does not;  Both parties are mistaken about the identity or quality of the subject matter of the contract. Common Mistake: Leaf v International Galleries FPBCL p 377-8 Facts  L saw a painting of Salisbury Cathedral that IG was offering for sale.  At the time of contract (by which L bought the painting from IG), both L and IG believed that the work was by a famous painter, John Constable.  L subsequently discovered the painting was in fact by another artist.  L sought to have the contract set aside. Issue  Could the contract be avoided on the basis that the parties both believed the painting was by John Constable? Common Mistake: Leaf v International Galleries (ctd) Decision  The mistake did not justify setting the contract aside. Reason  There was nothing to suggest that the contract was for a painting by John Constable – it was for the particular painting of the Salisbury Cathedral, namely the one L inspected.  Thus, there was no operative mistake. Common mistake: Great Peace v Tsavliris FPBCL p 359 Facts  A ship called the "Cape Providence" suffered serious structural damage in the South Indian Ocean. There was a serious risk that it might sink.  T learned that the vessel was in difficulties and offered their “rescue services”.  T was told by a third party (an organisation that receives reports about vessels at sea) that GP’s ship (the “Great Peace”) was 35 miles away from the “Cape Providence”.  On this basis, T contracted with GP to charter the “Great Peace” on a daily hire basis to stand by the “Cape Providence” in case it became necessary to rescue the crew. The fee agreed was $16,500 per day with a minimum of 5 days.  Almost immediately after the “Great Peace” changed course to meet up with the “Cape Providence”, T became aware that the “Great Peace” was in fact 410 miles away.  T purported to cancel the contract with GP.  T refused to pay the owner of the “Great Peace” the amount promised ($16,500 per day for a minimum of 5 days), arguing that the contract was void for common mistake. Common mistake: Great Peace v Tsavliris (ctd) Issue  Both parties assumed that the “Great Peace” was 35 miles away when in fact it was 410 miles away. Did this common mistake allow for the contract to be avoided? Decision  The contract could not be set aside. Reason  The contract will be valid unless a common mistake ‘makes the thing contracted for essentially different from the thing that it was believed to be’.  Although the “Great Peace” was further away than originally thought, it was close enough to arrive in time to undertake some rescue work – thus it was not something essentially different. Mistake: Mutual mistake  There is a mutual mistake when:  the parties have different subjective understandings of their contractual rights/obligations; but  it is not possible, on the basis on an objective interpretation of the terms of the contract, to determine which party is correct.  In such circumstances, the agreement lacks the requisite degree of certainty and thus, in the eyes of the law, no enforceable contract was ever formed.  The certainty formation requirement is not met.  Essentially, the dispute between the parties reveals that the agreement was insufficiently certain, and thus not contractual in nature. Mutual mistake: Raffles v Wichelhaus FPBCL p 409-10 Facts  W agreed to buy cotton from R.  It was a term of the contract that the seller would place the cotton on a ship called ‘Peerless’ for transport from Bombay.  After the agreement was reached the parties discovered there were in fact two ships called ‘Peerless’.  When entering the contract, R had one of these ships in mind, W the other (hence there was a lack of subjective consensus). Issue  Did R and W owe each other contractual obligations? Mutual mistake: Raffles v Wichelhaus (ctd) Decision  No binding contract had come into existence. Reason  The word ‘Peerless’ could not be used to resolve the dispute between the parties. It was not clear that one ship was intended for use over the other.  Thus, the agreement was insufficiently certain to become a contract. Mistake: Unilateral mistake  There is a unilateral mistake when:  the parties have different subjective understandings of their contractual rights/obligations, but  one party’s understanding of the contract is correct (that is, consistent with the objective interpretation).  The contract will be voidable in equity if it would be contrary to conscience for the other party to take advantage of the mistake.  The circumstances in which this will be the case are set out in Taylor v Johnson. Unilateral mistake: Taylor v Johnson FPBCL p 425-6 Facts  J entered into a contract with T for the sale of 10 acres of J’s land.  The price stated in the contract was $15,000.  J believed that the contract price was $15,000 per acre.  J refused to complete the sale.  There was evidence that T was aware of J’s mistake, and deliberately set out to ensure that J did not become aware of the mistake. Issue  Did J’s mistake allow her to set aside the contract? Unilateral mistake: Taylor v Johnson (ctd) Decision  The contract was set aside on the basis of unilateral mistake. Reason  Why was this a unilateral mistake case?  J’s subjective understanding: price = $15,000 per acre.  T’s subjective understanding: price = $15,000 total.  The contract clearly stated the price as $15,000 total – thus J had made a unilateral mistake.  This did not prevent the contract being formed at common law.  Why was the contract set aside in equity?  T was aware of circumstances that indicated J’s mistake and deliberately set about concealing the mistake from J.