Examine the different circumstances in which the doctrine of 'mistake' may arise in making a contract and explain the effect in each case.

The remedy of rectification may be applied where based on the agreement between contractual parties on the terms of the contract, an incorrect made by mistake occurred in a subsequent written document. The court can rectify the error and specific performance of the contract may be granted as rectified.

The next type of operative mistake is called Identical or Common Mistake, that is, the parties have entered into a contract on the basis of a false and fundamental assumption. As both parties make the same mistake, it is not quite necessary to avoid the contract at common law. The case can be categorised into four types:

Mistake as to the existence of the subject-matter that, if unknown to the parties, the subject-matter of the agreement does not exist or has ceased to exist, the contract will be void at common law; Couturier v. Hastie. In Galloway v. Galloway (1914) is similar, but the parties contracted on the basis of a false assumption which underlies the contract, the contract was likewise void.

In another rare situation where one party agrees to transfer property to the other which the latter already owns and neither party is aware of the fact, the contract will also be void at common law. This could be illustrated by Cooper v. Phibbs that, A had agreed to lease a fishery to B, but unknown to either, the fishery was already owned by B, the House of Lords set aside the agreement.

There is authority that an identical mistake as to the quality of the subject-matter is not operative at common law. As in Leaf v. In. Galleries, both parties mistakenly believe the painting has been painted by Constable but in fact it is not, the contract still held as valid. The leading case for this is Bell v. Lever Bros, an employee of Lever was dismissed with an agreement of £30,000 compensation, but later they found that it is unnecessary to give him the compensation due to certain breaches of contract by him, which he had forgotten. The House of Lords held the contract valid under common mistake as to quality.

Finally, identical or common mistake in equity, where a contract is void for identical mistake, the court, exercising its equitable jurisdiction will refuse specific performance. Alternatively, the court may set aside any contractual document between the parties, and impose terms if justice is to be dealt.

In Solle v. Butcher, it shows that, although the agreement is valid at law, it is apparently voidable in equity. For justice reason, terms were imposed that the plaintiff should either give up the flat or stay on at the maximum rent chargeable by law.

In cases, rescission for mistake is subject to the same bars as rescission for misrepresentation. In William Sindall Plc. V. Cambridgeshire County Council, Evans L.J. suggested that the common law rule is limited to mistake with regard to the subject matter of the contract, whilst equity can have regard to a wider and perhaps unlimited category of “fundamental” mistake.

The third type is called Mutual Mistake. The leading case is Raffles v. Wichelhaus, the defendants agreed to buy cotton from the plaintiffs ex the ship “Peerless” from Bombay. There are two ships with the same name were due to leave Bombay in different time, both plaintiff and defendant were holding different ideas of the ship. The court held that the transaction was too ambiguous to be enforced as a contract.

If the contract is void at law on the ground of a mutual mistake, equity “follows the law” and specific performance will be refused and the contract will be rescinded in some situations. However, if to grant specific performance would cause hardship, it will be refused. Where in Wood v. Scarth (1858), the remedy of specific performance was refused.

The final type is the Unilateral Mistake, unlike the mutual mistake, here only one party is fundamentally mistaken concerning the contract and the other party is aware of the mistake, or sometimes they may be taken to be aware of it.

The mistake by one party must be as to the terms of the contract itself, in order to made the unilateral mistake to be operative; Hartog v. Colin and Shields. On the other hand, a mere error of judgment as to the quality of the subject-matter will not suffice to render the contract void for unilateral mistake; this was applied in Smith v. Hughes.

The unilateral mistake in equity is just same as the mutual mistake, as in Webster v. Cecil. The defendant had intended to write the price as £2,250 but in fact wrote £1,250 instead. It was held that the mistake was operative and specific performance would be refused.

One of the parties is mistaken as to the identity of the other party, in certain circumstances the contract may be void at common law. Almost all the decided cases of operative mistake in this area are in fact instances of unilateral mistake.

There are certain conditions must apply in order for the contract to be void. This first one is that the identity of the other party must be of crucial importance. In Ingram v. Little, elder ladies advertised their car for sale. A rogue, calling himself P. G. M. Hutchinson offered to buy the car, he paid by a cheque which was worthless and the rogue disposed of the car to the defendant, who took the car in good faith. It was held that the contract between the plaintiffs and the rogue was void for mistake. However, in Lewis v. Averay, similar material facts, the Court of Appeal held that the contract, though voidable, was not void.

The relationship between the above two cases is an uneasy one. It is at least clear that the prima facie presumption is that a party intends to contract with the person in front of him, but what is not quite clear is that the factors that will lead a court to conclude that the presumption has been rebutted. Faced with the difficulty of distinguishing between these cases there is a temptation simply to conclude that each case must be decided on its own facts.

The next condition which needs to be applied is that, the mistaken party must have in mind an identifiable person with whom he or she intends to contract. And the final one is called Caveat Emptor, which means the buyer must be aware of the mistake himself.

Mistake in the law of contract is a very important part as it may arise at any time when making a contract. Being aware of the mistake can avoid lots of unwanted loss in the contract.

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