Contract Law – Mistake

Types of Mistake:

Communication Mistake:
1. Unilateral mistake (Mistaken terms)
- Smith v. Hughes 1871
2. Unilateral mistake (Mistaken identity)
Shogun Finance Ltd v. Hudson 2003
3. Mutual mistake of communication.
- Raffles v. Wichelhaus 1864

Unilateral mistakes about contract terms:

- Not every mistake of this nature will lead to a contract being held void.
- The courts will look at what the external circumstance would have indicated to the
objective bystander. (Smith v. Hughes 1871)
- If there is an objective agreement, the courts will not necessarily void the contract if
one of them had made a mistake.
 A seller may accidently offer an item for sale at a lower price than they
intended.
- Two situations where the courts will override the objective agreement:
1. Hartog v. Colin & Shields 1939 – “Snapping up”
2. Scriven Bros & Co v. Hindley and Co (1913) – (Seller caused the buyer’s mistake)
 Even in these situations, the mistake must be that something was to be a
term of the contract.
 It is insufficient that the buyer had assumed that the item would be a certain
quality.

Smith v. Hughes (1871)

- Effect of the objective mistake in this area: The courts will not enforce the objective
agreement: No consensus ad idem

Mutual mistake of communication:

In this case, the parties have not reached agreement at all. There is an ambiguity in their
communications that prevents an agreement. Both parties are assuming that something
different is the case.

Raffles v. Wichelhaus (1864)

- Two ships of the same name (“The Peerless”), one docking in October, the other
docking in December.
- One contracting party assumed the October date; the other December.
- This was the preliminary action to determine whether a defence could exist.

“There is nothing on the face of the contract to show that any particular ship called
“Peerless” was meant; but the moment it appears that two ships called the “Peerless” were
about to sail from Bombay there is a latent ambiguity, and parole evidence may be given for
the purpose of showing that the defendant means one “Peerless”, and the plaintiff another.
That being so, there was no consensus ad idem, and therefore no binding contract”.
(Counsel’s argument which the Court of Appeal appeared to accept)

- In such a case, the court would often be able to find grounds to adopt either one or
the other view of the situation (the claimant’s or the defendants), for example, by
using the objective test
- Raffles v. Wichelhaus 1864 is therefore a rare case.