Elements in a Contract 15

Vitiation

Vitiation occurs when the parties in a contract reach an agreement based on facts or circumstances that are non-existent for example as in instances of mistakes, illegality, duress, undue influence, and misrepresentation.

Mistake

When deciding whether there has been a mistake or otherwise the courts will apply the objective test and will not look at the matter from the perspective of the contracting parties but rather from the perspective of the man on the Clapham omnibus or the common man.

Mistakes can be divided into three different categories: -

1.    Common mistakes

2.    Mutual mistakes

3.    Unilateral mistakes

Common Mistakes

Common mistakes occur when both the contracting parties make the same mistake. In Griffith v Brymer (1903) the plaintiff had entered into an oral agreement with a landlord to view the coronation procession from the landlord’s premises. The procession did not take place as intended and the plaintiff sought to recover the money that he had paid. The court held that there was a mistake and therefore the contract was void and the plaintiff was able to recover the money that he had paid.

In Scott v Coulson (1903) the plaintiff and the defendant entered into a contract to insure the life of a third party, who at the time the contract was entered into, they believed was alive but as it turned out the third party in question was deceased. The court held that the contract was void. Applying the objective test, a reasonable person would not seek to insure the life of someone who was no longer alive.

In Bell v Lever Bros (1932), the plaintiffs entered into a contract with the defendants who were appointed president and vice president of a subsidiary company that they had set up. The company ran at a loss and the plaintiffs subsequently decided to merge the company with another company and terminated the contracts of both employees but not before making suitable redundancy payments.

The plaintiffs later discovered that the initial company that they had set up ran at a loss because of mismanagement and they thereby sought to recover the redundancy payments that they had made by bringing an action in court on the grounds that they had made a mistake.

The court held that the mistake was a mistake as to quality i.e. in this instance the service that was provided did not go to the root of the contract and as such the contract was not void. The plaintiffs were unable to recover the redundancy payments that they had made.

Mutual Mistake

A mutual mistake occurs when both parties in a contract make different mistakes. In Raffles v Wichelhaus (1864) the plaintiff agreed to sell the defendant a cargo of cotton that was due to sail from Mumbai between October and December. The defendant entered into the contract thinking that the ship carrying the cotton would set sail in October while the plaintiff entered into the contract on the understanding that the ship would set sail in December. The defendant subsequently, when the cotton did not arrive on time, terminated the contract and the plaintiff sued.

The court held that the contract was void because a reasonable person would not have been able to say for certain when the ship would have set sail.

Unilateral Mistakes

Unilateral mistakes occur in instances when only one party makes a mistake. In Wood v Scarth (1858) the defendant rented his pub to the plaintiff for a certain amount to be paid each year and an additional one off payment and informed his clerk accordingly but the clerk failed to inform the plaintiff of the one-off payment. The defendant subsequently refused to rent his pub and the plaintiff sued. The court held that there was a valid agreement in place and by applying the objective test the court arrived at the conclusion that despite the mistake, the defendant had made a clear unambiguous offer that the plaintiff had accepted.

In Smith v Hughes (1871) the claimant made inquiries into purchasing some oats which he stipulated must be old because he intended to use it as horse feed and the defendant sold him some oats which in fact were not old as the claimant had stipulated but new. The defendant knew of the claimant’s requirements but kept silent on the matter. The claimant later, after purchasing the oats and realizing that the oats were not old brought an action against the defendant arguing that the oats were of no use to him and that there had been a mistake and that the defendant had made a misrepresentation.

The court held that there was no mistake or misrepresentation because the defendant had not misled him or misdirected him in any way. He merely remained silent.