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Question:

Advise Michelle whether or not the law can assist her to have Wayne remain responsible to pay his $250,000 share and if so, how, and if not, why not?
 
 

Answer:

Issue:

Whether Michelle can sue the Wayne for paying $250000 share or not, and whether law assist her in reimbursing that amount?

Law:

Mistake is considered as the difficult area of the law, and as per the general rule, being mistaken about some aspect of the contract will not provide any rights to the parties to escape their obligations under the contract, even though that mistake is fundamental in nature. It must be noted that, mistake is divided into four forms and all these forms provide contractual remedies in limited situations.

 


This paper mainly discuss unilateral mistake as this the most common mistake. This mistake is occurred when party to the contract is mistaken in context of some part of the contract, but the other party to the contract is not mistaken. In context of unilateral mistakes, common law rarely provides the remedy, but in this context equity will definitely interfere and equity provides the remedy. However, equity only provides remedy when other party who is not mistaken conduct any improper act such as party wants to prevent the mistaken party to become aware about the mistake. In other words, some misleading conduct involves on the part of the unmistaken party which will result in grant of the separate and superior remedies. The best remedy exists in this context is the rescission or rectification (ACL, n.d.).

It must be noted that, unilateral mistake only arises only when one party to the contract is mistaken and other party have knowledge about the mistake but still they don’t want to aware the other party about the mistake. It is necessary that mistake must be fundamental in nature. in few situations mistake can be voidable and in other it is void in nature.

Generally, contracting parties claim to get relief from the results of a mistake which influence the party to enter into the contract have put the court in difficult state of making the decision. However, misrepresentation which influence the contract formation only result in the contract voidable suitable situations, and there are number of examples in the common law where mistake has had the effect of executing the resulting contract not simply voidable at the option of the mistaken party, but it completely void ab initio (Legal vision, n.d.). This decision will be difficult when an innocent third party has entered in the contract the picture before the mistake has been discovered. If contract becomes a complete nullity because of the mistake, and no rights can pass the under the contract, and the innocent third party suffers injustice because of it. However, if the contract is considered as simply voidable, then the intervention of the rights of the unmistaken third party can be acted as bar to the rescission by the party who is originally mistaken, who then must bear the loss unless he can obtain redress from the other party related to the contract.

 


This can be understood through case law Taylor v. Johnson, in which Court stated that contract was void because of the unilateral mistake. Facts of this case are similar to the present issues, in which Johnson offer the Taylor to purchase almost 10acres land for $15000. Taylor accepts the offer in favor of his children and both entered into the contract of sale. Again purchased price was stated to be $15,000. Subsequently, Johnson stated that at that time he believed that purchase price was stated in the document as $15000 per acre. In this case, trial judge stated that Johnson was mistaken, but Taylor was completely unaware about this mistake. In this case, court ordered specific performance. Later, New South Wales Court of Appeal accepts the appeal made by Johnson and stated that Taylor did not want to Johnson be aware about the mistake. Therefore, court upheld the appeal and set aside the contract of sale (Case Briefs, n.d.).

Before looking more closely at the decision taken by majority, it would be necessary to consider the law which existed before the decision of above stated case. For this purpose, court considers famous case of Smith v. Hughes which defines the first possibility under this state of law. in this case, defendant agreed to buy oats from the seller after checking the sample. Sample of the oats were new, but defendant made assumption that oats were old. On this ground defendant later deny the delivery of the quantity oats because new oats were considerable less valued as compared to old oats. In this case decision of the jury was accepted by the Court who stated that plaintiff must have knowledge about the mistake committed by the defendant at the time when parties entered into the contract, but stated that trail judge made mistake in directing that the jury find for the defendant on that basis. Court further stated that it was not possible to declare the contract void just because defendant had been mistaken related to age of the oats (E-law resources, n.d.).

 


Because of these competing views, second approach was considered by the judges. Court further stated that once the parties related to the contract externally agreed on the same terms related to the subject matter, no party can rely on their own mistake. However, fundamental in nature and other party have knowledge of the mistake can be sued as defense in context of claim that their contract was void from the beginning (Austlii, n.d.). Following are available remedies for the unilateral mistake:

Court can rescind the contract as per the equity, and Court refuses the specific performance of the contract.

Another important remedy is the rectification of the contract, which means court rectify the fundamental mistake stated in the contract. This remedy is only available in that case when party to the contract has some particular intention and such intention is not incorporated in their contract. The main purpose of this remedy is to make the document conform to the true agreement of the parties. Party must prove four elements for the purpose of seeking rectification. All these elements are described below:

  • Plaintiff had been mistaken that either document contain or fails to contain the specific term.
  • Defendant clearly knows that plaintiff hold that mistaken belief.
  • Defendant takes no action to correct that belief.
  • Mistake clearly provides benefit to the defendant or cause disadvantage to the plaintiff (Granger & Briers, 2011).

Application:

In the present case, Michelle is at unilateral mistake in context of amount of the loan and deed signed between the parties contain wrong price as deed contain $25000 instead of $250000. Wayon argued that he is only liable to pay $25000 because contract signed between the parties stated this amount. In this case provisions of unilateral mistake will applied because plaintiff is mistaken in context of amount of the contract, but the other party to the contract is not mistaken. Some misleading conduct involves on the part of the unmistaken party which will result in grant of the separate and superior remedies.

As stated above, unilateral mistake only arises only when one party to the contract is mistaken and other party has knowledge about the mistake but still they don’t want to aware the other party about the mistake. It is necessary that mistake must be fundamental in nature. In the present case, Michelle is mistaken related to the amount of the contract and wayon clearly known that Michelle holding mistaken belief and does not taken any action to correct that belief. Therefore, Wayon commits misleading conduct which gives rise to the remedy under unilateral mistake.

 


This can be understood through case law Taylor v. Johnson, in which Court stated that contract was void because of the unilateral mistake. In this case, trial judge stated that Johnson was mistaken, but Taylor was completely unaware about this mistake. In this case, court ordered specific performance. Later, New South Wales Court of Appeal accepts the appeal made by Johnson and stated that Taylor did not want to Johnson be aware about the mistake. Therefore, court upheld the appeal and set aside the contract of sale. Therefore, Michelle can take action against the Wayon and seek rectification of the contract from Court because all the necessary elements related to rectification are present in the case that are:

  • Michelle had been mistaken that document contain the right amount.
  • Wayon clearly knows that Michelle hold that mistaken belief.
  • Wayon takes no action to correct that belief.
  • Mistake clearly provides benefit to the wayon and cause disadvantage to the Michelle.

Conclusion:

After considering the above facts it is clear that Michelle can take action against the Wayon and seek rectification of the contract from Court.

 

References:

ACL. Mistake. Retrieved on 20th April 2018 from: https://www.australiancontractlaw.com/law/avoidance-mistake.html.

Austlii. Taylor v. Johnson: unilateral mistake in Australian contract law. Retrieved on 20th April 2018 from: https://classic.austlii.edu.au/au/journals/MonashULawRw/1985/3.pdf.

Case Briefs. Taylor v. Johnson. Retrieved on 20th April 2018 from: https://www.casebriefs.com/blog/law/contracts/contracts-keyed-to-murphy/breach-of-contract-and-permissible-remedial-responses/taylor-v-johnson-2/.

E-law Resources. Smith v Hughes (1871) LR 6 QB 597. Retrieved on 20th April 2018 from: https://www.e-lawresources.co.uk/Smith-v-Hughes-%281871%29.php.

Granger, J. & Briers, D. (2011). Rectification: What to do when your "contract" is not your contract. Retrieved on 20th April 2018 from: https://www.claytonutz.com/knowledge/2011/september/rectification-what-to-do-when-your-contract-is-not-your-contract.

Legal vision. What are the consequences of a mistake in a contract?. Retrieved on 20th April 2018 from: https://legalvision.com.au/what-are-the-consequences-of-a-mistake-in-a-contract/.

Smith v Hughes (1871) LR 6 QB 597.

Taylor v Johnson (1983) 151 CLR 422.

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