Doctrine of Mutual Mistake<1,2,3,4>

Legal background

 

Sherwood v Walker,1887


  1. BulletWalker, a cattle breeder, agreed to sell Sherwood, a banker, a cow both parties believe to be barren, at 80 USD.


  1. BulletPrior to the delivery, Walker discovered that the cow is pregnant and refused to deliver her. The market price of a pregnant cow was around 800 USD.


  1. BulletSherwood sued, prevailed in trial court but lost in appeal.


  1. BulletThe appeal court based its decision on mutual mistake.

Wood v Boynton, 1885


  1. BulletWood found a colorful stone. She was told it could possibly be a topaz. She asked Boynton, a jewelry dealer. Boynton was not sure either and offered to buy it for one dollar.


  1. BulletWood declined. But later she needed money and returned to sell it to Boynton for one dollar.


  1. BulletLater it turned out to be a rough diamond worth around 700 dollars.


  1. BulletWood brought a court action for the return of the stone citing mutual mistake.


  1. BulletThe court agreed that there was a mutual mistake but still ruled in favor of Boynton.

If a mistake concerning an existing fact has been made by both parties at the contract making, then parties can seek relief of the grounds of the doctrine of mutual mistake. The party seeking relief must show that


  1. 1)the mistake concerns a basic assumption on which the contract was based, and


  1. 2)the mistake has a major impact on the fairness of the contract, and


  1. 3)the risk of this type of mistake is not allocated to the party seeking relief.



Consider two text-book cases.

DMC v GIS


  1. BulletTo map a forest fire just broken, a Disaster Mitigation Center (DMC) contracted a GIS company to deliver urgently some satellite images.


  1. BulletNormally such a transaction would complete in 2 hours at most.


  1. BulletHowever, it took GIS more than a day because an optical cable providing almost all internet traffic between computers of two parties was also broken few hours before the contract was made.


  1. BulletSuffering losses from the enlargement of the fire, DMC sued GIS for breach of contract.





Here, both parties made a mistake in believing that the transaction would complete within 2 hours. This time may not be mentioned explicitly in their contract but both parties intended it to be a contractual condition whose non-satisfaction renders the transaction invalidated. Thus conditions 1 the doctrine mentioned shortly above holds. Condition 2 also holds because DMC made payment but did not get any value from the contract. To rescind the contract, GIS needs to show that condition 3, i.e. it does not bear the risk of the mistake, also holds by proving that it was not aware of the risk and could not do anything to check that the cable was already broken at the time of contract making.

MAN v CZD


  1. BulletA coastal zone department (CZD) asked a sea port  manager (MAN) to provide a composite map showing ships and oil spills in near real time.


  1. BulletMAN searched an Earth Observation catalogue and found a free service daily publishing oil spill maps made from satellite images. 


  1. BulletMAN told CZD that he could compose this service with his own realtime ship-location service. CZD then asked MAN if oil spill maps were actually made daily.


  1. BulletMAN said he was not sure either but CZD still contracted with MAN. Later it turned out that there were many days oil spill maps are refreshed because no satellites imaged the monitored sea.


  1. BulletCZD refused to pay and was sued by MAN.



Here, both parties made a mistake in believing that oil spills are mapped daily. The non-satisfaction of this condition renders the transaction to provide a daily composite map showing the locations of ships and oil spills invalidated. Thus conditions 1 and 2 of the doctrine hold. However, CZD should not be allowed to rescind the contract since it was aware that oil spill maps may not be made daily, i.e. condition 3 fails.

Analyzing Wood v Boynton , modern courts and scholars agree with the ruling for the reason of conscious ignorance meaning that Wood had known that there was a risk that the stone could be more valuable but still decided to sell it. Hence she should be allocated the risk of her decision.



Two hypothetical cases in the context of ARGUGRID below are after the above cases.