Contract Law Relationship - Essay Example

Contract Law In a contract relationship, parties agree on the terms that bind them and determine their expected performance. The law of contract requires both parties to be aware of the terms of the agreement and accept willingly to be bound by those terms.1 However, sometimes common mistake occurs when both parties hold equally false belief of the facts. In a case of a common mistake in contract the most adversely affected party can seek court intervention to rescind the contract under the doctrine of mistake in equity.2 The interpretation of a common mistake poses challenges in interpretation and application of the law. In the case of Bell,3 the court ascertained that in the event of an occurrence of common mistakes that undermines the subject of the agreement it renders that contract void. The law recognizes three types of common mistakes namely, res extincta, res sua and mistake on the basis of quality and personality of the subject matter of the contract. Res axtincta is a common mistake where the parties enter into a contract to acquire something that does that both parties are unaware of its non-existence.4 res sua is a common mistake where one party forms an agreement with the other to acquire the interest in something already that party has, but without the knowledge of either party. Finally, a common mistake on the basis of quality is where the parties form an agreement to perform something different from what they thought it was.5 A common mistake can limit the parties to the contract from reaching an agreement because the parties are incapable of establishing corresponding offer and acceptance on an essential issue of the agreement.6 Also, even when parties have reached an agreement, there is a shared mistake in relation to the associated circumstance. Under the English Common law, the common mistakes might undermine the contract by rendering it completely void.7 However, unless the issues are serious it might not be necessary for the parties to seek legal intervention, even though, the parties could not have entered into the agreement had they known the true position at the time they were forming the contract.8 Equitable jurisdiction refers to a structure of integrity considered to enhance the common law by taking action in an equitable and rational manner that results in just outcome.9 Under equitable jurisdiction, the parties to the contract are prohibited from enforcing their legal rights in case it was unacceptable for them to do so. The essence of equitable jurisdiction is to ensure no party takes advantage of the other under common mistake.10 In Bell,11 lever entered formed an agreement with B and S. the first contract was an agreement of service in which they were initiated on Niger Company’s board of directors. The other one was compensatory in which lever promised to compensate the parties for their retirement benefits. During the performance of the contract Lever realized of the secret deal organized by B and S. Lever sued the parties in order to recover the money paid as compensation for pension.12 The issue before the court was to determine whether the mutual mistake of the compensation could make the agreement void. Also, there was an issue of whether the agreement could become voidable by the virtue of concealment of B and S of their delinquency during their service. The court declared that the parties were not aware of the breach of duty at the time of entering a contract hence they were not guilty of deception.13 The mistake relating to quality of the performance of the contract does not affect assent of the parties to form a contract. However, in case of mutual mistake regarding the quality of the thing contracted for where both parties believe something different from what they had expected makes the contract voidable. According to the court’s verdict there was no legal duty for the B and S to disclose their secret transactions to lever.14 Therefore, the failure of the parties to disclose the secrets could not make the contract voidable. In addition, they did not compel lever to pay them compensation or fraudulently conceal such information.15 The House of Lords held that common mistake can make a contract void only when the mistake is critical to reducing the identity of the subject matter of the contract thus making it impossible to perform because it undermined subject matter of the contract under common law.16 However, under equitable jurisdiction B and S were benefiting from misrepresentation hence it was unfair.17 In the subsequent cases, the court demonstrated that voiding the contract under common mistake does not meet the standards of equitable jurisdiction. In the case of Great Peace,18 the court issued that a common mistake must render performance of the contract impossible. This concept differs from the principle of equitable jurisdiction. Instead of considering an agreement voidable by the virtue of misrepresentation, the verdict, in this case, requires the parties to establish the contract was impossible to perform because of misrepresentation.19 According to the case in Blakeley,20 in order for the contract to be rendered void under common mistake both parties must have held a common notion about the existence of a state of affair. Also, neither of the party must give have a warranty that the state of affair exists nor non-existence of that state of affair must be caused by the mistake of either of the parties.21 The state of affair must be a vital component of the formation of an agreement. Finally, the absence of the state of that state of affair must make the contract impossible to perform.22 In conclusion, the principle of equitable jurisdiction undermines the principle of common law. In case parties for an agreement for something different from the intended purpose the common law renders the contract voidable. However, under equity jurisdiction the parties must be rational in implementing the agreement. Under equitable jurisdiction, the contract cannot be voided even if it undermines the subject matter of the contract unless it was impossible to implement the contract in fair terms. Bibliography Bell v. Lever Brothers Ltd. [1931] UKHL 2, [1931] All ER 1 Blakeley v Muller & Co 19 TLR 186, Moens, Gabriel and Jones Roger, International Trade and Business Law Review, Volume 10. Routledge, Jan 11, 2013 - 59-336 Lando, Ole, Principles of European Contract Law, Part 12, (Kluwer Law International, 2000): 229-321 Spark, Gareth Vitiation of Contracts: International Contractual Principles and English Law Cambridge University Press, 2013 93-135. OSullivan, Janet and Hilliard, Jonathan, The Law of Contract, (Oxford University Press, 2012): 1-491. Read More