Contract Drafting & Law Course Preview
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<p class="banner-heading-text-two-line"><span>Common Mistakes</span><br><span class="banner-sub-heading">Module I: Contract Law Essentials—Mistake</span></p>
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<p><span class="padded-dropcap">A</span> common mistake occurs when both parties to a contract share the same erroneous assumption about a vital fact at the time of the contract’s formation. The mistake is related to the underlying facts of the contract, and this shared mistake significantly impacts the contract’s foundation. If the mistake is fundamental, it can render the contract void because the parties were not actually in agreement over the same subject-matter. Common mistakes operate as an excuse for non-performance of a contract.</p>
<p class="c0"><span class="c8">For example, in<em> </em></span><em><span class="c1">Great Peace Shipping Ltd. </span><span class="c8">v.</span><span class="c1"> Tsavliris Salvage (International) Ltd.</span></em><sup class="c1"><a id="ftnt_ref1" href="#ftnt1">[1]</a></sup><span class="c2">, both parties mistakenly believed that the two ships were only 35 miles apart when they were actually 410 miles apart. The court held that for a contract to be void due to a common mistake, the mistake must relate to a fundamental assumption that makes performance of the contract essentially different from what was contemplated.</span></p>
<p class="c0"><span class="c2">In this case, despite the mistaken belief that the two vessels were only 35 miles apart, the contract was not void because the performance, though less convenient, was still possible.</span></p>
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<h2 style="text-align: center;">[2002] 3 WLR 1617</h2>
<h2 style="text-align: center;">Great Peace Shipping Ltd v. Tsavliris Salvage (International) Ltd.</h2>
<p>The defendants offered salvage services to a vessel which had suffered serious structural damage in the South Indian Ocean. The offer having been accepted, the defendants approached London brokers for a tug, but the tug found was five to six days sailing time away. Fearing for the safety of the crew, the defendants sought a merchant vessel in the vicinity to assist. The defendants were given the names of four vessels reported to be in the area, the nearest being the claimant’s vessel, which was believed to be about 35 miles away from the damaged vessel. Negotiations between the defendants and the claimants resulted in a hire contract for a minimum of five days to escort and stand by the damaged vessel for the purpose of saving life. The agreement contained a cancellation clause giving a right to cancel on payment of five days’ hire. When it was discovered that the vessels were in fact 410 miles apart, not 35 miles as previously understood, the defendants did not immediately cancel the contract but sought a nearer vessel to assist. A few hours later such assistance was obtained. The defendants then cancelled the contract with the claimants and refused to make any payment for the hire of their vessel. The claimants brought an action claiming US$82,500 as moneys payable under the contract or as damages for wrongful repudiation. The defendants disputed the claim on the ground that the purported contract had been concluded by reason of a fundamental mistake of fact in that both parties had proceeded on the fundamental assumption that the two vessels were in close proximity when they were not, and that therefore the contract was either void at law or voidable and the defendants were entitled to rescission in equity. The judge gave judgment for the claimants.</p>
<p>On appeal by the defendants —</p>
<p><em>Held</em>, that common (or mutual) mistake was a common mistaken assumption of fact which rendered the service that would be provided if the contract were performed in accordance with its terms essentially different from the performance that the parties contemplated, with the result that the contract was not merely liable to be set aside but was void at common law; that the avoidance of a contract on the ground of common mistake resulted not from an implied term but from a rule of law under which, if it transpired that one or both of the parties had agreed to do something which it was impossible to perform, no obligation arose out of that agreement; that the test for common mistake was narrow, and if a contract were to be avoided for common mistake there had to be a common assumption as to the existence of a state of affairs, no warranty by either party that that state of affairs existed and the non-existence of the state of affairs had not to be attributable to the fault of either party; and that, where it was possible to perform the letter of the contract but it was alleged that there was a common mistake in relation to a fundamental assumption which rendered performance of the essence of the obligation impossible, it was necessary to construe the contract in the light of all the material circumstances in order to determine whether the contract could be avoided for common mistake.</p>
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<p><a href="https://ebclearning.com/courses/course-v1:EBC-Learning+law-contract+2025/courseware/35ae1b0e18c3444c8a2d3678b5111337/3ec4e6a2c3ce4256a86873bffa15aa2c/3?activate_block_id=block-v1%3AEBC-Learning%2Blaw-contract%2B2025%2Btype%40vertical%2Bblock%404eb8c7cd59a14e91a56bf2bc3054971e">Watch the following videos to understand more about mutual mistakes and unilateral mistakes</a>.</p>
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<p class="c5"><a id="ftnt1" href="#ftnt_ref1">[1]</a><span class="c8 c9"> [2002] 3 WLR 1617.</span></p>
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