Post No.: 0503
In general, if a contract is made between free and knowledgeable people and if there’s been a mistake – as in not just concerning a minor detail but an important one that the parties are labouring under – and neither party is responsible for that mistake and neither party should have reasonably known any better, then what looked like a meeting of minds wasn’t a meeting of minds. This will be regarded as a ‘mutual mistake’ – it’s an accident, a genuine mistake of fact, and the whole thing should be called off as if it never happened in the first place. No harm, no foul, no contract. And since neither party is at fault then any loss unfortunately lays where it falls and there’s no loss sharing.
So if assumptions in an agreement were made and it transpires that both sides had misunderstood each other or something important (e.g. both sides were actually talking about different things) then no meeting of minds was ever made (even though they both assumed they were on the same page) and therefore no contract was ever formed. For instance, if one dog agreed to sell her rope toy to another dog on the phone and come the next day they meet but the buyer thought the seller meant her other rope toy, then no contract was formed on the bone – I mean phone. It was an unintended error and both sides are deemed equally innocent and the whole thing should be called off. One lesson to take away from this is that any open or unspecified details can come back to haunt you – so think about and define any important details in any bargain you create!
If a seller mis-describes an item, but both the buyer and seller clearly know which exact physical item is for sale and this doesn’t later get swapped for something else – it’ll usually be the buyer who’ll lose out because the buyer can clearly see and physically check what he/she is purchasing. (Buying online, or distance selling, might be different though.) But sometimes it can be the case that the seller will lose out, such as when thinking that he/she was selling a moissanite ring but then realising it was actually a real diamond ring! Or it could be deemed a case of both sides mutually making a mistake i.e. the seller made a mistake in thinking it was a moissanite ring and the buyer made a mistake in thinking he/she was going to buy a moissanite ring – in which case no contract was ever truly made.
But if the courts view it as both sides making a gamble rather than a normal sale, and both sides were taking a risk i.e. the seller gambled that it wasn’t a diamond ring and the buyer gambled that it might actually be a diamond ring, then there was a valid contract to trade the item for the agreed price – and in this case, the seller will be the one who’ll lose out if it turns out that he/she sold a diamond ring for cheap, or the buyer will be the one who’ll lose out if it turns out that he/she paid too much for a moissanite ring.
A ‘unilateral mistake’ is when only one party is under an important mistaken impression but the other is not. In gambling – where the contract is really about risk and both parties understand it’s about risk – the loser knows it was a gamble and made a mistake in thinking that the horse he/she had backed, as it were, would win when it didn’t, so must bear the loss. The racetrack didn’t make a mistake, no one else made a mistake, thus the contract is still binding. Buying and selling insurance is essentially a gamble regarding risk too.
This is a tricky and controversial area but it is arguable that buying antiques is inherently about gambling too – gambling whether something is real or fake, and so if something turns out to be fake then it’s tough luck to the buyer. This is unless the seller had known it was a fake before it was sold, or actually forged the item him/herself! But if neither side cheated then the contract stands. However, if the deal was made on the basis that neither side was gambling then it could be regarded as a normal sale, and something turning out to be fake would be regarded as a mistake by one or both of the parties and would mean the contract won’t stand.
If a seller sold an item that he/she thought was €1 to a buyer who knew or guessed it was probably really worth up to €100 at the time of agreement i.e. only one side was mistaken, and the buyer just took advantage of that deal, but then the seller later realised its true worth – then it was the seller’s unilateral mistake and he/she must bear the loss. So long as one party didn’t cause the other party’s mistake then the deal will stand. But in some other cases, a unilaterally mistaken party will be allowed to call a deal off, such as if the seller accidentally attaches onto an item the wrong price tag or miscalculates a quotation for a job – in these cases, everyone should be returned to the positions they were in before the deal was made (so monies should be refunded and items should be returned) because that deal is called off, and any losses should lay where they fall.
The difference between these two cases above is that the first involved a mistake of judgement (e.g. believing or gambling that an item was in fact worth only a certain price to entice customers to a shop) whilst the latter involved a mistake of action (e.g. putting on the wrong price tag or reading/inputting the wrong number in a calculation and the mistake wasn’t made in the context of gambling). But (there seem to be a lot of exceptions in Contract law!) if the courts are convinced that the mistaken party is responsible for their own mistake of judgement, and they were actually gambling, but just lost that gamble, then they won’t be let off the hook.
To round up the main points so far – if one party makes a mistake (e.g. they call a real coin a fake coin) and the other party follows that mistake (so calls that same coin a fake coin) then it’s a mutual mistake and the deal won’t usually stand. But if one party makes a mistake (e.g. they call a real coin a fake coin) whilst the other party doesn’t follow that mistake (so calls that same coin just a coin or doesn’t know one way or another) then it’s a unilateral mistake and the deal will stand against the mistaken party if the mistake was made in the context of gambling, or won’t stand against the mistaken party if the mistake was not made in the context of gambling. I hope that’s clear! Woof!
If any fuzzy fraud, cheating, misleading or mis-selling is involved (at any stage) by one party then the deal can be called off (and the fraudster could be charged for committing fraud). For example, by turning a vehicle odometer back or lying in a negotiation about there being someone else who’d buy the item for more if you don’t buy it now, in order to extract a better deal from you. A lie by the other party allows the party who has been lied to, to tear up any contract that the lie relates to if they want, in order to get their money back and walk away.
Or, of course, they could both negotiate a new contract but with all of the true facts on the table this time. You might want to read Post No.: 0455 to learn more about when an offer becomes legally accepted.
But if people hype something up (e.g. say that something is in mint condition, drives like a dream and it’ll attract members of the opposite sex…) then that’s kind of like a legally sanctioned form of lying called advertising and is considered acceptable! The law on ‘small print’ or ‘fine print’ (which includes ‘fast talking’ on TV or radio advertisements) has changed a little in recent years to favour more plain and clear language though. But the choice of emphasis (e.g. emphasising the pomegranate in a drink that contains only 1% pomegranate) is still currently acceptable.
So specific facts, figures and specifications need to be truthful, but superlatives and opinions don’t, even if they’re clearly baloney – hence it’s ‘buyer beware’ here. If a handbag is being sold at half the price of its usual market price then one might sensibly have to expect that it’s a counterfeit – yet if the marketing says that it’s ‘100% authentic’ then that’d be a lie if it turns out to be a counterfeit. Avoiding answering a question is acceptable as long as one doesn’t lie and as long as one isn’t under a duty to communicate the answer to the other party. One doesn’t have to tell the truth – one simply must not knowingly lie. And that’s why marketing is legally allowed to be full of BS! (In the case of counterfeit goods, even if a seller doesn’t claim that they’re authentic, intellectual property may be infringed so they could still be in trouble with the genuine manufacturers though.)
Each party must take care not to say or do anything tending to impose upon (lie to) the other party – simply taking advantage of an information asymmetry doesn’t count as imposing on the other party, but lying does. So generally, you don’t have to disclose to the other party everything during negotiations, but whatever you do disclose must not impose on them. Of course, however, if you don’t give a straight answer to a simple and direct question then that’ll raise suspicions! But if the roles are reversed and the other party says they don’t know the answer to a question, then you’ve got to somehow prove that they do know but just aren’t telling you the truth, and it could convert a normal sale into a gamble, unless you condition the trade with some sort of guarantee.
Using brokers to make deals for you in order to not signal to the market that you’re looking to buy a lot of houses in an area (which would push up those house prices) is okay – but regarding securities law, if there’s insider information or insider trading (taking advantage of information not available to the public yet) then that’s illegal. An example would be if somebody inside a company knows that it is targeting another company for a takeover so buys lots of shares in that company, but that information is not yet public. Guessing based on public information is fine but using privileged insider information is not.
Contract law can provide a remedy if false statements were made during contract negotiations or if there was a mutual mistake (i.e. both parties were mistaken about something). Contract law does not provide a remedy if one company loses sales of its own products due to competition from another company’s products that were misleadingly advertised though – this would probably concern statutory law.
…These are all ruff guides and are of course dependent on your particular country’s laws, which may also change over time too – but this post is really just to get you thinking about where your rights might be if you ever encounter one of the above scenarios. You can and should then search for local and up-to-date legal guidance if required.