A theory of mistaken assumptions in contract law

Abstract

In Great Peace Shipping v Tsavliris Salvage, the English Court of Appeal rejected the equitable doctrine of mistaken assumptions, arguing that the doctrine lacks a principled foundation. Defenders of the doctrine appear to agree that the doctrine lacks a coherent animating principle, but they think that its open-endedness is an argument in its favour. Against both the critics and the defenders, this article argues that the equitable doctrine of mistaken assumptions is a principled doctrine, one that protects individual self-determination by setting aside a contract that, due to a mistake about the quality of the thing contracted for, serves the purposes of one of the contracting parties but none of the other’s. This defence of the equitable doctrine may seem to be an argument for replacing the narrow common law doctrine of mistaken assumptions with the equitable one, but I argue that it is not. The common law and equitable doctrines of mistaken assumptions are founded upon distinctive conceptions of human freedom, and each doctrine understands the normative significance of mistake in a manner suitable to the conception of freedom underlying it. Moreover, these conceptions of freedom are each incomplete on their own; they require each other for the vindication of their own claims to be conceptions of freedom. The English Court of Appeal was therefore wrong to conclude that the law of contracts must choose between the doctrines of common law and equitable mistaken assumptions; on the contrary, a law of contracts respectful of the freedom of its subjects requires both.