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Zhou, Qi --- "Contractual Mistake and Misrepresentation" [2011] ELECD 120; in De Geest, Gerrit (ed), "Contract Law and Economics" (Edward Elgar Publishing, 2011)

Book Title: Contract Law and Economics

Editor(s): De Geest, Gerrit

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847206008

Section: Chapter 3

Section Title: Contractual Mistake and Misrepresentation

Author(s): Zhou, Qi

Number of pages: 26

Extract:

3 Contractual mistake and misrepresentation
Qi Zhou


1. Introduction
A contractual mistake is the misperception of a party which induces him
to enter into a contract. Contractual mistakes can be divided into two
groups, viz. common and unilateral mistakes. The former are the mistakes
which are shared by both parties. The latter type comprises mistakes by
one party only, for example, the seller knows that the cow being offered for
sale is barren, but the buyer misbelieves that she is fertile. In most jurisdic-
tions, the law of contract law does not enforce a contract concluded on the
basis of a fundamental mistake.
From an economic perspective, a contractual mistake may lead to misal-
location of resources by inducing the party to make an incorrect appraisal
of the payoff derived from the transaction. However, this does not mean
that the legal remedy for mistake is economically justified, because the law
of contractual mistake also modifies the party's incentives to search for
and disclose information prior to the conclusion of the contract. For their
part, scholars of law and economics have traditionally focused on how the
law can be designed not only to improve allocative efficiency, but also to
create incentives for the parties to undertake optimal search and disclo-
sure of information. Section 2 provides a brief critical review of relevant
economic theories of the law of contractual mistake.
From a legal perspective, misrepresentations can be categorised into
three types: (i) fraudulent misrepresentation ­ a false statement is made
intentionally ...