A Study Of The Mistake System In Contract Law

Mistake is one of the most ancient and controversially discussed areas of the law, which can be traced back to the Roman law. It is aimed to settle the sharp conflicts between the needs of protecting an individual’s free will to contract and security of transaction which is of the utmost importance to a free market economy. Every legal system must strikes a balance between the two values somehow. However, in spite of the rough rules provided by’the General Principle of the Civil Law of the PRC,’The Contract Law of PRC and’the Opinions on Several Issues concerning the Implementation of the General Principle of the Civil Law of the PRC, the doctrine research on mistake is rather weak in our country, which is quite unsatisfactory. Moreover, recent developments in the theory of mistake in international level, together with the urgent needs from the domestic judicial practice have made the research even more necessary, both theoretically and pragmatically.This dissertation focus on the interpretation and reconstruction of the law of mistake in China, applying the methods of historical analysis, comparative law and inter-disciplines approaches such as philosophy of right and economic analysis of law. The dissertation is consisted of five chapters which can be divided into three parts, and the common thread uniting all these contents is the effort to maintain equilibrium between the two legal values, namely free will of individuals and security of contracts.The first part is Chapter one. In this chapter, the history of the law on mistake was briefly examined, followed by the conclusion that the philosophical foundation of mistake in modern contract law is the Aristotelian-Scholastic theory of contractual acts. Furthermore, by tracing the historical development of the doctrine of mistake, three periods were identified according to the different standpoints held by de lege lata. The first life of mistake is in Roman law and medieval common law, where mistake was not an independent institution but a rather exceptional cause to impede an effective consensus. Security of contracts was of more importance in this period. The second life of mistake is in the19th century, the notion of "autonomy of will" was enhanced a great deal which resulted in the will theory of mistake in France and Germany. Later, the continental mistake rules were transplanted to England and thus had an effect on common law system. In a sense, it was on the side of "autonomy of will" that the balance dips. The third life of mistake began in20th century, especially the second half of it. With the development of market economy and globalization, the importance of security of transactions is once again highlighted. Priority seems to be given to the objective analysis of the will of the parties.The second part composes of Chapter2,3and4. By referencing to the contemporary trend of the law on mistake mentioned in the first part, this part tries to carry out a thorough research on the structure of domestic doctrine of mistake. As always, the research was based on the current legislation and judicial practices in China. Chapter2discusses the constitutive requirements of mistake.(1) The contract has been established, which exclude the mistakes leading to the invalid or non-existence of a contract.(2) There is a mistake. By categorizing mistakes in different ways, analyzed the most common and difficult types of mistake.(3) The mistake is substantial. As well as pointing out the disadvantages of the dichotomy between motive and declaration adopted by German law, the dissertation tries to establish a new test called "fail of the purpose of a contact", using Aristotle’s philosophical notion of essence, to decide whether a mistake is substantial or not. Chapter3deals with the major limitations faced by the mistaken part when exercising his/her right to avoid the contract. The fourth chapter focuses on the legal consequences of a mistake.(1) Alteration of the contract. What is the nature? What effectiveness it brings? Who gets to exercise this right?(2) Return of property. What is the nature of this request? How to define the returning range?(3) Compensation for the losses. When does the liability arise? What is the nature and scope of the liability?The third part is Chapter5. Based on the discussion of the first two parts, Chapter5suggests that the doctrine of mistake in China should be adjusted modestly to give more protection to the security of transactions, thus strikes a rough balance between the two important legal values. The dissertation also tries to provide some suggestions and interpretations on the law of mistake in China.(1) Use the concept of "mistake" instead of "major misunderstanding".(2) Giving broader interpretations to the "mistake in contents" so that it can include both declaration mistakes and mistakes in motivation. Narrow the range of people who can invoke the right to avoid the contract for mistake.(3) Establishing the limitations which prevent the mistaken party to avoid the contract. The limitations include:the gross negligence of the mistaken party; the mistaken party bears the risk of the mistake; the revoking period set by the law has expired etc. The mistaken party should exercise his right of revoking immediately, which is quite different from other causes leading to the revoke of contracts.(4) Once a contract was avoided for mistake, rules of restitution for unjust enrichment should be applied in the returning of property. And the mistaken party’s liability to compensate the other party for the losses should not be base on fault.