Videos: Part 2: Keeping Contracts: Video 3: When websites display the wrong price

Introduction

Websites are driven by software, and software has bugs. Sometimes those bugs produce unfortunate results.  The video below gives you one such example—an instance when the website of a major retailer in the US began displaying goods at a price far lower than that at which they were supposed to be displayed.  Similar situations have also arisen in the UK.  In cases like this, the sellers are usually able to cancel all orders placed on the basis of the incorrectly displayed price, by drawing on the law of mistake.  Watch the video below, and consider the situation in light of the legal rules pertaining to mistake.

Commentary

1. Two varieties of mistake are possibly applicable to this situation.

  1. Mutual mistake deals with situations where the parties have misunderstood each other, and their words cannot be given a clear objective meaning.  The classic case is Raffles v Wichelhaus (1864) 2 H&C 906, where the parties contracted to send a shipment on a ship called the ‘Peerless’, without realising that there were two ships with the same name. 
  2. Unilateral mistake as to terms deals with a situation where one party accidentally misstates the terms.  The other party is aware of the mistake, and deliberately seeks to take advantage of it.  For unilateral mistake to affect a contract’s validity, there must be an actual mistake such that one party actually believes that the terms are otherwise than they actually are, and enters into the contract on that basis.  The other party must know (or ought to have known) of the mistake. 

2. Unilateral mistakes as to terms will not apply if the mistake relates to a background matter of fact rather than to a term itself.  The distinction between the two is illustrated by the contrast between the cases of Hartog v Colin and Shields [1939] 3 All ER 566 and The Hariette N [2008] EWHC 2257 (Comm).  In the latter case, the other party knew of the first party’s mistake and deliberately kept silent.  Nevertheless, the contract was valid because the mistake did not relate to a term (as the phrase is understood in law).

3. On the facts of this case, it is likely that the law of unilateral mistake will apply, because the price of goods is a term.  Nevertheless, it is important to understand that unilateral mistake is a narrow concept.  Parties are not under a general duty to act ethically, and taking advantage of a mistake made by the other is perfectly fine as long as there is no legal rule to the contrary.