Mistake

Question 1

Raffles v Wichelhaus (Distinguish from common mistake)

Answer 1

Raffles v Wichelhaus illustrates the concept of “mutual mistake” - where both parties make different mistakes, the two parties are at cross purposes and never ad idem. E.g. here the two parties were referring to different ships of the same name, so no contract ever materialised.

Cf common mistake - agreement is reached, but vitiated by the common mistake.

Question 2

What is the crucial difference between mistake and misrep?

Answer 2

Misrep only renders a contract voidable, which is vital for 3rd party rights due to nemo dat.

Question 3

Name the three situations in which English law will allow contracts to be vitiated for unilateral mistake.

Answer 3

1. The mistake is as to the IDENTITY of the person C appears to be contracting with
2. The mistake is in the terms of the proposed contract.
3. The mistake is as to the very nature of the proposed contract where the mistaken party signs a written contract – NON EST FACTUM

Question 4

When will a contract be vitiated for a unilateral mistake as to terms?

Answer 4

1. C made a mistake as to the terms of the offer.
2. D knew or ought to have known of the mistake, so that he could not reasonably accept C’s conduct as evincing an intention to accept an offer on the terms he provided.

Question 5

When will a contract be vitiated for a unilateral mistake as to terms?

1. Smith v Hughes
2. Hartog/Scriven

Answer 5

1. C made a mistake as to the terms of the offer (i.e. he must have thought he was being promised old oats, rather than just hoping the oats would be old - Smith)
2. D knew or ought to have known of the mistake, so that he could not reasonably accept C’s conduct as evincing an intention to accept an offer on the terms he provided (Hartog) or D was at fault in triggering C’s mistake (Scriven)

Question 6

In impersonation (3-party) cases, when will unilateral mistake of identity vitiate the contract?

Answer 6

When A’s mistake is so important that he only makes an offer to “B” subject to the condition that B is who he says it is, for if so “B” cannot validly accept the offer

Question 7

What is the crucial difference between mistake and misrep? In which category of cases is this most apparent?

Answer 7

Misrep only renders a contract voidable, which is vital for 3rd party rights due to nemo dat.

This is most apparent in the impersonation cases relating to unilateral mistake over identity, where if the test is not met then the contract is voidable only for misrep of the fraudster but is in the meantime capable of conferring valid rights on 3rd parties.

Question 8

Where a fraudster C impersonates B in contracting with A, when will unilateral mistake of identity vitiate the contract?

Answer 8

When it would reasonably have appeared to a person in C’s shoes that A only makes an offer to “B” subject to the condition that B is who he says he is

Question 9

Shogun Finance, drawing a distinction between written and oral contracts for mistake of identity.

Answer 9

o If the contract is written and on a proper construction of its terms states that the parties to it are A and B, then the authorities suggest that contract may be void for mistake (e.g. Philips)
o If the contract is oral then the strong presumption (of fact) is that A intended to contract w/ the person in front of him (Ingram largely disapproved)

Question 10

What was the substance of Lords Nicholls and Millett’s dissent in Shogun Finance?

Answer 10

There is no principled basis for distinguishing between face-to-face situations and other scenarios or strongly favoring innocent third party purchasers only in face-to-face cases. It is “absurd that a subsequent purchaser’s rights depend on the precise manner in which the crook seeks to persuade the owner of his creditworthiness”.

Question 11

What was the substance of Lords Nicholls and Millett’s dissent in Shogun Finance? What approach did they prefer?

Answer 11

There is no principled basis for distinguishing between face-to-face situations and other scenarios or strongly favoring innocent third party purchasers only in face-to-face cases. It is “absurd that a subsequent purchaser’s rights depend on the precise manner in which the crook seeks to persuade the owner of his creditworthiness”.

They preferred a universal presumption that A intends to contract w/ the party he was dealing with “as between two innocent parties the loss is more appropriate borne by the one who takes the risks inherent in parting w/ his goods w/o receiving payment”

Question 12

What alternative approach does Stevens suggest to that adopted by the HoL in Shogun Finance?

Answer 12

Stevens suggests the better approach is that based on Scriven - to deny the existence of the contract, A must show that
(i) The mistake was one concerning the identity of B
(ii) B knew of the mistake
(iii) The identity of B was a term of the contract
He notes that on this test the decision in Shogun was correct.

Question 13

What are the three key elements of non est factum?

Answer 13

Saunders - Where a

i. Party signing a document
ii. has made a fundamental mistake as to the character or effect of the proposed contract
iii. through no fault of his own

Question 14

United Dominions (non est factum)

Answer 14

To show that he was not at fault, the signatory bears the BoP of showing that he acted carefully.

Question 15

Where a fraudster C impersonates B in contracting with A, when will unilateral mistake of identity vitiate the contract? (Hector v Lyons)

Answer 15

When it would reasonably have appeared to a person in C’s shoes that A only makes an offer to “B” subject to the condition that B is who he says he is.

Hector v Lyons - where the identity of the purchaser is of direct and important materiality in inducing the vendor to enter into the contract

Question 16

Shogun Finance, drawing a distinction between written and oral contracts for mistake of identity.

Answer 16

o If the contract is written and on a proper construction of its terms states that the parties to it are A and B, then the parol evidence rule provides that no oral evidence may be adduced to contradict the written document by showing that A intended to contract with the rogue C, not B.
o If the contract is oral, then the strong presumption (of fact) is that A intended to contract w/ the person in front of him (Ingram largely disapproved, Lewis approved)

Question 17

What was the substance of Lords Nicholls and Millett’s dissent in Shogun Finance? What approach did they prefer?

Answer 17

There is no principled basis for distinguishing between face-to-face situations and other scenarios or strongly favoring innocent third party purchasers only in face-to-face cases. It is “absurd that a subsequent purchaser’s rights depend on the precise manner in which the crook seeks to persuade the owner of his creditworthiness”.

They preferred a universal presumption that A intends to contract w/ the party he was dealing with “as between two innocent parties the loss is more appropriate borne by the one who takes the risks inherent in parting w/ his goods w/o receiving payment” than the 3rd party purchaser. The effect would be that in most cases of mistake as to identity the contract will be voidable, not void.

Question 18

What is the analytical framework for common mistake outlined in Associated Japanese Bank?

Answer 18

1. Does the contract, on a proper construction including both expess and implied terms, allocate the risk of the mistake?
2. If not, then does the doctrine of fundamental mistake apply?

Question 19

What is the basic position on when a contract may be set aside on the ground of common mistake?

Answer 19

The mistake must be fundamental. It is more likely to be fundamental when it relates to the existence of the subject matter (Couturier) than when the mistake is as to the quality of the subject matter (Bell), even if the mistake turns out to be fundamental to one party.

Question 20

Bell v Lever Bros ratio. What is the problem with the ratio?

Answer 20

“Mistakes as to quality…will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing w/o the quality essentially different from that with the quality”

As OSh observe, if these facts did not satisfy the “essential difference” test then it would never be satisfied; indeed there are practically no cases where Bell formed the ratio, w/ reference to the test in Associated Japanese Bank being obiter only.

Question 21

How does MacMillan explain the outcome of Bell v Lever Bros?

Answer 21

The case was argued primarily on grounds of fraud and thus mistake was argued only as an afterthought following C’s “failed case of fraudulent misrep”, which may have contributed to the finding that the mistake was insufficiently fundamental.

Question 22

How does MacMillan explain the outcome of Bell v Lever Bros (2 points)?

Answer 22

1. The case was argued primarily on grounds of fraud and thus mistake was argued only as an afterthought following C’s “failed case of fraudulent misrep”.
2. The particular and exceptional circumstances led to a finding that the mistake was insufficiently fundamental (e.g. D had made only modest profit from trading on his own account and was in failing health, C had benefited considerably from D’s services and D’s conduct was not so reprehensible as to strip him of all compensation)

Question 23

Bell v Lever Bros ratio. What is the problem with the ratio?

Answer 23

“Mistakes as to quality…will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing w/o the quality essentially different from that with the quality”

As OSh observe, if these facts did not satisfy the “essential difference” test then it would never be satisfied; indeed there are practically no cases where Bell formed the ratio, w/ reference to the test in Associated Japanese Bank being obiter only. Lord Atkin himself failed to give any examples of the test being satisfied - he only discussed cases where it wasn’t.

Question 24

What is the modern restatement of the doctrine of common mistake in Great Peace Shipping?

Answer 24

The common mistake would only render the contract void if “it transpires that one or both of the parties have agreed to do something which is impossible to perform; the contract was valid since it was not impossible to perform”

Question 25

Five Requirements for Common Mistake in Great Peace Shipping

Answer 25

1) There must be a common ASSUMPTION as to a state of affairs.
2) There must be no WARRANTY by either party that that state of affairs exists.
3) The non-existence of the state of affairs must not be attributable to the FAULT of either party.
4) The non-existence of the state of affairs must render performance IMPOSSIBLE.
5) The state of affairs may be the existence, or vital attribute, of the consideration to be provided or circumstances which must subsist if performance is to be possible.

Question 26

Requirement 3 of Great Peace Shipping makes reference to the requirement that neither party be at fault. What is the test for fault?

Answer 26

McRae test of fault was approved – D cannot rely on mutual mistake where the mistake consists of a belief which is

i. Entertained by him w/o any reasonable ground AND
ii. Deliberately induced by him in the mind of C

Question 27

What is the analytical framework for common mistake?

Answer 27

1. Does the contract, on a proper construction including both express and implied terms, allocate the risk of the mistake?
2. If not, then does the doctrine of fundamental mistake apply; i.e. has the contract become impossible of performance (or Champion Investments - has performance become something radically different from that originally contemplated) as a result of the unforeseen circumstances?

Question 28

What is the difference between the doctrine of mistake in equity and at law?

Answer 28

According to Solle v Butcher, there are three differences -

1. The test for “fundamental difference” was more LIBERAL at equity.
2. Mistake in equity renders a contract VOIDABLE, while mistake at law renders a contract void.
3. The courts in equity had greater REMEDIAL FLEXIBILITY when setting aside a contract, in that they could set a contract aside on terms.

Question 29

What is the current status of Solle v Butcher?

Answer 29

Great Peace overruled Solle on the ground that it was inconceivable for the HoL in Bell to have overlooked an equitable right to rescind the contract although the agreement was not void for mistake at common law. It was so incompatible with Bell that it in effect said that Bell was wrongly decided.

However, McK points out that on the facts of Great Peace neither Solle nor Bell would have been satisfied and so the CoA did not have to overrule Solle as it did. As a matter of precedent it is also difficult to see how the CoA could overrule an established line of appellate authority.

Question 30

What is the current status of Solle v Butcher?

Answer 30

Great Peace overruled Solle on the ground that it was inconceivable for the HoL in Bell to have overlooked an equitable right to rescind the contract although the agreement was not void for mistake at common law. It was so incompatible with Bell that it in effect said that Bell was wrongly decided.

However, McK points out that on the facts of Great Peace neither Solle nor Bell would have been satisfied and so the CoA did not have to overrule Solle as it did. As a matter of precedent it is also difficult to see how the CoA could overrule an established line of appellate authority.