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Flashcards in Mistake Deck (36):

No unified doctrine of mistake.

Mutual mistake?

Properly denotes situation where parties misunderstand eachother - are at cross-purposes. 2 mistakes are made, one by each. But:

a) Does it amount to a flaw in contract, or just private misapprehension?
b) does it matter that one party may be more to blame for misunderstanding than the other?
c)matrix of fact allows court to identify more probably understanding, to overcome ambiguity?

Where mistake leaves parties at cross purposes:
X thought he offered beans, Y thought he accepted peas.

Unless objective means of ascertaining what the subject matter of the contract was meant to be the contract is void.

If ambiguity attaches to terms of agreement and can't be overcome, the contract is void - a mismatch of O and A, or if a better fit, in terms of vagueness rendering contract unenforceable.


Unilateral mistake?


One party's misapprehension is usually not on other's identity, but another attribute which they represented to have (i.e. honest intention to pay). Contract will not be void - will be voidable for fraudulent misrep.

One party mistakenly deals with interloper, rather than intended contractual partner - agreement is negatived.

Contract void, or voidable, depending.


Common mistake:


Discussion over how fundamental the parties' shared misapprehension must be to justify avoidance of the contract. Equitable easing by L Denning lasted 50 years, now bad law.

Parties deal on basis of fundamental misapprehension as to subject of matter of contract. Consent is nullified - "common mistake".

They both thought were dealing in peas, but resulted was in facts beans.

Contract void, parties had no intention to contract that way.


Raffles v Wichelhaus (1864)

FACTS: Parties contract provided one delivers, other acceps 125 bales of Suar cotton "to arrive ex Peerless from Bombay". Defs refused to accept, Pl sought damages. Defs pleaded they understood contract as referring to ship Peerless sailing from B in October, while Pl had landed cargo only from second ship, also called Peerless, sailed from Bombay in Dec.

HELD: Defs submitted was of latent ambiguity, no consensus ad idem, no contract.
Ct - approved. No reason. But during Q was whether parties were or were not referring to same Peerless was matter of evidence for the jury (finding of fact at trial) - ratio.

Crucial factor was whether true identity of the ship was a matter which contract was meant to settle, or whether was nothing more than subjective assumption existing in minds of parties. If the former, parties agreement void for uncertainty. If latter - wrongly decided:
mismatch of parties subjective perceptions doesn't affect status of their agreement Smith v hughes.


Raffles v Wichelhaus (1864)


Case used when want law to require subjective agreement between parties, criticised by supporters of orthodox objective understanding of A.

What was the difference in timing? Assumption is that when is arrival time of substantial consignment of raw materials for manufacturing or resale, it matters. Meant to be settled by the contract, but contract left it unclear.


Falck v Williams (1900)

FACTS: Parties corresponded by telegraph, using code. Pls agent careless, omitted vital comma. Parties thought in agreement, but Pl understood different contract to Def.

HELD: Pl failed in SC of NSW - and on appeal to PC.

HELD: message was ambiguous. Pl unable to prove his understanding of it more likely than the competing version. L Macnaghten - Def would have faced same problem if brought the action.

Smith & Thomas - Casebook on Contract, ask whether reader agrees with L Macnaghten's dictum. Some would decide against the party who bears greater responsibility for the misunderstanding.

But to turn contractual obligation on fault is dubious, even if accords with justice. Court has nothing to go on, is arbitrary to penalise carelessness. Turns on proof.

But some cases more on fault.


Denny v Hancock (1870)

FACTS: Def bid for property, declined to complete purchase when discovered excluded 3 elms had supposed within the boundary. Had inspected land, formed wrong conclusion.

CFI - decree of Sp Perf made against him. Discharged on appeal. HELD def's mistake understandable, had been induce in part though carelessness of the vendors, would not be just to compel spec performance.

But - is not a case of mutual mistake, was unilateral mistake. X meant to buy with trees, Y meant to sell without them - isn't what happened.

Court not engaged in preferring one competing account of a contract over another - Q is whether an E remedy was to be granted against the def. HELD Pls culpability entitled Def protection from it.

Def still would be answerable in damages for his failure to complete the purchase, though not ordered by court to do so.


Mutual mistake, infrequent:

Situations amenable: reveal unilat mistake. Broad approach to construction takes into account the whole matrix of fact - tipping balance for or against the Cl.


Unilat Mistake:

No element of fraudulent impersonation.

Boulton v Jones (1857)

FACTs: Def sent an order for leather hosing to Brocklehurst, had an account with him. But B owed money, so def would have a set-off against price of goods. But B had transferred business to foreman earlier that day, F supplied goods.

HELD:Def intended to contract with B - offer was exclusively made. F not able to sub himself as offeree. Since no contract between foreman and def, forman couldn't sue for price of goods.

Bramwell B - Def supposed was dealing with B - Pl misled by executing order unknown to him.

If Pl can sue, prejudices Def, deprives him of a set-off, would have had if action was brought by B.

Where someone contracts to do a personal skill or there is a set-off due from that party, no one else can step in and maintain. Def has had the goods, cannot return them. But shouldn't pay money to Pl, never contracted to him.

Pl could bring an action in tort of conversion against the Def. That goods no longer existed would be no obstacle to recovery of damages. Restitutionary remedy to prevent Def's unjust enrichment.

But capture of offer by one to whom was never directed results in mismatch between O and purported A - no contract comes into being. Contract is void.


Fraud mistake:

Fraudulent MR might be present - would be entitled to rescind the contract into which fraudulently induced to enter.

But remedy can be worthless - involves recovering purchase price from the Def, but he would have absconded if fraudster, or no money.


Problem with rescission before or after property passes:

May have passed it onto 3rd party (bona fide).
If Contract rescinded before property passes that person obtains no rights to it - fraudster had none left to give it following rescission. MRee recovers from innocent third party by action in tort of conversion.

But if rescission attempted after the 3rd party obtains the property, 3rd party invulnerable to action by MRee. Rescission blocked by CL bar of 3rd party rights. So can try to persuade court that contract was voidable for fraudulent MR - or never came into being at all.


1 option for MRee when blocked by 3rd rights?

Contract never arose because MRee never intended to contract with fraudster. Mismatch of O and A.

But law suggests he did contract with fraudster. MRee must show the F was a mechanism by which contracted (mistakenly) with X

But then 3rd party argues fraudsters assumption of identity was the means by which to persuade the MRee that he would pay, rather than default.


Distinction between

1. contracts entered into at a distance (through correspondence)

2. contracts entered into face to face (inter praesentes)

1. parties to contract will be identified by construing contract often without regard to parol evidence.

2. courts strongly apply presumption that MRee legally intended to contract with person physically present. Rebuttable...


Cundy v Lindsay (1878)

FACTS: Fraudster hired premises, ordered lots of handkerchiefs from Pls. F signed goods by local businessmans name to take advantage of his creditworthiness so didn't have to pay upfront. Obtained goods on credit, sold to innocent 3rd party buyers, one of those was sued in conversion by pls when B failed to pay his debt.

HELD: HL - Pls action succeeded - no contract into existence. Identity of parties to be deduced from correspondence.

L Cairns (L Chancellor)

No contract between Pls and Fraudster. He intercepted forged letters. No consensus of mind to lead to any agreement of contract. Property remained the title of the Rs, the title attempted to be given to the Apps was a title which couldn't be given to them.

But parties to litigation are innocent. Should law prioritise protection of defrauded seller, or innocent 3rd party purchaser? Should answer vary to reflect differences in the facts? Lead to unacceptable uncertainty? Or best to apportion loss between seller and third party? Or between void and voidable contract?


King’s Norton Metal Co Ltd v Edridge, Merrett & Co Ltd (1897)

FACTS: F got goods, represented was carrying on a business using headed paper etc, statements that had depots around the world. Had previously bought and paid in the same way with cheque drawn on Hallam & Co - but here where W received goods didn't pay for them but sold them on to Edridge. Pls sued E in Conversion.

HELD: couldn't maintain the action - property in goods had passed to W and so to E.

AC: upheld - with whom did Pls intend to contract? The writer of the letters - if was a separate and real Hallam & Co might have followed Cundy. Remedy lay in fraud but property had passed to fraudster under voidable contract, so on to innocent third party.

Long firm fraud - where F builds confidence by paying, with intent to later default on his credit.

Where F proceeds be adoption of invented identity the contract is found with the fraudster.

Test should be of objective appearance - Pl's contractual partner was to be Hallam & Co. Carelessness to be duped by unreal identity - prevents assertion that assumed identity was so important to condition the deal.

Care/carelessness not usually a determinative factor in contract analysis, at most is evidence to qualify the importance of the identity to the deal. But can't always assume carelessness.


Phillips v Brooks Ltd (1919)

Face to Face - strong presumption that contract is found between seller and F, can be rebutted. But the authority for rebuttal is indistinguishable on its facts from others where presumption was not rebutted.

FACTS: F "bought" jewellery from shop, signed a cheque, said was Sir George. Jeweller checked his address. F took ring, pledged it with pawnbroker who gave him £350 for it. Cheque dishonoured. HELD Pl action against pawnbroker failed.

Horridge J: "Although he believed he gave the ring to Sir George, he in fact contracted to sell to person who came to his shop, not Sir George.

Wade: sate of law means distances seller is protected by comparison with inter praesentes seller. Law misplaced - distance seller has time to verify facts - inter praesentes is on the spot.

F purports to accept an offer he knows can't represent true intention of its maker. Isn't it a snapping up case - a mismatch of O and C? But these cases refer to a mismatch of terms of contract. Buyer's identity no contractual. Misrep identity is vital inducing the contract, but presumed identity of buyer not a term of the contract.


Ingram v Little (1960)

FACTS: Pls joint owners of car for sale. F said was Mrs H, lived in Caterham. Agreed price for car. H had cheque - E said wouldn't take a cheque. Then had to interpret discussion.

Slade J - said deal failed here because the parties weren't ad idem re payment terms.

Negotiations resumed H gave more info about himself to establish himself - Ingram went to check his identity. There was, vendors parted with car in return for cheque which was dishonoured. Sued 3rd party recipient of car in conversion.

AC - upheld judgement CFI - majority (Devlin LJ dissent) that no contract came into existence.

Pearce LJ

At the beginning of negs the name of false H no importance, no identity than his physical presence. Identity was man present, name one of his attributes. Would have been a valid but voidable contract.

When pulled out chequebook no contract.

Then negs were of credit sale, not cash sale (identity unimportant) where identity was important. Clear wasn't willing to sell on credit to the mere physical man.

Was she selling to PGM H or man in he room? I conclude the offer with the Pls was made only to (and capable of being accepted only by) Hutchinson.

For this to work Ingram must have made the offer "Car for sale to PGM H". not "Car for sale to you on credit - and I changed my mind because you convinced me you are honest and will pay."

Devlin in his dissent - presumption that people intend to contract with individual to whom is actually speaking. Didn't deny presumption can be rebutted, but declined to speculate what facts might justify that outcome.

Voidness/voidability a fine line - but considered true spirit of CL lay in overriding technical distinctions in way of practical justice. Which of 2 innocent parties should suffer for fraud? Could apportion the loss between them...

Law Reform Committee considered in 1966, but rejected as would lead to complex difficulties in practise. Should be a general rule that in mistaken identity those contracts are voidable.


Lewis v Averay (1971)

FACTS: owner of car made agreement for its sale to man said was Richard Greene. Wanted to take car away, seller asked for ID. Had something - took car, sold to 3rd party, cheque dishonoured.

HELD: AC allowed appeal against seller's successful action for conversion - contract was voidable, not void.

Denning: thought Ingram wrong - as was same as Phillips. Rights of innocent 3rd party purchaser were to be preferred in principle, so contracts should be held merely voidable. Philimore LJ distinguished Ingram, Megaw LJ doubted Ingram because appeared to have applied a test making status of deal depend on what F knew of intentions of seller.


Shogun Finance Ltd v Hudson (2003)

FACTS: Hire purchase agreement., but finance co induced to enter contract by F pretending to be real person. Company's willingness to be party to the agreement based on credit checks had run. F sold car to Def, Cl Finance co sued def in conversion.

HL HELD - bare majority, ratio of Cudy applied . Correct approach to construe agreement to discover who the parties to it were, rejecting extraneous evidence on authority of parol evidence rule. Clear that fraudster wasn't party to the agreement, only the person he pretended to be.
Minority - thought Cundy led to drawing of unreasonable distinctions between modes of contract formation, should be departed from. Finance company's contractual partner was fraudster, contract was voidable for fraudulent misrep until time when fraudster passed goods to innocent third party.

HELD Lord Phillips majority, favoured strong presumption that parties contracted with each other in their true identities. No need for presumption in written contracts - contract was to be consulted to discover identity of parties to it. Identified P but without his consent - void.

Hobhouse also thought identity of hirer was fundamental in consumer credit contract, was a pre-condition. Company wouldn't have been prepared to contract with a different person whose credit rating it hadn't checked.

NIcholls - dissented - can't distinguish according to which means the deal concluded. In each the owner agreed to part with goods before receiving valid payment. Essence the same in each - law should apply single analysis.

nemo dat quod non habet - no one gives what he doesn't have, if don't have legal title to a good can't sell anything.


Common mistake

a) res extincta

b) res sua

Where parties contract on a basis which proves fallacious, share mistaken assumption about basic aspect of contracts' subject matter.

a) res extincta - dealing with something which doesn't exist

b) res sua - agreeing to deal in something already belonging to party who is to acquire it.

Contract is void, because performance is impossible.


Shared mistakes as to subject matter of contract may make it void even though not impossible of performance - provided that mistake is of wholly fundamental character.

Why void? These mistakes don't negative agreement but nullify consent - law cancel's A's effect because of parties' mistake - contract void. Lacked the necessary information to make contract work.

a) gravity of mistaken must be shown to make the contract void
b) discovery by Denning of equitable J to rescind contracts for less grave mistakes before overruled by AC.


(a) Res extincta

If the subject matter of the contract does not exist at the time the contract is concluded, then the contract is void. This principle is codifed by section 6 of the Sale of Goods Act 1979:

“Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void”.


s6 SGA 1979

from Couturier v Hastie (1856)
had agreed to buy and sell corn, but had already deteriorated and been sold in Tunis. Seller argued buyer acquired risks associated with sale, should ay contract price upon receipt of docs.

HELD: buyer not liable, contract supposed there to be something in existence capable of being sold/bought, but there wasn't.


McRae v Commonwealth Disposals Commission (1951)

FACTS: Commission invited tenders, Pl's T accepted. But no tanker, nor any location as Jourmand Reef - Commission was grossly neg to asset there was.

HELD: High court of Australia - contract not void for non-existence of subject matter of conclusion. Commission warranted that the place existed, breached contract since it didn't exist. Pl's mistake was to believe their warranty. Had spent money.

Shouldn't hold an ostensibly shared mistake as to existence of contract's subject matter to make contract void - here Commission found through conduct to have undertaken the risk that its assumption would be false. cl had only Commission on which to rely, didn't take on a equal share of that risk.

Application of res extincta would have caused injustice.


(b) Res sua

Where a contract purports to grant rights to a person who already has those rights, it will be void.


Cooper v Phibbs (1867)

FACTS: 3 year lease of salmon fishery. But party to become lessee already held life interest, didn't need the lease, and other didn't have the power to grant the lease.

HL HELD: agreement entered into upon a common mistake. Liable to be set aside on terms of court.

Contract here was void, not voidable. Rule applied was CL rule that consent negative.

Language used by Lordships not clear, "Set aside" suggest rescinding it because it is voidable - equitable.


Common mistake as to the subject-matter of the contract

May be found to be void. But mistake must be singularly grave before has this effect. If can be regarded as going only to the quality of the subject matter (As opposed to its identity) doubtful whether will be regarded as sufficient to overcome the contract.


Bell v Lever Brothers Ltd (1932)

FACTS: B and S were to receive severance pay after no longer required. But both had speculated privately during employment, breach of contract would have entitled LB to dismiss them without compensation. Co discovered breaches of contract, sued for fraud MR. CFI - jury found allegations not proven - appeared the breaches of contract were not present to minds of men when negotiated Sev (otherwise would be unilat mistake)

HELD HL - considered that severance agreements were void for common mistake - bare majority, Lordships held mistake was not sufficiently fundamental to overcome the contract.

L Aitkin -

"Mistake as to quality of thing contracted for raises difficult Qs. It will not affect assent unless mistake of both parties, as to existence of some quality which makes the thing without the quality essentially different form as it was believed to be.

It would be wrong to decide an agreement to terminate a definite contract is void if turns out the agreement had already been broken and could have been terminated otherwise. If B has made no rep about soundness of horse, hasn't contracted that is sound - A is bound and can't recover back the price."

Lots of examples ! which don't overcome a contract.

Can be supported because is important contracts should be observed, if parties honestly comply with essentials of contract formation - agree on same terms the same subject matter - they are bound, and must rely on stipulations of the contract for protection from effect of facts unknown to the,.


Bell v Lever Bros

Warrington dissent:

Lots of commentators - Catherine MacMillan - to re-assess correctness. McKendrick.


Q is whether erroneous assumption that agreements could only be ended except by agreement was so fundamental to constitute an underlying assumption without which the parties would never had made the contract they in fact made, or just a common error affecting substance of consideration.

True the error wasn't a term of the service agreements, but was one which, having regard to matter on which parties were negotiating was fundamental.


Party can rebut the common mistake as fatal to the contract if

the facts enable the def party to maintain that cl obtained what had bargained for.

Sometimes found where subject matter of contract is a legal obligation, not a thing.


But not where common mistake makes performance of contract literally impossible:

Courts have found contracts to be void for common mistake where, for instance, land was to be cropped or mined at rates which have subsequently proved to have been impossible from the outset: see Sheikh Brothers Ltd v Ochsner (1957), and Clifford (Lord) v Watts (1870). These cases are analogous to the res extincta and res sua situations.


Associated Japanese Bank (International) Ltd v Credit du Nord SA (1989)

FACTS: F - B agreed to sell 4 valuable machines for £1ml, then rent back from bank. Bank obtained agreement to guarantee B's obligation to pay, security was the machines. But they didn't exist. B defaulted, bank sued Credit du Nord on contract of guarantee.

Why no res extincta? Machines didn't exist? But subject of litigation was the contract of guarantee, not that of sale and lease-back. Subjet matter not non-existent machines, but the promise to underwrite B's obligations under main contract. Obs continued to exist. Common mistake consisted in thinking the guarantee was secured by collateral, when was unsecured.

HELD: High Court Steyn J - various grounds for finding in favour of Credit du Nord. Contract was rendered inoperative because contained either an express or an implied condition precedent that machines didn't exist. Also parties thought the guarantee was secured, but wasn't. Enough to render subject matter of contract essentially and radically different from subject matter which parties believed to exist.

Steyn J -
1. whether risk at issue been allocated by contract. Finding of express or implied condition precedent here was one means to show it was. If risk been allocated as between parties, no room for mistake analysis because contract takes account of danger of mistake.

Mistake relevant if risk is not allocated. Steyn J's finding as to common mistake can be best understood as an alternative or secondary ratio.


Lord Dennings reaction to Aitkin in Bell v Lever Brothers?

Solle v Butcher 1950

Bell was no more than the common law’s view of common mistake. Equity, according to Lord Denning, would take somewhat less fundamental common mistakes as grounds for finding a contract voidable (not void), and would set aside such contracts on terms. This equitable jurisdiction was said to have been recognized by the House of Lords in Cooper v Phibbs.


Solle v Butcher (1950)

FACTS: Butcher lease flat to Solle for £250 a year. Before war flat was let to third party for £140 a year. Block damaged in war, renovated before Solle moved in. Both believed renovation meant LL could fix rent free from Rent Acts. But then fell out, S claimed should have been previous level. B counterclaimed for rescission of contract on grounds of common mistake:

HELD AC: majority, contract should be set aside on terms that S be free to either agree to pay higher rent under a new lease, or to leave.

Denning based on Cooper v Phibbs. Westbury used language consistent with contract there being voidable rather than void. Equitable J overlooked in Bell v Lever Brothers, might otherwise have been decided differently. Bell actually decided that only type of common mistake capable of rendering contract void at CL was that which acquired contractual status by being made a condition precedent. E would take account of less fundamental mistakes.


Solle v Butcher - Denning?

Cleverly exploits terminological confusion besetting Cooper v Phibbs.

But Bell v Lever Bros interpretation not great - in Bell Aitkin stated his view as ruling out equitable input. Denning argued against legal facts, from AC.

Followed in some cases, allowed more finely-tuned justice to be delivered than CL doctrine. That common mistake made contract voidable attractive - making it void is not easily explained. But Denning's doctrine less than certain in application, depended on notion of common mistake.

But condemned in Great Peace.


Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (2002)

FACTS: Ship damaged, defs undertook salvage arrangements, chartered Great Peace - with a cancellation fee - thought was close by. Then chartered nearer vessel, cancelled contract (but not immediately). Cls sued for cancellation fee. Defs argued contract was void at CL or voidable in Equity.

HELD L Phillips MR - May and Laws LJJ - affirmed first instance judgement of Toulson - mistake not sufficiently fundamental to engage CL doctrine of common mistake. Equitable doctrine of denning couldn't stand with Bell v Lever Bros - so AC should refuse to follow.

Correct approach - L Phillips:

2 Vessels in sufficiently close proximity to allow Great Peace to carry out service engaged to perform. If distance were so great to confound the assumption and render contractual adventure impossible aps would have an arguable case that contract was void under Bell.

Toulson J: Q of fact and degree, answer is no. Telling is the reaction of Defs - didn't want to cancel until knew could find a nearer vessel to assist. Defs didn't regard contract as devoid of purpose or would have cancelled at once.

Had to pay cancellation fee.

Unlikely SC turns back to Solle v Butcher - too much confusion.