Mistake Flashcards
(35 cards)
3 types of mistake
Common, mutual and unilateral.
Distinct in character but conceptually related because of their potential effect on a purported contract: to render it void: if mistake is operative on contract –> court will recognise that the contract has always been a legal nullity creating no rights for either party against the counter-party
Mutual Mistake
Parties having different understandings of the same term(s) –> no consensus on what the contract means
Unilateral Mistake
Parties have different understandings of certain terms/aspects but one has from an objective standpoint the correct view (fraudster knows truth, party snapping up knows its a mistake)
Common Mistake
Parties share a mistaken assumption and contract on the basis of it
Chitty on common mistake
In general it is not so much about a term in the contract as in mutual/unilateral mistake as about mistaken facts or ideas about what the position of the law is
common mistake vs. frustration
TIMING:
Frustration - event occurs after formation
CM - has already occurred at the moment of formation (unbeknown to parties)
Krell v Henry || Griffith v Brymer
Both involved rooms rented out for the coronation parade but whereas coronation was cancelled after the contract was executed in Krell, it was cancelled before the contract in Griffith without parties realising.
Krell: contract discharged by frustration
Griffith: contract was void for common mistake
Bell v Lever Bros
Lord Atkin: Common mistake - although the parties are actually in agreement, the courts ignore this agreement and leave their contract really ineffective
Falck v Williams
Mutual Mistake: parties each believed themselves to be in agreement but in fact were at cross-purposes
Missing comma in a commercial code made it unclear to which sentence a particular word belonged, both parties thought they were contracting on entirely different bases (essentially for different shipments)
Held: agreement entirely ambiguous –> no contract
2 rationales for a restrictive approach
1) weakens obligatory force of English contract law: parties could expect to escape the consequences of a bd bargain more easily, encouraging carelessness
2) Freedom of contract: freedom to make a bad bargain and suffer the consequences/ freedom to take advantage of what amounts to a good bargain to you and a bad one for another party
Chitty on Tamplin v James
From an objective perspective, there is a correct way of reading contract –> mistake is no defence for mistaken party and they cannot rely on it to set the contract aside
Denny v Hancock
Unilateral mistake: fault based analysis (buyers mistake was due to seller’s carelessness)
Compare with Smith v Hughes: buyer was responsible for own mistake
Unilateral Mistake: 2 sorts of cases
1) cases involving distance sales when the contracting parties never meet face-to-face (Cundy, King’s Norton Metal, Shogun)
2) Face-to-face sales (Phillips, Ingrams, Lewis)
QUESTION: How do you distinguish in a clear and principled way between cases where the essential identity of an accepting party is important and cases where maybe some of their attributes are important
Cundy v Lindsay
A distanced sale to a buyer who claims to be an identifiable other will void the contract for mistake - identity of buyer = term of the contract
King’s Norton Metal v Edridge Merrett
A distanced sale to a totally fictionalised other is not void as the person really contracted with is the fraudster, the fictionalised other could not possibly be contracted with
Phillips v Brooks
Face-to-face contracts are concluded with the inter praesentes buyer, plaintiff intended to contract with the person in front of him
Ingram v Little
Difficult to distinguish from Phillips v Brooks: where a specific intention is shown to only deal with the person whom the seller believes the buyer to be, the contract can be void for mistake.
Pearce LJ: during the course of negotiations, what was initially contemplated to be a simple contract of sale morphed into a sale on credit –> identity and creditworthiness became important feature of contract
Controversial, not really been followed
Lewis v Averay
Face-to-face contracts: parties deemed to be dealing with the person in front of them (ruling similarly to Phillips).
Lord Denning vigorously opposed Ingram
Megaw LJ: test to whether fraudster’s identity is fundamental to contract is whether fraudster knew that their identity was important to vendor
HOWEVER: does this contradict objective contract analysis?
Shogun Finance v Hudson
In a 3-2 decision, the majority of the House of Lords held there was no contract of hire purchase between Shogun Finance and the rogue and so the car was not Mr Hudson’s. Lord Hobhouse, Lord Phillips and Lord Walker followed the principle established in Cundy v Lindsay, a contract where identity is of key importance is void if the purchaser lies about their identity. The face-to-face exemption established by Phillips v Brooks Ltd did not apply because the seller was not the dealer but the finance company
Lords Nicholls and Millett dissenting in Shogun
A better policy would be (like in Germany, on grounds of principle) to remove the face-to-face distinction and protect the good-faith purchaser in all cases, suggesting that a contract should be held voidable instead of void in cases of mistaken identity
Professor Stevens on Shogun
Against Millett’s reasoning, too drastic to give up memo dat quod non habet (central to how property is managed).
HOWEVER: is that really what Nicholls and Millet suggest? Maybe just preferable policy on grounds of principle
Bell v Lever Brothers
Lord Atkin set the bar very high for voiding a contract due to mistaken subject matter (3rd type of common mistake) because courts should not readily interfere with the existence of a contract but rather allocate risk where it falls
If a painting was sold as an old master but was actually a replica, there would be no mistake as to subject matter
J.C. Smith on Bell
Both parties were under the common mistake that Lever Brothers should pay the “Golden Parachutes” to Bell and Snelling. Lever Brothers did not know Bell and Snelling were speculating while Bell and Snelling did not know their speculation would entitle Lever Brothers to dismiss them without paying anything.
Lever Brothers: they are in substance buying a right they already had, that is extinguishing Bell and Snelling without paying a cent –> res sua, since you cannot buy something you already have
Bell and Snelling: it is the right of entitling the “Golden Parachutes” they are selling. This right does not exist since they speculated. The subject-matter they tried to sell, their right, no longer exist before they enter into the contract –> res extincta, the disappearance of the subject-matter of the contract
Solle v Butcher
Denning’s class of “equitable mistakes” which enabled a claimant to avoid a contract - doubted in Great Peace, remains open whether mistake in equity does, and should, enable rescission for wider reasons than acknowledged in Great Peace and its restrictive interpretation
