Chapter 8: Doctrine of Mistake Flashcards
What is the Doctrine of Mistake?
- If an operative mistake can be proven, the contract will be declared as Void ab initio (void)
- Contract will be non-existent as there was no consensus ad idem (meeting of minds)
What are the 2 types of mistake?
Bilateral mistake
Unilateral mistake
What is a bilateral mistake?
Where both parties are mistaken
- there are 2 types of bilateral mistake
What are the 2 types of bilateral mistake? Explain.
Cross purposes
- Both parties are mistaken. Mistaken on different points
Common mistake (mutal mistake)
- Both parties are mistaken. On the same point/issue
- 4 situations of mistake
What is a unilateral mistake?
Only one party is mistaken
What are the 6 factors for cross purposes
- Both parties are mistaken
- Mistaken on different points/issues
- Sufficiently fundamental
- Offer & acceptance do not correspond (no consensus ad idem)
- The mistake negates the consent to contract
- Objectively interpreted - not what the parties had intended
What are the 2 cases for cross purposes
Raffles v Wichelhaus (1864)
Scriven Brothers v Hindley (1913)
Raffles v Wichelhaus (1864)
cross purposes
Facts
- Wichelhaus wanted to buy cotton from Raffles from Bombay on a ship called ‘Peerless’
- Peerless arrived to Wichelhaus in December
- Wichelhaus expected another ship also called ‘the Peerless’ in October
- When the cotton arrived, Winchelhaus refused to pay for the bale
- Claimed that ‘the Peerless’ was supposed to deliver the cotton, but left Bombay 2 months earlier in October
- Raffles (claimant) sued for breach of contract
Held
- No contract
- Parties had missed each other on very material/fundamental terms
- No meeting of minds
- No contract actually came to agreement in the first place (thus void)
Takeaway
- Mutual misunderstandings are void/invalid contracts
Scriven Brothers v Hindley (1913)
Facts
- Scriven Bros (claimant) instructed auctioneer to sell large bales of tow and hemp on behalf of them
- Bales looked similar to samples that were on display for potential bidders
- Hindley (defendant), mistaken that they were bidding for 2 lots of hemp
- When D found out it was tow, he refused to pay
- D sued
Held
- No contract to begin with (void/invalid)
- They were agreeing/accepting something else all together (no meeting of minds)
What are the 4 factors for common mistake (mutual mistake)
- Both parties made mistake
- Both parties made the same mistake
- Must relate to something that both parties must necessarily have accepted in the minds as an essential element of the subject matter
- Both parties make the same mistake about a critical element of agreement (no consensus ad idem)
What are the 4 situations of common mistake (mutual mistake) under bilateral mistake?
- Res Extincta
- Res Sua
- Possibility of Performance
- Mistake as to Quality of SM
What is Res Extincta?
Parties mistake the existence of subject matter before the contract was made (non-existent)
Outcome
- There is an initial impossibility - impossible to have contract without the goods
- Contract will be void on grounds of mistake
What are the terms regarding mistake of existence before and after the contract was made?
Mistake of existence of SM before the contract was made
- Res Extincta
Mistake of existence after contract was made
- Frustration
How is liability decided on parties regarding Res Extincta?
SO IMPORTANT
Liability depends on the construction of the contract
2 scenarios
- Seller guaranteed the goods existed (sale of existing goods) > thus risk is assumed
- Contract was for sale of goods if it exists > seller did not guarantee the existence of goods > SM is a chance/adventure
What are the 2 scenario for Res Extincta? What are the relevant cases for each?
Where subject matter ceased to exist before contract was entered into
- Galloway v Galloway
- Couturier v Hastie (1856) HL
- Bute v Thompson
Where subject matter never existed at all and both parties were unaware
- McRae v Commonwealth Disposal Commission (1951) HC of Australia
Galloway v Galloway
Res Extincta - before contract was entered
Facts
- Man and woman mistaken that they were married
- Found out the deal with marriage never existed
Held
- void
Couturier v Hastie (1856)
Res Extincta - before contract was entered
Facts
- Parties contracted for sale of cargo for 1/100 quarters of Salonika Indian corn
- Were selling corn of fair average quality (per ‘Keizia page’)
- Both parties mistakenly assumed that the cargo of corn were transit from Salonica to UK
- Cargo was sold earlier in Tunis to prevent deterioration
Held
- Buyer was not liable (scenario 2 construction - he didn’t guarantee existence)
- Lord Cranworth stated: it depends on the construction of the contract. In this case it was on the sale of existing goods, rather than sale of goods . Thus, it was held void
Note - liability depends on construction of the contract
Bute v Thompson
Res Extincta - before contract was entered
Facts
- Tenant of coal mine agreed to raise minimum quality of coal and pay a minimum rent in any event
- Turns out there wasn’t enough coal in the mine
- Party had appreciated the risk, as he guaranteed the SM
Held
- Held liable
Note - liability depends on construction of the contract
McRae v Commonwealth Disposal Commission (1951) HC of Australia
Res Extincta - SM never existed at all, both parties unaware
Facts
- D purported to sell the C the wreck of a tanker lying in Jourmand Reef
- D had guaranteed that the wreck contained oil
- Buyer (C) sent out expedition to salvage the tanker
- Turns out the tanker never existed at all
Held
- D was liable for breach of contract as he promised/guaranteed that the tanker existed
scenario 1 construction
What is Res Sua? What is the outcome of such mistake?
Mistake for ownership of the property
Outcome
- There is an initial impossibility as it can’t be performed from the very onset
What is the case for Res Sua
Cooper v Phibbs (1867)
Cooper v Phibbs (1867)
Res Sua
Facts
- A series of inheritance and settlements, the claimant did not know that he the rightful owner of the tenancy of the fishery
- C didn’t know and wanted to rent from D
Held
- HOL held contract should be set aside, as legally incapable of transferring title that already belongs to the party (Claimant)
What is Possibility of Performance?
Mistake that the performance was possible, but in fact is not
- 3 categories
What authority gives the 3 categories of Possibility of Performance? What are the respective cases for each?
Prof Treitel divides into 3 categories -
Physically impossible (impossible to produce the product)
- Sheik Brothers v Ocsner (1957)
Legally impossible
- Cooper v Phibbs (1867)
Commerical impossibility
- Griffith v Brymer (1903)
What is Mistake as to Quality of Subject Matter?
Subject matter in contract lacks some quality, which was believed to be so
What is an important thing to note of what gives rise to validity of the contract regarding Mistake as to Quality of SM?
Important whether the quality was stated in the contract description
- If so - contract is valid and party providing description breach
- If not - GR that mistake does not nullify (invalid) consent
What are the 2 type of mistake as to quality of SM? What is the outcome for each of them if proven by claimant?
Common law
- Void
Equity
- Voidable/recission
What is the case for common law mistake for quality of SM?
Beller v Lever Bro Ltd (1931)
Beller v Lever Bro Ltd (1931)
What are the minority and majority judgements of this case? Which 2 judges were in the minority?
common law mistake for quality of SM
IMPORTANT CASE
Facts
- There was an employment contract between both parties
- There was a clause that would allow them to let go of Bell & Snelling
- But they couldn’t as they had to hold them for 5 years
- So they made a new contract that offered them a lot money to quit
- Company found out they had breached the termination clause prior
- Company tried in court whether they could hold the latter contract as void
Held
- HOL decided 3:2 that the contract had ‘no operative mistake’ (valid)
Majority judgement
- It was not sufficiently fundamental, on the basis that they had entered into a bad bargain
- They could have found out that they could have been terminated before they created the latter contract
Minority judgement - Lord Thankerton & Lord Atkin
- Said that for there to be recognised mistake and hold the contract void
- The mistake must be ‘sufficiently fundamental’ to the contract
- It must relate to the ‘essential & integral element of the subject matter of the contract’
Minority judgement and judges are really important
Why is there equitable mistake for quality of SM? Which judge created this?
Lord Denning
- States the common law mistake is very narrow. The test was clearly seen in Bell v Lever Brothers
- He recommended to create a more flexible doctrine that can allow a ‘voidable’ contract instead
What are the 3 cases for equitable mistake for quality of SM?
- Solle v Butcher [1950]
- Grist v Bailey [1967]
- The Great Peace (2002) CA
What case did Lord Denning have judgement on which created the doctrine of equitable mistake?
Solle v Butcher [1950]
Solle v Butcher [1950]
important
Equity mistake for quality of SM
Held
- COA stated the HOL in Lever Bros was only concerned with mistake and not in equity
- Lord Denning then recognised a more flexible doctrine of equitable mistake
- For it to be voidable - the mistake has to be fundamental and that the party seeking to set it aside was not himself at fault
Important case that created equitable mistake
Grist v Bailey [1967]
Equity mistake for quality of SM
Facts
- House was being sold £850 in the mistaken belief that it was occupied by a protected tenant
- Tenant had unknown parties, died and so, without a sitting tenant, the house was worth £2,250
- Claimant asked the courts whether the previous contract can be voidable
Held
- There was a fundamental mistake, but the owner had to sell the house at original price as well
The Great Peace (2002) CA
REALLY IMPORANT
Facts
- Case involved 2 ships. The Cape Providence suffered structural damage
- D was hired to bring back the ship
- D had to contract with the claimant’s ship- the Great Peace
- They thought the distance between both ships were 35m apart
- It was 410 miles apart
- After the incident, D refused to perform their contract with claimant
- At trial the D asserted that the contract was void for mistake
- Trial judge denied assertion
- COA held that decision in Bell v lever Bros prevailed; decision in Solle v Butcher disapproved
- HOL in Bell had overlooked an equitable right to rescind an agreement
- There should be no separate doctrine for mistake in equity to provide for common mistake for the quality of SM
Held
- The difference in proximity between the 2 ships which they believed, were not sufficiently fundamental to render the contract void
- Lord Phillips - not sufficiently fundamental to void the contract. The Great Peace would have taken 22 hours to do 410 miles. But the delay was insufficient to make performance of the contact ‘essentially different’
- D was liable to pay the cancellation fee to the claimant
Note
- UKSC stated that The GreatPeace has ‘effectively overruled’ Solle v Butcher (where they voided the contract)
overruled Grist v Bailey
Is Doctrine of Equitable Mistake for quality of SM still a principle today?
There is no flexible doctrine of mistake in equity. The narrow doctrine has triumphed/taken over the more flexible doctrine
What is the general rule for unilateral mistake?
What is the reason for the GR?
Very narrowly applied
Courts are unwilling/reluctant to declare these types of contracts as void (often held valid)
- On grounds that, it would be unfair for the non-mistaken party
What are 2 exceptions for unilateral mistake - where the court holds the contract as void?
- Non mistaken part is aware that the other part is mistaken (taking advantage)
- Non mistaken party created the mistake to induce the mistaken party to enter into contract (fraud)
What is the case for ‘non mistaken part is aware that the other part is mistaken’?
unilateral mistake
Smiths v Hughes (1871)
Smiths v Hughes (1871)
Non mistaken part is aware that the other part is mistaken (taking advantage)
Facts
- Claimant (Smith) sold oats to defendant (Hughes) after showing him a sample of the oats (new oats -green oats)
- D mistakenly thought he was buying old oats to feed his racehorses
- Claimant (seller) had no idea and did not induce him to enter
- Buyer refused to accept the new oats and pay for it
- Claimant sued that claimant mislead him into entering the contract
Held
- Contract was still valid
- Held Mr Smith (claimant) was under no duty to inform Mr Hughes for his possible mistake about the kind of oats
- This is on grounds of the caveat emptor (buyer beware)
- It was D’s own fault because C did not mislead him in any way
Takeaway
- In commercial sales for sample and goods shown, the customer should be aware of the principle of caveat emptor
- In this case, the buyer was made a bad bargain - thus bound to the contract
- Seller does not have duty to inform him of his mistake
- Courts take an objective approach (the minds of the parties)
Note
- The contract would be void if there were these 2 factors -
1. D has to be mistaken by the promise made by C
2. C knew about D’s mistake which was of the nature of the promise made to him by the C
What is snapping up an offer?
What are the 2 elements of this?
Non mistaken part is aware that the other part is mistaken (taking advantage)
Introduction
- Where one party ‘snaps’ (takes advantage) when clearly/obviously knowing there is a mistake of an offer of another
- Contract can be set aside/void
2 things to satisfy
- B aware of A’s mistake; and
- B’s conduct is unconscionable or inequitable for him to hold A to a contract
What are the 2 cases for snapping up an offer?
Non mistaken part is aware that the other part is mistaken (taking advantage)
- Hartog v Colin and Shields [1939]
- Centrovincial Estates plc v Merchant Investors Assurance Co Ltd [1983]
Hartog v Colin and Shields [1939]
snapping up an offer
Facts
- D entered into contract to sell 3,000 Argentinian skills to the Claimant
- Claimant mistaken the offer as 10d per pound, instead of per piece
- After they discovered, the D refused to
Held
- Claimant not entitled to succeed (void)
- On grounds that, they had entered into negotiations, and the buyer (C) clearly knew the mistaken by the seller (D)
- He took the chance to ‘snatch’ the offer as soon as possible before he realised the mistake
Takeaway
- This is an objective test
- The claimant clearly took advantage knowing there was a mistake
Centrovincial Estates plc v Merchant Investors Assurance Co Ltd [1983]
snapping up an offer
Facts
- The offeree himself did not know that the offeror made a mistake
Held
- The doctrine will apply, where the offeree is aware of the offeror’s mistake as to the terms
- In this case, offeree did not know, thus not sufficient to constitute ‘snapping up an offer’
Takeaway
- The offeree has to know about the mistake that the offeror had made
- And took advantage of it
What is ‘Non mistaken party created the mistake to induce the mistaken party to enter into contract (fraud)’
What are the typical scenario for a fruad case?
Introduction
- Mistake as to identity - arising as a result of the fraudulent actions of the wrongdoer (‘Rogue’)
Typical scenarios
- Where the rogue presents himself as an innocent buyer and offers purchase of goods
- Rogue however deceives the seller as to his identity
- Seller sells goods to rogue, and rogue departs with goods
- Rogue would give seller a fake cheque which is not honoured/valid
- When seller seeks the return of the goods from rogue, he discovers - 1) who rogue actually is; 2) Rogue vanished; 3) Rogue has sold the goods to an innocent third party (ITP)
- In the end, there is the deceived seller (claimant); and the innocent third party (defendant) which is being sued for the claimants’ goods
How does court decide which ‘victim’ suffered cost/loss by deception of ‘rogue’ to bring action for them?
What is the general assumption and the exceptional assumption?
1) Valid - vendor
- Cost borne (bare) by the vendor > as the rogue acquired the good’s title and the goods itself > sold to the third party
* Third party is safe
2) Void - third party
- Cost borne (bare) by third party > as rogue never acquired the title of goods > vendor recovers goods
* Third party returns goods
Generally (3rd party)
- Policy arguments for mistake usually favours protection of the third party
- On grounds that, the vendor assumed a risk by accepting payment by cheque, and should be no reason as to resulting in the loss of the innocent party
However (vendor)
- It is less convincing when the third party buys goods at a cheaper price from the rogue
- On grounds that they should be suspicious of the price
What is the case where the vendor was considered the ‘victim’ of fraud?
exception
Deciding which ‘victim’ suffered cost/loss by deception of ‘rogue’
Lewis v Averay [1973]
- Sale from vendor to rogue was $450
- But sale to innocent party was $200
Can rogue commit misrepresentation?
What would be the cause of action if so?
What must the vendor do, to bring action under misrerpesentation?
unilateral mistake
Yes, misrepresentation can apply as the rogue induced the contract by misrepresentation
Cause of action
- Contract is voidable - title can pass to rogue
Must-do
- Vendor has to set aside or rescind the contract before the innocent third party contracts with rogue
- If not then the contract’s involvement will move to the third party
- So vendor would lose the right to rescind the first contract (bars/limitation to rescission)
What are the 2 types of mistake to identity
fraud - misrepresentation
- In writing / Inter absentes
- Face to face / Inter Praesentes
What are the 2 types of mistake in writing / Inter Absentes?
What is the outcome of each?
1) Mistake to indentity
* void
2) Mistake as to attributes
* valid
What is mistake to identity in regards of writing/Inter Absentes
Mitake to identity - void
- Where rogue impersonates a real person (legit person/firm)
- Innocent part (vendor) is familiar or has heard of the firm and intends to contract with the identifiable person that they ‘knew’
What is the case for mitake to identity in writing/inter absentes ?
fruad - misrepresentation
Cundy v Lindsay (1878)
Cundy v Lindsay (1878)
mistake to identity in writing /inter absentes
Facts
- Rogue called Belnkarn and gave his fake address
- Ordered handkerchiefs from the C
- Signed deceitfully/impersonated as “Blenkiron & Co.”
- Claimant knew the reputation of the firm
- C thought they were dealing with a legit firm and shipped goods to rogue
- Rogue ran with the goods
Held
- Contract was void, on grounds that there was lack of consensus (mistake)
- C did not intend to contract with Blenkarn but Blenkioron
- The order from was signed as “Blenkiron
Takeaway
- Vendor had to intend to contract with the party they knew (rather than the rogue)
- And vendor has to establish mistake to identity to establish a voided contract
What are the 3 obligations in order for fraud by mistake to identity in writing to be held void
- Vendor (C) thinks they contracted with real firm/person; but was the rogue
- Rogue knew that he deceived C
- Vendor established that the identity was a crucial importance
- Note - identity has to be material to the formation of contract (Dennant v Skinner [1948])
What is mistake as to attributes under mistake by writing /inter absentes?
Mistake as to identity
Mistake as to attributes - valid
- Where rogue pretends to be another person (fictitious/made up)
- He convinces that he’s able to pay (creditworthy) for the items that he has purchased
- Vendor has not heard of the person (rogue). But believes his creditworthiness
- And enters into contract with rogue
This is where the vendor enteres into contract not due to identity
What is the case for mistake as to attributes
fraud - misrepresentation
King’s Norton Metal Co v Edridge Merrett [1897]
King’s Norton Metal Co v Edridge Merrett [1897]
Mistake to attributes
Facts
- Rogue pretend to be Hallam & Co, made up to be a large and wealthy firm
- Rogue was actually Wallis, and no firm existed
- Ordered goods from metal manufacturer
- Vendor shipped the goods
- Rogue didn’t pay vendor
Held
- Not void
- As the Claimant had intended to contract with Hallam
- On grounds that he entered into contract because of the rogue’s creditworthiness, rather than the identity of the firm
- Contract was voidable for misrepresentation
What is Face to face / Inter Praesentes under mistake to identity?
What is the general rule/presumption of f2f?
Fraud - misrepresentation
Introduction
- Where the vendor meets the rogue f2f and contracts with him
- In these cases, courts usually say that the rogue is identified by ‘sight and hearing’
General rule
- A presumption that parties dealing f2f, intended to contract with the mistaken/deceiving party that was standing before them
- Thus held valid (voidable under misrepresentation)
What are the 2 cases supporting the general rule of face to face under mistake to identity?
Lewis v Averay [1972]
Phillips v Brooks [1919]
Lewis v Averay [1972]
GR for face to face mistake - identity
Facts
- Rogue called himself Richard Green, offered to buy C’s car
- Signed a cheque
- C allow him to take the car away until the cheque was cleared
- Rogue showed C an admission pass to Pinewood Studios bearing the name Richard A Greene, his address, photograph, and official stamp
- C allowed exchange for the cheque
- Cheque was not cleared/dishonoured
- Rogue sold car to defendants
Held
- Contract was valid - voidable under misrepresentation
- On grounds that there was nothing to displace the presumption that the C intended to deal with the person/party that was in front of him
Takeaway
- If vendor contract with rogue f2f, often will be held voidable
What is the exception to the presumption of face to face / Inter Praesentes mistake to identity?
Presumption can be rebutted if there is clear evidence that the vendor did not intend to contract
What are the 3 cases for the exception for F2F mistake to identity?
fraud - misrepresentation
- Ingram v Little (1961)
- Citibank NA v Brown Shipley & Co. Ltd (1991)
- Shogun Finance v Hudson (2003)
Ingram v Little (1961)
note - wrongly decided
Exception to F2F
Facts
- Rogue visited 2 sisters f2f to buy their car
- Wanted to pay by cheque
- C would not accept
- Said he was P.G.M Hutchinson of Stanshead House, Caterham
- Neither C never heard of this person
- One of them checked the post office and confirmed that there was such person
- They believed he was PGM Hutchinson, and accepted the cheque
- Cheque dishonoured
- Rogue sold car to defendants
Held
- Contract was void due to mistake as to identity
- On grounds that the facts show that they entered into contract due to the identity, and not the creditworthiness
Takeaway
- Presumption is displaced if vendors intended to contract with the person/identity
- Rather than the creditworthiness (ability to pay)
- However, it depends on each individual case
Note
- This case was wrongly decided
- Supposed to be held voidable (valid) instead - according to the presumption
Shogun Finance v Hudson (2003) HL
What is an important thing to note in this case?
IMPORTANT
Exception to F2F
Held - Lord Hobhouse, Lord Walker, Lord Phillips
- Contract void between Shogun (claimant) and rogue
- Found that identity was critical to Shogun Finance due to them to check the credit rating of their potential borrowers
Takeaway
- They followed Cundy v Lindsay, that it was mistake as to identity
- Rather than mistake to attributes
Note (important)
- However, this case was not a f2f transaction. And the presumption did not arise
- It was also held that the COA decision in Ingram v Little would not be followed in future
- Lord Millet and Lord Walker were of the view that Ingram v Little were wrongly decided
