Chapter 8: Doctrine of Mistake Flashcards

Question

What determines the **validity** of the contract regarding Mistake as to Quality of SM?

Answer 1

Important whether the **quality** was **stated in the contract description** 1. If so - contract is **valid** and party providing description breach 2. If not - GR that mistake does not nullify (**invalid**) consent

Answer 2

**Common law** * Void **Equity** * Voidable/recission

Answer 3

**Beller v Lever Bro Ltd (1931)**

Answer 4

Facts 1. Mr Bell was the managing director for five years of a company that was owned by Lever Bros Ltd. 2. Mr Bell had traded for personal profit during his employment, which was contrary to his contract with the company. 3. Without knowledge of this, Lever Bros Ltd made an offer of redundancy to Mr Bell, terminating his contract and offering a £30,000 payment as compensation. Held 1. HOL decided 3:2 that the contract had ‘no operative mistake’ (**valid**) 2. The contract was not invalid, on grounds that the personal trade made by Mr Bell was **not 'sufficiently fundamental'** to the subject matter of the contract Majority judgement - **Lord Thankerton** & **Lord Atkin** * It was not sufficiently fundamental, on the basis that they had entered into a **bad bargain** * As they could have found out they were able to terminated him before they created the latter contract Takeaway * The quality of the contract must be '**sufficiently fundamental**' to the basis SM * Courts didn't want to make a principle that allowed people to escape a **bad bargain** ## Footnote majority judgement and judges are really important

Answer 5

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

Answer 6

* **Solle v Butcher [1950]** * Grist v Bailey [1967] * **The Great Peace (2002) CA** * **Pitt v Holt [2013] UKSC**

Answer 7

**Solle v Butcher [1950]**

Answer 8

Held 1. COA stated the HOL in Lever Bros was only concerned with mistake and not in equity 2. **Lord Denning** then recognised a more flexible **doctrine of equitable mistake** 3. 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** ## Footnote Important case that created equitable mistake

Answer 9

Facts 1. House was being sold £850 in the mistaken belief that it was occupied by a protected tenant 2. Tenant had unknown parties, died and so, without a sitting tenant, the house was worth £2,250 3. Claimant asked the courts whether the previous contract can be voidable Held 1. There was a **fundamental mistake**, but the owner had to sell the house at original price as well

Answer 10

Facts 1. Case involved 2 ships. The Cape Providence suffered structural damage 2. D was hired to bring back the ship 3. D had to contract with the claimant’s ship- the Great Peace 4. They thought the distance between both ships were 35m apart 5. It was 410 miles apart 6. After the incident, D refused to perform their contract with claimant 7. At trial the D asserted that the contract was void for mistake 8. Trial judge denied assertion 9. COA held that decision in **Bell v lever Bros prevailed**; decision in **Solle v Butcher disapproved** 10. HOL in Bell had overlooked an equitable right to rescind an agreement 11. There should be no separate doctrine for mistake in equity to provide for common mistake for the quality of SM Held 1. The difference in proximity between the 2 ships which they believed, were **not sufficiently fundamental to render the contract void** 2. **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’ 3. **D was liable** to pay the cancellation fee to the claimant Note * **Pitt v Holt [2013]** - UKSC stated that The GreatPeace has **‘effectively overruled’ Solle v Butcher** (where they voided the contract) Takeaway * Equity (Solle v Butcher) - no longer used * Great Peace overruled Butcher (Bell v Lever Bros prevails) * The test of 'sufficiently fundamental' should be narrow one ## Footnote overruled Grist v Bailey

Answer 11

There is no flexible doctrine of mistake in equity. The **narrow doctrine** has triumphed/taken over the more flexible doctrine **Pitt v Holt** - in a UKSC decision said that the Great Peace overruled Solle v Butcher

Answer 12

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

Answer 13

1. Non mistaken part is **aware** that the other part is mistaken (taking advantage) 2. Non mistaken party created the mistake to **induce** the mistaken party to enter into contract (fraud)

Answer 14

**Smiths v Hughes (1871)**

Answer 15

Facts 1. Claimant (Smith) sold oats to defendant (Hughes) after showing him a sample of the oats (new oats -green oats) 2. D mistakenly thought he was buying old oats to feed his racehorses 3. Claimant (seller) had no idea and did not induce him to enter 4. Buyer refused to accept the new oats and pay for it 5. Claimant sued that claimant mislead him into entering the contract Held 1. Contract was still **valid** 2. Held Mr Smith (claimant) was under **no duty to inform** Mr Hughes for his possible mistake about the kind of oats 3. This is on grounds of the **caveat emptor** (buyer beware) 4. 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

Answer 16

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 1. B **aware** of A’s mistake; and 2. B’s conduct is **unconscionable** or **inequitable** for him to hold A to a contract

Answer 17

* **Hartog v Colin and Shields [1939]** * **Centrovincial Estates plc v Merchant Investors Assurance Co Ltd [1983]**

Answer 18

Facts 1. D entered into contract to sell 3,000 Argentinian skills to the Claimant 2. Claimant mistaken the offer as 10d per pound, instead of per piece 3. After they discovered, the D refused to Held 1. Claimant **not entitled** to succeed (void) 2. On grounds that, they had **entered into negotiation**s, and the buyer (C) **clearly knew** the mistaken by the seller (D) 3. 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

Answer 19

Facts 1. The offeree himself did not know that the offeror made a mistake Held 1. The doctrine will apply, where the offeree is aware of the offeror’s mistake as to the terms 2. 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 ## Footnote non-mistaken part unaware

Answer 20

Introduction * Mistake as to **identity** - arising as a result of the fraudulent actions of the wrongdoer (‘Rogue’) Typical scenarios 1. Where the rogue presents himself as an innocent buyer and offers purchase of goods 2. Rogue however **deceives** the seller as to his **identity** 3. Seller sells goods to rogue, and rogue departs with goods 4. Rogue would give seller a **fake cheque** which is not honoured/valid 5. 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) 6. In the end, there is the **deceived seller** (claimant); and the **innocent third party** (defendant) which is being sued for the claimants’ goods

Answer 21

1) **Valid** - vendor 1. 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 1. 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 ris**k 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

Answer 22

**Lewis v Averay [1973]** * Sale from vendor to rogue was $450 * But sale to innocent party was $200 takeaway * This means that the contract was void, so the 3rd party had to return to goods to the vendor

Answer 23

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 1. **Vendor** has to **set aside** or **rescind** the contract before the innocent third party contracts with rogue 2. If not then the contract’s involvement will move to the third party 3. So vendor would lose the right to rescind the first contract (bars/limitation to rescission)

Answer 24

1. In writing / Inter absentes 2. Face to face / Inter Praesentes

Answer 25

1) Mistake to **indentity** * void 2) Mistake as to **attributes** * valid

Answer 26

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’

Answer 27

**Cundy v Lindsay (1878)**

Answer 28

Facts 1. Rogue called Belnkarn and gave his fake address 2. Ordered handkerchiefs from the C 3. Signed deceitfully/impersonated as “Blenkiron & Co.” 4. Claimant knew the reputation of the firm 5. C thought they were dealing with a legit firm and shipped goods to rogue 8. Rogue ran with the goods Held 1. Contract was **void**, on grounds that there was lack of consensus (mistake) 2. C did not intend to contract with Blenkarn but Blenkioron 3. 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

Answer 29

1. Vendor (C) **thinks** they contracted with r**eal firm/person**; but was the rogue 2. **Rogue knew** that he deceived C 3. Vendor established that the **identity** was a **crucial importance** * Note - **identity** has to be material to the formation of contract (**Dennant v Skinner [1948]**)

Answer 30

Mistake as to attributes - **valid** 1. Where rogue pretends to be another person (**fictitious/made up**) 2. He convinces that he’s able to pay (**creditworthy**) for the items that he has purchased 3. Vendor has not heard of the person (rogue). But **believes his creditworthiness** 4. And enters into contract with rogue | This is where the vendor enteres into contract not due to identity

Answer 31

**King’s Norton Metal Co v Edridge Merrett [1897]**

Answer 32

Facts 1. Rogue pretend to be Hallam & Co, made up to be a large and wealthy firm 2. Rogue was actually Wallis, and no firm existed 3. Ordered goods from metal manufacturer 4. Vendor shipped the goods 5. Rogue didn’t pay vendor Held 1. **Not void** 2. As the Claimant had intended to contract with Hallam 3. On grounds that he entered into contract because of the rogue’s **creditworthiness**, rather than the identity of the firm 4. Contract was **voidable** for misrepresentation

Answer 33

Introduction 1. Where the vendor **meets the rogue f2f** and contracts with him 2. 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)

Answer 34

**Lewis v Averay [1972]** **Phillips v Brooks [1919]**

Answer 35

Facts 1. Rogue called himself Richard Green, offered to buy C’s car 2. Signed a cheque 3. C allow him to take the car away until the cheque was cleared 4. Rogue **showed C an admission pass** to Pinewood Studios bearing the name Richard A Greene, his address, photograph, and official stamp 5. C allowed exchange for the cheque 6. Cheque was not cleared/dishonoured 7. Rogue sold car to defendants Held 1. Contract was valid - **voidable** under misrepresentation 2. 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

Answer 36

Presumption can be rebutted if there is **clear evidence** that the vendor **did not intend** to contract

Answer 37

* **Ingram v Little (1961)** * Citibank NA v Brown Shipley & Co. Ltd (1991) * **Shogun Finance v Hudson (2003)**

Answer 38

Facts 1. Rogue visited 2 sisters f2f to buy their car 2. Wanted to pay by cheque 3. C would not accept 4. **Said he was P.G.M Hutchinson of Stanshead House, Caterham** 5. Neither C never heard of this person 6. One of them checked the post office and confirmed that there was such person 7. They believed he was PGM Hutchinson, and accepted the cheque 8. Cheque dishonoured 9. Rogue sold car to defendants Held 1. Contract was **void** due to **mistake as to identity** 2. 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

Answer 39

Held - **Lord Hobhouse**, **Lord Walker**, **Lord Phillips** 1. Contract void between Shogun (claimant) and rogue 2. 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