Frustration & Mistake Flashcards
What is meant by frustration?
An act that occurs in the lifetime of a contract that is neither parties fault that makes performance impossible or radically different
What cases demonstrate the basis of frustration?
- Taylor v Caldwell: Music Hall burnt down, therefore impossible to perform
- Krell v Henry: Coronation moved meaning use of the room no longer had purpose
What case can be used to show a contract wasn’t frustrated?
Davis Contractors v Fareham UDC: although delays made performance more onerous it did not make it impossible (If the parties had anticipated the event they would have done something)
What is the two stage enquiry for determining whether a contract is frustrated?
The Eugenia
1. Construe the contract to see whether the parties have themselves provided for the situation that has arisen, if they have, the contract must govern and there is no frustration
2. If they have not, compare the situation with the situation they did provide to see how different it is; the fact that it has become more onerous or more expensive for one party is insufficient
What factors may exclude frustration?
SELF-INDUCED FRUSTRATION
* Maritime National Fish v Ocean Trawlers: Where the act and election of the parties causes the frustrating event, they will not be able to rely on the doctrine
* The Super Servant II: Frustration will not apply even if the party had acted reasonably in electing not to perform. Cannot rely if loss is due to the parties negligence
EXPRESS PROVISIONS
* Metropolitan Water Board v Dick Kerr: An express provision cannot cover cases in which interruption is such that it would fundamentally change conditions of the contract and could not have been in the parties contemplation
What act governs the effect of frustration on a contract?
Law Reform (Frustrated Contracts) Act 1943
* S1(2)
What does the case law demonstrate about the effect of frustration?
- Gamerco SA V ICM: Under s1(2) the court can take account of the fact that expenses have been incurred by the payor. Promoter of a concert was able to recover in full an advance payment for a performance because he incurred expenses much greater than the performers
- BP Exploration v Hunt: In considering a claim under s1(3) you must first identify and value the benefit obtained and then assess the just sum which it was proper to award (cannot exceed value of benefit)
What is the rule on disclosure?
Smith v Hughes, No legal obligation on the seller to inform the purchaser that he is under a mistake that is not done by the vendor (same true of the reverse)
However, there are three exceptions:
* Insurance: Consumer must simply take care to not make a misrepresentation
* Contract for the Sale of Land: vendor must disclose defects in title
* Fiduciary Relationships
What kind of mistakes exist in common law?
- Common mistake
- Unilateral mistake known to the other party
- Uncommon mistake on the part of each party
What does the case law tell us about common mistake?
Bell v Lever Brothers: There are three situations in which a common mistake can arise and mean a contract is void
* Res Sua: The thing is already yours
* Res Extincta: The thing did not exist at the time (Courtier v Hastie)
* Quality: Must be a mistake as to the existence of some quality that makes the thing without the quality essentially different from what is was believed to be (thinking it is painting by an old master does not count)
How was the doctrine of common mistake extended?
Associated Japanese Banking v Credit du Nord
* First thing we need to do is see where the risk has been allocated. Only if the contract is silent does one consider mistake, first in common law then equity
* Party cannot be allowed to rely on common mistake where it consists of a belief which is entertained by him without good grounds for such belief
Great Peace Shipping
The fact that the claimants did not immediately cancel the first contract showed that there was no mistake
What is the common law on unilateral mistakes of identity?
- Mistaken belief by A that he is contracting with B when it is actually C. Two innocent parties, B will be able to get whatever the thing is back from A
- Contract void if done in writing, Cundy v Lindsay, however will be valid if fraudster is face to face, Phillips v Brooks
- HOWEVER, the face to face presumption can be rebutted if obvious that the identity was of vital importance, Ingram v Little but this later does not seem to be applied in Lewis v Avery
- This difference was upheld by the House of Lords in Shogun Finance v Hudson
What is the common law on unilateral mistake of terms?
- Smith v Hughes: If the buyer thinks that the seller is promising something as a term of the contract and the seller knows this, the contract will be void
- Hartog v Colin & Shields: If the plaintiff must or should have been able to realise there was a mistake (absolute difference from what had gone before in negotiations) then the contract is void
- Longley v PPB Entertainment: What matters is actual knowledge, you must actually know that a mistake has been made. Constructive knowledge does not suffice
What does the case of Raffles v Wichelhaus tell us?
- Not possible to say objectively what the contract should have been
- If two people enter into a contract concerning something with a certain name, but each of them have a different thing that has the same name, there is no contract
What is non est factum under the common law?
- Applies only to written contracts and means a contract will be void, unilateral mistake suffices
- Saunders v Anglia Building Soc: Must be a fundamental / serious mistake and disability of some kind (e.g. blindness, illterate, cannot read without glasses). Claimant must have some belief / idea of what they are signing
What are the two equitable remedies that can be discussed for mistake?
- Rescission (but arguably now abolished in the law for mistake)
- Rectification
- However, these are subject to laches
What is rectification and what is the effect of this?
- Rewriting the terms of the contract, this only applies to written contracts
- Evidence of pre-contractual negotiations can be relied upon, unlike in interpretation / implied terms
FSHC Group Holdings v Glas Trust:
* COMMON MISTAKE: Necessary to either show that the document fails to give effect to a prior concluded contract or that the parties had a common intention in respect of a particular matter which was not reflected in the document due to mistake (must be same actual intention and an outward expression of accord)
A Roberts & Co v Leicestershire County Council
* UNILATERAL MISTAKE: Told this is the leading authority for such but test is unclear. Drastic because it imposes a contract on the D he did not, and did not intend, to make
What is rescission for mistake?
Solle v Butcher: Mistake must be fundamental and party wanting to set it aside must not be at fault. Renders the contract voidable, not void
Great Peace Shipping: Abolished rescission for common mistake, said it is impossible to reconcile with Bell and essentially says it was wrongly decided
