Mistake Flashcards
Mistake of Fact and Not Law
O’Loghlen v Callaghan [1874]: - Rent level
It must be a mistake of fact and not law. Ignorance of the law is no excuse.
Parties to a lease thought the Act required rent to be paid at certain level. In fact, it was lower. Despite both making mistake, deemed one of law: no relief for tenant.
Mistake of Fact and Not Law
Cooper v Phibbs [1865]: - Fishery - Mistake of law - equitable relief
Distinction bw mistakes of general law and private law. In equity, if re private law it can ground relief; ]: X let a fishery to Y. Both assumed X owned it. In fact, Y was made tenant for life under a private law. Y entitled to rescind the contract in equity.
Mistake of Fact and Not Law
Kleinwort Benson v LCC [1998]
Distinction between mistakes of fact and law abolished in UK
What are the three categories of mistake?
(1) Common Mistake (2) Mutual Mistake (3) Unilateral Mistake
Common Mistake
O’Neill v Ryan [1991]
The parties make or share the same mistake. Parties have reached an agreement
- set out the three criteria for common mistake:
The mistake is substantially shared by the parties
The risk of the mistake is not expressly or impliedly allocated to either party
The mistake is fundamental in nature
Common Mistake - Mistake as to Existence of Subject Matter - Res Extincta
General rule?
If parties enter into a contract believing the subject-matter is in existence at the time and they’re both mistaken, the contract will be deemed void on the grounds of common mistake:
Common Mistake - Mistake as to Existence of Subject Matter - Res Extincta
Couturier v Hastie [1852]: - Corn
Contract for the sale of a cargo of corn that both parties believed was en route to UK but in fact had already been destroyed deemed void on basis of common mistake.
Common Mistake - Mistake as to Existence of Subject Matter - Res Extincta
Strickland v Turner [1852]: - Annuity
An annuity sold on the life of a person who (unbeknownst to either) was already dead, was deemed void for common mistake
Common Mistake - Mistake as to Existence of Subject Matter - Res Extincta
Galloway v Galloway [1914]: - Separation Agreement
Separation agreement entered into by a couple mistakenly believed they were properly married deemed void for common mistake when they found the marriage was a nullity
Common Mistake - Mistake as to Existence of Subject Matter - Res Extincta
S.7 SGA 1893
Renders contracts void where there’s a mistake as to the existence of goods.
Common Mistake - Mistake as to Existence of Subject Matter - Res Extincta
McRae v Commonwealth Disposals Commission [1950]
Common mistake only applies where parties failed to allocate the risk of the mistake e.g. X promises Y it’s a Picasso original. Courts assess the contract to see whether there was an attempt to allocate:
C sold salvage rights to a wrecked oil tanker. It was said to be in a particular location on a reef.
M bought the rights and arranged a salvage expedition, but discovered the ship didn’t exist.
Held in making the representation to M, C impliedly guaranteed the existence of the wrecked ship
Common Mistake - As to Fundamental Underlying Assumption of the Contract - Common Law
Bell v Lever Bros [1932]
B was chairman of subsidiary of LB. To end his employment, a golden handshake was agreed: B paid a large sum of money. Unbeknownst to both, it could’ve been ended without this (for free).
LB tried to have the agreement deemed void on grounds of common mistake as it was v diff to what they thought they were receiving. Rejected: mistake not sufficiently fundamental.
LB entered into bad bargain, but it rewarded B for his past work. Entered into a compensation package and received such. May have paid over odds bc of mistake, but not suff fundamental.
Common Mistake - As to Fundamental Underlying Assumption of the Contract - Common Law
Leaf v International Galleries [1950] - Constable Painting
Both mistakenly believed the painting was by famous artist Constable, but wasn’t.
Held no operative mistake: it was one of quality, which didn’t go to the root of the contract i.e. part contracted for a painting and got a painting.
Common Mistake - As to Fundamental Underlying Assumption of the Contract - Common Law
Western Potato Co-Op v Durnan [1985] - Fertile Potato Seeds
Entered into contract for sale of potato seeds both believing they were fertile. Both mistaken.
Held mistake was one of quality which did go to the root: rendered the contract void.
Common Mistake - As to Fundamental Underlying Assumption of the Contract - Common Law
Associated Japanese Bank v Credit du Nord [1988] - No machines
2 banks victims of scam. AJ advanced the fraudster funds to finance his engineering machines. CN guaranteed his debt. Both banks believed the machines existed, but they didn’t.
AJ sought to rely on guarantee w CN, CN alleged it was void for mistake. Upheld CN’s claim.
Common Mistake - As to Fundamental Underlying Assumption of the Contract - Equity
Equity Position: Solle v Butcher [1950]
After revamping the premises, both believed the work was of such quality that it was no longer subject to rent control legislation. Mistaken. Tenant paid rent far in excess for 2 years.
Held common mistake not suff fundamental to render it void i.e. S contracted for flat and got one
Equity intervened: held mistake could be rendered voidable, so court had discretion to set it aside
Held tenant was given a choice: he could surrender the lease entirely or remain in possession at full rent that would’ve been allowed under the legislation.
Common Mistake - As to Fundamental Underlying Assumption of the Contract - Equity
Bell and Solle left the law in uncertain state. Resolved in the UK by:
Greate Peace Shipping Ltd v Tsavliris Salvage Ltd [2002]
Ship damaged while sailing Indian ocean and another ship (GP) asked by the salvage co (T) to deviate from its course to help the stricken ship until T could organise the salvage of the ship.
T entered into agreement w G on mistaken understanding it was the closest ship to the other
Turns out it wasn’t 35 miles but 410 away. When T found out, they didn’t immediately seek to end the contract as common mistake, instead checked to see if there were other closer ships.
Once it discovered there was, then they tried to rescind the contract as common mistake.
Held mistake was material but not suff fundamental. T got what it contracted for: a charter ship.
One indication why the location wasn’t a crucial mistake was bc T didn’t seek cancel immediately
No jurisdiction to grant rescission where the contract is valid and enforceable in common law.
Common Mistake - As to Fundamental Underlying Assumption of the Contract - Equity
In Ireland, the courts still follow Bell and Solle as in O’Neill v Ryan and more recently in:
Intrum Justitia v Legal & Trade Financial Services [2005]
IJ contracted to buy subsidiary of L. Neither knew 3rd party had embezzled funds from it.
Strict approach: held this not a fundamental common mistake as the effect of the fraud didn’t mean the subject matter of the share purchase agreement was essentially different.
Bought co w objective of accessing client base, employees and revenue. None of these affected.
