Mistake

Question 1

3 types of mistake

Answer 1

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

Question 2

Mutual Mistake

Answer 2

Parties having different understandings of the same term(s) –> no consensus on what the contract means

Question 3

Unilateral Mistake

Answer 3

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)

Question 4

Common Mistake

Answer 4

Parties share a mistaken assumption and contract on the basis of it

Question 5

Chitty on common mistake

Answer 5

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

Question 6

common mistake vs. frustration

Answer 6

TIMING:
Frustration - event occurs after formation
CM - has already occurred at the moment of formation (unbeknown to parties)

Question 7

Krell v Henry || Griffith v Brymer

Answer 7

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

Question 8

Bell v Lever Bros

Answer 8

Lord Atkin: Common mistake - although the parties are actually in agreement, the courts ignore this agreement and leave their contract really ineffective

Question 9

Falck v Williams

Answer 9

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

Question 10

2 rationales for a restrictive approach

Answer 10

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

Question 11

Chitty on Tamplin v James

Answer 11

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

Question 12

Denny v Hancock

Answer 12

Unilateral mistake: fault based analysis (buyers mistake was due to seller’s carelessness)
Compare with Smith v Hughes: buyer was responsible for own mistake

Question 13

Unilateral Mistake: 2 sorts of cases

Answer 13

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

Question 14

Cundy v Lindsay

Answer 14

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

Question 15

King’s Norton Metal v Edridge Merrett

Answer 15

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

Question 16

Phillips v Brooks

Answer 16

Face-to-face contracts are concluded with the inter praesentes buyer, plaintiff intended to contract with the person in front of him

Question 17

Ingram v Little

Answer 17

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

Question 18

Lewis v Averay

Answer 18

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?

Question 19

Shogun Finance v Hudson

Answer 19

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

Question 20

Lords Nicholls and Millett dissenting in Shogun

Answer 20

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

Question 21

Professor Stevens on Shogun

Answer 21

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

Question 22

Bell v Lever Brothers

Answer 22

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

Question 23

J.C. Smith on Bell

Answer 23

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

Question 24

Solle v Butcher

Answer 24

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

Question 25

Great Peace Shipping

Answer 25

Once the truth of the matter (ships were 410 not 35 miles apart), parties found themselves in an agreement which was not they one they had in mind when they entered into it.
Objective interpretation less useful –> whether or not mistake was fundamental to contract.
Here, it was not (performance was still possible and defendants did not cancel charter immediately upon realising mistake)

Question 26

3 sub-types of common mistake

Answer 26

1) res extincta
2) res sua
3) common mistake as to the nature of subject matter

Question 27

Res extincta

Answer 27

Where the subject matter of the contract no longer exists –> contract void, never actually came into existence, no compensation

Question 28

Res sua

Answer 28

Where the subject matter of the contract already belongs to the party purporting to buy it

Question 29

McRae v Commonwealth Disposal Commissioners (Australian case)

Answer 29

Alternative approach to res extincta: no common mistake but a breach of implied warranty (Commission had actually warranted that the ship existed)

ALSO: money spent on preparing for the undertaking was too remote to recover these costs

Question 30

Implied warranty

Answer 30

Implied in fact, law or custom

Question 31

The Moorcock

Answer 31

Warranty implied by fact: necessary for business efficiency test

Question 32

Shirlaw v Southern Foundries

Answer 32

Warranty implied by fact: officious bystander test

Question 33

Attorney General of Belize v Belize Telecom

Answer 33

Lord Hoffmann combined necessary for business efficiency test and officious bystander test: reasonable intentions of the parties at the time of contracting

Question 34

Mistakes in law

Answer 34

When a party enters into a contract, without the knowledge of the law in the country, the contract is affected by such mistakes but it is not void. The reason here is that ignorance of law is not an excuse. However if a party is induced to enter into a contract by the mistake of law then such a contract is not valid.

Question 35

Associated Japanese Bank v Credit du Nord

Answer 35

The high threshold set by Lord Atkin in Bell v Lever Bros. for common mistake is somewhat lowered in relation to mistakes in law - here, the contract was found to be voided because of the mistake made in believing that a guarantee was secured when, in fact, it was not