Mistake Flashcards
THE BASIC RULE
If B is not responsible for A’s mistake, it has no effect, even if known to B
Bell v Lever Bros Ltd [1932] AC 161 (HL):
common mistake, mistake as to quality
A pays B1 and B2 £30,000 and £20,000 respectively for each to terminate their contract. Turns out they had both breached contract, and so could have been terminated without payment.
Mistake not found
Lord Atkin at 223-224: “The contract released is the identical contract in both cases, and the party paying for release gets exactly what he bargains for. It seems immaterial that he could have got the same result in another way, or that if he had known the true facts he would not have entered into the bargain.”
Different rule for gifts or other voluntary dispositions
Pitt v Holt per Lord Walker
The court examines the facts including the circumstances of the mistake and its consequences for A.
Is it a distinct mistake (as compared with total ignorance or disappointed expectations?), How central is it to the transaction? How serious are it’s consequences?
On balance of these, unconscionable to leave the mistake uncorrected?
If B, by making a misrepresentation (even innocently) is responsible for A’s mistake and a contract is entered into in reliance of that misrepresentation, the contract is voidable
Redgrave v Hurd per Jessel Mr
Not necessary to prove that B knew at the time that it was false
Lewis v Averay [1972] 1 QB 198 (CA).
Where contract is voidable A cannot rescind if this would interfere with rights subsequently acquired by C, a bona fide purchaser for value of a legal property right: see eg
Cundy v Lindsay
If the mistake rendered the contract void then A may be protected even against C, a subsequent bona fide purchaser for value of a legal property right
MISTAKE PREVENTING THE FORMATION OF A CONTRACT
Bell v Lever Bros Ltd [1932] Lord Atkin:
“If mistake operates at all it operates so as to negative or in some cases to nullify consent…Thus a mistaken belief by A that he is contracting with B, whereas in fact he is contracting with [X], will negative consent where it is clear that the intention of A was to contract only with B.”
The Orthodox Position: Application of Smith v Hughes
Cundy v Lindsay (1873) 3 App Cas 459:
(unilateral mistake as to identity of one of the contracting parties)
A is a linen manufacturer. B is a rogue who hires a room in a corner house in Wood Street. B writes to A and signs the letter “Blenkiron & Co”, a reputable company on Wood Street. A sells to B – B sells the goods on to C. C is a bona fide purchaser, unaware of B’s fraud – A claims that C has committed the tort of conversion
Lord Cairns LC at 464-5: No contract with B “With him they never intended to deal. Their minds never, even for an instant of time rested upon him, and as between him and them there was no consensus of mind which could lead to any agreement or any contract whatever.” and therefore B had no title to convey to C
Hartog v Colin and Shields [1939] 3 All ER 566 (KB):
unilateral mistake as to terms of the contract
A makes an offer to B with an error that would benefit B. B sues A for failure to deliver and A argues that he is under no contractual duty to B
Singleton J at 568: “I am satisfied that it was a mistake on the part of [A] or their servants which caused the offer to go forward in that way, and I am satisfied that anyone with knowledge of the trade must have realised that there was a mistake…The offer was wrongly expressed, and [A] by their evidence, and their correspondence, have satisfied me that [B] could not reasonably have supposed that the offer contained [A’s] real intention. Indeed, I am satisfied to the contrary….there must be judgment for [A].”
A Roberts & Co v Leicestershire CC [1961]:
unilateral mistake as to terms of the contract
Where B allowed A to sign the document knowing that A was mistaken as to the terms of that document
“[A] is entitled to rectification of a contract upon proof that he believed a particular term to be included in the contract, and that [B] concluded the contract with the omission or a variation of the term in the knowledge that [A] believed the term to be included.” – Such rectification may also be permitted even if B merely suspects A’s mistake, if B deliberately encouraged A to make such a mistake: see Commission for the New Towns v Cooper [1955].
Raffles v Wichelhaus:
mutual mistake as to the terms of the contract
agreement for the sale of cargo of cotton “ex Peerless from Bombay” – two different ships, each with a cargo of cotton, and each called Peerless are each sailing from Bombay, one having left in October and the other in December
The court decided that the existence of two such ships meant that the buyer may have a defence to the seller’s claim: one explanation for this is that if A reasonably believes B to have agreed to one set of terms (eg purchase of goods from the October shipment) and if B reasonably believes A to have agreed to a different set of terms (eg sale of goods from the December shipment) then there is no agreement and hence no contractual duties on either side
A Challenge to the Orthodox Position:
The Minority in Shogun Finance
Shogun Finance Ltd v Hudson [2004] 1 AC 919 (HL):
(unilateral mistake as to the identity of one of the contracting parties)
A, a finance company, owns a car. Approves the hire-purchase of the car by B, a rogue. B sells it to C, who buys it in good faith, unaware of B’s fraud. A claims C has committed tort of conversion. Lord Nicholls (dissenting): Must choose between Cundy v Lindsay and Lewis v Averay. Nicholls chooses Averay. It "accords better with basic principle regarding the effect of fraud on the formation of a contract. It seems preferable as a matter of legal policy. As between two innocent persons the loss is more appropriately borne by the person who takes the risks inherent in parting with his goods without receiving payment...It is little short of absurd that a subsequent purchaser’s rights depend on the precise manner in which the crook seeks to persuade the owner of his creditworthiness and permit him to take the goods away with him.”
The Triumph of Orthodoxy:
The Majority in Shogun Finance
Lord Hobhouse: “in a consumer credit transaction, the identity of the customer is fundamental to the whole transaction… precedes the making of any contract at all”
No consensus ad idem between A and B.
THE LIMITS OF AGREEMENTS
Bell v Lever Bros Ltd [1932] AC 161 (HL)
Lord Atkin: “If mistake operates at all it operates so as to negative or in some cases to nullify consent…the agreement of A and B to purchase a specific article is void if in fact the article had perished before the date of the sale. In this case, although the parties were agreed about the subject-matter, yet a consent to transfer or take delivery of something not existent is deemed useless, the consent is nullified.”
Couturier v Hastie (1856) 5 HL Cas 673:
common mistake, res extincta
A agrees to buy from B a specific cargo of corn. Unknown to either, the cargo had already been unloaded and sold. Declared void, if the subject matter did not exist at formation then neither could the contract
This is now contained in section 6 of the Sale of Goods Act 1979
McRae v Commonwealth Disposals Commission (1951):
Contract remains valid where one party warrants the existence of the subject matter, and therefore carries the risk of it’s non-existence.
A offers for sale “an oil tanker lying on the Jourmaund Reef”. B incurs great expense looking for it – no ship exists. A is liable as A had made a contractual promise as to the existence and location of the ship
Griffith v Brymer:
A entered into a contract to pay B for the use of a room with a view of the coronation procession– didn’t know coronation was postponed. A is not under a duty to pay for the room, as whilst literal performance is not impossible, the purpose of the contract cannot be fulfilled.
