Mistake Flashcards
What types of mistakes exist, which could void the contract?
Common Mistake
Mutual Mistake
Unilateral Mistake
(Subcategories of unilateral mistakes)
Documents mistakenly signed
What are the common mistakes of res extincta and res sua?
Support your answer by case law
A common mistake is defined where both parties make the same mistake (both do or believe the same)
the first two types of common mistake that may occur are:
Res extincta (“the thing does not exist”) - Courturier v Hastie (1856) - Corn was sold while already being on the way to the destination by ship. Buyer and seller, however, did not know that the corn began to rot and the captain sold it to someone else. At the time of the conclusion of contract, there was no corn to be sold. Court held the contract was void. NOTE: timing is the decisive factor: the corn did not exist before the contract was formed. Had it disappeared after the contract it would not have been voided for common mistake.
Res sua (“the thing is his”) - Cooper v Phibbs (1867) - Fishery owned by uncle who died, the aunt leased it to her nephew who paid the lease. It turned out the uncle had bequethed the fishery to his nephew. The court voided the contract for res sua as it is not possible to contract for something he already owned.
Explain what a - Common Mistake as to quality of the subject matter - is
Mention case law to support your answer
Common Mistake as to quality of the subject matter is a mistake where the parties believe the subject matter to be of a certain quality when in fact it is not
Bell v Lever Brothers (1932) - Employee-Manager Bell had a non-terminable employment contract, after merging with another company he was no longer needed and an agreement to buy him out for a large sum of money in order to resolve the employment contract was met between the parties. Soon after agreement Lever Brothers found out they could have terminated his employment without severance pay, because he did not fulfill several of his duties as a manager. Lever Brothers refused to pay. Bell sued.
Court held that even although the situation appears to be one of common mistake, the subject matter of the agreement had not changed and the contract stood. Neither of the parties had it on their mind at the time when the contract was formed, that Bell breached his fiduciary duties. The common mistake is that both parties negotiated over the dissolution of an employment contract unbeknownst that this employment contract could have been discontinued another way.
The court decided that the common mistake was not of a nature that would void the contract - the quality of the subject matter remained unchanged.
Lord Atkin ‘test’: “Does the state of the new facts destroy the identity of the subject matter as it was in the original state of facts?” (if yes, it voids the contract)
After having looked at the judicial decision in Bell v Lever Brothers (1932), how was the decision in Solle v Butcher (1950) significantly different?
Bell v Lever Brothers (1932) was a House of Lords decision. The court of appeal in Solle v Butcher (1950) was technically bound by Bell v Lever Bros.
In Solle v Butcher a tenant and a landlord agreed on a rent of 250 pounds for a property unbeknownst the property being subject to the rent restrictions act which allowed a maximum rent of 140 pounds. The tenant sued to retrieve the 110 pounds.
Court first approached the facts with Lord Atkins question: Has the mistake destroyed the identity of the subject matter? - NO, because the agreement was about rental of a property for an agreed price which perfectly satisfied the agreed obligations.
BUT the court did not only consider the common law view but also equity.
Thus the court held the tenant had an equitable right to void the tenancy.
The tenancy while valid in common law is voidable in equity.
NOTE: Solle v Butcher was a Court of Appeal decision and thereby the court was in fact bound by Bell v Lever Brothers. Lord Denning, however, created a new doctrine which would be - common mistake as to quality of the subject matter in equity. It, thereby, seems as if Lord Denning had breached the rules laid out in Young v Bristol Aeroplane (1944)
The decision in Solle v Butcher (1950) was followed in Grist v Bailey (1967), where the buyer and seller of a property thought a tenant was renting it. Unbeknownst to them the tenant had died after conclusion of the contract and the seller aborted the transaction as he thought he would have gained more money if he had sold a vacant property. Contract stood as a matter of common law, but in equity the seller was able to void the contract.
The same was held in Magee v Pennine Insurance Co Ltd (1969)
How were the issues of common mistake as to quality of the subject matter and common mistake as to subject matter in equity resolved?
Mention and explain the relevant, leading case
In Great Peace Shipping v Tsavliris Salvage Ltd (2002) a ship (CAPE PROVIDENCE) was stricken and hired a salvage company (Tsavliris) to save the ship. Tsavliris agreed a contract with the owners of a ship called Great Peace to go and help the CAPE PROVIDENCE. Both parties thought the ship was very close to the stricken ship (35nm) but in fact it was further away (410nm). Tsavliris cancelled the contract.
Court held that the common mistake as to subject matter (change in circumstances) was not so fundamental, that it destroyed the essence of the subject matter (it only delayed it).
The court held there is no doctrine of common mistake in equity.
In both cases Strickland v Turner (1852) and Scott v Coulson (1903) - life insurance was made for someone who had meanwhile passed away unbeknownst to the parties. The court voided the contracts in both cases for res extincta.
Explain the exceptional principle where contracts can stand in spite the fact that the subject matter does not exist.
In Mcrae v Commonwealth Disposals Commission (1951), McRae was hired to salvage a ship that had sunk near the Australian coast.
The Commonwealth argued there was a common mistake about the state the ship was in. However the court held, McRae had only the information that was supplied by the Commonwealth and relied on their statement. Thereby, the contract was valid even though the subject matter was “extinct” and McRae recovered damages.
Two very similar cases in relation to the quality of the subject matter which were not voided by court are:
Frederick E. Rose v William H.Pimm (1953) - Rose and Pimm had an agreed the supply of horsebeans. Rose asked Pimm what “feveroles” were and he said they were horsebeans. Rose got feves delivered (bigger and lower quality horsebeans). Court held the mistake as to quality of the subject matter was not fundamentally changed and upheld the contract.
Harrison & Jones v Bunten & Lancaster (1953) which was about the quality of a textile called kapok which contained brush cotton giving it inferior quality as pure kapok. Court held that the mistake as to quality of the subject matter was not fundamentally different in order to void the contract.
BUT:
Associated Japanese Bank Int’ Ltd v Credit du Nord S.A (1989)
A crook named “Bennet” took a loan to buy 4 machines which would remain in the ownership (security) of the bank but he disappeared with the money.
Associated Japanese Bank had a contract with Credit du Nord to reinsure the risk of credit default of the debtor.
The crook disappeared with the million pounds and Credit du Nord refused to pay for the credit default when the Associated Japanese Bank claimed it. The courts found, other than in the previous cases, the subject matter had been destroyed as the contract was made for non-existent machines. Therefore the contract was void. As a consequence, Associated Japanese Bank was not entitled to the 1 million dollars.
What is a mutual mistake?
Explain and give contrasting examples of case law
A mutual mistake is a situation in which both parties make a different mistake - a mistake where no meeting of the minds occurs
Rule: Party-A believes the contract to be about the subject matter x while Party-B believes the contract about a different subject matter y.
Test: would a reasonable bystander say there was an ambiguity as to whether the subject matter, the parties contracted for was x or y? If yes, there is a mutual mistake and the contract is void.
Wood v Scarth (1858) - Tenant and landlord agreed 36 Pounds rent/year. Landlord intended a special, additional premium of 500 Pounds/Year. The tenant thought 36 Pounds was final price - Mistake as to terms - The court held after applying the objective test, that the circumstances were not sufficiently ambiguous to void the contract. The contract for 36 Pounds was upheld.
An different example is Raffles v Wichelhaus (1864) also known as the Peerless Case - the parties had agreed on the supply of cotton that would be shipped from bombay on a ship called “peerless”. There were in fact two ships which departed from bombay - one in october the other in december. Wichelhaus received the cotton from the december ship and was not willing to pay for the cotton. The court applied the same test: should the buyer have known it was the ship in october or the one in december? - The ambiguity as to the terms was so fundamental, that the contract was held void.
In comparison in Smith v Hughes (1871) (which was also a misrepresentation case) - the court did not find there was a fundamental mistake as to the quality of the subject matter which would void the contract, as the parties had agreed on the supply of oats. - Note: Smith v Hughes shows the requirement of doing an objective test as to the conduct of the parties.
In Tamplin v James (1880) was about the sale of a property at an auction where an ambiguity occured about the size of the lot. The court held that the buyer has not taken reasonable care to inspect the plans, whereby the contract was held valid.
Scriven Bros v Hindley (1913) is a contrasting case. At an auction a buyer bid a very high price on a rope which was made of tow instead of hemp which was less expensive. The seller did not take reasonable measures to display the differences in his offered products but accepted the offer. The court therefore voided the contract for mutual mistake as to the subject matter of the contract as there was no consensus ad idem between the parties
What is a unilateral mistake?
Explain and mention necessary case law
A unilateral mistake is found where only one party makes a mistake that the other party knows of.
Hartog v Colin and Shields (1939) - the parties orally agreed on the sale of 30.000 hareskins at 10d per skin. The seller, colin and shields, made a mistake in the written contract by writing the price per pound instead of per skin (which was unsual). The court held that Hartog had known about the mistake and thereby rendered the contract void. - The mistake was a mechanical mistake (typing per pound instead of per skin). Had it been a business error the contract would have been valid. - also see: Webster v Cecil (1861)
Chwee Kin Keong v Digilandmall Com Pte Ltd (2005) - Digilandmall listed printers on their website for 66 Dollars which was unusual for printers of this category which usually would sell for around 4000 Dollars. Chwee Kin Keong ordered a large number of these printers. Digilandmall discovered their mistake and altered the price on the website and wanted to cancel the contract with the plaintiff who insisted on getting the printers for 66 Dollars. - The court held Digilandmall made a mechanical mistake when setting up the printers on their website for sale and Chwee must have known about it. Thus, the contract was voided for unilateral mistake.
What is a mistake as to identity?
What are the requirements that need to be fulfilled for a court to void a contract for mistake as to identity?
Use necessary case law in your answer
A mistake as to identity is found where a party makes a mistake about the identity of another party.
Three requirements need to be fulfilled for a contract to be voided for mistake as to identity:
- The person invoking a unilateral mistake must have thought they were dealing with another party. - King’s Norton Metal Co Ltd v Edridge, Merrett and Co Ltd (1897) - Crook used fictitious companies’ letterhead (Hallum Co) to order goods from Kings Norton on credit which were sent by them. The crook sold the goods on to Edridge, Merret and Co. Kings Norton sued Edridge and argued they had made a unilateral mistake as to the identity (dealing with Hallum Co). Court held they had only made a mistake had there been another party called Hallum whose name the crook used. There was no other company with that name so Kings Norton was unable to recover damages from Edridge Merrett.
- The other party must have known about the mistake - Boulton v Jones (1857) - a company owner “Brocklehurst” owed Jones money. Jones ordered goods from Brocklehurst’s company. Brocklehurst meanwhile sold the company the same morning to Boulton. Boulton delivered the goods to Jones. Since Jones believed to have ordered the goods from Brocklehurst, he was not going to pay for them. Boulton sued Jones. The court held that no contract existed since Jones never intended to deal with Boulton.
- The idendity must have been of crucial importance - Phillips v Brooks (1919) - A crook purported to be someone well known in the area to buy a ring from a jeweler using a fake check. The crook sold the ring on to an innocent third party and the jeweler sought to retrieve the ring from the third party claiming he had made a mistake as to identity. The court held the identity of the crook was not of crucial importance as the jeweler would have sold the ring to anyone who he would have held as a person of means. Hence, he was unable to recover the ring from the innocent third party. - Similarly was Lewis v Averay (1972) - Where a car was sold to someone who purported to be a famous actor who used a fake check. The crook also sold the car on to an innocent third party and the original owner sought to recover the car claiming a mistake as to identity. The court held this was not possible because the seller was dealing with the person in front of him and the identity was not of crucial importance.
BUT:
Note that there are cases that were decided differently:
Cundy v Lindsay (1878) - Other than King’s Norton, here the purported fake company existed “Blenkiron”. Lindsay send out the order on credit and the crook sold the ordered Handkerchiefs on to an innocent third party. Lindsay sought to retrieve the goods from the third party. The court decided, that Lindsay never intended to deal with anyone else other than Blenkiron. Hence, the identity was of crucial importance and Linsay could claim the Handkerchiefs.
In Ingram v Little (1961) - two sisters sold their car to a crook who purported to be “Mr Hutchinson” with a certain adress accepting a check payment. One of the sisters went to the post office beforehand to check wether Mr Hutchinson existed at the adress they were given. Name and adress were found. Later the check bounced and the crook had meanwhile sold the car to someone else. They sued the innocent third party to recover the car and the court held the identity was of crucial importance to them when accepting the check. Note how this is different from the case of Lewis v Averay (1972)
Further judicial decisions about unilateral mistakes as to identity
Webster v Cecil (1861) similar to Hartog v Colin and Shields - a seller made a mistake as to the price of a property after he rejected a 2000 pound offer and made a counter offer of 1250 pounds which was obviously a mistake as it was even less than the original offer. The court held that the seller made a unilateral mistake and the buyer knew about it.
Hardman v Booth (1863) - a son of a company owner who had no authority to make dealings in the name of the company bought goods on credit of his father’s company claiming he was a representative. The question that arose in court was whether a contract existed between his father’s company and the company which delivered the goods. Court decided that the company which delivered the goods only contracted with the son and refused the performance.
Lake v Simmons (1927) - a crook obtained jewellery from a jeweler claiming to be the wife of a well known businessman. The court held there was no contract, because the jeweler only intended to deal with the wife of the businessman.
Shogun Finance Ltd v Hudson (2003) - a crook obtained a car which he sold on to an innocent third party “Hudson”. The car was obtained from a dealership but the financing agreement which the crook never paid for was with another company called Shogun Finance Ltd. As there were no face-to-face dealings between Shogun and the crook, the court followed Cundy v Lindsay’s ratio. Hence, there was no contract as Shogun Finance only intended with the purported identity.
What is the doctrine of “Documents mistakenly signed” - non est factum?
Explain using case law
Signing for something believing it to be something different from what it is - non est factum “it is not in my deed”
Although something was signed it was signed by non-negligent mistake as the party claiming for non est factum believed to sign for a different subject matter
Saunders v Anglia Building Society (1970) -
