Topic 3: Mistake

Question 1

What is a vitiating factor?

Answer 1

A factor that affects the validity of a contract

Question 2

What are the two possible effects when a vitiating factor is established?

Answer 2

Void contract

Voidable contract

Question 3

What is the difference between a void and a voidable contract?

Answer 3

A void contract is as though it never existed

A voidable contract exists but is ‘damaged’; it can be rescinded on the victim establishing misrepresentation or duress

Question 4

Define ‘mistake’

Answer 4

When a contract is entered into on the basis of a misunderstanding or error on the part of one or both of the contracting parties

Question 5

What are the three types of mistake?

Answer 5

Communication mistake

Mistake as to the identity of the contracting party

Common mistake of fundamental fact

Question 6

What is a communication mistake?

Answer 6

An issue of whether there is ‘consensus ad idem’

Question 7

What do the courts look at when trying to establish a communication mistake?

What case established this?

Answer 7

What the external circumstances would have indicated to the objective bystander

Smith v Hughes (1871)

Question 8

Which case demonstrates the ‘external bystander’ test?

Answer 8

Centrovincial Estates plc v Merchant Investors Assurance Co Ltd (1983)

Question 9

Briefly outline the case Centrovincial Estates plc v Merchant Investors Assurance Co Ltd (1983)

Answer 9

There was a contract for a lease that provided that the rent should be set at the current market rental value of the premises

The landlord wrote to the defendants inviting them to agree that the current rental value was £65,000

The defendants replied by letter to agree, but the claimants then wrote back to inform them of an error – the figure they had intended to propose was £126,000

Held: the reasonable objective observer would have assumed the price stated was correct and there was no evidence that the defendants knew or could reasonable have known of the mistake

Question 10

What are the three instances in which the objective test will not apply to a case of communication mistake?

Answer 10

(a) One contracting party is aware or ought reasonably to have been aware that the other party has made a mistake
(b) The seller causes the buyer to make a mistake
(c) There is latent ambiguity, so the court is unable to apply the objective test

Question 11

What is the case for unilateral mistake?

Answer 11

Hartog v Colin & Shields (1939)

Question 12

What will the courts look at if one party is aware or ought reasonably to have been aware that the other party has made a mistake? (Communication mistakes)

Answer 12

What was actually in the minds of the parties

Question 13

What case governs when a seller causes a buyer to make a communication mistake?

Answer 13

Scriven Brothers & Co v Hindley & Co (1913)

Question 14

Briefly outline Scriven Brothers & Co v Hindley & Co (1913)

Answer 14

Seller shipped some hemp (more valuable) and tow but negligently put them in crates with the same shipping mark

At auction, the buyer thought he was bidding for hemp but it was tow

The seller had caused the bidder’s mistake so there was no objective agreement

Question 15

What case applies to latent ambiguity?

Answer 15

Raffles v Wichelhaus (The Peerless) (1864)

Question 16

Briefly outline Raffles v Wichelhaus (The Peerless) (1864)

Answer 16

Two ships of the same name, docking in October and December

One party assumed the October date; the other, December

Question 17

Why is The Peerless a rare case?

Answer 17

The courts will often be able to find grounds to adopt one of the views of the parties

Question 18

Briefly outline the principles of a mistake as to the identity of the contracting party

Answer 18

A rogue misrepresents themselves as someone else and cons the seller into selling him something

The rogue then sells the goods to an innocent third party, from whom the innocent seller seeks to recover the goods, arguing that their contract with the rogue was voided for mistakes

Question 19

Why is mistake pleased in the cases of a rogue misrepresenting themselves?

Answer 19

You cannot give what you do not have (memo dat quod non habet)

If the original contract to sell the goods to the rogue is void for mistake, the contract is treated as having never existed, so the rogue never obtained ownership of the goods

Therefore, when he purported to sell them to a third party, they never obtained ownership of the goods

Therefore, the original owner can claim the goods from the third party, who may be in possession of the goods but will have no title

If the original contract with the rogue is not void for mistake, then he obtained ownership of the goods and could validly transfer them to a third party, from whom the innocent seller will not be able to claim the goods

Question 20

What is the presumption when a contract is made with the rogue face-to-face?

Answer 20

That the innocent seller intended to deal with the person standing in front of them, regardless of who they pretended to be

Question 21

When a contract is made with the rogue face-to-face, what is the legal effect?

Answer 21

The contract is not void for mistake, so the title of the goods passes to the rogue

Question 22

How can the presumption be rebutted when a contract is made with a rogue face-to-face?

Answer 22

If, when the offer was made, the innocent seller regarded the offeree as a matter of vital importance, not just his creditworthiness or attributes (Lewis v Averay (1972))

Question 23

What three cases relate to when a contract is made with a rogue face-to-face?

Answer 23

Phillips v Brooks Ltd (1919)

Ingram v Little (1961)

Lewis v Averay (1972)

Question 24

Briefly outline the facts of Phillips v Brooks Ltd (1919)

Answer 24

Rogue went into a jewellers (Phillips) posing as Sir George Bullough from St James’ Square. He selected a ring and paid by cheque

The assistant checked Sir George’s address and let the rogue take the ring, who then pawned it to Brooks Ltd

Held: the contract was not void because Phillips intended to contract with the person standing in front of him, and not Sir George himself

This is because a connection can be made by the seller to someone they have seen in front of them

Question 25

Briefly outline the facts of Ingram v Little (1961)

Answer 25

Similar facts as Phillips: two sisters placed an advertisement to sell a car

‘Mr Hutchinson’ came to see them and agreed to buy the car

The sisters went to a Post Office to check the buyer’s identity, which debuted the presumption and showed that the person they were contracting with was of vital importance

Held: the contract was void for mistake

Question 26

Briefly outline the facts of Lewis v Averay (1972)

Answer 26

The presumption was not rebutted because the checks made showed that the concern of the seller was only with the rogue’s creditworthiness

Question 27

What is the presumption where a contract with a rogue is made in writing (if the rogue has assumed the identity of a person who really exists)? What is the legal effect of this?

Answer 27

That the innocent seller only intended to deal with the person that the rogue pretended to be, so the contract will be void

Question 28

What case relates to where the contract with a rogue is made in writing and has assumed the identity of a person who really exists?

Answer 28

Cundy v Lindsay (1878)

Question 29

Breifly outline Cundy v Lindsay (1878)

Answer 29

Blenkarn (a rogue) ordered (by writing) handkerchiefs from Lindsay, pretending to be Blenkiron & Co (a reputable firm)

Blenkarn then sold the handkerchiefs to Cundy

Held: the contract was void because the innocent seller intended to deal with the reputable firm, not the rogue

Question 30

What is the legal effect if there is a contract with a rogue in writing but he misrepresents his own creditworthiness? Why?

Answer 30

The contract will not be void because there is no connection in the mind of the seller with anyone other than the rogue

Question 31

Which two cases relate to a rogue misrepresenting his own creditworthiness when a contract is made in writing?

Answer 31

King’s Norton Metal Co v Eldridge (1897)

Shogun Finance Ltd v Hudson (2004)

Question 32

Briefly outline King’s Norton Metal Co v Eldridge (1897)

Answer 32

Rogue pretended to be a functional company called Hallam & Co wrote to KNMC ordering goods, which the rogue then sold to Eldridge

The contract was not void because the company was not a separate entity, so KNMC can only have intended to deal with the person who signed the letter

Question 33

Briefly outline Shogun Finance v Hudson (2004)

Answer 33

The rogue had stolen the identity of a Mr Patel in order to enter into a hire purchase agreement (HPA) with Shogun Finance for the purchase of a car

The rogue then sold the car to a third party (Mr Hudson) and Shogun Finance sought to recover the car from Mr Hudson

Under s 27 of the Hire Purchase Act 1967, the title of the car can pass to the hire purchaser if there is a valid HPA

Held: the rogue had not acquired the title to the car under the HPA

Question 34

What is common mistake of fundamental fact?

Answer 34

There is consensus ad idem with regard to a fundamental fact, but this fundamental fact is different from what the parties took it to be

Question 35

What case related to common mistake of fundamental fact?

Answer 35

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (2002)

Question 36

Briefly outline the facts of Great Peace Shipping case

Answer 36

Both parties thought that the subject vessel was in one location, but they were mistaken

Question 37

What is the test for common mistake? Which case established this?

Answer 37

(i) Must be a common mistake as to the existence of a state of affairs
(ii) There must be no warranty by either party that the state of affairs exists
(iii) Non-existence of the state of affairs must not be attributable to the fault of either party
(iv) Non-existence of the state of affairs must render the performance of the contract impossible
(v) State of affairs may be the existence, or vital attribute, of the consideration to be provided or circumstances with must subsist if the performance of the contractual adventure is to be possible

Question 38

What case is about a common mistake that relates to whether the state of affairs exists?

Answer 38

Couturier v Hastie (1856)

Question 39

What case is about a common mistake that relates to title? Briefly outline it

Answer 39

Cooper v Phibbs (1867)

A person contracted to purchase an estate which, unbeknown to them, they already owned

Question 40

What case is about a common mistake that relates to the quality of the subject matter?

Answer 40

Bell v Lever Bros (1932)

Question 41

Briefly outline the essential purpose test used in Bell v Lever Bros (1932)

Answer 41

Lever Bros negotiated a compensation agreement in respect of termination of two employees’ employment contracts

The mistake of fact was that it was necessary to do this; it wasn’t, because the employees had breached their contract in a way that allowed termination anyway

Lever Bros argued that the employees should return the money on the basis of mistake of fact

Held: the mistake was not sufficiently fundamental