#17239 - Mistake - GDL Contract Law

Three categories of mistake

• 1) Mutual Mistake – where the parties are at cross purposes. Negatives the agreement as there never was a real agreement. Usually voids contract.

• 2) Unilateral Mistake – where one party is mistaken and the other party knows, or is deemed to know, of the first party’s mistake. Contract may be void or voidable/

• 3) Common Mistake – where the parties have dealt on the basis of a fundamental misapprehension as to the subject matter of their contract, consent is nullified

1) Mutual Mistake

• Sometimes said that two mistakes are therefore being made, one by each party. The parties are clearly not ad idem.

  • Most commonly the mistake will be regarding the identity or subject matter of the contract.

• Raffles v Wichelhaus (1864) – two ships called The Peerless left Bombay for Liverpool with a consignment of Surat Cotton. D believed the October shipment was the one they had contracted for. Claimant believed it was the Decemebr shipment. Neither knew of the other shipment.

  • Held the contract was void for mutual mistake.

• Falck v Williams [1900] – parties corresponded by telegraph, using a code. D carelessly omitted a comma. Parties believed they were in agreement. In fact the plaintiff understood the contract to be for the carriage of copra from Fiji to the United Kingdom, whereas the defendant thought that it concerned the carriage of shale from Sydney to Barcelona.

  • Neither party could prove their understanding was more likely. The matter properly turns on proof, not fault.

• Denny v Hancock (1870) – D declined to complete his purchase of a property having bid for it when he realised that it excluded three fine elms (the plans were vague).

  • Held that the defendant’s mistake was entirely understandable, that it had been induced in part through the carelessness of the vendors, and that it would not be just to compel specific performance.

2) Unilateral Mistake

• Boulton v Jones (1857) – D ordered leather hosing from Brocklehurst who owed him money so there was a set-off against the price of goods. Unbeknown to the defendant, Brocklehurst had transferred his business to his foreman earlier in the day on which the order arrived.

  • Held D had intended to contract with Brocklehurst. The “capture” of an offer by one to whom it was never directed will result in a mismatch between offer and purported acceptance so that no contract comes into being.

• The majority of the cases involve a fraud:

  • Rescission is usually worthless as a fraudster has absconded/is penniless.

  • Furthermore, the fraudster may have passed the property to a third party who buys without awareness of the fraud.

    • If can rescind before this happens then third party has no rights (nemo dat).

    • If rescission is attempted only after the third party has obtained the property, the third party is invulnerable to an action by the misrepresentee.

  • If so may attempt to persuade the court not that the contract was voidable for fraudulent misrepresentation, but that it never came into being at all, therefore void.

    • But the law generally views that the defrauded misrepresentee did intend to contract with fraudster.

• Dealings by writing:

  • Usually the contract will be the writer of the letters. Exception found in Cundy:

  • Cundy v Lindsay (1878) – Fraudster Blenkarn & Sons ordered handkerchiefs from plaintiffs, taking advantage of credit relationship between P and Blenkiron & Sons. He obtained the goods on credit, sold them on to innocent third-party buyers, who were sued in conversion.

    • Plaintiffs action succeeded. No contract had come into existence. Plaintiffs only intended to contract with Blenkiron and not Blenkarn.

  • King’s Norton Metal v Edridge (1897) – fraudster created false letterhead claiming to be a reputable company. Goods were sent to him and he sold them on. Plaintiff’s action failed.

    • Question of who did P intend to contract with. Answer was the writer of the letters. Where the fraudster proceeds by the adoption of a purely invented identity, the contract will be found to be with the fraudster.

• Face to Face Dealings

  • Strong presumption that a contract will be found between the parties (seller and fraudster) who were physically present to each other.

  • Phillips v Brooks [1919] – fraudster in jewellery shop pretended to be Sir George Bullough and purchased ring with a false cheque. Seller consulted directory and was convinced to let him take the ring immediately and he sold it to a pawnbroker.

    • Plaintiffs action against pawnbroker failed as the contract was with the man in the shop not Sir George. Could not prove they would have contracted with anybody but Sir George.

  • Arguably, the law’s protection is misplaced. The distance seller has time to verify the facts on which he relies. The face-to-face seller is put on the spot.

  • Ingram v Little [1960] – the presumption above was rebutted (severly criticised). Sisters sold a car to fraudster who claimed to be Hutchinson. Refused to take a cheque. Negotiations resumed and authenticated his details at the Post Office. Cheque was dishonoured. Held that contract was void for mistake.

    • Pearce LJ: negotiations reached impasse when they refused cheque. After this negotiations of a different kind ensued, and they were negotiations as to identity.

    • Devlin LJ, dissenting, based himself on the presumption that a person intends to contract with the individual to whom he is actually speaking.

      • Proposed that a power to apportion the loss between them could appropriately be introduced by Parliament.

      • The Law Reform Committee considered this proposal in 1966, but rejected it as likely to lead to complex difficulties in practice.

  • Lewis v Averay [1972] – agreed to sell car to a man who said he was Richard Greene. When he discovered he wanted to take car immediately he asked for proof of identity. Fraudster produced Pinewood studio pass. Cheque was dishonored.

    • Held action in conversion failed. Lord Denning MR took the view that Ingram v Little was wrongly decided, since it was indistinguishable from Phillips v Brooks.

• Arms-Length Dealing

  • Shogun Finance Ltd v Hudson [2003] – car was purchased on credit. Finance company was induced to provide finance having run credit cheques on and seen fake ID of D. Patel.

    • Bare majority held that Cunday v Lindsay applied. The correct approach was to see who the parties agreed to contract with. The only person qualified to enter into the agreement with the finance company was the real D Patel

    • Lord Hobhouse: the identity of the hirer was of fundamental importance to a consumer credit contract, since the hirer’s creditworthiness was a pre-condition of the company’s willingness to contract.

    • Lord Nicholls, dissenting, said that the legal principles to be applied could not sensibly differ according to the means by which the deal was concluded.

3) Common Mistake

• Contract on a basis which proves to have been fallacious, because they share a mistaken assumption about some basic aspect of the contract’s subject matter.

  • (a) res extincta (agreeing to deal in something which in fact has no existence);

  • (b) res sua (agreeing to deal in something which transpires already to belong to the party which is to acquire it).

  • (c) Mistake as to the subject matter of the contract.

  • Contract will be void in these cases, not because the mistakes negative agreement, but nullify consent.

    • The contract is void. Lack of necessary contractual intention.

• A) Res Extincta

  • Codifed by s.6 of the Sale of Goods Act 1979

  • Couturier v Hastie (1856) – shipment of corn had decayed in transit. Neither party realized this when they contracted. Contract void for common mistake.

  • McRae v Commonwealth Disposals Commission (Australia – 1951) – commission invited tenders for purchase of wrecked oil tanker off Jourmond Reef. Provided with long/lat. The plaintiff then spent a large sum of money equipping and employing an expedition to find the tanker. In reality there was no tanker nor any location known as Jourmand Reef.

    • The High Court of Australia held that the contract was not void for non-existence of the contract’s subject matter at the time of its conclusion.

    • Where one party has assumed the risk of the subject matter not existing by warranting that they do they cannot rely on mistake if not.

• B) Res Sua

  • Where a contract purports to grant rights to a person who already has those rights, it will be void.

  • Cooper v Phibbs (1867) - three year lease of a salmon fishery in Ireland. Later...