#3510 - Mistake And Frustration - Contract Law

Mistake & Frustration

Mistake

1. Common mistake- commonmisapprehension present @ the date of contracting(can be unilateral)

• Formation

2. Frustration - events occurred after contracting, which make performance impossible, illegal, something radically different

• Discharge of contract

• BUT strong link b/w them Amalgated Investment & Property Co v John Walker & Sons – Ds sold property to Cs, knew they wanted to develop, since asked if listed, Ds said not but unknowingly to them it was listed on 22^nd Sep, contract made on 25^th, Sec of State wrote to Ds next day informing listing would take effect next day when signed; Cs argued contract 2b set aside for mistake or frustration; held it was on frustration but contract not frustrated on facts – Cs knew of risk it could be listed as evidenced by enquiries) issue: who should bear the risk of listing???

• Unilateral Mistake - mistake of one party not shared by another + may/may not be known to him

• Wont invalidate the contract if, viewing intentions objectively, there is agreement (Smith v Hughes)

• Will invalidate if:

1. There’s ambiguity as to what’s been agreed = contract void (Raffles v Wickelhaus; Scriven Brothers v Hindley)

2. Mistake as to terms (Hartog v Colin & Shields)or identityof other party + he knew of that mistake (Cundy v Lindsay) = contract void

3. Written contract signed mistakenly = non est factumcontract may be void

4. One party knows the other’s making a mistake & circumstances are such that it’s unconscionable for him to remain silent =written contract may be rectifiable in equity

1. Face to face dealings b/w parties, contract not written = (rebuttable) presumption that seller intended to deal w/person in front of him, so if he’s a rogue & sells goods to TP, seller assumes loss &can’t claim them from TP

• Ingram v Little [1961] (presumption rebutted on facts) – 2 sisters sold car to a rogue, agreed price, rogue offered a cheque but they wanted cash, he gave them full name & address, they checked & sold. Cheque failed, car sold to TP, sisters recovered it b/c contract b/w them & rogue was void for mistake& they remained owners of the car. Prima facie presumption that party intended to contract w/the person in front of him displaced by facts = TP not protected.

• Decisive factor – Cs refused to sell until checked identity @ post office – identity clearly crucial to creation of contract, not simply to method of payment.

• Lewis v Averay(presumption not rebutted)– student L advertised car for sale, person arranged to see it, claimed was R. Greene (actor (Robin Hood)); gave stolen cheque + Pinewood Studio's pass as ID. Car sold to A as BF purchaser, L sued A for conversion unsuccessfully mistaken identity makes contract voidable & it may be set aside, so long as TPs don’t depend on it. Where people deal w/each other, there’s a contract subject to being avoided by fraud. L made a contract w/rogue – don’t look to parties intent but to outward appearances. On balance, L should take the loss = TP protected.

• Depends on facts = not attractive b/c law should lay down principles & guidelines.

• Presumption is the main guideline + it’s strong

• Difficulty of distinction b/w written & oral contr. may not always be easy to tell whether contract reduced to writing or concluded face 2 face, especially where made through TP.

2. Contract is in writing= court looks at written doc to discern intent as to who C intended to contract with w/out any presumption – since didn’t intend to contract w/rogue but the person whose name he actually used, contract b/w C & rogue is void for mistake, rogue didn’t have title which he could pass to TP so C can claim in tort

• NB: party names assume greater significance b/c of the need for certainty in written contracts (parol evidence rule applies) + courts more willing to infer mistake as to identity b/c latter is determined by contractual construction (i.e. court interprets it w/out any presumption as to parties’ intent)

• Cundy v Lindsay (1878) – rogue ordered handkerchiefs from C, signed name as a firm of which C knew, C sent the goods, rogue sold them to Ds, Cs recovered successfully – contract b/w Cs & rogue void for mistake b/c Cs didn’t intend to deal w/ him = rogue couldn’t pass title to TP & C recovered.

• Shogun Finance v Hudson - rogue bought a car on hire-purchase agreement, told SF name was Patel, showed fake driving licence. Finance company did a credit check on Patel, rogue took car & sold it to TP, H. Under legislation, non-trade BF buyer from hirer under h/p agreement = the owner, so H would’ve been owner if agreement was valid. SF argued it wasn’t b/c of mistake as to identity; D said valid b/c presumption of face to face dealings between rogue & finance company applied rejected, since didn’t deal face 2 face but in writing only b/c written contract described Patel as a customer, it wasn’t open to D to lead evidence to contradict the term & establish that party to contract wasn’t Patel but the rogue. Since Patel didn’t in any way authorise the contract, it was void for mistake.

• Shouldn’t claim fraudulent misrep? b/c renders contract only voidable, not void, which means ownership can be transferred to TP up until the contract is set aside

• Odd that mistake is stronger than fraud (i.e. more favourable for C to rely on) but position is firmly entrenched into the law.

• nemodat quod non habet- can’t give title which you don’t have

• Common Mistake - parties reached an agreement but it’s based upon a [sufficiently] fundamental mistaken assumptioncourt can nullify consent & set the contract aside

• Bell v Lever Brothers Ltd – Ds contracted w/ Cs for 5 years as chairman & vice-chairman of company, incl. a term not to take private profit by doing business on own acc.; Ds disobeyed, didn’t disclose; Cs later terminated their contracts & entered into compensation agreements; after money paid, discovered the truth (could haveterminatedw/out compensation if knew!), but couldn’t recover b/c when entered into agreements Ds didn’t have Cs’ breach in mind & did so under common mistake that agreements were valid = mistake not sufficiently fundamental to avoid the contract

• McMillan: result reached b/c of peculiar nature of termination agreements – hard cases make bad law

• Test: mistake relates to something which both parties have necessarily accepted as essential element of the subject matter of the contract(Lord Thankerton) measure the fundamentality against the facts

• Test relatively open textured, open to interpretations

• Doctrine is narrow one should first construe the contract to see if the risk of mistake has been dealt with, expressly or impliedly(Associated Japanese Bank v Credit Du Nord)

• What mistake is sufficiently fundamental?

1. Mistake as toexistence of subject matterof contract by both parties – possibly

• Couturier v Hastie – parties contracted for sale of cargo of corn believed 2b in transit, unknown to parties corn deteriorated, master of ship sold it, subject matter of contract was corn = total failure of consideration =buyer not liable for price

• Legal basis

1. contract void b/c of implied condition precedent that contract was capable of performance (Denning) – doesn’t tell us whether courts will imply such precedent

2. question of whether void depends on construction of contract

• McRae v Commonwealth Disposals (Australia) - Ds purported to sell Cs the wreck of tanker lying on the reef, allegedly containing oil. Cs sought to salvage it, no tanker ever existed. Successful action for damages for breach. Ds argued no liability b/c contract void due to non-existence of subject matter – rejected b/c Ds promised tanker was in existence thus liable for breach of that promise

• Difficult to reconcile w/ s6 SGA 1979 = a contract for sale of specific goods which w/out knowledge of seller perish at the time of contracting is void

2. Mistake as to identity of subject matter– may be if both parties thought they were dealing w/one thing but were in fact dealing w/another

3. Mistake as to possibility of performing – may be where both parties believe contract is capable of being performed when in fact it isn’t

• 3 categories:

1. Physical impossibility

2. Legal impossibility

3. Commercial impossibility

4. Mistake as to quality of subject matter- may be but courts very reluctant to conclude it renders contract void

• Great Peace Shipping v Tsavliris Salvage International– Ds salvors agreed to salvage vessel in serious difficulties, hired GPb/c informed it was 25 miles away, actually 410 miles; once known, obtained other vessel & sought termination, Cs sued to recover hire, Ds resisted on ground of common mistake of identity. Held: mistake not sufficiently fundamental. Test:

1. common assumption as to existence of state of affairs

2. no warranty by either party that it exists

3. its non-existence of state - isn’t attributable to either party’s fault

4. its non-existence renders performance impossible

• Sole v Butcher [1950] – D leased flat to C who assumed it wasn’t under rent-control free, later discovered it was & sought to recover what they’ve overpaid, D successfully counterclaimed for rescission of lease on grounds of mistake, unclear why - Denning (valid at law, voidable at equity), Bucknill (mistake as to identity of flat) - best understood as case in which the lease was valid at law but voidable in equity.

• Treitel: imagine you can ask parties immediately after they contracted what the subject matter was. If, in spite of mistake, they give the right answer,...