#8 - Mistake Of Common Law, Equity And Frustration - Contract Law

Contract Law Reading Session 7 General Reading McKendrick casebook Chs 16, 23: * Policy factors in mistake are certainty (against allowing mistake to be considered) Vs protection of a party who enters into an agreement radically different to that which he contemplated. * Mistake can prevent formation of contract (no common intention) but cannot set aside a contract. Objective approach is taken to mistake. * Prima facie presumption that one intends to contract with the party in front of them, causing problems in mistaken identity cases. * If a common mistake is sufficiently fundamental, a contract can be vitiated. Common mistakes as to quality will only lead to vitiation in extreme cases (courts are unwilling to allow an escape from a bad bargain). * Within narrow limits courts can rectify mistakes in contracts. * Where a party was unable to understand the document he was signing, through no fault of his own, and there was a real or substantial difference between the contract he was signing and the one he thought he was signing, the defence of non est factum is available. * Frustration is a means of discharging obligations under a contract where, after formation of the contract, something occurs to render performance impossible, illegal or something radically different from that which was contemplated by the parties upon entering the contract. It doesn't apply where (1) the contract provides for what is to happen in such circumstances e.g. hardship clause or force majeure clause; (2) the event was foreseeable; (3) where the party who claims frustration brought about the situation by his own conduct. * Frustration brings the contract to an end, regardless of the parties' wishes, and this dramatic consequence + desire to prevent it becoming an escape route has led to restricted application. For all these reasons it is not of great importance. 1. Mistake at Common Law (i) Unilateral Mistake (i.e. mistake of one party only, but note that some commentators subdivide according to whether the mistake is known about or not by the other party) Smith v Hughes (1871) LR 6 QB 597: D agreed to sell "oats" to P, P assuming that the oats were old when in fact they were new, though D had done nothing to induce P's belief. Nothing was said in negotiations or the contract on the matter. P tried to vitiate the contract on the grounds of the mistake, since the minds were not ad idem due to the mistake. CA rejected this. Cockburn CJ: The parties were ad idem as to the parcel of oats to be sold and price etc. The only absence of the minds being ad idem was in the case of how old the oats were. The mistaken belief of P as to age was a "motive" inducing him to buy, and not an "essential condition of the contract". P did not make age a condition of the contract. Blackburn J: Unless there is a warranty as to quality, the buyer must accept the good he has contracted to buy regardless of what quality he believed it to be. Even if the vendor knew of the belief under which the purchaser was operating and knew it was an incorrect belief, the purchaser is still bound unless the vendor is being fraudulent or deceitful or induced the mistake, due to general rule of no duty of disclosure. Also, where a mass is sold by a sample, the law is the same, provided the sample represents the mass. On the agreement, the intention is to be inferred objectively: If a reasonable man would believe from A's conduct that he agreed to B's terms, then A is bound by them regardless of his true intention. Hannen J: Ad Idem is crucial: if I want to buy one ship and you are selling another, but they have the same name, there is no "ad idem" and the contract is not formed. However where it is one party's own fault that there is no ad idem (e.g. where a vendor displays the wrong sample for the good he intends to sell), he cannot use lack of "ad idem" as a defence. However if in negotiations the purchaser becomes aware that vendor gave him an incorrect sample, vendor can apply the lack of "ad idem" defence by showing that he did not intend to sell the object to which the sample related. McKendrick: Important point is that where vendor (V) knows that purchaser (Pu) is mistaken as to what he is buying, there is still ad idem, whereas if Pu knows that V made a mistake but failed to tell him, V can escape the bargain on the basis of mistake. This affords greater protection to sellers that consumers. Raffles v Wichelhaus (1864) 2 H&C 906: There was confusion since a contract stipulated that goods should be carried in the ship Peerless and there were two ships by that name, one of which would arrive later. D asserted that he had intended the ship that arrived earlier and therefore had not paid, and P sued him for breach of contract. CA, without giving its reasons, denied P's claim and upheld D's right not to pay. CW: Traditional explanation is that there was no consensus ad idem to the thing. This is wrong because contract law doesn't require a subjective meeting of the minds. On an objective understanding of consensus ad idem, it seems that however a reasonable