Solicitors Qualifying Examination

Mistake | Contract Law – SQE1 & SQE2 Exams – solicitorsqualifyingexamination.net

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Mistake
NB Only need mistake as to identity for exam + always consider misrep
after mistake
• Parties not easily discharged from contractual undertakings because they
have entered into the contract under a misunderstanding
• Operative mistake = mistake of fact that either:
o Prevents the formation of a contract (i.e. parties cannot be said to
have reached an agreement); or
o Renders the agreed contract something other than that which was
intended
• Operative mistake = contract void ab initio
• Doctrine of mistake only operates where mistake existed at date of
contract formation, not where event subsequently causes party to
regard himself as mistaken to have entered the contract (Amalgamated
Investment and Property Co v John Walker & Sons)
o This may be frustration
Categories of mistake
1. Common mistake – agreement reached on the basis of mistake common
to both parties
i. As to existence of subject matter of contract
ii. As to quality of subject matter
Ø Offer and acceptance correspond = agreement
Ø E.g. X agrees to sell goods to Y, but the goods have perished
unbeknown to both parties at time of agreement
2. Mutual mistake – mere appearance of agreement because of mutual
mistake by both parties
i. As to the identity of the subject matter of contract
Ø E.g. A agrees to sell horse to B ~ A intended white horse, B thought
he was agreeing to buy A’s grey horse
3. Unilateral mistake – mere appearance of agreement because of mistake
of one party
i. By the offeror in expressing his intention, the mistake being
(deemed to be) known to the offeree
ii. As to the nature of the document signed / sealed
iii. As to a person’s identity
Ø E.g. C mistakenly offers to sell item to D at lower price than C really
intended; D, who knows that C has wrongly stated the price,
accepts the offer
© Liam Porritt 2020 2
Common mistake as to the existence of the subject matter
• Applies to:
o Res extincta – subject matter not in existence at time of contract,
unbeknown to parties
o Res sua – subject matter already belongs to person attempting to
purchase it at the time of the contract, unbeknown to the parties
• Couturier v Hastie:
o Contract of sale for cargo of corn
o Captain of ship, unknown to parties, forced to sell cargo because
fermented in hold
o Agreement to buy specific goods required that these goods be in
existence at time of contract
o As not in existence, no contract
• S 6 SGA 1979 – where contract of sale of specific goods, and the goods
without the knowledge of the seller have perished at the time when the
contract was made = contract void
• Where seller warrants the existence of the goods, seller is probably liable
to buyer for breach of contract if goods are not in existence (McRae v
Commonwealth Disposals Commission)
• Crux of two cases: assess which of the parties agreed to accept the risk of
non-existence of the subject matter (if any!)
o Courtier – buyer purchasing specific good ‘corn’ did not assume
risk of that good no longer being corn; seller did not warrant
existence of corn so could not be deemed to assume risk ~ so
contract void
o McRae – warranty that goods existed = assumption of risk by seller
• Associated Japanese Bank v Credit du Nord
o If contract, by express or implied condition precedent or
otherwise, provides who bears the risk = this is binding
o If contract silent as to who bears risk = mistake invoked
© Liam Porritt 2020 3
Common mistake as to a fact or quality fundamental to the agreement
• If no contractual misdescription, mistake as to quality does not nullify
consent (even where goods not useful to buyer OR buyer pays more /
seller pays less than value of goods) (Harrison & Jones v Bunten &
Lancaster)
Bell v Lever Brothers
• Where contract based on common misapprehension: ‘Does the state of
the new facts destroy the identity of the subject matter as it was in
the original state of the facts?’ (Bell v Lever Brother)
o B and LB agree to compensation for B’s resignation
o After payment, LB discover B had breached contract of service
(unbeknown to B) and so contract could have been repudiated
without need for compensation
o Commonly held mistake that contract could only be terminated by
agreement ≠ fundamental, as related to quality of subject matter
and agreement to terminate broken contract not fundamentally
different from agreement to terminate unbroken contract
o The mistake must relate to something that both parties have
accepted in their minds as an essential element of the subject
matter (Lord Thankerton) ~ here, nothing to show Bell regarded
validity of service contract as vital
• Very narrow approach suggesting mistake as to quality would very rarely,
if ever, make contract void
Nicholson & Venn v Smith Marriott
• Georgian napkins sold as having belonged to Charles I – neither party
aware
• Buyer recovered damages for breach of contract
• Hallett J: Could have been treated by buyer as void for common mistake
as regards quality of being Carolean, a sufficiently fundamental fact in the
minds of both parties
Leaf v International Galleries
• Misrepresentation case, but obiter comments of Evershed MR as to
mistake
• C contracted to buy painting of Salisbury Cathedral and this is what he got
• Not painted by Constable as parties believed did not go to the substance
of the subject matter, merely to the value of the painting
• Treitel – painting lacking quality in the minds of both parties = should
have been sufficiently fundamental to be void
© Liam Porritt 2020 4
Associated Japanese Bank (International) Ltd v Credit du Nord
• Guarantee given by Credit du Nord to AJB on behalf of an individual who
claimed to be buying £1m equipment; equipment did not exist
• Steyn J: deemed that there was a CP that machines existed, so claim for
enforcement of guarantee failed
• Obiter: could have equally been voided for common mistake: is the subject
matter of the transaction essentially different from what it was
reasonably believed to be? – here, a guarantee with non-existent
machines essentially different from guarantee with machines
Great Peace Shipping Ltd v Tsavliris (International) Ltd
• Mistake as to distance of ship from bay where required (35 miles vs 410
miles) ≠ essential difference, as ship could have arrived in time +
performance of service not impossible
Other more recent cases
• Very narrow application = this type of mistake has all but disappeared
• Champion Investments Ltd v Ahmed : ‘Radical difference’ test
• Brennan v Bolt Burden (a firm): impossibility
o Mistake as to law could render contract void
• Apvodedo NV v Collins: performance in accordance with common
assumption impossible, rather than strict literal impossibility
Mutual mistake as to the identity of the subject matter
• Negotiation as cross-purposes – A offers 1 thing; B accepts another
• Objective test = what would reasonable man believe the agreement to be?
(Smith v Highes)
o If from evidence, reasonable inference in either sense = valid
contract
• Only if no discernible meaning = void for mutual mistake (Statoil ASA v
Louis Dreyfus Energy Services LP (The Harriette N)
• Raffles v Wichelhaus – sale of bales of cotton ‘to arrive ex Peerless from
Bombay’ – 2 ships named Peerless, each meaning a different ship ~
therefore, void for mistake
• Scriven Bros & Co v Hindley & Co – purchase of hemp and tow, believing it
to be more expensive hemp alone = misleading catalogue = mutual
mistake
© Liam Porritt 2020 5
Unilateral mistake as to the expression of intention
• Where offeror makes material mistake in expressing intention + other
party is deemed to know of the error = mistake operative ~ cannot “snap
up” an offer knowing it to be made mistakenly (Hartog v Colin & Shields)
Unilateral mistake as to the nature of the document signed
• In general: person bound by terms of instrument that he signs or seals
(L’Estrange v Graucob)
• Defence: non est factum (‘it is not my deed’) ~ mistake as to nature of
document due to:
o Blindness, illiteracy, mental disorder or senility of signor; or
o Trick or fraudulent misrepresentation as to the nature of the
document, provided that person took all reasonable precautions
before signing
• Thoroughgood’s Case – illiterate woman induced to execute deed releasing
another from claims by woman, but told the document concerned arrears
of rent = nullity
• Foster v Mackinnon – senile man induced to sign a bill of exchange in
belief it was a guarantee = no liability resulted from signature
• Lloyds Bank v Waterhouse – illiterate person signed bank guarantee in
reliance on bank’s negligent misrepresentation; did not tell bank he could
not read; CoA: entitled to rely on non est factum + claim for
misrepresentation
• Saunders v Anglia Building Society (Gallie v Lee)
o Old woman duped into signing document selling property to friend
of nephew, when believed “deed of gift” for nephew – did not
inspect document as had broken her glasses
o Heavy burden on people of full capacity, where they have been
duped ~ must prove they took all reasonable precautions in the
circumstances
o Where relying on someone’s representation as to the effect of the
document (i.e. to whom transfer is made), not scrutinizing the
document as too busy / lazy (i.e. not taking reasonable effort to try
to find out at least the general effect of the document) ≠ sufficient
for mistake
o However, where relying on representation that document does not
affect their legal rights = more likely to be mistake
© Liam Porritt 2020 6
Unilateral mistake as to the identity of the person contracted with
• One party mistakenly believes they are contracting with a person that the
other party is pretending to be
Lewis v Averay – face-to-face transactions
• Car sold to rogue pretending to be Richard Greene (actor), who convinced
sellers to give him the car before cheque for £450 had cleared
• Cheque worthless + car sold to D by rogue for £200 to student
• Held: fraud rendered contact voidable for fraudulent misrepresentation
(not void for mistake), so car was D’s (C having failed to avoid the
contract in time)
• Is assumed identity crucial to mistaken party’s decision to contract (i.e.
not merely to delivering goods early), or would mistaken party have
contracted no matter who the other party said they were?
o Presumption = in face-to-face transactions, seller intends to
contract with person physically present unless can plead special
circumstances (i.e. assumed identity crucial to decision to
contract) (Phillips v Brooks)
o Mistaken party would not have contracted without identity (i.e.
identity fundamental to contracting at all) = mistake + therefore
initial contract void and second purchaser must return property to
original owner, as nemo dat quod non habet (Ingram v Little – prior
case with facts very similar (except that women took steps to
check name and address at post office) to Lewis, but deemed here
that identity was fundamental)
o Rogue’s identity not fundamental feature of contract =
misrepresentation of fact + voidable title ~ Resale governed by s23
SGA 1979 ~ purchaser of goods from seller with voidable title
acquires good title if: good faith + without notice of the seller’s
defect in title
§ Good faith buyer had no reason to suspect that the seller
had obtained the goods by fraud
NB when considering misrepresentation, as to inducement –
inducement will be to contract on the specific terms in question
(i.e. accepting cheque due to false identity) – so inducement is a
lower standard than showing mistake
© Liam Porritt 2020 7
Cundy v Lindsay – distance transactions
• Where parties do not contract face-to-face, it is easier to rely on mistaken
identity (Cundy v Lindsay) + principles of offer and acceptance (see
below) apply (Shogun Finance Ltd v Hudson)
o Blenkarn placed order signing such that it appeared he was signing
from the reputable ‘Blenkiron & Co’ located on the same street =
contract void for mistake
• However, note that mistake must be as to identity (i.e. assuming the
identity of another real person), rather than to attributes of the rogue (i.e.
creating a fictitious identity and fabricating facts) (King’s Norton Metal Co
Ltd v Edridge Merrett & Co Ltd)
o Here, mistake as to creditworthiness of rogue
Shogun Finance Ltd v Hudson
• Affirmed above principles as regards face-to-face and distance
transactions
• Here, purchase of car in showrooms ~ finance agreement sent to finance
company by car dealer, with fraudulent name (Mr Patel) and copy of
fraudulently obtained (genuine) driver’s licence = distance transaction for
finance company, who could not check identity + would not have
contracted were it not for this mistaken identity = void
• Unilateral mistake and basic principles of offer and acceptance –
here, HoL relied heavily on: Shogun Finance offers to sell car on credit
terms to Mr Patel; Shogun’s offer is only open to Mr Patel; a third party
cannot therefore accept this offer.
o However, problem (as per minority opinions) = innocent thirdparty purchaser at financial risk
• Question reframed: is original seller or downstream purchaser better
placed to bear loss?
o NB this is the approach of the majority of the CoA in Ingram v Little
– old ladies should not bear risk, downstream Blackpool car dealer
should
• This is problematic, as goes against principles of contract (although may
be considered as in Ingram), so nuance principles of offer + acceptance,
such that:
o Distance transactions – principle applies (Shogun, Cundy)
o Face-to-face – presumption that A intends to contract with
whoever is physically present, unless special reason to restrict
offer to particular offeree (i.e. identity crucial to decision to
contract)
© Liam Porritt 2020 8
Mistake in equity
• Equitable doctrine of common mistake (Solle v Butcher)
• Less demanding threshold for fundamental mistake than at common law
(Bell v Lever Brothers)
• Here, mistake = voidable contract
• Great Peace Shipping v Tsavliris – one test for operative common mistake
= Bell v Lever Brothers
• Equitable doctrine of common mistake erased? – Perhaps not…
o CoA cannot overrule its own past precedent – need SC decision
o Great Peace not clearly a case re: common mistake ~ may be seen
that proximity of vessel only material in mind of hirer and not for
owners hiring it out ~ therefore, would be unilateral mistake
o Ideas of fair dealing and the like not easily eliminated, so contracts
may not be considered void by courts, even where common
mistake found (see Nicholson & Venn v Smith Marriott)
• Law here = unclear!

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