Mistake

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  • Created by: Nikki
  • Created on: 14-04-16 11:49

Preliminary points

Notoriously difficult to stabilise

3 factors contribute to complexity
(1) situations where parties enter contracts under mistake can be decided by doctrines other than that of mistake
(2) law of mistake is riddled with very difficult distinctions, some of which have only superficial logic and which can cut across each other
(3) seriousness of mistaken assumptions necessary for relief to be granted is notoriously difficult to stabilise 

Traditional bar against relief for contracts tainted by mistakes of law was abolished in Brannan v Bolt Burdon after the distinction between mistakes as to law and fact was abolished in teh law of restitution and law of misrep
- refs to 'mistakes of fact' should now be read to include mistakes of law

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Common (shared) mistake at common law (1)

Bell v Lever Bros

- HL recognised jurisdiction to void a contract for common mistake assumption but held by majority of 3:2 that the mistake here was, on the facts, no sufficiently fundamental to void the contract
- majority judgements reaching same outcome but were sufficiently different to generate subsequent controversy over what the case actually stood for

Great Peace v Tsavliris
- Phillips MR set out the conditions for voiding a contract on ground of common mistake at common law:
(1) there must be a common assumption as to teh existence of the state of affairs
(2) there must be no warranty by either party that the state of affairs exists
(3) the non-existence of the state of affairs must not be attributable to the fault of either party
(4) the non-existence of the state of affais must render performance of the contract impossible
(5) the state of affairs ma be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible

Phillips MR conditions can be summaries as 3 step inquiry --> C can only void a contract by showing that
(1) construction --> the risk of the mistake was not allocated to either party
(2) fault --> he was not at fault
(3) fundamentality --> teh mistaken common assumption was so serious as to make performance 'impossible'

This approach mirrors that adopted by Steyn J in Associated Japanese Bank v Credit du Nord --> generally approved in Great Peace

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Common (shared) mistake at common law (2)

CONTRACTUAL ALLOCATION OF RISK: CONSTRUCTION
- question is whether the contract has:
(a) allocated the risk of mistake to either partY
(b) provided, expressly or impliedly, that the contract's existence is contingent on the existence of an assumed state of affairs
- if contract is silent on the point --> mistake doctrine applies

RISK ALLOCATION TO EITHER PARTY
- court usual find that one party has assumed risk of ordinary uncertainties existing as time of contract formation by ref to contract itself and rules of general law
- party to whom risk is allocated must perform his contractual oblgiations or be liable for its non-performance --> no relief available for mistake

FAULT
- Associated Japanese Bank --> party cannot rely on common mistake where mistake consists of a belief which is entertained by him without reasonable grounds for such a belief
- no relief if party contracts with minimal knowledge of facts to which mistake relates but is content that it is a good speculative risk
- induced mistakes give representee an action for misrep

CONDITION PRECEDENT
- contract may provide expressly or impliedly that the parties' obligations will only arise if an assumed state of affairs is true, so that no oblgiations arise if this 'condition precedent' is not satisfied 

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Justifications of mistake doctrine (1)

IMPLIED TERM ANALYSIS

  • implied terms (implied condition precedent that no contract comes into effect if parties' common assumption is incorrect)
  • when contracts are voided this is result of something that parties themselves have agreed, albeit impliedly; it is not imposed by the law
  • correct appraoch because of policies against relief for mistake
    • concern that mistake dcotrine would provide open-ended excuse to escape bad bargains and undermine the contractual risk allocation
    • need to promote certainty by upholding parties' objective intention
    • need to reward research and knowlege in free market system, so that knowledgeable parties must generally be allowed to take advantage of less knowledgeable (mistaken) parties
  • counterargument --> view that this provides a complete explanation for all cases where contracts are voided for mistake can be criticised -->
    • (1) contradicted by weight of authority 
    • (2) odd reasoning
    • (3) uncertain
    • (4) over-inclusive
    • (5) unrealistic
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Justification of mistake doctrine (2)

IMPOSSIBILITY OF PERFORMANCE

  • physical impossibility is netiehr necessary nor sufficient
    • perfomrance can be physcally possible but risk allocated therefore not void
    • perofrmance may be possible yet contract void for mistake if substance of contract is deemed to be impossible to achieve
  • if the significance/meaning/point of the, even physically possible, performance int eh actual state of affairs is radically different formt hat supposed by the parties at formation then the contract is void (Great Peace)
  • mistake is operative if it results in teh non-existence of a state of affairs assumed by both parties as going to the foundation of the contract (Great Peace)
  • why should law care about impossibility of performance when non-performing party can always be sued for breach?
    • in HC, Toulson J in Great Peace (affirmed by CA) rejected any suggestion taht mistake doctrine is aimed at avoiding injustice resulting form mistake because this would put 'palm tree jutice in place of party autonomy' when ocncerns to avoid iinjustice are adequately dealt with by other doctrines such as fraud, misrep and undue influence
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Justification of mistake doctrine (3)

CONSENT NULLIFIED

Defective consent rationale offers best explanation of mistake doctrine --> Lord Atkin in B v L

Four reasons support this:

(1) impossiblity, essential context and lack of consent -->
- test of impossiblity of performance is shart hand for saying that parties' consent is vitiated if falsification of their essential assumption about context of contract makes perofrmance of substance impossible

(2) meaningful consent
- although effective consent doesn't require knowing consetn to every detail of content, parties must, as a min, actually consent to the 'gist or core or substance of what they have undertaken'

(3) threshold of consent is fixed by the law
- explains why effect of fundametnal mistake is rightly regarded as being imposed by law rather than agreed by parties

(4) explains effect of voidness
-  explains why contracts tainted by mistake are void rather than voidable

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Actionable common mistake at common law

MISTAKE MUST BE SHARED

  • reasons for requirement obvious under implied terms analysis but less obvious under consent nullified analysis
  • explanation is pragamatic --> concern to uphold contractual certainty and avoid giving contract parties an easy escape route necessitates narrow scope for operative mistakes
  • (i) serves an evidentiary function by
    • (a) corroborating C's assertion of mistake
    • (b) showing the importance of the mistake --> shared assumptions are more likely to relate to essential substance of the contract
  • (ii) shows that enforcing party's expectations are not reasonable since it is also tainted by catastrophic mistakes --> voiding contract in such circ deprives him of benefits which are unworthy of protection because he could not reasonably have expected them when he entered contract

MISTAKE MUST BE FUNDAMENTAL

  • question is wehtehr there is a sufficient degree of disparity between performance of contract in mistaken state of affairs and its performance in actual state of affairs that the consent to the contract can be regarded as nullified
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Illustration of operative mistaken assumptions (1)

  • must relate to 'the existence, or a vital attribute, of the consdieration to be provided or circumstances which must subsist if perfomrance of the contractual adventure is to be psosible' (Great Peace)
  • traditional categories of common mistake
    • (1) mistakenly acquiring one's own property
    • (2) mistake as to existence of subject matter
    • (3) mistake as to the essential quality fo the thing contracted for
    • (4) mistake as to an essential background assumption 
  • (merely illustrations, can but not necessarily will undermine substance of contract as to negate apparent consent given to it)

(1) MISTAKENLY ACQUIRING ONE'S OWN PROPERTY 

  • res sua --> cooper v phibbs
  • where parties contract to trasnfer some itnerest in property that, unknown to either, already belongs to the buyer, the contract is void 
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Illustration of operative mistaken assumptions (2)

(2) MISTAKE AS TO THE EXISTENCE OF SUBJECT MATTER

  • res extincta --> Courturier v Hastie
  • non-existence of subject matter of contract which is mistakenly thought to exist will normally negate the essential purpose of a contract or the means of achieving it
  • if object has perished, prior to date of sale, or never existed
  • s6 SOGA --> 'where there is a contract for the sale of specific goods and the good without the knowledge of the seller has perished at the time when tthe contract is made, the contract is void'
    • narrower than common law because
      • only applies to specific goods that once existed but then perished
      • unlik many other sections it is not expressly subject to contrary intention and therefore seems to apply irrespective of parties' risk allocation
      • should be reformed to cover goods that never existed adn to allow parties to opt out of haivng hteir conract automatically voided
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Illustration of operative mistaken assumptions (3)

(3) MISTAKE AS TO AN ESSENTIAL QUALITY OF THE SUBJECT MATTER

  • Bell v Lever Bros
  • impossibility of perofmrance is measured by extent of deviation from substance of contract which is, in turn, determined by parties' common prupose (in teh broadest sense of what they thought they were contracting about)
  • required = mistake about 'the existence of some quality which makes the thing without the quality essentiallydifferent from teh thing as it was believed to be' (B v L)
  • enormity of difference required 
  • application of distinction has given rise to much uncertainty and inconsistency

(4) MISTAKE AS TO ESSENTIAL BACKGROUND ASSUMPTION

  • 'circumstances which must subsist if performance of the contractual adventure is to be possible' (Great Peace)
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Effect of common mistake

Voids contracts for all purposes --> never a consensus ad idem

Property rights will not pass under it and innocent TP purchasers are left unprotected from action by original mistaken trasnferor to recover the property

CA in Great Peace recognised the desriability of greater reemdial flexibility in cases of common mistake at common law analogous to that available in cases of frustration 

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Common mistake at equity (1)

Solle v Butcher --> Denning LJ judgment -->
- authority for equitable doctrine of common law mistake
- conferred wider scope of relief and greater remedial flexibility 
- contract voidable, not void --> can therefore be set aside on terms 
- threshold for operative mistake is lower in equity than at common law 

Associated Japanese Bank --> Lord Steyn suggests 3 steps:
(1) Look at contract, to see if it makes provision for who bears risk
(2) Look at whetehr it is a sufficiently large mistake as to render the contract void at common law
(3) In case of smaller mistakes, look at whether the contract is voidable in equity 

CA in Great Peace rejected equitable juridsiction that would set aside contract not void at common law --> 4 reasons
(1) contradicition of Bell v Lever
(2) lack of precedent 
(3) uncertainty
- 'fundamental' mistakes but logially less fundamental than those required at common law
- subsequent cases applying S v B have not identified a test giving rise to equitable jurisdiction 
(4) illegitimacy 
- largely motivated by desire to avoid unjust outcomes --> but not court's role to dissolve or vary contract thought to be harsh on basis of so-called equitable principles 

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Common mistake at equity (2)

  • in practice, CA abolition of equitable common mistake seems secure
  • counterargument (in favour of equitable common mistake)
    • (1) uncertainty --> scope of common law mistake itself highly unstable
    • (2) authority --> excepted by a number of decisions
    • (3) relevance of fairness --> considerations of fairness permeate contract law, but Great Peace was a commercial case so less consideration of fairness
    • (4) proportionality of legal response --> 
      • rational to have a system where serious mistakes void contracts and less serious mistakes render contracts voidable, wether induced or not --> seems odd that innocent misrep will render conract voidable wehreas common mistake induced by an innocent misrep will render contract either void or valid (all or nothing)
    • (5) judicial v legislative development
      • CA rejection of equitable jursidction accompanied by simultaneous call for intro of leg analogous to LR(FC)A to give greater remedial flexibility --> Reynolds --> not a leg priority and not clear why leg would be better than a careful judicial interpretation of Denning's doctrine
    • (6) Remedial flexibility 
      • CA does support wider scope for relievable mistake and wider discretion to tailor appropriate remedies 
      • but this call for felixiblity is odd in context of rejection because if mistake is not sufficiently fundamental to void the contract it is valid and cannot be subject to such remedial flexibility 
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Unilateral mistake at common law: identity (1)

MISTAKE AS TO THE IDENTITY OF OTHER PARTY

Nature of problem

  • A makes an apparent contract with B believing B to be C; A passes property to B under this contract, which B then passes on to D in a subsequent transaction before B disappears or is not worth suing. Can A recover property from D?
  • Legal response = beset by 'illogical and sometimes barely perceptible distinction --> 2 factors have contributed
    • (1) several different doctrines with distinct lines of reasoning are inconsistently applied to the problem
    • (2) failure to clearly identify and respond to the relevant issues 
  • in 2 party cases, B's fraud or nowledge that A only intends to contract with someone lse is usually enought to deny B the contract
  • in 3 party cases law must allocated risk of B's fraud between A and D --> overly technical approach
    • (1) where A-B transaction is void --> no legal title passes to B; B cannot pass title to D --> legal title remains with A, allowing A to recover property from D, who is left unprotected
    • (2) where A-B transaction is voidable --> contract valid until A rescinds it --> ntil then B can validly pass good legal title on to D --> D protected if he obtains title before A rescinds if he is a 'bona fide purchaser for value'
    • (3) if A rescinds voidable contract before B transfers property to D as bona fide purchaser this revests title to proeprty in A from that point in time and D cannot subsequently obtain legal title form B --> A can recover property from D
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Unilateral mistake at common law: identity (2)

Identity v Attributes

  • general rule = mistake as to identity of another party will only void contract if it goes to toher party's 'identity' as opposed to merely their 'attributes'
  • problem is identity of person or contract's subject matter is an accumulation of respective attributes or qualities
  • four sometimes contradictory rules guid courts in makign identity- attribute distinction:
    • (1) objectivity
    • (2) written contracts
    • (3) non-existence of identity assumed
    • (4) face-to-face dealings

(1) Objectivity --> you cannot accept someone else's offer

  • objective test of info prevents party from accepting an offer that he knows was not intended to be made to him
  • no valid contract if offeror knows the offeree has accepted an offer reasonably believing that it came from someone else
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Unilateral mistake at common law: identity (3)

(2) Written contracts

  • where a contract is reduced to writing it can only be between the persons namd in a written contract as the parties to the contract

(3) Non-existence of identity assumed

  • A's mistake as to B's identity will only void their contract if A mistook B for another existing and identifiable party, C. --> If A merely believes that B is C who is non-existent or unidentifable, the contract is only voidable
  • Difficult to see why A adn D's rights should depend on whether A mistook B for antoher real entity or not
  • supposed rule = subject to 2 exceptions, which require impossible distinctions to be drawn:
    • (i) A contract may be voided if A makes teh additional mistake that C exists, even if C does not exist
      • is there a diff between A believing 'B to be not B' and by implication someone else and A believing B to be C, mistakenly believing that C exists?
    • (ii) It is enough tot void a contract when A merely believes that B who pretends to be C was not B (whether C exists or not) so long as there is an implied term that B is not B, as where: (a) an offer is made only to persons fitting paritcular descriptions which excludes B; (b) B may know from rpevious dealings that A is unwilling to contract with him
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Unilateral mistake at common law: identity (4)

(4) Face-to-face dealings

  • where parties deal with eachother face to face the law presumes that each intends to deal with the 'person present, and identified by sight and hearing'
  • conract only voidable and bona fide TP purchasers who obtain title before contract is rescinded are protected
  • voidability unless contract is in writing
  • HL in Shogun held that presumption against contract being void for mistake identity in face-to-face dealings is strong
  • counterpoint 
    • law's approach in asking wehther original contract is void or voidable bears no relationship to real problem --> how to balance interests of D and A
    • why should D's rights depnd on particualr way in which B defrauds A?
    • irrelevant criteria = unsurprising that law is so complex and incohrent
    • crucial point is that it is A who assesses the risk and decides whether to sell on credit --> makes A better able to self-protect than D and so should take the risk of mistake
    • 3 alternative appraoches can be suggested
      • (1) Good faith TP purchaser fully protected if they obtain title before rescission
      • (2) loss sharing
      • (3) protection of TP change of position 
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Unilateral mistake at common law: nature of doc (1

  • non est factum --> 'this is not my deed' --> exception to rule that person normally bound by signature to contractual document irrespective of his knowledge or understanding of its contents --> can void a contract and any transfers of rights under it
  • thresholds of seriousness of mistake made and impairment of C are set very high
  • raises similar issues to mistaken identity
    • 2 party cases --> relief available through misrep
    • 3 party cases --> 
      • case for relief much weaker
      • situation can arise where B's misrep
        • induces A into a contract, A then transfers rights to B, which B then transfers to D
        • induces A to contract with C who is ignorant of B's misrep
      • A's catastrophic mistake as to nature of signed document must be balanced against protection of TP good faith purchaser who relies on document
      • resolved through void-voidable distinction
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Unilateral mistake at common law: nature of doc (2

How serious must the mistake be?

  • fundamental/essential/radial/very substantial/serious difference between nature of actual document and document as it is beleived to be (Saunder v Anglia Building Society)
  • difference = of degree frather than of kind 
    • determined by difference in practical results rather than difference in legal character
    • instances of operative non est factum are rare
  • non est factum was rejected where purpose of contract is not fundamentally undermined
  • no relief if there is no positive mistake but mere ignorance
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Unilateral mistake at common law: nature of doc (3

Who qualifies for relief?

  • cannot normally be relied on by literate persons of full capacity
  • applies to 'those who are permanently or temporaril unable through no fault o ftheir own to have without explanation any real understanding of the purport of a particualr document, wether that be from defective edcuation, illness or innate incapacity' or from being tricked
  • C who is relevantly disadvantaged must still take such care as could be expected of him --> disqualified if not
  • requirement of care disqualifies C who signs a document in blank leaving another to fill in the details
  • in 2 party cases --> C's carelessness = irrelevant --> cannot lie in fraudster's mouth to say that C should not have been taken in and fraudster should not profit from his wrong
  • in 3 party cases --> where contest is between 2 innocent parties, C's carelessness is directly relevant to question of who should bear the loss
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Unilateral mistake at equity

Some cases give relief in equitable mistake where one party hs made a mistakea bout terms of the contract when it would be unconsciaonble for the other party to take advantage of it

Most of these cases can be decided on other, more established grounds, and given CA rejection of equitable msitake doctinre, this cateogry has receded in importance

Courts will generally deny relief where a mistake was entirely the product of the mistaken party's own carelessness

Mistake as to the effect of the commercial consequences of the contract is not enough 

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Mistake in recording the contract: rectification

Parties who wrongly record their agreemetn can apply for rectificaiton to make the contract confromt to their actual agreement

C must offer 'convincing proof' that the written contract deviates from parties' common intention which continued right up to the conclusion of the written contract

Mistake must be in the recording of the contract and not in the making of it

Rectification not available if there is:
(i) any confusion over waht was agreed
(ii) merely an omission to deal with some matter
(iii) no literal disparity between teh terms used in teh parties' agreemetn and the document pruporting to record it --> but rectification is avialable if parties have expressly agreed teh meaning of particular words in contract
(iv) no shared mistake, only unilateral mistake --> party is not mistaken if he is indifferent to relevant matter 

But may be allowed for a unilateral mistake in recording contract if it would be inequitable for unmistaken party to object because he:
(1) actually knows of the mistake and of the mistkaen party's real intentions
(2) fails to draw the mistaken party's attention to teh mistake
(3) the mistake results in benefit to unmistaken party or detriment to mistaken party

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Cross purpose mistake

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