Definition: Where one or more parties make a fundamental mistake relating to the terms of the contract preventing the formation of the agreement or known as negating consent.
- DOCTRINE OF MISTAKE IS EXTREMELY LIMITED IN ENGLISH LAW DUE TO LACK OF PRINCIPLES. PRINCIPLES DERIVE FROM OTHER ESTABLISHED AREAS OF CONTRACT LAW SUCH AS OFFER AND ACCEPTANCE.
-MISTAKE OFTEN MAKES A CONTRACT VOID WHICH MAKES THE COURTS UNEASY WHEN APPLYING AS LAW DOESN’T LIKE TO EASILY ALLOW PEOPLE TO GET OUT OF CONTRACTS
Mistake defined in Great Peace Shipping v Tsavalivis by Lord Phillips as 'erroneous belief' and 'mistakes prevel the mutuality of agreements that are necessary for the formation of the contract'.
-DEFINITION: LIABLE TO BE SET ASIDE BY THE REMEDY OF RECISSION
-RECISSION IS A PERSONAL REMEDY AND NOT AVAILABLE AGAINST A 3RD PARTY IF CONTRACT VOIDABLE
-I.E. BEFORE SELLERS CLAIM, BUYER DISPOSES OF GOODS TO INNOCENT 3RD PARTY, THE PROTECTED IF CONTRACT VOIDABLE
-HOWEVER ORIGINAL SELLER IN A BETTER POSITION THEN AN INNOCENT 3RD PARTY
-Sale of Goods Act 1976 recission not available when ownership transfers to 3rd party
DEFINITION: CONTRACT VOID FOR MISTAKE WHEN SELLER HAS NOT LOST TITLE TO THE GOODS AND ENTITLED TO RETURN OF GOODS BY RIGHTS OF OWNERSHIP EVEN IF PASSED OUT OF THE HANDS INTO AN INNOCENT 3RD PARTY
TYPES OF MISTAKE
AGREEMENT (NEGATIVE IN CONSENT)
(both make mistakes) (1 party mistaken-other knows/ought to know) (i.e. a rogue...1 person mistaken)
BOTH OF THESE ARE VERY RARE TO SUCCEEED THEREFORE NARROW DOCTRINE OF MISTAKE
NO CONTRACT COMES INTO EXISTENCE...
ARMS LENGTH FACE 2 FACE
(EASIER TO PROVE MISTAKE) (HARDER TO PROVE AS IN FRONT OF YOU)
(presumption intented to contract and no mistake to identity)
(mistake to creditworthiness/attributes?)
(CASE: CUNDY V LINDSAY) (CASE: PHILLIPS V BROOKS)
LEWIS V AVERAY
TYPES OF MISTAKE 2
COMMON MISTAKES NULIFY CONSENT
(common mistake like selling a car but the car has been damaged without parties knowing it and therefore IMPOSSIBLE to complete AKA initial impossibility so its VOID
UNILATERAL (AT ARMS LENGTH CASE THAT WON)
CUNDY V LINDSAY
Case facts outline: Linen manufacturer received a big order from Blenkarn that had same business in same road as reputable and well known Blenkyron. Cundy were then sold the handkerchiefs by 3rd party rogue company Blenkarn. If genuine identity mistake Cundy would lose the handkerchiefs.
Decision: Lindsay won as proved they meant to deal with the reputable company not the rogue one. Mistook the different companies. Indentity was of crucial importance to entering the agreement. Contract was VOID for mistake and Lindsay got the handkerchiefs back. Innocent 3rd party suffered the loss.
Quote from House of Lords: ‘no consensus of the minds as of Blenkarn they knew nothing and never intended to deal’
UNILATERAL (AT ARMS LENGTH CASE THAT FAILED)
KING’S NORTON METAL V EDRIDGE
Case facts outline: A rogue established a bogus business and wrote on headed paper to Kings Norton which looked as if they were a large well established factory. Kings Norton supplied goods on credit that were sold on to an innocent 3rd party. Kings Norton claimed void for mistake and wanted the goods back.
Decision: Court of Appeal rejected the claim as they intended to deal with the correct entity and they hadn’t mistaken an entity for anyone else. It was a mistake of creditworthiness and a bad judgment call.
UNILATERAL (FACE TO FACE CASE THAT LOST)
PHILLIPS V BROOKS
Case facts outline: A rogue went into a jewellery shop and wrote a cheque out for pearls stating he was Sir George living at a prestige address. He was allowed to take the jewellery away after the jeweller checked his name and address. The jewellery was sold on to a 3rd party.
Decision: The court dismissed the claim and stated the contract was not void. It was a problem of creditworthiness not mistaken identity.
UNILATERAL (FACE TO FACE CASE THAT WON)
INGRAM V LITTLE (LJ PEARCE)
Case facts outline: 2 little old ladies Hilda & Elsey who were sisters advertised their car for sale. A rogue came along and offered to pay by cheque. 1 sister went and checked his name from the phone book and they accepted. Car then sold on to Little who were car dealers.
Decision: Majority of Court of Appeal held that no contract had come into existence and did what was right rather than following the law perhaps feeling sorry for them. Courts said they had intended to contract with man in phone book not the rogue. UNUSUAL decision and reasoning decided that they meant to contract with the real Hutchinson rather than some rogue pretending to be him.Quote from: LJ Pearce doubted the authority of Phillips v Brooks in this case
UNILATERAL (FACE TO FACE CASE THAT LOST)
LEWIS V AVERAY
Case facts outline: The claimant had advertised his car for sale when a rogue came along and pretended to be a famous actor called Richard Greene. The claimant allowed the rogue to take the car even though the cheque had not cleared. The car was sold to a 3rd party.
Decision: The court held that this was a mistake due to creditworthiness rather than identity and the claimant could not claim the car back.
Quote from: Lord Denning emphasised that the innocent 3rd party deserves more protection than the seller as they are more ‘innocent’. This is now leading authority and over turns Ingram v Little.
UNILATERAL (LEADING CASE.. ARMS LENGTH OR FACE TO
SHOGUN FINANCE V HUDSON 2003
(Judges in Hol’s: Lord Hobhouse, Lord Phillips, Lord Walker, Lord Nicholls & Lord Millett)
Case facts outline: A rogue 'Mr Patel' went into a Mitsubshi car dealer and wanted to buy a shogun with fake doc's. The dealer agreed a price of £22,500 and faxed a copy of the HP agreement to the finance company who carried out usual credit checks and approved. The rogue was then allowed to take the car away. The roguesold the car on for £17k and disappeared.The new car owner claimed he had aquried the car under the Hire Purchase Act 1964 because the rogue was a debtor. Decision: The Court of Appeal held the rogue was not a debtor because the HP agreement was made with the real Mr Patel who couldn’t be held liable as his signature was forged. The Court of Appeal found for the claimant yet the House of Lords disagreed and dismissed. HoL’s rejected the argument that the dealer was an agent for Shogun. This was decided as an ‘at arms length’ mistake and the finance company had meant to deal with the real Mr Patel therefore the innocent 3rd party lost out and rendered the contract voidable.
Key points of Shogun.....MISTAKE
Shogun Finance case key arguable points:
- Face to face or at Arm’s length? Questionable....
- Mistake as to identity or attributes?
- Important for commercial certainty?
- Fair that innocent loses out when the large company could have the loss?
- Missed opportunity to clarify the law?
Catharine MacMillan- Mistake as to identity clar
It seems that the principle normally derived from Cundy v Lindsay is still to be accepted as good law and where an agreement is written it must be objectively determined with whom an innocent party intended to deal: the intervention of a rogue prevents a contract from arising.
There is no principled rationalisation of why the distinction in the form of contracting should result in such differences in the enforceability of the agreement
In other forms of mistake at common law, for the mistake to produce a void contract, the mistake must generally be a mutual one which in Shogun it was not.There is much to commend itself in Lord Millett's and Lord Nicholls' consideration of the effects of fraud upon contractual formation.
The decision of Shogun does not encourage these vendors to be more cautious as the courts found for Shogun and it does not matter how recklessly they release their goods.
As so few cases reach HoL's in this area, a shame that greater consideration was not given to the anomalies of Cundy v Lindsay to clarify MISTAKE.
Shogun further points on HPA 1964 and being a debt
Hudson relied on an exception to the general rule of nemo dat quod non habet: s.27 of the Hire-Purchase Act 1964. The section provides that where a motor vehicle has been bailed to a debtor under a hire-purchase agreement and the debtor disposes of the vehicle to a private purchaser in good faith without notice of the hirepurchase, the debtor can pass good title to his purchaser. Hudson maintained that the rogue was a “debtor” within the 1964 Act because there was an agreement between the rogue and Shogun, albeit a voidable one.
Shogun in the Court of Appeal
· Brooke L.J. held that the rogue was not a debtor within s.27 as he was not the hirer named in the agreement.
· Dyson L.J. stated, obiter, that the agreement was void for mistake.
· The Phillips v Brooks face-to-face presumption that the party duped intended to deal with the person before him (and not that of the named person) was inapplicable since the dealer was not Shogun's agent. Even if he were, the presumption was displaced because the hirer's identity was of vital importance to Shogun. Not attributes!
· Sedley L.J. dissented concluding that the dealer was Shogun's agent for the limited but crucial purposes necessary to bring the case within the face-to-face presumption. The agreement was voidable and, as it was not avoided, Hudson bought from a debtor within s.27 and acquired good title.
Shogun House of Lords dismissing Hudson...
- Lord Hobhouse rejected Hudson's argument that the contract was with the rogue in the dealer's showroom. Lord Walker agreed with Hobhouse. Lord Phillips agreed too.
- A second ground for dismissing the appeal was that there was no consensus ad idem between Shogun and the rogue. The rogue had no contractual intention and Shogun intended to contract only with Patel. In this case there was no room for the application of the face-to-face presumption because the dealer was not Shogun's agent except for the purposes of delivery
Shogun house of lords dissenting judgements...
Lord Nicholls and Lord Millett stated the mistake of identity was created by the fraud of a rogue.
Both perceived that the law was of unsatisfactory nature in this area. To achieve this end, Cundy v Lindsay should no longer be followed and the untenable distinction between contracts arms length and contracts concluded face-to-face should be removed.
Both found commercial sense in apportioning the loss resulting from a fraud to the party who assumed the risk of parting with his property without payment rather than the innocent third party purchaser.
Where the innocent party deals with a rogue in the belief that he is a third party, a contract is formed, but one voidable by reason of the rogue's fraud. This was recognised in the face-to-face cases and there should be no difference where the contract was entirely written. There was no principled ground for distinguishing between the two methods of contractual formation because the essence of the transaction is the same. Lord Millett agreed that fraud is relevant to the enforceability of the contract rather than to its existence
Catherine Elliot- No justice for innocent purchase
Lord Nicholls and Lord Millett are very persuasive about it not being necessary when interpreting contracts, of applying a special approach to face to face dealings. No difference of substance between contracts made face to face and contracts made over the telephone, by videolink or even by post.
Lord Nicholls and Lord Millett therefore proposed that where two individuals deal with each other, by whatever medium, and agree terms of a contract, then a contract will be concluded between them. They would overrule the case of Cundy v Lindsay
The Law Reform Committee in its Twelfth Report in 1966 proposed abolishing the distinction between contracts void for mistake and those voidable. Instead, it recommended that where goods are sold under a mistake as to the buyer's identity, the contract should be voidable, and not void. Favour innocent purchasers because they would obtain good title.
Catherine believes the law in this area is artifical as it should be considered by fraudulent misrep rather than mistake although this doesn't provide a remedy.
ESSAY PLAN FOR THE EXAM
1) Intro - identify area of law/ complexity - balancing interests of two parties and Identify and distinguish different types of mistakes
2) Review law preceding shogun (arms length/face to face)
3) Introduce facts of Shogun
4) Add in a few quotes from judges (particularly Nicholls and Millet dissenting - by the way Millet is Mary's favourite judge so don't disagree with him!!)
5) Add in some academic commentary
6) Reform for this area and Conclusion.
Reform for the area....
- Need for reform is long overdue however with so few cases of Shogun's nature reaching the House of Lords, the doctrine of mistake will remain unclear and need urgent clarification.
- Fraudulent impersonation not uncommon these days, the law is remains unsatisfactory
- Fair if a party who had the opportunity to uncover the fraud should bare the loss as in Shogun's position with Mr Patel by writing to him before releasing a car worth such value
- There is not a long line of cases to be overturned presenting massive difficulties
Lord Millett's reform ideas...
1) Lord Millett held that face to face and arms lengths distinction is unrealistic
- Lord Millett's formulation for the new law:
1) Did a contract come into existence?
2) Contract fueled by fraud or mistake?
2) Lord Millett believes the law on offer and acceptance is sufficiently established to clarify if a contract exists in the first place and if interpreted objectively will advoid undesirable refinements and give measures of protection to 3rd innocent parties.
3) Lord Millett believes that the law needs to be rationlised and the Law Reform Committee's 12th report in 1960's and his formulation would bring Englands law in line with USA and Germany and the 120 year old case of Cunday v Lindsay should be overturned as there is no justification that the signature was even forged as they did not claim to be anyone else and therefore should be VOIDABLE not VOID.
MISTAKEN DEFINED AGAIN..
UNILATERAL MISTAKE AS TO:
TERM = VOID
QUALITY = VOIDABLE OR STILL BINDING AS IN Smith v Hughes (oats case)
UNILATERAL MISTAKES AS TO:
MISTAKE OF IDENTITY
MISTAKE OF ATTRIBUTES/CREDITWORTHINESS
ARMS LENGTH AND OTHERS
FACE TO FACE