Mistake

1
Mistake

• Contracts

2
What Is This?

• Where there is a mistake of fact as to the
  circumstances which are in the past or present at
  the time of the making of the contract
• As you will remember, the intention in contract
  is the objective intention of the reasonable
  person. As we will see, in mistake, we are
  concerned about the unfairness of forcing one
  party to say in a contract when it is
  fundamentally different than that which the party
  expected

3
What Is This? (contd)

• The doctrine of mistake is related to both
• Intention of the Parties
• Certainty of terms
• Contingent agreements
• Misrepresentation
• Frustration

4
Intention of the Parties

• One of the parties says that I thought that the
  facts at the time of the making of the contract
  were different than they actually were.
• But note that these are subjective intentions of
  the parties

5
Certainty of Terms

• If you are cannot tell what the heck the parties
  meant to (or thought that they were) agree to,
  then there is no contract.

6
Misrepresentation

• This is where there is a party who makes a
  statement of fact. As we will see, when we
  discuss the McRae case, what is in essence a
  misrepresentation can generate a mistake. One of
  the reason that the area of mistake is that it
  overlaps to a great deal with the law
  misrepresentation but works very differently.

7
Contingent Agreements

• This could be dealt with as a condition precedent
  to formation

8
Frustration

• This is the flip side of mistake Where there is
  a mistake of fact as to the circumstances which
  are in the future at the time of the making of
  the contract

9
Mistake (contd)

• Three types of mistakes
• Common mistake Both parties are under the same
  misapprehension of fact (sometimes wrongly
  referred to as mutual mistake)
• A sells a snowmobile to B. The snowmobile is at
  the lake. Each of them believes that the
  snowmobile in good condition. It turns out that
  the snowmobile has been stolen before the
  contract was signed.
• If this is a valid contract
• If not

10
Mistake (contd)

• Three types of mistakes (contd)
• Common Mistake (contd)
• Would the answer be different if A says to B that
  A is sure that the snowmobile is there and in
  good condition, then we would deal with this
  either as a misrepresentation or a collateral
  warranty

11
Mistake (contd)

• Three types of mistakes (contd)
• Common Mistake (contd)
• Would the answer be different again if A had said
  he had no idea of the condition of the
  snowmobile, or if it were there, but that if B
  were willing to take the risk, A would sell the
  snowmobile for 100? In such a case, the buyer
  is accepting the risk of the snowmobile not being
  there, and of its condition. Therefore, there is
  a contract and there is no breach of the contract

12
Mistake (contd)

• Three types of mistakes (contd)
• Common Mistake (contd)
• What if neither party intends to accept the risk
  of non-existence of the snowmobile
• Condition precedent to formation
• Mistake Bell v. Lever Bros

13
Mistake (contd)

• Three types of mistakes (contd)
• Mutual mistake Each party is under a
  misapprehension of fact, but each misapprehension
  of fact is different from the other
• Unilateral mistake One party is under a
  misapprehension of fact

14
Mistake (contd)

• Two sub-categories
• At common law
• Generally, the remedy is the contract is to say
  there was no contract the contract is void
• In equity
• Equitable remedies are available, including
  rescission, with terms if necessary
• Only certain types of mistakes are legally
  relevant
• Why?

15
McRae v. Commonwealth Disposals Commission

• Both parties believed that there was a tanker in
  existence at a particular location, when in fact
  it did not exist
• The Disposals Commission places an ad
• McRae offers 285 (the tender of 31 March 1947).

16
McRae v. Commonwealth Disposals Commission
(contd)

• The offer is accepted (paragraph 3).
• Terms provided on April 15 (paragraph 4).
• Form 0 Not relevant here
• As is condition

17
McRae v. Commonwealth Disposals Commission
(contd)

• The court focuses on the tender which provided
  that there was to be an oil tanker off lying on
  Jourmaund Reef, which is approximately 100 miles
  North of Samurai.
• McRae found Jomard Island. But it is not in the
  correct place relative to Samurai
• Asked for and received a latitude and longitude
• There was never a tanker as described. There was
  only a rumor or gossip, and the fact that there
  might have been a barge in the past is irrelevant

18
Courterie v. Hastie

• At the date of the contract the vessel containing
  the corn had sailed from Salonica, but, having
  encountered very heavy weather, had put in at
  Tunis. Here the cargo had been found to have
  become so heated and fermented that it could not
  be safely carried further. It had accordingly
  been landed at Tunis and sold there.

19
Courterie v. Hastie (contd)

• These facts were unknown to either party at the
  date of the contract. On discovering them, B
  repudiated the contract. After the expiration of
  the two months mentioned in the contract, A,
  being able and willing to hand over the shipping
  documents sued B for the price.
• Question of construction (paragraph 15)

20
McRae v. Commonwealth Disposals Commission
(contd)

• A vendor of goods warrants that they exist at the
  time that the contract is created. Therefore, if
  it does not exist, there is an immediate breach
  of contract
• This is another type of implied term (paragraph
  22).

21
McRae v. Commonwealth Disposals Commission
(contd)

• A party cannot rely on a common mistake where
  (paragraph 23)
• the mistake consists of a belief which is, held
  by him without any reasonable ground, and,
• deliberately induced by him in the mind of the
  other party.
• There was no fraud here but there was also no
  reasonable belief here

22
Mistake (contd)

• McRae v. Commonwealth Disposals Commission
  (contd)
• Why not mistake?
• Condition precedent to formation
• Negligent misrepresentation
• Level of damages
• Expectation damages
• Proof Problems
• Reliance damages

23
Bell v. Lever Bros.

• Lever Bros. owns The Niger Co. The Niger Co. is
  losing money. Lever Bros. hires Bell and
  Snelling (the employees)
• After six years, there was an amalgamation and
  the employees were out of a job.
• The two appellants were involved in a
  price-fixing ring, and they got paid for their
  participation. Lever Bros. did not realize this
  at the time.
• This is a breach of fiduciary duty, which, it was
  found, would have justified firing them, and
  Lever Bros would have done so
• There is no fraud here (paragraph 8)

24
Bell v. Lever Bros. (contd)

• This is case of either common or mutual mistake
• Common Both parties believed that the employees
  had done nothing that rose to the level of being
  fired
• Mutual The employees believed that they had
  done nothing that rose to the level of being
  fired the employer believed that the employee
  had done nothing wrong.

25
Bell v. Lever Bros. (contd)

• At the time of the golden handshake, the
  employees were said to not have their misconduct
  on their minds
• This is a case brought under the common law The
  contract is either void or valid
• Paragraph 6 Hypothetical fact scenarios

26
Bell v. Lever Bros. (contd)

• The law of mistake is reasonably clear (not )
  (paragraph 6)
• If there is a unilateral mistake as to the
  identity of the other party, then the mistake is
  operative if the one party intended to deal with
  a party who is not present (paragraph 6)

27
Bell v. Lever Bros. (contd)

• If the subject-matter of a contract was destroyed
  prior to the making of the contract, then the
  contract is void, unless one of the parties knew
  of the destruction of the subject-matter prior to
  making the contract (paragraph 6) (res extincta)
• If the buyer purports to buy what he already
  owns, this is void, unless the parties intended
  that the ownership was an implied term (paragraph
  6) (res sua)

28
Bell v. Lever Bros. (contd)

• A. buys B.'s horse he thinks the horse is sound
  and he pays the price of a sound horse he would
  certainly not have bought the horse if he had
  known as the fact is that the horse is unsound.
  If B. has made no representation as to soundness
  and has not contracted that the horse is sound,
  A. is bound and cannot recover back the price
  (unilateral mistake).

29
Bell v. Lever Bros. (contd)

• A. buys a picture from B. both A. and B. believe
  it to be the work of an old master, and a high
  price is paid. It turns out to be a modern copy.
  A. has no remedy in the absence of
  representation or warranty (common mistake not
  essential).

30
Bell v. Lever Bros. (contd)

• A. agrees to take on lease or to buy from B. an
  unfurnished dwelling-house. The house is in fact
  uninhabitable. A. would never have entered into
  the bargain if he had known the fact. A. has no
  remedy and the position is the same whether B.
  knew the facts or not, so long as he made no
  representation or gave no warranty.

31
Bell v. Lever Bros. (contd)

• A. buys a roadside garage business from B.
  abutting on a public thoroughfare unknown to A.,
  but known to B., it has already been decided to
  construct a byepass road which will divert
  substantially the whole of the traffic from
  passing A.'s garage. Again A. has no remedy.

32
Bell v. Lever Bros. (contd)

• Mistakes as to quality are irrelevant unless
• The mistake is held by both parties
• It is an essential quality
• In such a case, not void breach of a term

33
Mistake (contd)

• If you are getting the substance of the thing
  that you are buying on the terms on which you
  thought that you were buying it, then the court
  is very reluctant to allow one of the parties to
  set it aside on the grounds of mistake
• The employees win

34
Great Peace Shipping Ltd. v. Tsavliris

• Facts
• The Cape Providence was on a voyage and
  suffered difficulties. The Great Peace was
  sent to help salvage the Cape Providence. The
  owners of the Cape Providence were told the
  wrong amount of time for salvage.
• They should have been 35 miles, instead, they
  were 410 miles apart at the time of contract
• The captain of the Cape Providence wants to
  look around for another ship before canceling the
  Great Peace

35
Great Peace Shipping Ltd. v. Tsavliris (contd)

• After finding another ship, the Cape Providence
  canceled the Great Peace
• Mr. Holder for the Cape Providence and Mr. Lee
  for the Great Peace discuss compensation

36
Great Peace Shipping Ltd. v. Tsavliris (contd)

• Contract
• MINIMUM 5 DAYS DUE AND EARNT UPON 'GREAT PEACE'
  ALTERING DIRECTION, BEING USD 82,500. ANY BALANCE
  DUE UPON COMPLETION OF SERVICES
• CANCELLATION FEE MINIMUM ENGAGEMENT AS DUE

37
Great Peace Shipping Ltd. v. Tsavliris (contd)

• Issues
• Was there a legally relevant common mistake
  (paragraph 30)?
• At common law
• In equity
• How broad is the quality exception?

38
Great Peace Shipping Ltd. v. Tsavliris (contd)

• The facts of Solle v. Butcher
• The defendant agreed to let a flat to the
  plaintiff for GBP 250 a year. The flat had
  previously been let at a rent of GBP 140.
  Substantial work had been done on the flat and
  both parties believed that this so altered the
  nature of the premises as to free them from
  relevant rent control. In this they were
  mistaken.

39
Great Peace Shipping Ltd. v. Tsavliris (contd)

• The defendant would have been able to charge the
  plaintiff an increased rent of GBP 250 to reflect
  the work done on the flat had he complied with
  the requisite formalities but, under the
  influence of the mistake, he failed to do so. In
  the result he could not lawfully charge a rent
  higher than GBP 140.

40
Great Peace Shipping Ltd. v. Tsavliris (contd)

• Paragraph 41
• Mistake is irrelevant unless
• failure of some condition on which the existence
  of the contract depends, or
• for fraud, or
• on some equitable ground.
• Cannot rely on ones own mistake

41
Great Peace Shipping Ltd. v. Tsavliris (contd)

• Paragraph 42
• Solle v. Butcher
• A contract is also liable in equity to be set
  aside if the parties were under a common
  misapprehension either as to facts or as to their
  relative and respective rights, provided that the
  misapprehension was fundamental and that the
  party seeking to set it aside was not himself at
  fault.

42
Great Peace Shipping Ltd. v. Tsavliris (contd)

• Lord Justice Denning in Solle v. Butcher was
  trying to undo Bell v. Lever Bros.
• Fundamental v. thing without the quality
  essentially different from the thing as it was
  believed to be
• There should not be a generalized exception for
  unfair contracts other than those void at common
  law

43
Great Peace Shipping Ltd. v. Tsavliris (contd)

• Solle v. Butcher cannot overrule Bell v. Lever
  Bros.
• The fact that the Cape Providence hedged their
  bets on the fact that they might still need the
  service of the Great Peace was an indication
  that the services of the Great Peace were not
  needed.
• No injustice

44
Raffles v. Wichelhaus

• The plaintiffs agreed to sell cotton to the
  defendants. But it was supposed to arrive on the
  ship Peerless. The plaintiff was ready to
  deliver in December, but the defendant wanted it
  off a ship Peerless that was in Liverpool in
  October

45
Raffles v. Wichelhaus (contd)

• Issue
• Is the contract a contract all
• There was no consensus ad idem, and therefore no
  binding contract
• Certainty of terms