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MISTAKEN CONTRACTS

MISTAKEN CONTRACTS. Law of Contract LW1154 BCL 2005-2006. Mistake – Reading. Textbook Clark, Contract Law chapter 10 Reference McDermott, Contract Law chapter 12 . Is “mistake” a single topic?. Clark argues that it is He defines “operative mistake” and then spells out its effects

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MISTAKEN CONTRACTS

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  1. MISTAKENCONTRACTS Law of Contract LW1154 BCL 2005-2006

  2. Mistake – Reading Textbook • Clark, Contract Law chapter 10 Reference • McDermott, Contract Law chapter 12

  3. Is “mistake” a single topic? • Clark argues that it is • He defines “operative mistake” and then spells out its effects • But McDermott and others think this is too confusing • They split “mistake” into several different chunks • Different doctrines, different effects

  4. The approach in these lectures 1. Parties at cross-purposes • i.e. The parties weren’t really in agreement at all 2. Common mistake • i.e. The parties really agreed, but on a false basis 3. Special rules about mistakenly signed documents

  5. Jargon often used here ‘Unilateral mistake’ • = One side is mistaken and the other is not • i.e. The parties are at cross-purposes … • … and are not truly agreed

  6. Jargon often used here ‘Common mistake’ • = Both parties are making the same mistake • i.e. The parties are really in agreement … • … but on a false basis

  7. Jargon often used here ‘Mutual mistake’ • = Both sides are mistaken, but the mistakes are different • i.e. The parties are at cross-purposes … • … and are not truly agreed

  8. Parties at cross-purposes

  9. Parties at cross-purposes Basic idea: The parties never settled on the same set of terms • The terms one side offered were not the terms the other side accepted … • … so offer and acceptance never corresponded

  10. Example 1 Falckv.Williams [1900] AC 176 • Negotiations over hire of ships • Negotiations were by coded telegram • A telegram was sent, making an offer in respect of one ship • The recipient reasonably took it to refer to another ship • The recipient accepted the offer

  11. Example 1Falckv.Williams [1900] AC 176 The Privy Council held: • The “offer” was ambiguous • The parties thought they were agreed, but actually meant different ships • So offer and acceptance did not correspond • No contract

  12. Example 2Hartogv.Collin [1939] 3 AER 566 • Negotiations (by letter) for sale of rabbit skins • Price was discussed in pennies “per piece” (i.e. per rabbit skin) • Sellers then sent a new price offer “per pound”(i.e. by weight) • Buyers immediately agreed to this

  13. Example 2Hartogv.Collin [1939] 3 AER 566 Singleton J held: • The offer “per pound” was absurdly low • It was obviously a typing error … • … and wasn’t what the seller really meant • So there was no offer capable of acceptance, and no contract

  14. Sometimes there is ambiguity over exactly what is agreed to In marginal cases, the court is influenced by who is more at fault e.g.Falck v. Williams e.g. Hartog v. Collin Ambiguity – relevance of fault

  15. Example – relevance of faultMegaw v. Molloy (1878) 2 LR (Ir) 530 • P had two ship-loads of maize to sell • The cargo from the “Jessie Parker” was of high quality • The cargo from the “Emma Peasant” wasn’t • P’s broker displayed samples of “Jessie Parker” maize labelled as being from “Emma Peasant” • D inspected the sample, and agreed to buy the “Emma Peasant” cargo

  16. Example - relevance of faultMegaw v. Molloy (1878) 2 LR (I) 530 The Court of Appeal held: • D really meant to buy the cargo corresponding to the sample he inspected … • … i.e. the “Jessie Parker” cargo • So P and D weren’t truly in agreement • The source of the mistake was plainly the broker, P’s employee

  17. Mistake as to identity Basic principle • Offer and acceptance must correspond • So if I make an offer to X … • … it cannot be accepted by Y • A purported acceptance by Y won’t make a contract

  18. Mistake as to identity Qualification to basic principle • Most contractors don’t care who they are dealing with • So long as the contract is performed, the identity of the other person usually doesn’t matter • If the identity of the other person is commercially irrelevant … • … a contract is formed despite the mistake

  19. Mistake as to identity Basic principle + qualification • A mistake as to the identity of the other person makes the contract void … • … unless their identity was commercially irrelevant Various different situations arise

  20. Mistake as to identity 1:Parties dealing face-to-face • I negotiate with you • I tell you that I am someone famous • When you discover the truth, can you say there is no contract?

  21. Mistake as to identity 1:Parties dealing face-to-face • Your offer was only addressed to the famous person • But in many cases, identity has no commercial relevance • So we need to ask what sort of contract it is – Was identity relevant?

  22. Identity usually matters for e.g.: Contract for skilled services Contract for memoirs Employment Mistake as to identity 1:Parties dealing face-to-face Identity usually irrelevant for e.g.: • Purchase of consumer goods • Purchase of land or shares

  23. Mistake as to identity 1:Parties dealing face-to-face So: • If the mistaken party would have dealt with anyone on the same terms, mistake is irrelevant and the contract is valid • But if identity is commercially important, mistake makes the contract void

  24. Mistake as to identity 1:Parties dealing face-to-face The tricky case: • If identity is important but only to confirm creditworthiness • i.e. One side went to a lot of trouble to confirm the other's identity … • … but only as a way of checking that they were creditworthy

  25. Mistake as to identity 1:Parties dealing face-to-face Identity to establish credit • A mistake as to creditworthiness does not render a contract void • But the innocent party may argue that there was really a mistake as to identity ... • ... even if identity only mattered for reasons of creditworthiness • The case law conflicts

  26. Example Phillipsv.Brooks [1919] 2 KB 243 • A conman selects jewellery at a shop • “You see who I am, I am Sir George Bullough” • He pays by cheque • Shopkeeper allows him to take a ring against a cheque • The cheque bounces

  27. Example Phillipsv.Brooks [1919] 2 KB 243 Horridge J holds: • There was a valid contract of sale • “I think the seller intended to contract with the person present” • … even though the shopkeeper had tried to confirm the buyer’s identity

  28. A contrasting exampleIngramv.Little [1961] 1 QB 31 • A conman tried to buy a car 2nd-hand • His offer for the car was accepted • But when he produced a chequebook, he was told the deal was off • He gave more details of his (false) identity • The sellers took his cheque

  29. A contrasting exampleIngramv.Little [1961] 1 QB 31 The Court of Appeal held: • There was a crucial mistake as to identity • The sellers were very particular about who they took cheques from • The conman had convinced the sellers that he was “... an individual of apparent standing and respectability” (Pearce LJ)

  30. Is there a genuine difference between the two cases? • Is Phillips really “a borderline case”? • Both courts looked at the facts in detail … • … but it is not clear what they were looking for • Away from the detail, the cases seem very similar indeed

  31. Reconciling the two approaches?Lewisv.Avery [1972] 1 QB 198 • The buyer of a car claimed to be a famous TV actor • He produced a pass to Pinewood Studios • He persuaded seller to accept his cheque • The cheque bounced

  32. Reconciling the two approaches?Lewisv.Avery [1972] 1 QB 198 The Court of Appeal held: • There was a strong presumption in favour of a valid contract • Detailed factual enquiries were inappropriate • The Ingram approach could only be right in exceptional circumstances • On the facts, there was nothing to displace the presumption of a contract

  33. Reconciling the two approaches? • Lewis has stood for 30 years now • But it has been criticised (e.g. in Shogun Finance v. Hudson [2002] QB 834, Sedley LJ) • Ingram has never been overruled • The matter is not settled

  34. Mistake as to identity 2:Parties negotiating at a distance Basic principle + qualification • A mistake to the identity of the other person makes the contract void … • … unless their identity was commercially irrelevant

  35. ExampleCundyv.Lindsay (1878) 3 AC 459 • Blenkarn orders goods from Lindsay • He makes the letter look as if it comes from Blenkiron & Co, a well-known firm • Lindsay assumes the letter is from Blenkiron • Lindsay send the goods, not noticing that the address is wrong

  36. ExampleCundyv.Lindsay (1878) 3 AC 459 The House of Lords say: • The contract was based entirely on letters • It was clear that the sellers meant only to deal with Blenkiron & Co • “Of [Blenkarn] they knew nothing, and of him they never thought. With him they never intended to deal” (Lord Cairns) • So there was no contract

  37. A general principle? • Cundy suggests a general principle, that mistake as to the person makes a contract void • But identity was unusually important in the case: • The innocent party thought they were dealing with a well-known and trustworthy firm • The rogue had gone to a lot of trouble to pose as this firm

  38. A general principle? • So it might be different if identity seemed less important to the parties • If there is an apparent mistake as to identity … • … we must ask how important a mistake it was

  39. Example 1Smallman v. O’Moore [1959] IR 220 • O’Moore and Newman were partners • They then formed a company to take over their business • They publicised this change of status in the commercial press • Smallman supplied goods to the business, in ignorance of the change • Was Smallman’s contract with the new company, or with O’Moore and Newman personally?

  40. Example 1Smallman v. O’Moore [1959] IR 220 Davitt P held: • There was no true agreement • Smallman intended to contract with O’Moore and Newman … • … whereas O’Moore and Newman didn’t intend to contract with Smallman • “… the parties were not ad idem”

  41. Example 2Boultonv.Jones (1857) 157 ER 232 • Jones sent a written order for goods to Brocklehurst, at his local shop • But Brocklehurst had just sold the shop to Boulton, who sent the goods to Jones • Brocklehurst owed Jones money, which he could have set against the price • Jones says there is no contract with Boulton

  42. Boulton argues: I received an offer I accepted it by supplying the goods Therefore there is a contract Jones argues: My offer was sent to Brocklehurst, not Boulton It cannot be accepted by anyone else Example 2Boultonv.Jones (1857) 157 ER 232

  43. Example 2Boultonv.Jones (1857) 157 ER 232 • “… when anyone makes a contract in which the personality, so to speak, of the particular party contracted with is important, ... no one else is at liberty to step in and maintain that he is the party contracted with ...” (Bramwell B) • So because the personality or identity of the shopkeeper was important, there was no contract here

  44. Example 3Shogun v. Hudson [2003] UKHL 62 • Hire-purchase contract for a car • The hire-purchaser claimed to be Durlabh Patel • He produced a driving licence in that name • The licence was stolen • Was there a contract?

  45. Example 3Shogun v. Hudson [2003] UKHL 62 • The House of Lords says that there was never a contract • The contract documentation was explicit that the contract, if any, was with Durlabh Patel • No-one else could step in and claim that the contract was really with them

  46. Summary and re-cap: Parties at cross-purposes • Failure to agree on fundamentally important matters can make an apparent agreement void • e.g. Mistake as to identity(Cundy v. Lindsay) • e.g. Mistake as to price(Hartog v. Collin) • e.g. Mistake as to what is being sold (Falck v. Williams)

  47. Parties at cross-purposesGill v. McDowell [1903] IR 463 • Sale of a sexually ambiguous bullock/ heifer • The seller knew it was hermaphroditic • The buyer thought it was a cow • The court held, no true agreement as to subject-matter • No contract

  48. But only fundamental mistakes count • Not every mistake is that important • The doctrine only applies to really fundamental matters • Lesser mistakes are dealt with by other means: • e.g. Interpretation of the contract • e.g. Implied terms

  49. Example 1Smith v. Hughes (1871) LR 6 QB 597 • Smith offered to sell oats to Hughes • He showed a sample • Hughes agreed to buy • But Smith delivered new oats, which were useless to Hughes • Hughes thought that he was being offered old oats • But it was unclear whether Smith actually said they were old oats

  50. Example 1Smith v. Hughes (1871) LR 6 QB 597 Analysis: • There was plainly a contract for the sale of oats • The age of the oats is not a fundamental matter • If Hughes wants to insist on old oats … • … he has to prove that there is a contractual term that the oats are old

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