Contract law Lectures: Mistake

Contract contaminated by a fundamental mistake.
Blame is not an appropriate reaction.
Apparent that one or both sides were completely misunderstanding the environment they were in.
Mistake to be fundamental ‘I never intended to make that contract’.
-In exceptional circumstances, court may declare contract void.

Some contamination at the time they made the agreement.
Confusion as to whether there are two strands of law operating in this area.
-Common law + Equity

(Read judgement of Lord Philips MR in Great Peace Shipping v Tsauliris Salvage 2002) a re-established Common law as the only means of dealing with contract law.

1) Common initial mistake
Mistake as to the existence of subject matter.
Couturier v Hastie (1856)

Two commercial traders negotiating for the sale of a large assignment of corn. Both believed that the corn was on a ship heading from Salonica to London. What they didn’t know was that well before they had made their agreement, the corn had rotted away and been dumped.
-Was it possible to make a binding agreement when the subject matter did not exist.
a Court declared the contract void.

This case concerned specific goods. Mistake affects the contract, but no the consequences of the agreement (i.e. sub-contracts following from the buyer’s sale). Where there is a contrast for specific goods, and those goods perish, the contract will be void.

McRae v Commonwealth Disposals (1951)
Defendant put out to tender the right to salvage a wrecked tanker. When the plaintiff sent an expedition to the start the operation, it turned out that the tanker + the reef were not there.
à Buyer had relied on defendant’s statement. Both parties believed that there was a tanker to be salvaged. Co-ordinates and bearing did not led to the tanker.
-The Court was concerned with the way the contract had been constructed.
Not a mistake, but a failed promise.
[]
One trigger is reliance (when people have gone to considerable expense to carry out an agreement)

Found to be in breach of contract.

Mistake as to quantity of subject matter
Bell v Lever Bros (1932) was the leading case.

Two directors of a company. Chairman of the company had fixed term of employment for five years.
Lever Bros. wanted to get rid of the Chairman and so offered him £30,000 compensation. He agreed and left the company.
-It was later discovered that the Chairman had been mismanaging funds through various shady dealings. They would have had the grounds to sack him without compensation.
[]
Lev. Bros tried to sue him for the £30,000
Mistake
H of L said that the contract had been binding. They were not confused as to what they were doing. Lou. Bros. got what they wanted (the Chairman had stepped down).
Therefore no mistake had occurred.

Leaf v International Galleries
Galleries sold painting to Leaf attributed to be a Constable. Market value much higher for a genuine work. Leaf bought it and 5 years later tried to sell it to Christies. Christies evaluated it and said it was a fake.
-Leaf tried to get his money back from International Galleries.

However, Galleries had not guaranteed it was a genuine. Leaf had made a mistake as to the value of the painting.
-Then Leaf tried to turn the case into the misrepresentation claim. Leaf lost the claim for an equitable remedy because it had been 5 years.

Great Peace Shipping v Tsauliris Salvage (2002)
Ship in the Indian Ocean and in distress.
Tsauliris contracted to go and rescue the ship and crew. Both parties believed the rescue ship was 35 miles away. But it was actually 410 miles away. Minimum payment required for 5 days work required.
-When Great Peace discovered how far the ship actually was for the vessel in distress they contracted another firm to get salvage vessel into the area.
- Part of the standard agreement with Tsauliris was a minimum 5 day hire period.
Great Peace told them not to bother. Tsauliris sued.
-Great Peace said that there had been a mistake.
Would have chosen a different company if they had had accurate information about where their ships were in the first place.
[]
Court said contract was void.

Great Peace then wanted an equitable remedy. H of L said no. If contract is not void, then it is valid à therefore no equitable solution.

Consensus mistake

Mutual Mistake
-Raffles v Wichelhaus (1864)
Two parties in Liverpool discussing sale of cotton.
125 bales of cotton sold during ex Peelis Bombay.
-By chance there were 2 ships from Bombay with the same name carrying the same cargo. But due to leave at different times.
-One party thought it was one ship the other party thought it was the other.
-When ship arrived, buyer did not get his cotton.
[]
Courts said that this was a consensus mistake. The contract was void because there had been no meeting of the minds between the two parties. Sub-contracts from the buyer’s viewpoint now ruined/ he could now be sued by those third parties.

Unilateral Mistake
Mistake as Identity

Original owner---------------------------------à‘Rogue’

contract?
Pass title?

The original owner will probably
say the contract between him and
the rogue was based on mistake.
Original owner acting in good faith
does not know that he is dealing with a
conman. Sells something in exchange
for a cheque (which turns out to be
worthless. Rogue then sells the goods to
third party and disappears.

Passes possession
Passes title

Innocent Third Party


Phillips v Brookes (1919)

Rogue impersonated someone. Gave a worthless cheque for £3000 + then sold the jewels to a pawnbroker for a few hundred before disappearing.
Both Phillips and Brookes have a claim to the property.

Phillips ------------------------------------à ‘Rogue’
(Jewellers) Title-contract?




Pearls + ring




Brookes Ltd
(pawnbroker)

(Side note: Signing a document means you have read and understood all of the above).