Contract - Common Mistake

Front 1

Common mistake 3

Back 1

1Contract made properly, both parties share a mistake assumption

2 Normally it is to the benefit of one, who wishes to enforce

3 Courts normally seek to enforce contracts, so they are hard to void if consensus has been achieved

Front 2

Effects 2

Back 2

1 Void at common law

2 If it exists in equity, conditions can be put on it

Front 3

Common mistake and frustration

Back 3

Frustration concerns subsequent event, common mistake concerns condition precedent

Front 4

First step 2

Back 4

1 See if contract allocates risk - heavy presumption

2 Hoffmann LJ, William Sindall v Cambridgeshire CC - no common mistake, did not want to disturb allocation of risk

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If no allocation of risk 1

Back 5

1 Orthodox view - exogenous doctrine of common mistake applies

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Elements of common mistake 5

Back 6

1 The Great Peace

2Common assumption

3 No warranty

4 Non-existence not caused by a party

5 Does not matter if assumption is fact or law

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Criticism of common mistake 4

Back 7

1 Others take the implied terms doctrine (like O'Sullivan and Hilliard)

2 Atiyah attacks common mistake - if no condition precedent, how do courts know to void the contract?

3 Australian court scathing in McRae v Commonwealth Disposals Commission when tried to argue contract void without ship

4 Normally one of the parties' faults

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Statute 3

Back 8

1 Sale of Goods Act 1979 S6

2 Contract void if goods perish

3 Atiyah says this should be abolished

4. Mistaken codification of Couturier principle

5 Assumes nobody has responsibility

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Implied terms approach 4

Back 9

1 Used by Toulson J, The Great Peace

2 Effect of mistake will depend on whether a term can be implied

3 Smith approves; no room for mistake

4 Smith: answer to be found in express or implied terms, if they do not cover it, contract is invalidated

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Leading case on common mistake 4

Back 10

1. William Sindall v Cambridgeshire CC

2. Unknown sewer beneath land

3 Property market crashed at the same time

4 Hoffmann LJ: without an express warranty, the law is caveat emptor - risk allocated to buyer

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Morgan 3

Back 11

1 No doctrine of common mistake

2 Bell v Lever Bros overruled

3 Contracts occasionally void for uncertainty

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Mistake as to existence of subject matter 2

Back 12

1 Subject matter of contract does not exist

2 Atiyah - one party normally to blame for this

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Traditional case on existence of subject matter 4

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1 Couturier v Hastie

2 Corn had deteriorated on voyage

3 In fact, not a doctrine of common mistake case - just interpreting contract

4 Found that buyer did not have to pay for goods that did not exist

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Second case on existence of subject matter 2

Back 14

1 McRae v Commonwealth Disposals Commission

2 Seller could not rely on common mistake if it was his fault the mistake was made

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Third case on existence of subject matter 4

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1 Associated Japanese Bank v Credit du Nord

2 Leaseback guarantee on transaction turned out to be fraudulent

3Contract void - not through mistake, but because that was what the parties agreed (implied or explicit condition precedent)

4 Smith: unilateral contract that was never fulfilled

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Mistake as to quality 7

Back 16

1. Courts have claimed this doctrine exists, but never applied it in practice

2. Originates in Bell v Lever Bros

3. Entered into a compensation agreement on the basis of a common mistake as to original employment contract

4 Chairman had been insider trading

5 Court found this did not void service agreement, he kept his money

6 Lord Atkin: sufficiently serious common mistake as to quality will void contract

7 Not satisfied on the facts

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Reaction to Bell v Lever Bros 2

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1 MacMillan: corruption of the law, Lord Atkin seduced by Pollack and subjectivist theories

2 Smith: even if doctrine exists, impossible that assumption as to quality will be sufficient to justify it on the facts

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Main common mistake case 9

Back 18

1 The Great Peace

2 Both parties chartered the ship when it was 400 miles away from where it thought it was

3 D then cancelled the contract, C sued for the hire

4 Court of Appeal: common mistake must make performance of the contract impossible

5 Here, performance was possible, and D had to pay the hire

6 O'Sullivan: CoA should have gone further and said mistakes always about construction, as opposed to quality

7 First instance Toulson J, approved by Morgan, on construction of contract - should have asked for warranty of location of ship

8 Tettenborn regrets the harshness - contract is not about performance in all circumstances, too harsh frustrates intentions

9 Lord Phillips MR: 'confusion in this area of our jurisprudence;

Front 19

Fault of parties

Back 19

McRae v Commonwealth Disposals Commission - no common mistake if fault

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Equitable doctrine of common mistake

Back 20

1 Suggestion that equity could make a contract voidable through common mistake if common law would not

2 Morgan: Lord Denning fought the law, the law won

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Solle v Butcher

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1 Common assumption lease was not covered by the Rent Acts

2 Denning LJ: voidable in equity

3 Not be void at common law - claimant had made the innocent misrepresentation

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The doctrine now

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1 Great Peace said Solle v Butcher was incompatible with Bell v Lever Bros and it could not overrule it

2 Could not overrule - two CoA - but said it was a matter of academic debate and (Lord Phillips MR) 'confusion in this area of our jurisprudence'

3 Mistake in Solle that was remedied was far less egregious than the one not remedied in Bell v Lever Bros

4 Aikens J, Lois Dreyfus v Statoil Energy Services - no such doctrine exists

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Literal impossibility

Back 23

1 Maurice Kay LJ, Brennan v Bolt Burdon

2 Impossibility test means something must be literally impossible to perform