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How well did you answer the questions? Score your responses against the answer guidance here.
In brackets is the number of marks each answer is worth. There is a maximum of 31 points available.
1. How can Hartog v Colin & Shields and Smith v Hughes be distinguished? (3)
Answer guidance:
In Hartog v Colin & Shields there was a true fundamental unilateral mistake as to a term, i.e. Ps knew that the D had mistakenly offered to sell at a price per pound instead of price per piece. (1) In Smith v Hughes the mistake did not relate to a term as such but to the quality of the subject matter being sold. (1) Mistakes as to a quality which the goods are thought to possess are not regarded as fundamental mistakes and do not affect the fact that an agreement has been reached. (1) See also the different treatment of common mistake as to quality – Bell v Lever Bros, Leaf v International Galleries.
2. What is the essential difference between a mutual mistake and a unilateral mistake? (2)
Answer guidance:
Mutual mistakes mean that BOTH parties made the mistake (1), whereas in cases of unilateral mistakes only one party is mistaken but the other either knows of this mistake or ought to have known of it. (1)
3. Why is it important to determine whether a contract is void for mistake as to identity or voidable for fraudulent misrepresentation as to identity? (3)
Answer guidance:
This is important where the goods acquired under the agreement, alleged to have been entered into under the mistake, have since been purchased by an innocent third party. (1)
If a contract is void for mistake as to identity then it is automatically void (of no effect) and the third party cannot acquire any rights in the goods. They have to be returned to the mistaken party. (1)
However, if the contract is not void for mistake as to identity, but is merely voidable for the fraudulent misrepresentation as to identity, then the mistaken party must act to rescind the contract. It is not possible to rescind once an innocent third party purchaser has acquired the goods. In these circumstances the innocent third party purchaser can keep the goods and it is the mistaken party who loses out. (1)
4. What does a mistaken party need to show in order for a contract to be void for mistake as to identity? (6)
Answer guidance:
The decision of the majority of the House of Lords in Shogun Finance v Hudson means that a distinction exists between instances where the contract is entered into face-to-face and those where it is made by written correspondence. (1) However, in both instances it is a question of with whom did the mistaken party intend to contract? To whom was the offer intended to be made? Only that person can accept the offer. (1)
(i) Face-to-face: There is a presumption that the mistaken party intended to contract with the person physically present, i.e. offer made to that person and that person can accept it. There is no mistake as to identity and the contract is merely voidable for fraudulent misrepresentation: Phillips v Brooks Ltd, Lewis v Averay. (2) Ingram v Little is now regarded as wrong. This position protects the innocent third party purchaser.
The exception (Hardman v Booth) will occur where there is an intention to contract with a company and the contract purports to be made with the person present who claims to be acting on behalf of that company but there is an absence of authority to do so.
(ii) Written Correspondence: The mistaken party will intend to deal or contract with the person named in that written correspondence (Cundy v Lindsay), i.e. the real person rather than the rogue. The offer is made only to that real person named in the document and only the person named can accept it (Shogun Finance v Hudson). (2)
It is said to follow that where the rogue contracts via forged written documents, such a contract will be a nullity as it is made by the rogue without that person’s authority.
It may not always be obvious which type of contract exists on a particular set of facts. It was a contentious issue in Shogun.
What if there is no real person in existence? Can there be a mistake? King’s Norton v Edridge, Merrett & Co Ltd would suggest that in such instances there is no mistake of identity and that the intention will be to deal with the writer of the document. It is arguable that in such an instance the mistaken party is at fault in failing to make the necessary enquiries to ascertain that there is such a person in existence so that the contract should be voidable rather than void/a nullity. However, this matter is far from clear following comments in Shogun. It may be an issue which relates only to the fraud question rather than to the separate issue of correlation of the offer and acceptance (assuming the minority view that these matters are indeed separate).
5. What is the consequence if the contract is in fact void? (1)
Answer guidance:
The mistaken party can recover the goods in question from an innocent third party purchaser. (1) On the facts in Shogun this meant that the car dealer was protected against the consequences of fraud.
6. In Ingram v Little what did Devlin LJ propose as an alternative to the void or voidable solution? (3)
Answer guidance:
Devlin LJ suggested that the loss should be divided between the innocent parties (the mistaken party and the innocent third party purchaser) in such proportion as considered just in all the circumstances (apportionment of loss). (2) If one of these parties had contributed to the loss (i.e. not as innocent as the other), that person should bear a greater part of the loss. (1)
7. Distinguish what is meant by a contract that is void for mistake from a contract that is merely voidable. (2)
Answer guidance:
Void means that the contract is automatically of no effect from the very beginning.(1)
Voidable means that one party has a remedy of rescission and, unless one of the bars to rescission applies, he can exercise that remedy to set aside the contract which is then treated as being of no effect from the very beginning, i.e. not automatic – action is required. (1)
8. Explain the decision of McRae v Commonwealth Disposals Commission in the context of common mistake. (3)
Answer guidance:
McRae is an example of risk allocation preventing the operation of the mistake doctrine which would otherwise render the contract void.(1) The court implied a term whereby the risk of the existence or non-existence of the tanker was placed on the Commission which was taken to have been promising its existence. Non-existence was therefore a breach of contract by the Commission and damages were payable. (1)
If, however, there had been a mistake, the contract would have been void and the purchaser could have recovered the price paid. However, he would not have been compensated for the sums spent on the wasted salvage expedition because no damages are payable in respect of a claim in mistake. (1)
9 Why is it generally the case that a common mistake as to quality does not render the contract void? (1)
Answer guidance:
It is not a fundamental mistake in that it does not make performance as originally agreed impossible (compare with res extincta and res sua). See Denning LJ in Leaf v International Galleries – the parties are agreed in the same terms on the same subject matter. (1)
10. Can a party who made a common mistake as to quality ever avoid the contract it has made? (3)
Answer guidance:
(a) It is unlikely that the contract will be void at common law for mistake as to quality (Bell v Lever Bros, as explained in Great Peace Shipping v Tsavliris Salvage). Lord Atkin stated that the mistake had to be as to “the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be” – but this is narrowly interpreted: see Lord Atkin’s own examples of situations that would not make the contract void. The CA in Great Peace has now reformulated this test as a test of impossibility of the agreed performance or contractual adventure which also suggests a very narrow scope for such a doctrine at law. (2)
(b) The Court of Appeal in Great Peace Shipping denied the existence of any equitable jurisdiction based on Solle v Butcher and cases following this authority to rescind (possibly on terms) for fundamental mistake in equity. (1) Bell v Lever Bros represents the entire picture on the effect of common mistake as to quality.
11. Distinguish Krell v Henry and Griffith v Brymer. (2)
Answer guidance:
In Krell v Henry the cancellation of the coronation procession meant that the foundation or purpose of the letting contract for both parties was frustrated. The impossibility was subsequent since it did not occur until after the formation of the letting contract. (1)
Griffith v Brymer concerned the same factual event – letting a room to view the coronation procession. However, the legal treatment was entirely different because in Griffith, unknown to both parties, at the time they made the contract, the procession had already been cancelled. This is an example of initial impossibility and a common mistake (res extincta) as to underlying basis of the contract. (1)
Why is this distinction important? (2)
Answer guidance:
If a contract is discharged for frustration, future obligations are excused and (if the 1943 Act applies) advance payments can be recovered (subject to possible retention for expenses) and a just sum might be recovered for a valuable benefit conferred before the frustration. (1)
On the other hand, if a contract is void for mistake, it is automatically of no effect from the very beginning, i.e. both parties hand back what they have received. There is no means, however, to recompense if expenditure has been incurred, i.e. it is not possible to retain sums from an advance payment in order to cover expenses (compare frustration) and there is no damages award for mistake. (1) This was recognised by the Court of Appeal in Great Peace Shipping: “Just as the Law Reform (Frustrated Contracts) Act 1943 was needed to temper the effect of the common law doctrine of frustration, so there is scope for legislation to give greater flexibility to our law of mistake than the common law allows” (at [161]).
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