M._mistake.pdf.pdf

MISTAKE Neema Kala

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The Basics Common Mistake Mutual and Unilateral Mistake Documents Mistakenly Signed

The Basics Unlike misrepresentation, a mistake will render a contract void ab initio. To have any effect at all, the mistake must be one which exists at the moment the contract is concluded. What happened in Amalgamate Investment and Property Co. Ltd. V. John Walker & Sons.

Amalgamate Investment and Property Co. Ltd. V. John Walker & Sons.

Facts - A site was advertised for sale for occupation or redevelopment by the defendants. It was a warehouse purpose-built for the manufacture of whiskey. Gladdings made an offer of purchase on the same day as the plaintiffs. Five days later the plaintiffs wrote to inform the defendants that they had joined forces with Gladdings, and associated themselves with the higher sum offered by Gladdings. Defendants accepted and a contract was signed in the name of the plaintiff company. - Plaintiffs asked the defendants before the contract was signed to state if the property was designated as being of architectural or historic interest. - The day after the contract, the Department of the Environment informed the defendants that their building was to be included on a list of buildings of architectural or historic interest. This would the alter redevelopment potential of the site, and thereby significantly lessened its value. - In light of this information, the plaintiffs claimed on the basis of common mistake and sought the voiding of the agreement, as well as for the specific performance of the contract and alternatively on the wrongful repudiation of the contract. Issue: Should the contract be set aside on the basis of a common mistake and frustration of the contract? Holding: The contract was not frustrated. Appeal dismissed. Reasoning: The alleged mistake is that the property could be developed. For the contract to be set aside, the mistake must have existed at the formation of the contract. The crucial date is when the list of buildings was signed, signifying the moment at which the building in question became a site of historic interest. This is also the moment at which the expectations of the parties were disappointed. As this occurred after signature of the contract, no mutual mistake was made as to the context of the sale. Furthermore, the defendants did not warrant that plans to develop the property would be given planning permission. There was a predictable risk to the plaintiffs that they would not obtain permission. This type of risk must be carried by the purchaser upon entry to a contract. Ratio: In order for a contract to be set aside on the basis of mistake by the parties, the mistake must have been present at the time of contract formation.

What is the effect of mistake on third party rights? If a sale of goods contract is void for mistake no title or ownership passes from the seller to the buyer and the buyer would be obliged to return the goods to the seller. If a third party is involved they acquire no title to the goods because the person from whom they have bought the goods has no title to pass.

Note that for common mistake the parties will have entered into an agreement on the basis of a false and fundamental assumption. The rules of offer and acceptance are satisfied and the parties have consensus ad idem. Where mutual or unilateral mistake is pleaded the very existence of the agreement is denied.

Common Mistake Common Mistake arises where two parties have reached an agreement but both have made the fundamental mistake as to some fundamental fact concerning the contract. There are two classifications: i. Mistake as to the existence of the subject matter (Res Extincta) ii. Mistake as to the title (Res Sua)

1. Res Extincta (subject matter) If, unknown to the parties, the specific subject matter of the contract does not exist or has ceased to exist the contract will be void. What happened in Galloway V Galloway? What about in Scott v Coulson? The Locus classicus is Couturie v Hastie

Res Exincta Example In Galloway v Galloway Facts: The parties believing they were lawfully married, entered into a deed of separation. Later, it was discovered that the marriage was void.

The claimant’s sought action for arrears of an allowance due under the deed. Held: The claimant’s action for arrears of an allowance due under the deed failed on the ground that the deed was void. It was based upon a non-existent marriage.

Res Extincta Example Similarly, in Scott v Coulson The claimant contracted to sell the defendant a life insurance policy on the life of Mr. Death.

At the time of the contract, unknown to the parties, Mr. Death was already dead. Held: The court was prepared to set aside the transaction

Res Extincta Example A leading case on the sale of goods which have ceased to exist in Couturier V Hastle. In this case the appellants were corn merchants who had a cargo of Indian corn in transit by sea from Salonika to London. The master of the ship had to sell the corn at a port of call, Tunis, as it had overheated and had begun to ferment. A short time after this, the respondents, acting as the appellant's’ del credere agents, agreed a sale of the cargo in London to C. The parties were unaware of the disposal of the corn in Tunis. When C discovered the fate of the corn he withdrew from the transaction and the appellants sought to recover the price of the cargo from the respondents in C’s place. The appellants argued that the contract was based on the shipping documents and insurance and that the respondents had purchased, not a cargo but a “maritime adventure” and they therefore assumed the risks relating to shipment. The House of Lords did not accept this argument and held that the respondents were not liable under the contract. Lord Cranworth L.C. stated: “[T]he whole question turns on the construction of the contract which was entered into between the parties… The contract plainly imports that there was something which was to be sold at the time of the contract, and something to be purchased. No such thing existing, I think the [court below] has come to the only reasonable conclusion upon it, and consequently that there must be judgment [for the respondents]”. Held: It was held that the buyer was not liable to pay the price as the contract was void for common mistake as the subject matter did not exist.

In a case involving non-existent subject matter, is it possible to argue that one party impliedly warranted the existence of the subject matter so that they may be liable in damages for breach of contract? What would be the legal effect of this kind of argument? Look at the case of McRae v The Commonwealth Disposals Commission.

McRae v The Commonwealth Disposals Commission Facts The Commonwealth Disposals Commission sold McRae a shipwreck of a tanker on the Jourmaund Reef, supposedly containing oil. No tanker ever existed. CDC argued there was no liability for breach of contract because it was void given the subject matter did not exist Judgment High Court of Australia held that McRae succeeded in damages for breach of contract. They rejected the contract was void because CDC had promised the tanker did exist. Courturier v Hastie was distinguished because there the parties had both shared the assumption the corn existed, but here CDC had actually promised the tanker existed and therefore had assumed the risk that it did not.

2. Res Sua (title) A contract may be void at common law for common mistake where a buyer contracts to purchase something which already belongs to them but neither the seller nor the buyer is aware of this fact. What happened in Copper v Phibbs? Note that under the Sale of Goods Act there is an implied condition that the seller has the right to sell or will have a right to sell at the time the property is to pass. This means that the seller will be liable in damages for breach of contract.

Res Sua Example Cooper v Phibbs (1867) LR 2 HL 149 A nephew leased a fishery from his uncle.

His uncle died. When the lease came up for renewal the nephew renewed the lease from his aunt. It later transpired that the uncle had given the nephew a life tenancy in his will. The lease was held to be voidable for mistake as the nephew was already had a beneficial ownership right in the fishery. This is an instance of res sua. Normally where a contract is found to have been entered under a common mistake the contract will be rendered void as opposed to voidable. The lease was held to be voidable rather than void as the claim was based in equity as it related to beneficial ownership as oppose to legal ownership. This caused some uncertainty as to whether there was equitable relief for mistake which was wider than that which existed at common law. In particular Lord Denning argued that such a position of the law existed in Solle v Butcher

SollevButcher[1950] 1 KB 671 Where the parties negotiated for the lease of a flat. There was a mistaken belief that the rent was not subject to the control of the Rent Acts and it was agreed that the rent should be fixed at £250 per annum. Later it was discovered that the flat was subject to a controlled rent of £140 per annum and the plaintiff claimed to recover the overpayments made as a result of his living in the flat for two years after entering into the contract. The defendant counter-claimed that the contract was void for mistake. It was held that the contract was not void for mistake, though it could be agreed, and was in Cheshire, Fifoot and Furmston, that this was a case clearly falling within Lord Thankerton’s expression of mistake as being something ‘which both must necessarily have accepted in their minds as an essential and integral element of the subject matter’. The majority of the Court of Appeal, however, held that the contract could be rescinded on equitable principles (see ‘Mistake in equity’, below)

Common Mistake as to Quality A question arises as to whether common mistake will be operative where the parties are mistaken as to the quality of the subject matter. Lord Atkin in Bell v Lever Brothers Ltd. Held, “ ‘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.”

The authorities seem to support this position that a mistake as to quality is never operative and the parties will be bound by their agreement. Look at these cases of: Bell v Lever Brothers Ltd, Leaf v International Galleries, Harrison & Jones v Bunten & Lancaster Ltd. and Fredrick E. Rose v William H Pim Jnr & Co. Ltd.

Bell v Lever Brothers Ltd. The appellant Bell was employed as chairman of the Niger company, whose business included cocoa trading in West Africa. The respondent company, Lever Bros, which had a controlling interest in the Niger Company, amalgamated the two companies and Bell was made redundant. On the termination of his contract of service, the respondent company agreed to pay to the appellant the sum of 30,000 Pounds by way of compensation. The money was paid to the appellant and he resigned from the company. A few months later, it was discovered that the appellant had been engaged in secret cocoa transactions on his own account whilst a member of the company. This trading was a breach of the appellant’s duties to his employers and as such would have entitled his employers to dismiss him without compensation.

It was accepted that, at the time, the termination agreement was entered into, the appellant had not remembered these dealings, nor did he realize that the respondents could have dismissed him. The respondents sought to set aside the 30,000 pounds settlement on the grounds of a common mistake. Their case was that the parties thought they were dealing with a contract of service that was terminable with compensation when in fact they were dealing with a contract that could be brought to an end without compensation. The House of Lords held, by a majority of 3:2, that they there was no operative mistake and the agreement was a valid contract-the mistake was merely as to the quality of the contract of service. Lord Atkin said: “Mistake as to the quality of the thin g contracted for…will not affect assent unless it is the mistake of both parties, and is so as to the existence of some quality which makes the thing without the quality essentially different from the thing it is believed to be” The House of Lords held that this was only a mistake as to quality and did not render the contract essentially different from that which it was believed to be. The action therefore failed.

Leaf v International Galleries [1950] 2 KB 86 The claimant purchased a painting from the defendant. Both parties believed that the painting was by the artist Constable. In fact 5 years later the claimant discovered the painting was not a Constable. The claimant brought an action based both on misrepresentation and mistake. The claim based on misrepresentation was successful however, since it was an innocent misrepresentation, the claimant had lost the right to rescind the contract through lapse of time. With innocent misrepresentation the time starts to run from the date of the contract not the date of discovery.

The claim based on mistake was unsuccessful as the mistake related to the quality and did not render the subject matter something essentially different from that which it was believed to be. He believed he was buying a painting and he got a painting.

Harrison & Jones v Bunten & Lancaster Ltd. Facts 1st case: Party contracted for a certain type of kapok, but the kapok contained some cotton which made it commercially inferior. This was still not a strong enough mistake as to quality.

Fredrick E. Rose v William H Pim Jnr & Co. Ltd. Facts Frederick E Rose (London) Ltd was asked to supply ‘up to five hundred tons of Moroccan horsebeans described here as feveroles’ to an English firm in Egypt. So, Rose asked an Algerian supplier, William H Pim Junior & Co Ltd, what feveroles were. Pim replied ‘feveroles means just horsebeans’. They contracted for the supply of ‘horsebeans’. Both believed horsebeans were feveroles. However, little did Rose know, there are three bean sizes, feves, feveroles and fevettes. Rose got feves delivered, which are larger and cheaper. The English firm had a claim for the wrong beans being delivered, and Rose in turn brought a claim against Pim. Rose sought to rectify the contract to put in the word ‘horsebean’. Judgment: Denning LJ, Singleton LJ and Morris LJ held that because both parties were agreed on horsebeans, and the contract was not void for mistake, nor could the contractual document be rectified in this instance. Denning LJ said this was not a claim for rectification because that is concerned with contracts and documents, not with intentions. In order to get rectification, it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly. He said there might have been a case in misrepresentation or mistake but that was not pleaded and it is very different from rectification. He added that they probably should not have dropped the claim for collateral warranty that the beans would comply with a demand for feveroles.

Mistake of quality can be operative if sufficiently fundamental. Look at the cases of: 1. Nicholsan v Venn V Smith-Marriot, 2. Sherwood V Walker and the 3. Associated Japanese Bank V Credit du Nord SA. In both of theses cases a mistake about the quality of the agreement rendered the contract void.

Nicholsan v Venn V Smith-Marriot Facts: Table napkins sold at an auction which were said to be authentic property of Charles I, but that turned out to be false. Claimant was entitled to damages for breach of contract, but Hallet J held the claimant could've avoided the contract on the ground of mistake. The authority of this has been weakened by Denning's judgment in Solle v Butcher

Sherwood V Walker Facts Sherwood (P) contracted to purchase a cow from Walker (D). Walker showed Sherwood a cow, Rose 2d of Aberlone, which he believed to be barren. Sherwood agreed to purchase the cow for $80. If the cow had been fertile it would have been worth $750 to $1000. Walker later discovered that the cow was with calf and refused to complete the transaction. Sherwood brought suit and took possession of the cow via a writ of replevin. At trial, Walker showed that at the time of the sale both parties had believed the cow to be barren and both knew that the value of a fertile cow was much higher than that of a barren cow. The judge instructed the jury that it was immaterial whether the cow was barren. The jury returned a verdict in favor of Sherwood and Walker appealed. Issue Can a mutual mistake regarding the substance of the subject matter of a contract render a contract unenforceable? Holding and Rule Yes. A mutual mistake regarding the substance of the subject matter of a contract may render that contract unenforceable. There is no contract if there is a difference or misapprehension as to the substance of the thing bargained for, or if the thing actually delivered or received is different in substance from the thing bargained for and intended to be sold. However, if there is merely a difference as to some quality or accident, even though the mistake may have been the actuating motive of either or both of the parties, the contract remains binding. The only difficulty in such a case is to determine if the mistake is as to the substance of the whole contract. Under prior law it has been held that when a horse is bought under the belief that he is sound, and both the buyer and seller have this honest belief, the purchaser must stand by his bargain and pay the full price unless there was a warranty. The court held that in this case the mistake went to the whole substance of the agreement. This mistake was not about the mere quality of the cow but to its very nature, i.e. a fertile cow as opposed to a barren cow.

Associated Japanese Bank V Credit du Nord SAF In this case B, wishing to raise money, agreed a sale and leaseback agreement with the claimants, Associated Japanese Bank. Under this arrangement, the claimants purchased four textile machines from B for 1,021,000 Pounds and leased them back to him on rental terms. B’s obligations under the agreement were guaranteed by the defendants, Credit du Nord. B fell into arrears with the rental payments, and when B was found to be bankrupt, the claimants sought to enforce the guarantee against the defendants. At all times both the claimants and defendants believed that the machines existed. In fact, it was discovered that the machines did not exist and the sale and leasebacks was a fraud perpetrated by B. Steyn J held that the defendants were not liable as the guarantee was subject to an express condition precedent that the machines existed; even if that construction was wrong, there was an implied condition precedent to the same effect.

Mistake affecting agreement: Mutual Mistake In the case of a mutual mistake, the offer and the acceptance do not coincide and the parties are mistaken about each other’s intentions. They are at cross purposes. What happened in Raaffles v Wichelhaus? The court uses an objective test in making the determination whether the contract is void for mutual mistake or not.

Raffles v Wichelhaus Brief Fact Summary. Plaintiff contracted to sell cotton arriving on a ship called the Peerless to the defendant. As it happened, there were two ships called the Peerless, and the contract did not specify which ship carried the cotton. Defendant refused to accept the cotton when it arrived, and Plaintiff sued. Synopsis of Rule of Law. Where a nonmaterial term, such as mode of shipment, is ambiguous, the contract is still enforceable. Facts. Plaintiff agreed to sell Defendant 125 bales of Surat cotton to arrive via the ship called the Peerless from Bombay. Defendant believed the shipment would arrive on the Peerless that arrived from Bombay in October. However, Plaintiff was unaware of such a ship, as Plaintiff intended that the cotton would arrive via the Peerless from Bombay in December. When the December Peerless arrived with the cotton, Plaintiff was ready and willing to deliver the cotton to Defendant, but Defendant refused to accept the cotton or pay Plaintiff for it. Issue. Is a contract enforceable where the parties are in disagreement as to the terms dictating shipment and delivery? Held. Yes. The contract was for the sale of cotton. It was immaterial by what ship the cotton arrived as long as it arrived as contracted, i.e. on a ship called the Peerless. Since the parties did not state an intention at the time of contracting as to which ship should carry the cotton, absent fraud, a written contract, good on its face, shall not be disturbed by parol evidence. Dissent. Since there were two ships called the Peerless, the contract contains a latent ambiguity. Therefore, parol evidence may be introduced to prove that the parties meant different ships. This being so renders the contract nonbinding. Discussion. Ambiguous terms that are not material to the agreement will not render the contract void.

The court will try to ascertain the “sense of the promise” i.e. would a reasonable third party understand the sense of the agreement in the way one party, A, understood it to mean, or in the sense the other party B, understood it. It is only where the transaction is ambiguous under this test that it will be void for mutual mistake.

In the case of Wood v Scarth the court granted the claimant damages for the refusal to grant a lease. This is because a reasonable person would have understood the contract in the way that the claimant understood it- this was the sense of the promise. Look at the case of Scriven Bros v Hindley where the court held that the parties were at cross purposes and Tamplin v Jones where it was held that there was no mistake because the claimant had failed to ascertain whether the public house was being sold with the adjacent land.

Wood v Scarth (1858) 1 F&F 293 Facts The defendant offered in writing to let a pub to the plaintiff at £63 pa. After a conversation with the defendant's clerk, the plaintiff accepted by letter, believing that the £63 rental was the only payment under the contract. In fact, the defendant had intended that a £500 premium would also be payable and he believed that his clerk had explained this to the plaintiff. The defendant refused to complete and the plaintiff brought an action for specific performance. Held The court refused the order of specific performance but the defendant was liable in damages.

Scriven Bros v Hindley [1913] 3 KB 564 The defendants bid at an auction for two lots, believing both to be hemp. In fact Lot A was hemp but Lot B was tow, a different commodity in commerce and of very little value. The defendants declined to pay for Lot B and the sellers sued for the price. The defendants' mistake arose from the fact that both lots contained the same shipping mark, "SL", and witnesses stated that in their experience hemp and tow were never landed from the same ship under the same shipping mark. The defendants' manager had been shown bales of hemp as "samples of the 'SL' goods". The auctioneer believed that the bid was made under a mistake as to the value of the tow. Lawrence J said that as the parties were not ad idem the plaintiffs could recover only if the defendants were estopped from relying upon what was now admittedly the truth. Held: He held that the defendants were not estopped since their mistake had been caused by or contributed to by the negligence of the plaintiffs.

Tamplin v Jones Facts: The argument that the parties were genuinely at cross-purposes failed.

The defendant purchased a public house, “The Ship Inn”, and adjoining saddlers shop at auction. The defendant, who had known the property all his life, assumed that two gardens which had been occupied with the pub were included in the sale.

In fact, they were held under a separate title and were not part of the lot offered. The particulars of sale and plans, which were on display in the saleroom, contained no misdescription or ambiguity but the defendant did not look at these before bidding. The claimant vendor sued for specific performance and the defendant putt forward a defence based on mistake. The argument did not impress the Court of Appeal. James L.J. said: “If a man will not take reasonable care to ascertain what he is buying, he must take the consequences. The defence on the ground of mistake cannot be sustained.”

It was held that specific performance of the contract would be granted.

Mistakes Affecting Agreements Unilateral Mistake In a unilateral mistake, only one party is mistaken and the other party is aware of the mistake, or the circumstances are such that they must have been aware of it. The principal requirements: 1. Knowledge of the mistake by the non-mistaken party 2. Mistake must be as to a term of the contract rather than an error of judgment. 3. The mistaken party is not at fault in any way.

Look at the case of Hartog V Collin & Shields where the court held that the claimants were aware of the defendants mistake ( offering to sell the hare sacks at a price way below the market price) What happens when there is a mistake to quality? Will the contract be void? Look at the case of Smith V Hughes.

Hartog V Collin & Shields The defendants offered to sell to the claimants a quantity of Argentinian hare skins at a certain price per pound. After the claimants had accepted this offer, the defendants failed to deliver the goods, as they had intended (as was the custom of the sell at the specified price per piece. The value of the piece was one-third that of a pound so that the defendants’ offer was roughly one-third of the usual market price. The claimants sought damages for breach of contract. Singleton J. found for the defendants- the claimants must have realized that the defendants’ offer contained a mistake.

The contract was therefore void as the mistake concerned a term of the contract and it was a mistake of which the other party was aware. The principle in this case should not be taken too far; there will be cases where a low price is mistakenly offered but the offeree does not know, and could not reasonably be expected to have known of the mistake at the time of the contract.

Smith v Hughes The claimant had purchased a quantity of what he thought was old oats having been shown a sample. In fact the oats were new oats. The claimant wanted the oats for horse feed and new oats were of no use to him. The seller was aware of the mistake of the claimant but said nothing. The claimant brought an action against the seller based on mistake and misrepresentation. Held: both actions failed. The action based on misrepresentation failed as you cannot have silence as a misrepresentation. The defendant had not mislead the claimant to believe they were old oats. The action based on mistake failed as the mistake was not as to the fundamental terms of the contract but only a mistake as to quality.

Smith v Hughes Continued… In that case the court held that the buyer was to blame and the seller had no duty to disclose the true facts. Had the buyer mistakenly believed to the seller’s knowledge that the seller had warranted that the oats were old then the contract would be void.

Unilateral Mistake as to identity In a typical case, the seller will be approached by a fraudster giving a false identity and whose objective is to acquire the goods without paying for them. A sale will thereafter be agreed with the fraudster taking possession of the goods in return for a cheque that is subsequently dishonored as a forgery. As the fraudster is aware that the seller is contracting under a mistake this is a unilateral mistake.

Thereafter, the fraudster will sell the goods to an innocent purchaser and then abscond. When the seller discovers they have been duped they will be able to recover their property from the innocent purchaser by showing that the contract between them and the fraudster is void on the grounds of mistaken identity.

What happens if the contract between the seller and the fraudster is not void for mistake? Can it be voidable in the grounds of a fraudulent misrepresentation? In this case the seller will be unable to recover the goods from the bona fide purchaser. Because the contract with the fraudster is voidable, not void the fraudster acquired a good title which he then passed on to the third party.

The seller might have the right to rescind but the right is barred where an innocent third party has acquired rights. He might also have right to damages from the fraudster but it is likely that the fraudster will have vanished by then. The position would be different if the seller avoids the contract before title is passed on the third party.

When the issue of identity is raised the general approach is to distinguish a person’s attributes and their identity. A mistake as to attributes such as credit-worthiness will not suffice. The claimant must show that they regarded the identity of the other party as a matter of crucial importance. Look at the case of: 1. Boulton v Jones and 2. Hardman v Booth.

Boulton v Jones (1857) Facts : Jones used to have business dealings with Brockle Hurst. He sent an order (offer) to Brockle Hurst for the purchase of certain goods. By the time the order reached Brockle Hurst, he had sold his business to Boulton.

Boulton receiving the order sent all the goods to Jones as per the order without informing Jones of the changing of the hands of the business. When Jones learnt that the goods were not supplied by Brockle Hurst, he refused to pay for the goods.

His contention was that he had never placed an order to Boulton, the offer being made to Brockle Hurst, and therefore had no intention to make a contract with Boulton. Held: Jones was not liable to pay.

Hardman v Booth Facts: Where the claimants were worsted manufacturers who intended to sell cloth to Thomas Gandell & Co. This company consisted of Thomas Gandell himself alone, although it was managed by his son Edward Gandell. The claimants’ agents called at the company’s offices and negotiated with Edward who fraudulently intended to buy the cloth on his own account. Edward told the claimant's agent that he was a member of “Gandell & Co” and a contract was concluded with “Edward Gandell and Co”. Edward obtained possession of the cloth and sold it to the defendants. Held: It was held that no contract was concluded between the claimants and Edward and the defendants were therefore liable in conversion. The claimants had never intended to deal with Edward but with the firm that employed him. Identity may therefore be crucial where it can be shown that the claimant approached and intended to contract with a particular firm or individual rather than someone purporting to be acting on behalf of them. It may be true however, that the very nature of the mistake in this case is that it is a mistake as to capacity rather than identity.

Courts are more ready to treat mistakes as to identity as operative where the parties are dealing at a distance (inter absentes), rather than when they deal face to face in each other’s presence (inter praesentes). What happened in Cundy v Lindsay? Compare this with the decision in King’s Norton v Metal Co. Ltd v Edridge, Merret & Co. where the court held there had been a mistake as to the credit worthiness of the fraudster, not of identity.

Cundy v Lindsey (1878) 3 App Cas 459 Facts:

A rogue, Blenkarn, hired a room at 37 Wood street, Cheapside. This was in the same street that a highly reputable firm called Blenkiron & Son traded. The rogue ordered a quantity of handkerchiefs from claimant disguising the signature to appear as Blenkiron. The goods were dispatched to Blenkiron & co 37, Wood street but payment failed. Blenkarn sold a quantity the handkerchiefs on to the defendant who purchased them in good faith and sold them on in the course of their trade. The claimants brought an action based in the tort of conversion to recover the value of the handkerchiefs. The success of the action depended upon the contract between the Blenkarn and the claimant being void for mistake. If the contract was void, title in the goods would not pass to the rogue so he would have no title to pass onto the defendants. Ownership of the goods would remain with the claimant.

Held: The contract was void for unilateral mistake as the claimant was able to demonstrate an identifiable existing business with whom they intended to contract with.

King's Norton Metal v Edridge Merret (1897) TLR 98 Facts: A rogue named Wallis ordered some goods, on notepaper headed "Hallam & Co", from King's Norton. The goods were paid for by a cheque drawn by "Hallam & Co". King's Norton received another letter purporting to come from Hallam & Co, containing a request for a quotation of prices for goods. In reply King's Norton quoted prices, and Hallam then by letter ordered some goods, which were sent off to them. These goods were never paid for. Wallis had fraudulently obtained these goods and sold them to Edridge Merret, who bought them bona fide. King's Norton brought an action to recover damages for the conversion of the goods.

Held: It was held by the Court of Appeal that if a person, induced by false pretenses, contracted with a rogue to sell goods to him and the goods were delivered the rogue could until the contract was disaffirmed give a good title to a bona fide purchaser for value. The plaintiffs intended to contract with the writer of the letters. If it could have been shown that there was a separate entity called Hallam & Co and another entity called Wallis then the case might have come within the decision in Cundy v Lindsay.

In the opinion of AL Smith LJ, there was a contract by the plaintiffs with the person who wrote the letters, by which the property passed to him. There was only one entity, trading it might be under an alias, and there was a contract by which the property passed to him. Thus the court of appeal held that the claimants had intended to contract with the writer of the letter, whoever it was, and there was no operative mistake. The mistake was merely as to the creditworthiness of the other party. The defendants were therefore not liable in conversion as the property had passed to them.

Where the parties deal inter praesentes there is a presumption that a person intends to deal with persons physically before them so that any mistake will be as to the fraudster’s attributes rather than their identity. Look at the case of Philips v Brooks. A similar decision was made in Lewis v Avery . The court held that the contract between the claimant and the fraudster though voidable for fraud, was not void for mistake.

Philips v Brooks FACTS: A rogue purchased some items from the claimant's jewellers shop claiming to be Sir George Bullogh. He paid by cheque and persuaded the jewellers to allow him to take a ring immediately as he claimed it was his wife's birthday the following day. He gave the address of Sir George Bullogh and the jewellers checked the name matched the address in a directory. The rogue then pawned the ring at the defendant pawn brokers in the name of Mr. Firth and received £350. He then disappeared without a trace. The claimant brought an action based on unilateral mistake as to identity. HELD: The contract was not void for mistake. Where the parties transact face to face the law presumes they intend to deal with the person in front of them not the person they claim to be. The jewelers were unable to demonstrate that they would only have sold the ring to Sir George Bullogh.

Lewis v Avery Court of Appeal The claimant sold his mini cooper to a rogue claiming to be the actor Richard Greene (who played Robin Hood in a series at the time). The rogue showed the claimant a Pinewood studio pass which had Richard Greene's name and an address on it. The claimant then let him take the car with the log book in exchange for a cheque for £430 which was later dishonored. The rogue sold the car on to Mr. Avery for £200 claiming to be the claimant. The claimant sought return of the car on the grounds that the contract was void for mistake. Held:

The contract was not void for mistake. The case of Ingram v Little was criticized by all of the judges although not formally overruled. The presumption that the parties intend to deal with the person in front of them was not displaced.

Ingram and other v. Little FACTS: Where three sisters advertised the sale of a vehicle. A fraudulent person introducing himself as Mr. Hutchinson who offered to take it for £717 but paid by cheque which the sisters initially refused. He introduced himself as P.G.M Hutchinson and gave an address which one of the sisters confirmed with a local post office. They accepted the cheque which was subsequently dishonored by which time the car had been sold to the defendant. The plaintiffs sued the defendant for the car. HELD:

It was held that they were entitled to it as the contract between them and the fraudulent person was void for unilateral mistake.

In Shogun Finance Ltd v. Hudson it was held that where a contract is in writing the parties to the contract are prima facie those described as such in the documentation. In this case the person named in the agreement, Mr. Patel, could not be liable because his signature had been forged. The contract between the claimants and the fraudster was void for mistake. Where parties are specifically named in an agreement oral evidence cannot be adduced to contradict the agreement

Shogan Finance v Hudson [2003] 3 WLR 1371 House of Lords Facts: A rogue purchased a car on HP terms from a car dealer. He had produced a false driving license in the name of Durlabh Patel. The car dealer faxed the driving license to the claimant finance company and phoned through the details on the application form. The claimant then did a credit search on Durlabh Patel and then told the dealer to let the rogue have the car. The Rogue paid 10% deposit and drove off with the car. He then sold it on to the defendant and reneged on the finance agreement. The claimant brought an action against the defendant claiming to be the owner of the car as the contract was void for mistake. Held: The contract was void for mistake. The contract concluded between the finance company and the rogue was made inter absentes. The identity of the person was crucial to the contract as that it was Durlabh Patel that the credit check was carried out on and the claimant would not have allowed the car to go without the credit check. The two dissenting judges were highly critical of the result. Lord Millet and Lord Nicholls were of the opinion that there should be no distinction between

Mistake relating to documents These are two remedies where a written contract has been executed under a mistake: 1. The Plea of non est factum 2. Equitable remedy of rectification

Non est factum Generally speaking a person is bound by their signature on a document and this is so whether they have not read the document or having read it, they have not understood it. Recall the case of Le’strange v. Graucob. An exception was introduced to protect illiterate or blind persons who executed a deed after the contents had been falsely read over to them. They could plead non est factum – it is not my deed, and avoid liability.

L'Estrange v Graucob [1934] 2 KB 394 Court of Appeal Facts:

The claimant purchased a cigarette vending machine for use in her cafe. She signed an order form which stated in small print 'Any express or implied, condition, statement of warranty, statutory or otherwise is expressly excluded'. The vending machine did not work and the claimant sought to reject it under the Sale of Goods Act for not being of merchantable quality. Held: In signing the order form she was bound by all the terms contained in the form irrespective of whether she had read the form or not. Consequently her claim was unsuccessful.

Non est factum Continued… The scope of the plea was widened to embrace not only persons who could not read but any person, who, without negligence and usually as a result of fraud, signed a contract believing it to be something fundamentally different from what is actually was. Look a the case of Lewis v Clay where the defendant was deceived into signing promissory notes in favor of the claimant..

Lewis v Clay 67 L.J. Q.B. 224. FACTS: Lord Nevill covered a document with a piece of blotting paper that had four holes in it. The defendant Clay was asked to sign his name in these apertures for the purpose, he was told, of witnesseinf Lord Nevill’s own signature on a document relating to a private matter. In fact, the defendant had signed promissory notes in the claimant’s favor to the value of 11,113 Pounds. HELD: It was held that the defendant could raise the plea of non est factum as a defense when sued by the claimant Lewis on the notes.

The defendant had no knowledge of the promissory notes and had been deceived into signing them in the belief that he was signing a document of an entirely different nature.

For purposes of preventing commercial uncertainty there is a limitation on the application of this plea. It is recognized that negligence on the part of the signer will defeat the plea. What happened in the case of Saunders v Anglia Building Society?

Saunders v Anglia Building Society Facts: Mrs. Gallie, a woman of 78 years, signed a document which stated it was the sale of her interest in her home to Mr Lee. Mr. Lee then used that document to obtain a mortgage on the property for £2,000. He failed to keep up repayments on the mortgage and the building society sought possession of the property mortgaged. Mr. Lee was a friend of Mr. Parkin who was Mrs. Gallie's nephew. Mrs. Gallie knew that they wished to raise some money and she had agreed to help them. She had told them she would assign her house to the nephew as a gift on condition that he allowed her to remain there rent free for life. She had been told by the two men that the document she signed gave effect to that agreement. She signed the document in both their presence but could not find her glasses so had not been able to read it. The agreement between Mr. Lee and Mrs. Gallie had been held to be voidable for misrepresentation. However, in the action against the building society Mrs. Gallie raised the plea of non est factum (it’s not my deed). Held: The House of Lords found against Mrs. Gallie. The document was not radically different to that which she believed it to be in that she believed that she was relinquishing her rights to the property in any event. Furthermore the House of Lords stated that the plea of non est factum should not be too widely applied and reserved for those who through no fault of their own are unable to read the document eg. blind, illiterate or incapacitated through age.

Rectification Where the parties orally agreed to the terms of the contract but by mistake record them incorrectly in a subsequent written document, the equitable remedy of rectification may be available. The court may rectify the error in the document and order specific performance of the contract as rectified.

This was the case in Craddock Brother Ltd v. Hunt The type of mistake in this case is common mistake as both parties mistakenly believe that the document accurately records their transaction. The remedy of rectification forms an exception to the parol evidence rule in that oral evidence is admissible to show that the document was written in error.

Craddock Brother Ltd v. Hunt Facts: There was an oral agreement for the sale of dwelling house exclusive of an adjoining piece of land. The written agreement and later conveyance included the land in question. Held: Specific performance was ordered of both document as rectified by the court.

The following criteria must be established before the remedy of rectification can be granted: i. The parties must have reached agreement ii. The written document must fail to express what the parties had agreed. Compare the case of Frederick E Rose v. William Pim where the parties had reached agreement on horse beans therefore rectification was denied and Craddock Brothers v. Hunt where the contract failed to capture the agreement that the dwelling house would be sold exclusive of the adjacent land.

Frederick E Rose v. William Pim Facts: Frederick E Rose (London) Ltd was asked to supply ‘up to five hundred tons of Moroccan horsebeans described here as feveroles’ to an English firm in Egypt. So, Rose asked an Algerian supplier, William H Pim Junior & Co Ltd, what feveroles were. Pim replied ‘feveroles means just horsebeans’. They contracted for the supply of ‘horsebeans’. Both believed horsebeans were feveroles. However, little did Rose know, there are three bean sizes, feves, feveroles and fevettes. Rose got feves delivered, which are larger and cheaper. The English firm had a claim for the wrong beans being delivered, and Rose in turn brought a claim against Pim. Rose sought to rectify the contract to put in the word ‘horsebean’. Judgment: Denning LJ, Singleton LJ and Morris LJ held that because both parties were agreed on horsebeans, and the contract was not void for mistake, nor could the contractual document be rectified in this instance. Denning LJ said this was not a claim for rectification because that is concerned with contracts and documents, not with intentions. In order to get rectification, it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly. He said there might have been a case in misrepresentation or mistake but that was not pleaded and it is very different from rectification. He added that they probably should not have dropped the claim for collateral warranty that the beans would comply with a demand for feveroles.

iii.The written document must fail to record the common intention of the parties (i.e. it is a remedy for common mistake not mutual mistake). Look at the case of Riverlate Properties v. Paul where the parties were not in agreement as to how the expenses for exterior and structural repairs should be paid. iv. It must be equitable to grant the remedy (lapse of time and third party rights may defeat the remedy)

Riverlate Properties v. Paul A landlord mistakenly inserted in a lease a lower rent than he had intended to demand. In the absence of knowledge of the mistake by the other contracting party even equity will not give relief in the case of a purely unilateral mistake. Equity follows the law; it is to correct its defects, not to take its place.