1 mistaken contracts law of contract lw1154 bcl 2005-2006
TRANSCRIPT
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MISTAKEN
CONTRACTSLaw of Contract
LW1154BCL 2005-2006
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Mistake – Reading
TextbookClark, Contract Law chapter 10
ReferenceMcDermott, Contract Law
chapter 12
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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
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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
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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
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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
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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
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Parties at cross-
purposes
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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
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Example 1 Falck v. 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
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Example 1Falck v. 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
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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
Example 2Hartog v. Collin [1939] 3 AER 566
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Example 2Hartog v. 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
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Ambiguity – relevance of fault
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
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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
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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
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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
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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
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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
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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?
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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?
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Mistake as to identity 1:Parties dealing face-to-faceIdentity usually
matters for e.g.:
Contract for skilled services
Contract for memoirs
Employment
Identity usually irrelevant for e.g.:
Purchase of consumer goods
Purchase of land or shares
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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
Mistake as to identity 1:Parties dealing face-to-face
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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
Mistake as to identity 1:Parties dealing face-to-face
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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
Mistake as to identity 1:Parties dealing face-to-face
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Example Phillips v. 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
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Example Phillips v. 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
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A contrasting exampleIngram v. 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
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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)
A contrasting exampleIngram v. Little [1961] 1 QB 31
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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
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Reconciling the two approaches?Lewis v. 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
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Reconciling the two approaches?Lewis v. 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
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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
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Basic principle + qualification
A mistake to the identity of the other person makes the contract void …
… unless their identity was commercially irrelevant
Mistake as to identity 2:Parties negotiating at a distance
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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
ExampleCundy v. Lindsay (1878) 3 AC 459
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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
ExampleCundy v. Lindsay (1878) 3 AC 459
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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
A general principle?
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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
A general principle?
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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?
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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”
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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
Example 2Boulton v. Jones (1857) 157 ER 232
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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 2Boulton v. Jones (1857) 157 ER 232
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“… 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)
Example 2Boulton v. Jones (1857) 157 ER 232
So because the personality or identity of the shopkeeper was important, there was no contract here
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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?
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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
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Summary and re-cap: Parties at cross-purposes Failure to agree on fundamentally
important matters can make an apparent agreement voide.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)
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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
Parties at cross-purposesGill v. McDowell [1903] IR 463
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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 contracte.g. Implied terms
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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
Example 1Smith v. Hughes (1871) LR 6 QB 597
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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
Example 1Smith v. Hughes (1871) LR 6 QB 597
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The Court of Queen’s Bench said:
The issue is, What terms were agreed Perhaps it was a sale of oats Perhaps it was a sale of old oats Perhaps it was a sale by sample
Therefore a retrial was ordered …
… to determine which terms were in fact agreed
Example 1Smith v. Hughes (1871) LR 6 QB 597
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Example 2Clayton Love v. B&I (1970) 104 ILTR 157
D agreed to carry P’s cargo of scampi from Dublin to Liverpool
D agreed to carry it as a refrigerated cargo
D knew the loading would be at daytime temperature (60ºF)
P did not know that The cargo was ruined
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Example 2Clayton Love v. B&I (1970) 104 ILTR 157 The Supreme Court held: There was a valid contract It was expressly agreed that the cargo
should be refrigerated Therefore the failure to refrigerate was
a breach of contract Damages were awarded
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Example 3Reen v. Bank of Ireland [1983] IRLM 507
Multi-party litigation
D1 offers to settle for £3,000
P agrees, and is paid the money
P then realises that no provision has been made for the costs of other parties
But MacMahon J holds the agreement to settle is binding, whatever the position on costs
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Common fundamental
mistake
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Common fundamental mistake
i.e. mistakes which are: Common to both parties Of fundamental importance to their
agreement
So the parties are agreed, but on a radically false basis
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What is “fundamental”?
“Fundamental” means:
something radically wrong with, or unexpected in, the very
subject-matter of the agreement
But the limits of this are now very controversial
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“Fundamental” – example Galloway v. Galloway (1914) 30 TLR 531
A married couple separate They both sign a legal separation
agreement It then emerges that their marriage
was never valid
The court holds the contract void
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Agreement (in London) to buy a ship-load of grain
The cargo had in fact already been damaged and disposed of (in Tunis)
The contract was held to be void
“Fundamental” – another example Couturier v. Hastie (1856) 5 HLC 673
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What is “fundamental”?
Those two cases were examples of “non-existence of subject matter”
e.g. a contract over marital rights that did not exist (Galloway v. Galloway)
e.g. a sale of a cargo that did not exist (Couturier v. Hastie)
But the doctrine of “fundamental common mistake” is not confined to cases of non-existence
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ExampleWestern Potato v. Durnan [1985] IRLM 5
Sale of seed potatoes to a farmer The seed should have produced at least
80 tons of potatoes The seed was defective – too old It produced only 9 tons
Clarke J held that there was a fundamental mistake, rendering the contract void
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ExampleWestern Potato v. Durnan [1985] IRLM 5
Criticism of the case by Clark (1984) 19 Irish Jur 101:
This extends the doctrine of mistake too far
The parties dealt with seed quality in their written contract …
… and they should be held to what they said there
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How “fundamental”?
So the “mistake” argument in Western Potato succeeded …
… but seems to be at the limit of the doctrine, for now at least
Now two examples where the argument from “mistake” failed …
… on the ground that the mistake was insufficiently fundamental
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Example 1Fitzsimons v. O’Hanlon [1999] 2 IRLM 551
A man died, with assets of £120,000 P and D were different family
members, and commenced litigation They settled the litigation, P receiving
roughly half the money (£60,500) Then an additional account, holding
another £59,000, was discoveredCould P claim some of the £59,000, or
was he bound by the contract of settlement?
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Example 1Fitzsimons v. O’Hanlon [1999] 2 IRLM 551
Budd J held: The settlement was for a specific
amount, it was not a 50:50 split It is important to hold people to
settlements, for reasons of legal finality The mistake was not sufficiently
fundamental So the contract could not be set aside
for mistake
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Bell and Snelling were directors They secretly committed breaches of
duty, for which they could have been dismissed
Bell and Snelling then negotiated premature termination
The company later discovered the breaches of duty
Were the sums paid on termination recoverable ?
Example 2Bell v. Lever Brothers [1932] AC 161
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The House of Lords refused to hold the contract void
A contract could be set aside for failure of a “common fundamental assumption” …
… but it was held (3:2) that the mistake was not fundamental enough
The company had paid to be rid of Bell and Snelling, and had got what they paid for
Example 2Bell v. Lever Brothers [1932] AC 161
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In summary:
A sufficiently fundamental common mistake will render a contract void
A mistake as to the existence of the subject-matter of the contract is sufficiently fundamental …
… but it isn’t clear how much further the doctrine goes
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An exception Even if there is a common
fundamental mistake: One party may be guaranteeing some
fundamental matter Whether this is so is a matter of
interpretation of the contract If so, then a fundamental mistake does
not make the contract void … … but rather is a breach of contract by
the party who made the guarantee
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Example McRae v. CDC (1951) 84 CLR 377
D advertised for sale the wreck of an oil tanker
D gave a precise description and map reference
P agreed to buy the wreck
P equipped a vessel to salvage the wreck
But it did not exist!
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Example McRae v. CDC (1951) 84 CLR 377
The High Court of Australia held: There was an implied undertaking that
the tanker really existed “The only proper construction of the
contract is that it included a promise by the Commission that there was a tanker in the position specified”
So P could recover damages from D
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Is that it?
So there is a common law doctrine of “fundamental common mistakes”
But it is a narrow one
Some suggest there is also an equitable doctrine of mistake:
A considerably broader doctrine … … which allows the courts to act in a
discretionary manner
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A broader, equitable doctrine?The position in England The English courts have sometimes
recognised a broader doctrine … … allowing intervention in cases of
fundamental common mistake The court need only act if it seems
just and reasonable to do so The court does not necessarily have
to set the contract aside … … but may impose fair terms
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A broader, equitable doctrine?The position in England Examples of this doctrine: Sale of a house in ignorance of the
tenant’s rights(Solle v. Butcher [1950] 1 KB 671)
Settlement of insurance claim in ignorance of misrepresentations by one side(Magee v. Pennine Insc [1969] 2 QB 507)
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A broader, equitable doctrine?The position in England
But this wider doctrine is controversial:
Some say it weakens commercial obligations too much
It contradicts Bell v. Lever Brothers, which is the leading case
The wider doctrine was disapproved by the Court of Appeal in The Great Peace [2003] QB 679
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A broader, equitable doctrine?The position in Ireland
The Irish courts are currently between the two English extremes
There is clear authority that the Irish legal system recognises an equitable doctrine
But it seems to be a narrower one than that recognised in Solle v. Butcher
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The leading Irish caseO’Neill v. Ryan [1992] 1 IR 166
Disputes between various shareholders in Ryanair
Two sets of legal proceedings were started
A contract was made to settle one of them
Alleged mistaken belief that the settlement covered all the proceedings
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Costello J (upheld on appeal) held: Irish law recognises “equitable
common fundamental mistake” Here however it was unclear whether
the mistake was common (as opposed to unilateral)
The doctrine could not be invoked by a party at fault
Costello J refused to set aside the contract
The leading Irish caseO’Neill v. Ryan [1992] 1 IR 166
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Special case:
signed documents
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Sanctity of signed documents
Where both parties have signed a contractual document …
… the courts are reluctant to encourage pleas of “mistake”
Allowing such pleas defeats the object of reducing the agreement to writing
Written evidence is usually much better than oral evidence
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3, very limited, exceptions
‘Non est factum’ Occasionally, one party can deny the
effect of their signature
Latent ambiguity An apparently clear agreement is
shown to be ambiguous and void
Rectification A contract is incorrectly recorded,
and the court corrects it
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The doctrine of ‘non est factum’
This is a plea that you did not realise what you were signing
i.e. “your mind did not go with your pen”
The name of the plea is Latin: “... scriptum non est factum suum” = “... the writing is not [the
defendant’s] act”
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The doctrine of ‘non est factum’
Requirements: A fundamental mistake … … as to the practical effect of the
document ... ... without carelessness on the signer's
part
If the plea succeeds, the signature has no effect
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ExampleSaunders v. Anglia BS [1971] AC 1004
Gallie signed a deed She thought it conveyed land to her
nephew Parkin To conceal the transaction from his
wife, Parkin had altered the draft deed, to convey the property to his friend Lee
Lee absconded with the proceeds Was the deed void for mistake ?
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1. Was there a fundamental mistake?
Clearly, yes Older case law said that the mistake
must be as to the “character” of the document, not its contents …
… but the House of Lords overruled the old cases
ExampleSaunders v. Anglia BS [1971] AC 1004
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2. Was the mistake as to the practical effect of the document?
Gallie meant to make a gift to Parkin She was happy to do whatever Parkin
wanted Parkin wanted to give the land to Lee Therefore, there was no difference in
practical effect So the plea of non est factum failed
ExampleSaunders v. Anglia BS [1971] AC 1004
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3. Was Gallie careless? Gallie could not read the document,
because her glasses were broken … … but the Lords said she should have
waited until they were repaired (!!) Gallie was not a conveyancer … … but the Lords said she should have
realised that the name was wrong A very harsh standard was applied!
ExampleSaunders v. Anglia BS [1971] AC 1004
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Latent ambiguity
Two parties sign an apparently clear agreement
Then a key expression turns out to be ambiguous
In fact, the parties meant different things by it
The agreement will be void for mistake
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Example 1Raffles v. Wichelhaus (1864) 2 B&C 906
Written agreement for the sale of the cargo of cotton on the “Peerless”
But there were two “Peerless”es … … and buyer and seller had different
ships in mind The contract was
held to be void for latent ambiguity
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Example 2Mespil v. Capaldi [1986] IRLM 373
Two connected legal actions were started Written agreement to settle “all matters
in dispute between the parties in these proceedings”
In fact, the parties had different “proceedings” in mind
The settlement was void for mistake
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Rectification
The parties have come to a definite agreement
They put their agreement in writing But the writing mis-records their
agreement Then the court will correct the writing
to reflect the real agreement This is called “rectifying” or
“reforming” the writing
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Example 1Nolan v. Graves and Hamilton [1946] IR 376
P agreed to buy houses at £5,550
This was accidentally written down as “£4,550”
Haugh J held that P could not enforce the contract as written …
… and he rectified it to read “£5,550”
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Example 2Collen v. Dublin City Council [1908] 1 IR 503 A builder agreed to certain building
work The price was to be calculated on an
agreed formula The clerk applying the formula made
an error … … so that a wrong figure was inserted
into the contract document Ross J rectified the contract document
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The nature of the doctrine The doctrine is concerned with
rectifying documents of all sorts The doctrine is not confined to contract
law (it applies also to wills and property transfers generally)
It will not be applied where it would prejudice the rights of innocent 3rd parties (“bona fide purchasers for value”)
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Only mistakes in the document
The doctrine only applies to mistakes in the document, not more widely
“Equity rectifies instruments, not contracts”
If the document contains what the parties meant it to contain …
… it is irrelevant that, in some other sense, one or more of them was mistaken
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Example 1Racal Group v. Ashmore [1995] STC 1151
A deed was drawn up to secure certain tax exemptions
However, the parties had received bad legal advice …
… and the deed did not have the tax effect they wanted
But there was no clerical error … … and so no rectification
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Example 2R McD v. V McD [1993] IRLM 717
A separated couple negotiated over maintenance, custody, etc
Their lawyers reduced the agreement to writing
The written document did not say who was to pay the wife’s legal costs
The wife later sought rectification
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Example 2R McD v. V McD [1993] IRLM 717
Barron J held: There was never any agreement over
the wife’s legal costs Therefore there was nothing wrong
with the written instrument There was no ground for rectification It was irrelevant that the failure to
agree was in a sense a “mistake”
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The usual case
Rectification cases usually involve a definite agreement on terms …
… which is then accidentally distorted in the written documents
So a remedy will not normally be given unless there was a common mistake …
… and definite agreement on what the document ought to have said
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ExampleIrish Life Assc v. Dublin Land [1989] IR 253
P owned a collection of properties P offered to sell them to D P meant to leave certain properties out
of the portfolio (“the Palmerstown lands”) …
… but by mistake they were left in D never realised that the Palmerstown
lands had been included by accident Sale was agreed
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ExampleIrish Life Assc v. Dublin Land [1989] IR 253
The Supreme Court held:
There was no good evidence that D ever knew of the mistake
So there was no common intention to leave out the Palmerstown properties
Rectification was therefore denied
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The exception
The courts usually demand a common mistake as to terms
But it seems to be enough if there is
unilateral mistake + fraud i.e. one party is mistaken … … and the other takes advantage of
their mistake
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Example 1Gun v. McCarthy (1884) 13 LR (I) 304 G offered to lease premises to M
at £33 per annum M accepted immediately A formal lease was drawn up and
signed In fact, G had meant to ask for £53 … … and M knew that a mistake had
been made (as £33 was absurdly low)
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Example 1Gun v. McCarthy (1884) 13 LR (I) 304
Flanagan J held: M must have known that “£33” was an
error, not G’s real intention So some remedy was appropriate But £53 was never actually agreed … … so it was not fair to rectify G’s remedy was to have the lease
cancelled
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Example 2Monaghan Council v. Vaughan [1948] IR 306
The council sought tenders to demolish a building
But they offered ambiguous terms
One term was meant to mean that the tenderer must pay £1,200 …
… but it could be read as meaning that the council would pay the tenderer £1,200!
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Example 2Monaghan Council v. Vaughan [1948] IR 306
Dixon J held:
The tenderer had seen the ambiguity, and had secretly planned to exploit it
So it was fair to rectify the agreement to reflect the council’s real intention …
… even though the problem was caused by the council’s own carelessness and bad drafting
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That's all on
mistake …
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