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Topic 12- Common Mistake (1.Mistake as to the Existence of the Subject…
Topic 12- Common Mistake
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- Mistakes as to the Fundamental Underlying Assumption of the Contract
Common Law
Belle v Lever Bros: B employed by Lever Bros as a chairman of one of its subsidiaries
- To terminate contract- golden handshake agreed- B paid significant sum of money
Issue: Unbeknownst to either party- B's contract of employment could have been terminated w/o golden handshake agreement
- Lever Bros sought to have agreement deemed void on grounds of common mistake because agreement radically diff from what they thought they were receiving
Held: Rejected claim that contract should be declared void for common mistake
- Mistake not sufficiently fundamental
- Entered bad bargain but arrangement entered into with B rewarded him for his past work with the co
- entered into a compensation package and received a compensation pacakge
- May have paid over the odds but that ws not sufficiently fundamental
Mistake as to quality of the thing contracted for raises more difficult questions
- In a case of mistake a mistake will not affect assent unless it is mistake of both parties, and is 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
Decision criticised Cheshire, F and F: only way decision makes sense is if the fundamental underlying assumption of the contract is limited to those cases where the subject matter of the contract is no longer in existence
- In bell not the case- the agreement was a compensation package consisting of reward for services rendered and the right to terminate the contract
- Subject matter of contract existed notwithstanding the fact Lever Bros could have achieved desired result in less exp manner
Leaf v International Galleries
Both paries misakely believed a paiting was by infamous artist Constable
- Actually not
- No operative mistake- the mistake, which was one of quality, did not go to the root of the contract
i.e. party contracted for a painting a received a painting
Western Potato Co-Op v Durnam
Parties entered into a contract for sale of potato seeds
- parties believed seed to be fertile
- Both were mistaken
- Mistake in this case was one of quality, which went to the root of the contract
- Rendered void
Associated Japanese Bankv Credit du Nord
Facts: 2 banks victims of an elaborate scam
- P bank advanced fraudster funds to finance engineering machines
- D bank had guaranteed fraudster's debt
Issue: Both banks believed machines were in existence- were not
- P sought to rely on guarantee with D bank- alleged it was void for mistake
Held: Court upheld D's claim
Fitzsimons v O'Hanlon Reasoning in Bell upheld by Irish court
Facts: Settlement over estate of deceased person was agreed on basis P would receive 60k and remaining 150k would be divided between Ds
- Later, further deposit of 60k discovered
Held: Original settlement could no be declared void for common mistake
- The coruts should enforce contracts save for exceptional circumstances
- Mistake not sufficiently fundamental to render contract void
Courts of Equity
Solle v Butcher:
Facts: following refurbishment of the premises, both LL and T believed work on falt meant it was of such quality it was no longer subject of rent control legislation
Issue: view mistaken
C of A held- common mistake was not sufficiently fundamental to render contract void
- thenant contracted for aflat and that is exctly what he got
EQUITY INTERVENED: found mistake, while not sufficiently fundamental under common law- could be rendered voidable
- Therefore court had discretion as to whether to set contract aide
- Tenant given choice- surrender lease entirely or remain in possession at full rent that would have been allowed under the legislation
MATTER RESOLVED IN ENGLISH DECISION: Great Peace Shipping v Tsavliris Salvage (International) Ltd:
Facts: Ship suffered damage while sailing Indian Ocean
- Another ship, The Great Peace, was asked by salvage co to deviate from its course in order to aid the stricken ship until they could organise salvage shup
Issue: alvage co entered agreement w The Great Peace on mistaken understanding it was the closest ship to the stricken vessel
- Transpired Great Peace not 35 but 410 miles away from damaged vessel
- When Salvage Co discovered mistake it did not seek to end contract immediately- rather checked to see whether there were any oher ships in the vicinity of striken ship
- Once discovered it was, attempted to rescind contract as common mistake on location of the Great Peace
Held: The mistake, while material, was not sufficiently fundamental
- The D did receive what he contracted for i.e. a charter ship
- While its quality may have been questionable, essentially he did get what he had contracted for
- One indication mistake not crucial- evidence that upon discovering true location of the great peac D DID NOT IMMEDIATELY SEEK TO CANCEL ARRANGEMENT
In attempt to rid law of incoherence, found there is no jurisdiction to grant recission of contract on ground of common mistake where the contract is valid and enforceable on ordinary principles of the common law
ADVANTAGES AND DISADVANTAGES
While Great peace has the advantage of adding certainty to the law on common misake as regards the kind of mistake that must be fundamental, not without criticsTreital- Equity's ore liberal treatment of mistake to some extent sacrafices certainty emphasised by common law
- One cannot have certainty and justice at the same time
- Present state of the law presents somewhat incongruous appearance, with common law strcing for certainty while equity tries to promote justice
IRISH COURTS HAVE MOST RECENLY CONTINUED TO ADOPT BELL AND SOLLE APPROACH
Intrum Justitia BV v Legal and Trade Financial Services Ltd:
Facts: P entered into contract to purchase subsidiary of the D
- Neither party knew that a third party had embezzled funds from co
Issue: whether this fact amounted to a fundamental common mistake
Held: Court adopted strict standard
- O'Sullivan J: 'The effect of the fraud did not mean that the subject matter of the share price agreement was essentially different from the one contracted for'
- The D purchased co with the objective of accessing its blue chip client based, its good employees and disclosed revenue stream
- None of the factors were affected by the embezzlement
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More liberal view as to what constitutes mistake in relation to fundamental underlying assumption of the contract
BELLE AND SOLLE LEFT LAW IN AN UNCERTAIN STATE
- Bell: For mistake to be considered fundamental it must go to the root of the contract
Solle- For mistake to be considered fundamental something less required
Fundamental mistake should be one that renders the contract impossible to perform
e.g. Life policy in Shirkland
HWR- A fundamental mistake could be one that, while not rendering the contract impossible to perform, has the effec of making performance of that contract essentially and radically different from that which the parties had originally agreed
COMMON LAW AND EQUITY APPLY DIFFERENT STANDARDS AS TO WHAT SHOULD BE CONSIDERED FUNDAMENTAL