Torts & Contracts II

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Magnus Gallagher
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1 LAWS5006 Torts & Contracts II Problem question scaffold Issue: some sort of error/mistake can the contract be set aside? CONTRACT SOLUTION When you think a mistake is present, first assess whether there is a regular contract law solution: 1. Implied condition precedent to formation that parties have entered into K on assumption that a particular statement is true/a state of affairs exists: McRae v Commonwealth Disposals Commission If this CP fails, no K was formed; void ab initio 2. One of the parties made an implied promise that state of affairs existed Breach of K sue for damages 1. COMMON MISTAKE CL common mistake test = whether or not the error goes to the substance of the whole consideration. K is void ab initio. - Near impossible test to satisfy: Both parties must be under a common assumption/misapprehension: McRae Cannot rely on common mistake to make a K void when the mistake is the result of one s own fault or is made without reasonable grounds: McRae - Common mistake rendering a contract void: 1. Sale of goods which have ceased to exist Where there is a K for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the K is made, the K is void: s 11 Sale of Goods Act 1923 (NSW) 1

2 HOWEVER the same principle does not apply to goods which have never existed. In McRae v Commonwealth Disposals, the court held that the Disposals Commission was in breach as there was no condition precedent making the contract contingent upon the tanker s existence. Therefore the contract was not void and the Commission was liable for damages. 2. Total failure of consideration If there is a total failure of consideration from one party (i.e. a total failure to perform), the K will be void. Any monies paid can be recovered. However, the K will not be treated as void in cases where the failure of consideration was partial rather than total. 3. Common mistake as to quality of subject matter Where the goods delivered are of an entirely different kind from that which was promised the courts have generally deemed the K void (e.g. Bell v Lever Bros the quality was essentially different ). However this is a very strict test to fulfil/difficult to satisfy - the mistake results in a complete difference of the substance, so as to be a complete failure of consideration: Bell v Lever Bros Equity CM test = K becomes voidable - K was created, but you can rescind it so as to place the parties in the position they would have been but for the contract being formed - Requirements: Solle v Butcher - K liable in equity to be set aside if: a) Parties were under a common misapprehension either as to facts or as to their relative and respective rights b) The misrepresentation was fundamental c) The party seeking to set it aside was not himself at fault Svanosio v McNamara - if a K has finished (K and conveyancing) for the sale of land, you cannot rescind it on the grounds of common mistake unless there has been fraud, misrepresentation or total failure of consideration (in which case equity will intervene) Because P ordinarily required to investigate land before conveyancing On the ground of common mistake, the K cannot be rescinded when it has been fully executed because there has NOT BEEN a total failure of consideration 2

3 Taylor v Johnson needs to be unconscionability 2. MUTUAL MISTAKE = parties are at cross-purposes about the contract Three ways situation of mutual mistake resolves itself: 1. Offer/acceptance fails (Scriven Bros v Hindley) One party makes offer on certain terms; other party accepts based on different terms, because they misunderstood what was being offered Offer/acceptance process fails; K never formed 2. Ambiguity (Goldsbrough Mort v Quinn) One party understands word/term to mean one thing; other party believed it means something else Court can construe K and assign meaning to a word in dispute in K, then K will be valid (Goldsbrough Mort v Quinn); K will resolve itself into a unilateral mistake (only one party mistaken/there is a simple misunderstanding of the term of the K) 3. Uncertainty (Raffles v Wichelhaus) If it is impossible for court to assign meaning, then term is uncertain and it is an essential term of the K that cannot be severed, the K will fail on that basis In Raffles, two ships w/ same name - could reasonably read the contract as referring to either ship, therefore contract void. 3. UNILATERAL MISTAKE = mistake by one party only; one party enters into K under a misapprehension of which the other is aware Mistake as to identity i. Mistake at a distance/not face-to-face Presumption is that the seller never intended to deal with rogue, but intended to deal with person who s identity rogue assumed: Cundy v Lindsay NB: When identity is nature of error failure of offer/acceptance contract void ab initio as never formed When character (e.g. creditworthiness) is nature of error no failure of offer/acceptance contract formed and voidable 3

4 ii. Mistake face-to-face Presumption that you intend to deal with persons in front of you, regardless of their actual identity (Lewis v Averay) Where there is nothing to rebut presumption of intention to deal with person physically present, K is valid When P can rebut presumption, K is only be voidable as a result of fraudulent behaviour, and exists until P chooses to rescind it NB: contract cannot be rescinded when 3 rd party acquires interest in it (i.e. when car was on-sold in Lewis v Averay) NB: When identity is nature of error failure of offer/acceptance contract void ab initio When character (e.g. creditworthiness) is nature of error contract voidable Mistake as to terms - A K can be rescinded on equitable grounds where there has been unilateral mistake as to a fundamental term, the other party knows, and there is unconscionable conduct (the D induced the P to make the mistake): Taylor v Johnson Unconscionable conduct = where someone deliberate sets out to ensure the P is not aware of the mistake, or one party has reason to know the mistake, but goes ahead in wilful ignorance: Taylor v Johnson - K becomes voidable - NB: If terms are so clearly outrageous that no reasonable offeree could understand the offer, the K would fail on an offer and acceptance level and be void ab initio Issue: when there is an error on the face of the contract, can it be rectified? Equity will rectify a document which mistakenly does not correctly record the true agreement between the parties Requirements: 1. Continuing intention: Pukallus v Cameron From the moment in time the term was agreed, there had to be a continuing intention that this term was a term of the K The court will not rectify a doc in a manner which will give a party an enforceable right which they did not previously have 4

5 2. Have to be able to specifically and precisely state the new term if you re going to redraft the doc: Pukallus v Cameron In Pukallus court could not grant rectification where the parties would have used different words had they known the true facts (both parties at a common misconception of meaning) NB: doctrine of common mistake might allow Pukallus to rescind the contract Issue: can a D set aside an otherwise valid contract on the basis of non est factum? This is not my deed situation where the P either did not actually contract, or had no intention to do so. Makes K void ab initio. Is a DEFENCE other party has est. that a valid K exists; legal excuse allows D not to be held to it Three criteria (Saunders v Anglia Building Society; Petelin v Cullen): 1. Signer had a disability (i.e. blind or illiterate) such that through no fault of their own, they cannot understand the contents of the document. A temporary disability may be sufficient: Saunders 2. There needs to be a radical difference between what person thought they were signing and what they were actually signing 3. If a 3 rd party has an interest in the K; the signing party wasn t careless/took reasonable precautions to protect themselves In Petelin, P had poor understanding of English, so K was radically different to what he thought, and his failure to understand was not due to carelessness 5

CQUniversity Division of Higher Education School of Business and Law. LAWS11062 Contract Law B Topic 1 Mistake Term 2, 2014 Anthony Marinac

CQUniversity Division of Higher Education School of Business and Law LAWS11062 Contract Law B Topic 1 Mistake Term 2, 2014 Anthony Marinac CQUniversity 2014 1 Table of Contents 1.0 Introduction to Contract