Contracts Outline Kayli Clark 23 of 23
doctrine of mistake —> is THERE A K?
• Doctrine of mistake is one of last resort. Many “mistake” issues can be dealt with by traditional K-formation principles. To be applied, must be true ambiguity in the terms or assumptions of the K.
• Must look at:
1) Fairness: Who should bear the risk? Will one party be greatly enriched if K enforced?
➡ Big corporations usually better able to bear the risk
2) Formation: No consensus ad idem normally requires a K to be void ab initio
3) Reasonable person: Exception. Would a reasonable person think there was a K?
• Summary: If one party never promised the certain quality of the product, even if aware P thought product had that quality & D knew it didn’t, there is no remedy. Bcuz of paramount importance that K be observed & if parties honestly comply w/ essentials of K formation —> they are bound
Application
1) Did K (expressly or impliedly) provide for who bears the risk of mistake? (Miller Paving)
• A cancellation fee indicates that the risk is to be borne by the person who has to bear cancellation fee (Great Peace Shipping).
• Was it someone’s responsibility to determine the amount owing? (Miller Paving 2007)
2) If not, can turn to CL mistake (Miller Paving)
3) If K is valid at CL, can make a plea in equity (Miller Paving)
Who made the mistake
1) Common: Both parties made the mistake about the same thing
2) Mutual: Both parties made mistakes but about different things (Seller thinks they are selling X, Buyer thinks they are buying Y) (Staiman Steel 1976)
3) Unilateral: One party is mistaken & other party knows/ ought to know they’re mistaken (fair?)
• Unfair surprise, you are bing unjustly enrichment vs.
• Certainty/ predictability (Sanctity of K. If such an important provision, why not in K?)
• Deception (did the seller promise anything thru words or conduct?) vs.
• Caveat Emptor (seller under no obligation to tell buyer of their mistake)
➡ Applies in commercial settings, not usually in consumer vs. biz settings
Mistake of the nature of document
• Non est Factum: A person does not know what their signing. Therefore, their signature is not binding. Required: The document they are signing must be radically different and represent a fundamental change.
• K not void: (i)Person is of full age, understanding, and literate (ii)Person was negligent (iii)K signed was not fundamentally different from what they thought they signed (iv)Reasonable precautions not taken. (Saunders v Anglia 1971)
• K void: (i)Person temporarily or permanently unable to read/ understand document (ii)Person took reasonable precautions
Common law mistake of terms
• Definition: A mistake as to the subject matter of the K (Staiman Steel & Smith v. Hughes)
➡ (I thought you promised me that the car you were selling me had a six-cylinder engine)
➡ Could argue based on: breach of warranty, breach of condition, misrepresentation
• D: Void: No consensus ad idem if two parties agreed on two fundamentally different terms of K
• P: Not void: Apply objective “reasonable person test” —> Even though no consensus ad idem, can a RP find certainty in the terms? (Hughes)
• The words & actions of D indicate the intention to have a binding K (Smith v. Hughes 1871)
• Snapping up a deal: Despite the fact that objectively an offer was clear, both parties knew/ should have known there was a mistake. As such, there is no K (Hartog)
• Exception to objective approach: To prevent a form of fraud, can look to parties’ subjective intentions (this only applies to a mistake of terms, not to mistake of facts)
• Arguments:
• D (wants K void): Consensus ad idem. K should be void, there was a mistake of terms that were central to the K and therefore no consensus ad idem at the time of K formation. Each party subjectively thought the type of ___ was central to the K (Raffles)
• P (wants K upheld): Reasonable person test. Subjective approach to K formation has been rejected (Smith v. Hughes). An objective approach has been adopted for K formation and a reasonable person could find certainty in the terms. Raffles can be distinguished because there is not total ambiguity in this case. In this case, a person could infer a common intention (Staiman)
• D (wants K void): Snap up deal. P is acting opportunistically and trying to “snap up” the deal. Courts are not inclined to enforce K if it leads to unjust enrichment (Staiman Steel 1976)
• P (wants K upheld): Caveat Emptor. Not acting opportunistically, Caveat Emptor should apply. No general obligation for one party to disabuse the other of a mistake (if not fraudulent/ deceitful). Promised nothing. There was a mutual mistake (Smith v. Hughes)
• D (wants K void): Risk burden. P is better able to bear the burden of risk that the K will not go through. Courts have commonly supported the consumer in transactions with corporations
• P (wants K upheld): Reliance. A seller of goods is not necessarily the more “powerful party. I am not a multi-national company, I am a privately run shop. I relied on the buyer following through with this K. It is unfair to void K when a reasonable person would’ve relied on it. Ks = sacrosanct
Common law mistake of assumptions
• Definition: A mistake made by both parties, relating to the existence of some quality external to the K, which rendered the agreement essentially different (usually a common mistake)
➡ (I thought the car you were selling me had a six-cylinder engine)
➡ Can argue based on: Nothing else. Mistake is only remedy
• Three types of mistaken assumptions:
1) Identity of K parties: Intended to K w/ someone else. Evidence: K face to face v. in writing.
✴ Ultimate question: Who bears the risk btwn two innocent parties
• K Void: (i)If the offer was to the person the rogue was impersonating, not the rogue. (Cundy v Lindsay) (i)If a fundamental mistake regarding identity of the party
➡ K is only void if P knows the person who the fraud is pretending to be.
• K not void: When there is face-to-face interaction, strong presump. that each party intended to K with the present party. Not applicable to K’s solely in writing (Phillips v Brooks 1919)
• K Voidable: Fraudulent misrepresentation (Lewis v Avery; Shogun)
➡ If K found to be “voidable” but it is not voided before rogue sells product to a third party, then the third party is the rightful owner (no remedy) (Lewis v Avery; Shogun)
➡ Sale of Goods Act s. 28: When seller of goods has a voidable title, but seller’s title has not yet been voided @ time of sale, then buyer acquires title to the goods.
2) Existence of subject matter: No K if what is being sold does not exist
• K Void: (i)Common assumption that subject matter of K is in existence when it is not; (ii)One party is unable to supply the goods contracted for
• K Not Void: When party claiming “mistake” is responsible for the mistake (McRae)
3) Quality of subject matter: Very high standard (Bell v. Lever Bros 1932)
• K Void: (i)Mistake of both parties & (ii)Mistake was a fundamental underlying assumption about the quality which made the K essentially different from what it was believed to be
• Fundamentally diff: Barren v. Breeding cow
• Fundamentally same: Severance agreement w/ pay v. severance agreement w/o pay (a difference in monetary value does not render the K fundamentally different)
Equitable mistake
• K can be “voidable” under equity when (Solle v. Butcher 1950):
1) Common & Fundamental misapprehension: K entered into under a common & fundamental misapprehension (party seeking to set K aside not @ fault) (Miller Paving 2007);
2) Unconscientious to avail on mistake: It is unconscientious or unreasonable for one party to avail themselves on the legal advantage it obtained; and
3) No injustice to 3P: It is possible to remedy the situation w/o injustice to a 3rd party
• Examples:
• Fraud or Material misrepresentation (Solle v. Butcher 1950)
• Mistake by one party (re: identity) and other party knows but remains silent
• Common assumption (re: fundamental fact) and that party is not at fault
• Overturned: Application of equitable mistake was overturned in Great Peace Shipping. However, this is a UK case and is not applied in Canada. This is good because the Test for Mistake in Great Peace Shipping is too restrictive (requires impossibility of performance)
• Policy reasons: (i)3Ps (CL mistake doesn’t account for 3Ps who have relied on K); (ii)Remedial flexibility (binary options - void v. not void - don’t always provide a sufficient remedy)
• Negligent misrepresentation:Special relationship btwn P&D (provides opinion or info); False info provided negligently; P reasonably relied on rep & damages suffered (Hedley Byrne 1964)
• Arguments:
• Identity of parties
• P (wants K void): Nemo Dat. You cannot transfer (sell or buy) property you do not have. The fraud did not “own” the property when sold it to P. As such, K is void
• D (wants K upheld): BFP for value. I am an innocent party and paid for this property. There is a policy argument upheld by the courts for protecting bona fide purchasers for value. Why? Because seller is in a better position to protect themselves (require identity before sell, require full bank payment, certified cheque, etc.)
• P (wants K void): Identity of purchaser. Identity of purchaser is of key importance. I intended to K w/ someone else and not the rougue. Therefore, the decision in Cundy should be followed and the K should be considered void ab initio
• D (wants K upheld): Written K. The decision in Cundy can be distinguished because that was for a written K. This K is face to face, therefore the decision in Phillips should be applied and the K upheld.
• P (wants K void): Intention of parties. Face to face is not a rigid rule. Strong presumption that when parties transact F-to-F, they are transacting w/ each other. But this can be overcome if the intention of the parties was to complete the agreement only on written terms (Shogun). Written docs reveal true identity of rogue & since the offer was to the person on paper & not the rogue, the K is void ab initio
• D (wants K upheld): Due diligence. There is nothing more D could have done to ensure the transaction was legitimate. P however was in a position to do more due diligence
• P (wants K void): Fraud Misrep. P may have been able to do more due diligence but they do not need to bcuz their actions would be considered Fraudulent Misrep & under Fraudulent Misrep a K is voidable and can be set aside. Therefore property should belong to P
• D (wants K upheld): Detect fraud b4 sold. It is true that a K is voidable under Fraud Misrep but only if P finds out the fraud before goods are sold to 3P (D). That did not happen in this case. Therefore K is enforced and D holds rightful title (Lewis v Avery 1972)
• Existence of subject matter
• D (wants K void): Common assumption. There was a common assumption that the thing existed and it does not exist. Therefore, K should be void.
• P (wants K upheld): No common assumption. This was not a common assumption. D made an assumption and P relied on it. A party cannot rely on doctrine of mistake if (i)No reasonable grounds for believing the thing existed & (ii)They deliberately induced that belief into the mind of the other (McRae 1951). D did not take any steps to verify the existence of the thing and a reasonable person would expect P to rely on D’s assertion (D’s an “expert”). K should be upheld
• Quality of subject matter
• D (wants K void): Fundamentally different. Both parties made a mistaken common assumption about the quality of the subject matter. Without this quality, the subject matter of the K is fundamentally different and therefore it would be unfair to enforce the K when it is not what D thought they were contracting about
• P (wants K upheld): High standard. The very essence of the K has not been affected by D’s mistaken assumption. The quality of subject matter requirement is a very high requirement (Bell v. Lever Bros). Further, even if the mistake is fundamental, it is due to D’s own mistake and as such the doctrine of mistake cannot be applied. (McRae)
WHAT ARE THE TERMS OF THE K?
Parole evidence —> Use if there is ANY SORT of promise in fact pattern
• P: Rule: Oral statements that contradict K aren’t admissible (if no ambiguity) (BMO 1969)
• Not applicable: Written K not the whole K (oral terms supplement written K bcuz of ambiguity)
• Oral admissible if: (i)Misrep, (ii)Warranty, (iii)Mistake, (iv)Unconscionability, (v)Rectification
• D: Presumption: PER recast as a presumption not a rule (Gallen 1984 - failed buckwheat crop)
• Four step PER application (Gallen 1984)