LAW OF CONTRACTS: Your Sword, Your Shield 7

Hello.

In my previous blog, I wrote about the various ways by which a contract can be terminated which are;

1. Misrepresentation
2. Mistake
3. Duress and Undue Influence
4. Illegal and Void Contracts
5. Privity of Contract

I wrote about misrepresentation in episode 5 and 6. 

I proceed.

2. Termination of contracts based on mistake

A contract may be nullified because of a mistake. The mistake could be as to the contract document or as to the identity of the other party.

It may also occur where a party who signed a contract can prove that he did not know or understand the contents of what he had signed. This excuse is claimable by illiterates, blind and persons of unsound mind.

A mistake of identity occurs where a party to the contract is mistaken as to the identity of the other party especially where the identity of the other party is crucial or where he had an unidentifiable person he wished to contract with.

See the following cases under different types of mistake:

a. COMMON MISTAKE

Couterier v Hastie (1856)

Facts

The plaintiff merchants shipped a cargo of Indian corn and sent the bill of lading to their London agent, who employed the defendant to sell the cargo. 

On 15 May 1848, the defendant sold the cargo to Challender on credit. The vessel had sailed on 23 February but the cargo became so heated and fermented that it was unfit to be carried further and sold. 

On May 23, Challender gave the plaintiff notice that he repudiated the contract on the ground that at the time of the sale to him the cargo did not exist. 

The plaintiffs brought an action against the defendant (who was a del credere agent, ie, guaranteed the performance of the contract) to recover the purchase price.

Holding
It was ruled that the contract imported at the time of sale, the corn was in existence as such and capable of delivery, and that, as it had been sold, the plaintiffs could not recover. 

This judgment was affirmed by the House of Lords.

Griffith v Brymer (1903)

Facts  

At 11am on 24 June 1902, the plaintiff had entered into an oral agreement for the hire of a room to view the coronation procession on 26 June.

A decision to operate on the King, which rendered the procession impossible, was taken at 10am on 24 June. Wright J held the contract void. 

The agreement was made on a misunderstanding of facts which went to the whole root of the matter, and the plaintiff was entitled to recover his £100.

McRae v Commonwealth Disposals Commission (1950)

Facts

The defendants sold an oil tanker described as lying on Jourmand Reef off Papua. The plaintiffs incurred considerable expenditure in sending a salvage expedition to look for the tanker. 

There was in fact no oil tanker, nor any place known as Jourmand Reef. The plaintiffs brought an action for (1) breach of contract, (2) deceit, and (3) negligence. 

Holding
In the present case, there was a contract, and the Commission contracted that a tanker existed in the position specified. 

Since there was no such tanker, there had been a breach of contract, and the plaintiffs were entitled to damages for that breach.

Cooper v Phibbs (1867)

Facts 

An uncle told his nephew, not intending to misrepresent anything, but being in fact in error, that he (the uncle) was entitled to a fishery. 

The nephew, after the uncle's death, acting in the belief of the truth of what the uncle had told him, entered into an agreement to rent the fishery from the uncle's daughters. 

However, the fishery actually belonged to the nephew himself. 

Holding
The House of Lords held that the mistake was only such as to make the contract voidable. Lord Westbury said,

"If parties contract under a mutual mistake and misapprehension as to their relative and respective rights, the result is that that agreement is liable to be set aside as having proceeded upon a common mistake" on such terms as the court thought fit to impose; and it was so set aside.

b. UNILATERAL MISTAKE

Webster v Cecil (1861)

The defendant, having refused to sell some property to the plaintiff for £2,000, wrote a letter in which, as the result of a mistaken calculation, he offered to sell it for £1,250. 

The plaintiff accepted but the defendant refused to complete. Romilly MR refused a decree of specific performance.

King's Norton Metal v Edridge Merret (1897)

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.

Holding
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. 

c. MUTUAL MISTAKE

Wood v Scarth (1858)

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. 

Holding
The court refused the order of specific performance but the defendant was liable in damages.

Raffles v Wichelhaus (1864)

Facts 
The plaintiff agreed to sell cotton to the defendant which was "to arrive ex Peerless from Bombay". 

When the cotton arrived the plaintiff offered to deliver but the defendants refused to accept the cotton. 

The defendants pleaded that the ship mentioned was intended by them to be the ship called the Peerless, which sailed from Bombay in October and that the plaintiff had not offered to deliver cotton which arrived by that ship, but instead offered to deliver cotton which arrived by another ship, also called Peerless, which had sailed from Bombay in December.

Holding
Judgment was given for the defendants. It was held that there was nothing on the face of the contract to show which Peerless was meant; so that this was a plain case of latent ambiguity, as soon as it was shown that there were two Peerlesses from Bombay; and parol evidence could be given when it was found that the plaintiff meant one and the defendants the other. 

If this was the case, there was no consensus ad idem, and therefore no binding contract.

Scriven Bros v Hindley [1913]

Facts
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.

Holding
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. 

He held that the defendants were not estopped since their mistake had been caused by or contributed to by the negligence of the plaintiffs.

Foster v Mackinnon (1869)

Facts
The defendant, an elderly gentleman, signed a bill of exchange on being told that it was a guarantee similar to one which he had previously signed. 

He had only been shown the back of it. 

Holding
It was held that there should be a new trial. Byles J stated:

"It seems plain, on principle and on authority, that if a blind man, or a man who cannot read, or who, for some reason (not implying negligence) forbears to read, has a written contract falsely read over to him, the reader misreading it to such a degree that the written contract is of a nature altogether different from the contract pretended to be read from the paper which the blind or illiterate man afterwards signs; then at least if there be no negligence, the signature obtained is of no force. 

And it is invalid not merely on the ground of fraud, where fraud exists, but on the ground that the mind of the signer did not accompany the signature; in other words, he never intended to sign and therefore, in contemplation of law, never did sign the contract to which his name is appended.

In the present case,... he was deceived, not merely as to the legal effect, but as to the actual contents of the instrument."

In my next update, I will be writing about duress and undue influence.

Bye for now. 




 

LAW OF CONTRACTS: Your Sword, Your Shield 6

 

REMEDIES FOR MISREPRESENTATION

(A) RESCISSION

Car & Universal Finance v Caldwell [1965]

Facts

Caldwell sold his car to Norris.
The cheque was dishonoured when it was presented the next day. 

He immediately informed the police and the Automobile Association of the fraudulent transaction. 

Subsequently Norris sold the car to X who sold it to Y who sold it to Z who sold it to the plaintiffs. 

During the proceedings, one of the issues to be tried was whether the defendant's conduct and representations amounted to a rescission of the contract of sale. 

Holding
It was held that the contract was voidable because of the fraudulent misrepresentation and the owner had done everything he could in the circumstances to avoid the contract. 

As it had been avoided before the sale to the third party, no title was passed to them and the owner could reclaim the car.

 

Long v Lloyd [1958]

Facts

The defendant advertised for sale, a lorry, as being in 'exceptional condition' and he told the plaintiff purchaser that it did 11 miles to the gallon and after a trial run, all that was wrong with the vehicle. 

The plaintiff purchased the lorry and two days later, on a short run. 
Further faults developed and the plaintiff noticed that it did only about 5 miles to the gallon. 

That evening, he reported these things to the defendant and the plaintiff accepted the defendant's offer to pay for some of the repairs. 

The next day, the lorry set out on a longer journey and broke down.
The plaintiff wrote to the defendant asking for the return of his money. The lorry had not been in a roadworthy condition, but the defendant's representations concerning it had been honestly made. 

Holding
The Court of Appeal held that the plaintiff was not entitled to rescission of the contract as he had finally accepted the lorry before he had purported to rescind. 

The second journey amounted to affirmation of the contract.

 

Leaf v International Galleries [1950]

Facts

The plaintiff bought a painting after an innocent misrepresentation was made to him that it was by 'J. Constable'. 

He did not discover this until five years later and claimed rescission immediately.

Holding
The Court of Appeal held that the plaintiff had lost his right to rescind after such a period of time; delay defeats equity.

His only remedy after that length of time was for damages only, a claim which he had not brought before the court.

 

Armstrong v Jackson [1917]

Facts

A broker purported to buy shares for a client, but in fact sold his own shares to the client. 

Five years later, when the shares had fallen in value from nearly £3 to 5s, it was held that the client could rescind on account of the broker's breach of duty. 

He still had the identical shares and was able to return them, together with the dividends he had received. 

Holding
McCardie J. said:

"It is only... where the plaintiff has sustained loss by the inferiority of the subject-matter or a substantial fall in its value that he will desire to exert his power of rescission...
If mere deterioration of the subject-matter negatived the right to rescind, the doctrine of rescission would become a vain thing."

(B) INDEMNITY

Whittington v Seale-Hayne (1900)

Facts

The plaintiffs bred poultry and were induced to enter into a lease of property belonging to the defendants by an oral representation that the premises were in a sanitary condition. 

In fact the water supply was poisoned and the manager fell ill and the stock died. 

The terms of the lease required the plaintiffs to pay rent to the defendants and rates to the local authority and they were also obliged to make certain repairs ordered by the local council.
 
Holding
Farwell J rescinded the lease  and held that the plaintiffs could recover the rents, rates and repairs under the covenants in the lease but nothing more. 

They could not recover removal expenses and consequential loss (ie, loss of profits, value of lost stock and medical expenses) as these did not arise from obligations imposed by the lease (the contract did not require the farm to be used as a poultry farm). 

Had they been awarded, they would have amounted to an award of damages (ie, expenses resulting from the running of the poultry farm).

(C) DAMAGES

Doyle v Olby (Ironmongers) Ltd

Facts

After buying an ironmonger's business, things turned out to be very different from what the vendors had led the plaintiff to believe. 

Holding
He was awarded damages for fraudulent misrepresentations and the appeal concerned, among other things, the measure of damages. 

Lord Denning MR said that: "The defendant is bound to make reparation for all the actual damage directly flowing from the fraudulent inducement... It does not lie in the mouth of the fraudulent person to say that they could not have been reasonably foreseen."

 

East v Maurer [1991] 2

Facts

The defendant who owned two hair salons agreed to sell one to the plaintiffs. They were induced to buy, in part by a representation from the defendant that he hoped in future to work abroad and that he did not intend to work in the second salon. 

In fact, the defendant continued to work at the second salon and many of his clients followed him. 

The result of this was that the plaintiffs saw a steady fall-off in business and never made a profit. They were finally forced to sell for considerably less than they paid. 

Holding
The court at first instance found that the defendant's representations were false. The defendant appealed on the assessment of the award of damages.

The Court of Appeal held that the proper approach was to assess the profit the plaintiff might have made had the defendant not made the representation(s). 

'Reparation for all actual damage' as indicated by Lord Denning in Doyle v Olby would include loss of profits. The assessment of profits was however, to be on a tortious basis, that is, placing the plaintiff in the same position he would have been in, had the wrong not been committed.

The plaintiff could recover damages in respect of another such business in which he would have invested his money if the representation had been made, but not the profits which he would have made out of the defendant's business, if the representation relating to it had been true.

 

Royscott Trust Ltd v Rogerson

Facts

A car dealer induced a finance company to enter into a hire-purchase agreement by mistakenly misrepresenting the amount of the deposit paid by the customer, who later defaulted and sold the car to a third party. 

The finance company sued the car dealer for innocent misrepresentation and claimed damages.

Holding
The Court of Appeal held that the dealer was liable to the finance company for the balance due under the agreement plus interest on the ground that the plain words of the subsection required the court to apply the deceit rule. 

Under this rule the dealer was liable for all the losses suffered by the finance company even if those losses were unforeseeable, provided that they were not otherwise too remote. 

It was in any event a foreseeable event that a customer buying a car on HP might dishonestly sell the car.

Thank you for reading. I hope you have learnt a few things.

In my next write up, I shall move on to the other ways by which a contract may be terminated asides from misrepresentation.