Jim – issues relevant to discuss:
- equity unconscionability - Amadio case and West case ; legislation Contracts Review Act 1980 (NSW), ACL s20(1)
- Consider if there is unconsconability under the Amadio principles in equity. There would need to be a “specific disability” on the part of the weaker party and there has to be evident to the ‘stronger party’ in order for there to be unconscionability conduct. This could only be rebutted by the proof that the contract was ‘fair, just and reasonable’. In terms of Jim- does he have a special disability? Consider the possibility of gambling addiction (but if so this would not be sufficiently evident to the stronger without more being said. Eg. I lost money lasr week but I’ll win it back.)
- Blomley v Ryan ‘need of any kind’ – very broad. Might be argued. “lack of assistance”
– brother’s advice
- Emotional dependence may also be a factor Louth v Diprose Bridgewater - Revision would e a remedy and a defence to specific performance
- S20(1) – judge made law on unconscionability where there us a breach of this section.
Remedies under the ACL s232 injunction against selling property; s243 remedial order
Contracts Review Act – ACL v West where the lender has not engaged in the conduct that is unjust then there will be no remedy for an unconscionable act under the Contracts Review Act (McHugh J).
The directors not the lender engaged in unjust conduct. S6(2) will come within s9(2)(h) independent Seminar 13:
After a contract has been formed, one of the parties may discover that they have entered the contract under the influence of a mistake
This mistake may relate to the existence of significant facts that is, if the party had known of this they would not have entered the contract to begin with
In such cases, the consent of that party to be contractually bound may be described as impaired or vitiated by the mistake
Mistakes in the context of formation of contract are often induced by the misrepresentation or misleading conduct of the other party
Mistake – common law approach – potentially void
Law and Equity:
o As a general rule, parties to a contract can not avoid their contractual obligations by claiming that they entered a contract under the influence of a mistake
o However, when relief is given a contract is treated as voidable rather than void a voidable contract may or may not be set aside (rescinded)
o If a contract is rescinded, it would be done on the terms which aim at achieving fairness between the parties
Types of Mistakes:
Common mistake – occurs where the parties make the same mistake. That is, both parties enter the contract under the same mistaken belief that a particular state of affairs exists or that a particular underlying fact is correct
Mutual mistake – when the parties each misunderstood what the other meant. That is, the parties deal at cross purposes
Unilateral mistake – occurs when only one party is mistaken and the other party knows or ought to know of that mistake yet purports to proceed with the contract anyway under the test for Taylor v Johnson, for equity to intervene because it is “unconscionable” to allow the other party to benefit in the contract there must be:
- a written contract - serious mistake
- Knowledge of the mistake by the other party a - One more thing
McRae v Commonwealth Disposals Commission McRae v Commonwealth Disposals Commission (1951) 84 CLR 377
Facts Plaintiffs purchased a non-existent oil tanker from the Commonwealth
Disposals Commission.
The officers had made a “reckless and irresponsible” mistake in thinking they had a tanker to sell. They had relied on mere gossip.
The plaintiffs however had no reason to suspect this and had incurred considerable expense in fitting out a salvage expedition.
At trial, the judge held the contract to be void and therefore could not give rise to damages, but held that the defendants had made out their claim in deceit and awarded damages for this. This did not include the sum in respect of the salvage expedition, which his Honour held to be too remote a consequence of the deceit. The plaintiffs appealed.
Issues Dixon and Fullagar JJ
[CB-788] A party cannot rely on mutual mistake where the mistake consists of a belief that is, on the one hand, entertained by him without any reasonable ground, and, on the other hand deliberately induced by him in the mind of the other party.
There was a contract, and the Commission contracted that a tanker existed in the position specified.
Since there was no such tanker, there has been a breach of contract, and the plaintiffs are entitled to damages for that breach.
[CB-790] The practical substance of the case lies in three factors:
(1) The commission promised that there was a tanker at or near to the specified place
(2) In reliance on that promise the plaintiffs expended considerable sums of money
(3) There was in fact no tanker at or anywhere near to the specified place.
Outcome Ratio:
A party cannot be allowed to rely on a common mistake where the mistake consists of a belief which is entertained by him without any reasonable grounds for such belief
The appeal was allowed
Solle v Butcher [1950] 1 KB 671
Facts Butcher leased a flat to Solle for seven years at a rate of $250.
The flat had previously been rented at an annual rate of $140.
Both Butcher and Solle believed that because of extensive structural alterations to the premises the flat was a new one and was hence was not subject to rent control. This view was incorrect.
Unless notice of increase had been given to the tenant before lease was signed, the allowable rate was to be $140.
The trial judge found for Solle allowing for Solle to recover excess paid under the lease.
Butcher appealed.
Issues Denning LJ
[CB-801] Once a contract has been made, that is to say, once the parties, whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground.
Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake.
[CB-802] The court of equity would often relieve a party from the consequences of his own mistake so long as it could do so without injustice to third parties
It is now clear that a contract will be set aside if the mistake of the one party has been influenced by a material misrepresentation of the other, even though it was not fraudulent or fundamental, or if one party, knowing that the other is mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him remain under his delusion and concludes a contract on the mistaken terms instead of pointing out the mistake.
A contract is also liable in equity to be seat aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault
[CB-803] The practice has always been for a court of equity to give relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract.
Outcome Ratio:
A contract will not be considered if the mistake of one party has been influenced by a material misrepresentation of the other even if it was not fraudulent or fundamental
A contract will also be set aside if one party, knowing the other is mistaken about the terms of the offer, or the identity of the person by whom it is made lets him remain under his delusion and concludes a contract on the mistaken terms instead of clarifying the mistake
The appeal was allowed
Goldsbrough Mort & Co. Ltd v Quinn (1910)
Facts D - for consideration - gave P an option with regard to the purchase and lease of 2590 acres of land. The option was to last for one week. Before the expiry of that time, D repudiated the option, saying it had resulted from a mistake. P accepted the offer within the week. P sought specific performance of the sale. D claimed that the contract for sale was not complete and hence damages only were payable.
Issues This case considered the issue of mistake and irrevocable offers regarding the sale of land and whether or not a man could revoke an offer where that offer had been given for consideration.
HELD Griffith CJ
A mere promise to leave an offer open for a period of time is not enforceable - the promise without consideration is nudum pactum. But if there is consideration for the promise, it becomes binding. It is often said that "an option given for value is not revocable". The true principle is that an option is an offer to sell upon condition - a conditional contract. If the promise were only not to withdraw the offer ie an irrevocable offer, then a breach could be compensated for in damages [thus implying that there could be no specific performance of the sale].
HELD O'Connor J
The undertaking may be viewed as an agreement to sell subject to a condition subsequent - the acceptance by the other in the time provided for. Withdrawal of the undertaking is a breach - the remedy for which is damages or specific performance. Alternatively it may be viewed as an option for value, in which case the correct approach is to ignore a purported withdrawal before acceptance and treat it as still open for acceptance. From either view, there is nothing to prevent the party from obtaining specific performance of the sale.
HELD Isaacs J
He viewed the situation in terms of two contracts, the first of which requires the vendor to keep open the offer of the second contract to sell the land. The defendant is not entitled to breach the first contract merely by offering damages. The option is irrevocable and an attempt to withdraw it will be ignored. During the period of the option an injunction could be obtained preventing the sale to another. An acceptance turns the position of optionee to that of vendee. That has
been done here, so that specific performance of the original agreement is not only inappropriate but also unnecessary and impossible.
Outcome High Court held that the plaintiff’s construction of the option was correct therefore the defendant couldn’t rely on his construction
The defendant couldn’t rely oh his construction, he made a mistake and there was no legal significance
It was at best a unilateral mistake but not one to which th plaintiffs had contributed
Appeal was allowed
Taylor v Johnson (1983) 151 CLR 422
Facts Mrs Johnson granted an option to Mr Taylor or his nominee to purchase her land for a total price of $15,000.
She declined to perform the contract as she had believed the sale price to be $15,000 per acre.
The Taylors claimed specific performance and Mrs Johnson sought an order to set aside the contract.
On appeal, the Court found in favor of Mrs Johnson, holding that Mr Taylor believed that Mrs Johnson was probably mistaken as to what the option and contract stipulated as the price.
Mr Taylor appealed to the High Court.
Issues Mason ACJ, Murphy and Deane JJ
[CB-815] *It has been said that+ ‘a contract is void if one party to the contract enters into it under a serious mistake as to the content or existence of a fundamental term and the other party has knowledge of that mistake’.
According to the subjective theory, there is no binding contract either at common law or in equity, equity following the common law in this respect.
According to the objective theory, there is a contract that, in conformity with the common law, continues to be binding unless and until it is avoided in accordance with equitable principles, which take as their foundation a contract valid at common law but transform it so that it becomes voidable.
A clear trend in decided cases and academic writings has been to leave the objective theory in command of the field.
While mistake in Solle v Butcher was a mistake of fact which affected the operation of a formal written contract, it is plain that the above remarks of Denning LJ were intended to extend to a mistake as to the existence or content of an actual term of such a contract.
[CB-817] In the absence of fraud or misrepresentation, resort must be
had to equity to escape from the terms of a contract on the ground of unilateral mistake.
Neither party to a contract ‘can rely on his own mistake to say it was a nullity from the beginning’.
[CB-818] Our comment can, for present purposes, be limited in its application to the case where the second party has not materially altered his position and the rights of strangers have not intervened Outcome Ratio:
A party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension.
The appeal was dismissed
Unilateral Mistake as to Identity:
Where the parties are at a distance is that if one of the parties has pretended to be another person (with whom the other party had no intention to contract), there us no contract
Eg. If A makes an offer to B which is accepted by C, since C is not the offeree there is no contract
Here it must be established if the mistake was fundamental or not
When the situation is face to face presumption that each intends to contract with the person present. Hence, it needs to be considered if this presumption should be rebutted
Reliance on a fraudulent misrepresentation as to identity does not itself rebut the presumption
Cundy v Lindsay (1877–78) LR 3 App Cas 459
Facts Lindsay & Co were manufacturers of linen handkerchiefs, amongst other things. They received correspondence from a rogue named Blenkarn.
He had rented a room at 37 Wood Street, Cheapside, but purported to be 'Blenkiron & Co', with premises on 123 Wood Street.[4] Lindsay & Co knew of a business named as 'Blenkiron & Co', and knew them to be reputable and residing on the same road.
Under this guise, and the rogue's signing of his letters as 'Blenkiron &
Co', Lindsay & Co sold the rogue a large order of
handkerchiefs.[4] Blenkarn then sold the goods - 250 dozen linen handkerchiefs - to an innocent third party, Cundy, whom Lindsay & Co
sued for conversion of the goods.
Issues Lord Cairns L.C
His Lordship considered the case to turn on the simple question:
whether there was a contract between the plaintiff and the rogue. If yes, then property in the goods validly passed to the defendant, in spite of the fraud on grounds of which the contract may be later impeached. The evidence clearly demonstrated that the plaintiffs believed themselves to be dealing with, not the rogue Blenkarn, but the reputable firm, Blenkiron & Co. They never intended a contract with Blenkarn, "of him they knew nothing", and hence, there was no contract. "[T]here was no consensus of mind which could lead to any agreement or any contract whatever." Property remained with the plaintiff.
Lords Hatherly and Penzance agreed. Lord Gordon concurred.
Outcome Appeal was dismissed
Lewis v Averay [1972] 1 QB 198
Facts Lewis sold a motor car to a person who claimed to be Richard Green a well known actor. As proof, he showed a studio pass which had his name on it.
The student believed him and allowed him to purchase the car with a cheque that was later dishonored.
In the meantime the rogue sold the car to an innocent purchaser Averay.
Lewis claimed the car was still his and sued Averay for conversion.
The trial judge found awarded Lewis damages. Averay appealed.
Issues Lord Denning MR
[CB-820] The real question in the case is whether on 8 May 1969, there was a contract of sale under which the property in the car passed from Mr Lewis to the rogue.
[CB-821] There is no doubt that Mr Lewis was mistaken as to the identity of the person who handed him the cheque.
[CB-822] I think the true principle is this: When two parties have come to a contract – or rather what appears, on the face of it, to be a contract – the fact that one party is mistaken as to the identity of the other does not mean that there is no contract, or that the contract is a nullity and void from the beginning. It only means that the contract is voidable, that is, liable to be set aside at the instance of the mistaken person, so long as he does so before third parties in good faith acquired rights
under it.
The presumption in law is that there is a contract… under which the title will pass unless and until it is avoided.
Outcome The appeal was allowed
Documents Mistakenly Signed:
Two types of mistake –
1. First type relates to what the document says – if the requirements of the doctrine of
rectification are satisfied, the error in setting out the terms of the bargain in a document can be corrected
2. Second type related to the nature and effect of the document if the requirements of non est factum are satisfied, a party is entitled to deny that document was signed: the contract is void
Rectification:
Errors in setting out the terms of the bargain in a document can be corrected by an order for rectification. There are two key principles:
a) A document can be rectified if it purports to set out the terms of the contract but doesn’t accurately record the intention of the parties, provided there was a continuing common intention in relation to what the document should have said technique for applying this principle is to consider all the evidence to determine whether there was a common mistake of a kind to which the remedy is applicable
b) Rectification may be ordered for a unilateral mistake as to the terms of the document if the other party knew of the mistake at the time of the execution of the document technique for applying this is to determine whether the unmistaken party acted unconscionably
Pukallus v Cameron (1982) 180 CLR 447
Facts The Plaintiff [Pukallus, purchaser] was buying land off the Defendant
Facts The Plaintiff [Pukallus, purchaser] was buying land off the Defendant