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Doctrine of Mistake in Common Law - Case Study Example

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This piece is looking at the doctrine of mistake in common law and support Ewan McKendrick 's position that the Great Peace Shipping v Tsavliris Salvage Ltd1 case has reduced the doctrine of mistake to a vanishing point.
Caveat emptor ("let the buyer beware") is the basic underlying principle in the law of contract…
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Doctrine of Mistake in Common Law
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Download file to see previous pages In some other cases even when the contract is valid in law, it may be rendered voidable in equity on the ground of mistake.
The general thinking used to be that mistakes could not be operative in law until in case of Kleinwort Benson v Liverpool City Council3 when the House of Lords declared that this rule is not part of English law. Treitel4 has considered the laws relating to mistake under five headings: Common Mistake; Mutual Mistake; Unilateral Mistake; Mistake as to Identity; Mistake Relating to Documents.
While commentators are not agreed as to the classifications of Mistake, Treitel5 in his book; The Laws of contract, 11th edition, deals with Mistake by contrasting Mistake nullifying consent (Parties reach agreement which is based on a fundamental mistaken assumption) with Mistake negativing consent (Where mistake prevents the parties from reaching an agreement e.g. where they intend to contract about different things).
Some commentators have gone on to divide mistake into two parts, that is, common mistake shared by the parties, and mistake in communication. In a common mistake shared by both parties, although both parties apparently in agreement, have entered into the contract on the basis of a false and fundamental assumption. It is called common mistake since both parties make the same mistake. The contract is not necessarily void at law in these circumstances.
In the case In the case of Bell v Lever Brothers Ltd.6, definition of common mistake in contract law was made. During March of 1929 the Niger Company, which dealt in trade in the western African area, was merging with a rival company and wanted to get rid of two employees Mr. Bell and Mr. Snelling, who were hired as chairman and vice-chairman of the company. Chairman D'Arcy Cooper on behalf of Lever Brothers7 made a deal with Bell and Snelling to leave the company in exchange for a sizable compensation (a "Golden handshake8"). At the time of the agreement both parties believed that the employment contract had not been breached and thus the company would not have been able to terminate Bell and Snellings' employment under any other circumstances. It was later revealed that there was in fact grounds for termination at the time of the agreement as Bell and Snelling had used their positions to make a secret profit for themselves.
Lever brought an action claiming recission of the compensation agreement because of mistake of fact.
At trial the jury found that Bell and Snelling's illicit dealings breached the employment contract and that if the Lever Brothers had known they would not have entered into the agreement. Furthermore, the jury found that at the time of the agreement Bell and Snelling did not have in mind their illicit acts.
Lever Brothers pursued the case vigorously as it considered the behavior of Bell and Snelling simply unacceptable. To appreciate this legal battle you have to understand the background of the personalities involved. Francis D'Arcy Cooper - a senior partner with his uncle's accountancy firm Cooper Brothers and staunch Quaker9 - became chairman of audit client Lever Brothers in the early 1920s. He was hired by Lord Leverhulme10 when the banks were threatening to call the loans on the company due to devastating losses incurred by the newly acquired Niger Company that crippled Lever Brothers. Cooper arranged financing from Barclays Bank under the ...Download file to see next pagesRead More
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