The Law on Mistake - Essay Example

? CONTRACT LAW Institute The issue in respect of this question requires an analysis on mistake and the effect of such mistake. The law on mistake would be discussed and related to the facts and a conclusion drawn accordingly. The first and foremost type of mistake is that of common mistake whereby a common mistake is existent amongst both parties or in other words the parties enter into a contract on a fundamental mistake. In respect of such mistake the courts may set aside the contract. (Bell v. Lever Brothers Ltd.)1. The proposition that stands is the fact that mistake must be fundamental so as to allow the party to set aside the contract and these would be evaluated on the background of each case. The facts at hand clearly do not point to common mistake. The mistake that is relevant in respect of the facts is one whereby consent is negative because one party is under a mistake. As Professor Goodhart (1941) states ‘there is no breach of the law of contract which is more uncertain and difficult than that which is concerned with the effect of mistake on the formation of a contract’. In respect of the facts at hand the mistake that is relevant is the one of identity of the other contracting party. Generally the identity of the other party is immaterial. In respect of the claims of ES against the third party an action under tort can be brought about whereby the English Law principle of nemo dat quad non habet (you cannot give what you do not have) would apply and if the person who sold the goods to the third party does not own any right to them then such goods have to be returned. As far as ES and IE are concerned under contract if there has been an assumption of false identity then a claim of fraud can also be made against the rogue. Fraudulent misrepresentation in this respect would lead to the contract being held voidable. Thus if there has been a mistake as to identity of the person who was under such mistaken belief can argue that the contract b set aside on the basis that the contract was entered into on the basis of mistake and thus is void tthereby having no legal effects whatsoever. Thus mistake is a better option as compared to fraud (Lord Nicholls in Shogun Finance Ltd. v. Hudson 2. In respect of mistake as to identity there is necessity to distinguish between contracts that have been entered into orally and those that have been entered into in writing. After the decision of Shogun the courts have found that where the dealing between the parties is fact to fact, there is a presumption in law that the parties intend on dealing with each other. Thus mistake as to true name would not be a sufficient reason. In respect of contracts in writing, the names of the parties bear greater significance because of the need for certainty in respect of written contract. Thus Lord Nicholls in Shogun stated that ‘there is no magic attaching to a misrepresentation made in writing rather than by word of mouth’. The reason for the difference in oral and contracts in writing is because of the fact that the innocent party would be unaware of who is standing in front of him when entering into the contract orally. The courts have therefore been given authority to determine the intention of the parties based on the documents and without any presumptions to such intentional. An important decision in respect of written contracts is the House of Lords in Cundy v. Lindsay3 whereby a dishonest person by giving wrong address and name of company dealt with an innocent party. The court deciding in favour of the claimants stated the reasoning that the order form had been signed with incorrect name and the claimants were aware of the name of the firm and had the intention of dealing with them. However, the courts in King’s Norton Metal Co. v. Edridge Merrett and Co. Ltd.4 held that where letters had been sent by a rogue the claimant purported to deal with the person sending the letter and not the company. The main distinction between the two earlier cited authorities is that in the latter no awareness of the company existed. In accordance with the law stated above it can be argued that ES wanted to deal with IE as they were the sender of the letters, however, it can be argued that ES was aware of the company IES, wanted to deal with them and therefore the contract was void. Even if the contract is held void the rights of third party being affected would also be taken into consideration and on the facts the goods would be returned to ES. The courts have at times held oral contract for mistake to be voidable. (Phillips v. Brooks)5. An important case where it was held that the claimants wanted to deal with the person in particular was a voidable contract is that of Ingram v. Little6. A contrary view was adopted in Lewis v Averay7 where it was held that the person standing in front of the claimant was the person with whom the claimant wanted to deal with. In lieu of the facts if it is proved that ES wanted to enter into a contract with IE ‘s managing director then if such a claim is false the contract would be voidable. However, in respect of the current situation it cannot be said that ES wanted to deal with IES and thus the contract would be found to be valid. 2. Exclusion clauses in respect of English law have been defined as clauses which tend to limit the liability or completely exclude any liability of the [arty to the contract that incorporates such clauses within the contract. Under section 2 of the Unfair Contract Terms Act 1977 any exclusion of liability for negligence would not be upheld. There were problems in respect of duty defining clauses as provided for under s.13, the scope of which was discussed in Smith v. Eric S Bush8 whereby it was stated that the Act subjected to regulation ‘all exclusion notices which would in common law provide a defence to an action for negligence’ The Act tends to regulate exclusion or restriction of liability for breach of contract and this is dealt by section 3 which applies to two types of contract, the first one being that where one party dealing is a customer as defined in section 12 and the other where a party deals .. on the other’s written standard terms of business. Section 4 of the Act tends to deal with indemnity clauses in respect of contract. The Act also tends to cover attemps to exclude the Act itself. The most important point in respect of the act is that of the reasonableness terst as provided in section 11(1) whereby reasonableness of a clause is determined. There are certain contracts to which UCTA does not apply which include contracts of insurance or transfer of an interest in land. 3. The issue requires an investigation of the purpose or the reason for awarding damages for breach of a contract. The important reason for damages being awarded is recompense claimant for loss as a result of defendant’s breach of contract, thus the aim is not of punishment. Compensation can be claimed on various grounds. Firstly there is the way whereby the claimant’s ‘expectation interest’ is sheltered that is the defendant in breach of his promise to execute his contractual responsibility and claimant’s expectations of such performance and thus the claimant should be allowed to claim for his dissatisfied expectations thereby bring back the claimant to the situation he would have been had the assurance been performed. Parke B, in Robinson v. Harman9 demonstrated the principle. The main reason for giving way an award under the expectation interest is the actuality that an obligatory promise resultantly creates an expectation as to performance and the remedy just tends to protect or accomplish such expectation. However, in esteem of the damages of expectation interest, that is the recognition and measurement of loss. The general proposition that is that pecuniary loss and the financial position is taken into description when such damages are being granted. This can be seen from the case of White Arrow Express Ltd. v. Lamey’s Distribution Ltd.10 where Lord Bingham MR, interpreted that the Robinson ‘formulation assumes that the breach has injured [the claimant’s] financial position; if he cannot show that it has, he will recover nominal damages only’. The conditions of the contract have also been taken into account .There can be complicatedness when the contract had been entered devoid of the aim of making a profit. However, the courts have stated that ‘the law must cater for those occasions where the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure’ (Lord Mustill in Ruxley Electronics and Construction Ltd v. Forsyth)11. The second problem is the measuring of damages. The two measures that would possibly reinstate the claimant to his original position are an order of the payment of the difference in value that he has been paid and the value that he was actually supposed to receive and the cost of putting him in the position of the contract having been fully performed. The different result that these measures can have can be seen by looking into the decision of Ruxley The second way of claim is by the ‘reliance interest’ which tends to state that because of the reliance that the claimant entered into the contract on the basis of reliance on the defendant’s promise to fulfill his obligations and thereby acted to his detriment by entering into the said contract, he should be compensated by way of damages for the reliance placed on such promise. The intent here is to restore the claimant back to the position where he had been before the promise had been made. The general rule in respect of the reliance interest can be found in the case of CCC Films (London) Ltd. v. Impact Quadrant Films Ltd.12 There are a number of factors which are also taken into account when granting the expectation interest one of them is the duty of the claimant to mitigate his loss. The final way is where the claimant claims his restitution interest to be protected. This is where the claimant asks the defendant to be removed of the gain that he has made as a result of the claimant’s expense. A person can claim a restitutionary remedy if he can show enrichment and prove that this had been done at his expense and therefore if such restitution is not allowed then it would be unjust on the claimant. There are two grounds upon which such interest may be claimed if there has been a breach of contract. The first one being that there had been a benefit that had been conferred upon the defendant by the claimant in order to perform the contract and such has failed because of the failure of the defendant to perform the contract and therefore breach of the contract. However, it is pertinent to mention that it has been said that restitutionary claim cannot be referred to where there is a valid contract which is existent and governs the remedies that are to be provided. Thus for this restitutionary claim it is necessary that there has been a total failure of consideration on the part of the defendant and thus if partial consideration is found or a minimal extent is found then there can be no restitutionary claim (Whincup v. Hughes)13. White Arrow also distinguished between partial and total failure of consideration. The approach of courts to allow claims in respect of total failure has been criticized by lawyer. Furthermore, the courts have at times arbitrary when deciding upon the fact of total consideration. The courts have now moved in a direction away from the total failure of consideration (Gover v. Chilcott)14. McKendrick suggests that the law should adjust so as to allow claims in respect of restitutionary claim for partial failure of consideration. Difficulties also tend to arise where the return is not for money but is for goods. There is sufficient clarity on the point that where termination of contract has occurred because of the fact that the defendant had been in breach of the contract then there is claim of either restitution or proceeding in contract. The second way of claim under restitution is where the defendant has enriched by way of breach of contract and has therefore got an unjust benefit. Causation has also been said to be an important because without a causal link being established the claimant cannot in any way recover the amount that he is claiming under the breach of contract. (London Joint Stock Bank v. Macmillan)15. Thus if the act of the claimant is found to be so unreasonable that it breaks the chin of causation then the claimant would not be entitled to claim damages in respect of his claim against the defendant. Finally the assessment of damages is generally undertaken by placing reference on the market value in respect of the contractual promised performance. Consumer surplus has been at times given, there can be damages for mental distress as well. The main purpose has therefore been divided into three distinct groups of interests that can be claimed by a party, but it is important to understand that the approach that has been used is to restore the claimant to a position he would have been had contract been performed. Another way of putting this would be that the purpose of damages has been differentiated on the basis of the interest that have been claimed References MACKENDRICK, E. (2009). Contract law. Basingstoke, Palgrave Macmillan. POOLE, J. (2001). Textbook on contract. London, Blackstone TREITEL, G. (2007). Treitel on the law of contract. [S.l.], Sweet And Maxwell ELLIOTT, C., & QUINN, F. (2007). Contract law. Harlow (England), Pearson Longman ATIYAH, P. S., & SMITH, S. A. (2006). Atiyah's introduction to the law of contract. Oxford [u.a.], Clarendon Press. POOLE, J. (2006). Casebook on contract law. 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