Chapter 17 Outline answers to end-of-chapter questions


1. ‘The current position on mistake as to identity fails to strike an adequate balance between the rights of the innocent seller (who sold goods to a fraudster) and the interests of an innocent third party to whom the goods were resold (by the fraudster).’

With reference to the case law, assess the accuracy of the statement above.

Introduce the subject of the question as the exceptional law on mistake as to identity. Explain that it is necessary to explain the effect of such a mistake and the wider context of why it is exceptional because doing so provides the backdrop for the cases. That will be followed by key cases forming the basis of the current position in order to assess the balance reflected.

The starting point is to briefly explain the general rule from Smith v Hughes (1871) and why finding no agreement on the basis of a mistake as to who the other party is, is exceptional. For context, refer to the basic scenario for mistake as to identity and how the contract is void from the start to highlight the severity of principle when it applies.

Now turn to the case law starting with Cundy v Lindsay (1878) on written correspondence and King’s Norton Metal v Edridge (1897).

Contrast this approach with that of face-to-face transactions (Phillips v Brooks [1919] and Lewis v Averay [1972]). Provide the criticism of the position on such transactions with reference to Devlin LJ’s view in Ingram v Little [1961] on the effect on the innocent buyer being unfairly dictated by the original seller; and, the Law Reform Committee on the preference for the contracts in identity cases to be voidable for fraud.

Also, raise the question about the artificiality of the distinction between face-to-face transactions and those via correspondence. Again, relate it to the potential imbalance between the innocent parties.

The House of Lords had the opportunity to improve the position in the leading case of Shogun Finance v Hudson [2003]. Explain the case, the decision and reasoning. Explain how Lord Hobhouse viewed the presumption on face-to-face transactions and the importance of certainty resulting from retaining the distinction on the type of transaction and the importance of what is written.

Now, introduce the further criticism using the dissenting judgments. These preferred to overrule Cundy v Lindsey so that the rule on face-to-face transactions would apply to all forms of communication. They aligned issues of identity with fraudulent misrepresentation so that there would not be a distinction drawn between attributes and identity. It also provides a solution to the uncertainty associated with modern forms of communication like video calls.

Finally, conclude with a direct reference to the question. This might include some comments on the imbalance being retained i.e. the innocent seller who is partly at fault succeeds at the expense of the wholly innocent buyer whereas treating all of the cases as instances of fraud provides a fairer balance based on the timing of rescission.

2. Critically evaluate the extent to which a party can rely on common mistake to render a contract void.

Introduce you answer by defining common mistake; the basis for its effect, and state your approach i.e. that it is necessary to examine the requirements that have developed from the cases and the extent to which they restrict the scope of the principle.

As a starting point for the main body acknowledge the leading case as Bell v Lever Bros [1932] as the only case from the highest authority, and that the requirements clarified by later cases have been developed from interpreting this case. Also, the link and comparison with frustration in the most significant recent case, Great Peace Shipping v Tsavliris Salvage (The Great Peace) [2002]

At this stage, you can address the requirements from Lord Phillips MR in The Great Peace in turn with the any relevant case law.

Perhaps take the most obvious requirement, there must be a common assumption as to the existence of a state of affairs. Explain it based on the points from The Great Peace.  It is useful to refer to Triple Seven v Azman Air Services [2018] (on the grounds and assumption having to be fundamental).

For a second related requirement, explain how the non-existence of the state of affairs must make performance impossible (or radically different).

On this you can explore a little on the language of Lord Phillips MR in The Great Peace on the ‘essence of the obligation’ being impossible; Steyn J in Associated Japanese Bank v Credit du Nord [1989] using ‘essential and radical difference’; and the way it was explained in Triple Seven, particularly the comparison with frustration.

The policy and the need for the assumption to be fundamental can be explored as a key limiting factor using a reference to the comment by Steyn J in Associated Japanese Bank, on the ‘respect for the sanctity of contract’, a point reflected in the cases including Bell v Lever Bros. Also, the point from The Great Peace that common mistake is more exceptional than frustration which shows the limited scope of the doctrine.

Briefly address the grounds as examples of these requirements being applied. Mistake about the existence of the subject matter of the contract (Couturier v Hastie (1856); Griffith v Brymer (1903)); mistake as to title or ownership (Cooper v Phibbs (1867)); the position on common mistake as to quality from Bell v Lever Bros., but how it is not impossible (Associated Japanese Bank). The Great Peace is useful here as an example and indicates the question of whether the mistake as to a quality is enough to make the contract impossible (or ‘essentially’ different’). Clearly a restrictive approach is adopted but contrast your criticism with the need to distinguish from a bad bargain.

Address the other limits - the risk of the non-existence must not have been accepted by one of the parties (William Sindle v Cambridge CC [1994]; McRae v Commonwealth Disposals (1951) and the The Great Peace).

The last limit is in relation to the fault of the parties (McRae v Commonwealth Disposals).

Finally, conclude with a direct reference to the question. This should emphasise how exceptional common mistake is, but then perhaps justify it with a view to the policy factors relating to the sanctity of the contract which also links to commercial certainty for third parties and the point about bad bargains.

3. Jerzy owns a business producing fancy dress costumes based on films and books. He is visited by a con artist called Kelly Chase who introduces herself as Leeta van Themaat, the Regional Purchasing Manager of Waitbury’s, a well-known large supermarket chain. She negotiates the purchase of 1000 costumes from Jerzy’s ‘Roald Dahl’ collection at a total price of £5,000, to be formalised later. Later that day, an email arrives with an attached Waitbury’s contract, with terms indicating that payment will be made within a week of receiving the goods with an invoice. Jerzy signs and returns the document before arranging for delivery to the address of the regional Waitbury’s warehouse indicated in the contract. A week after delivering the goods, Jerzy has not received any payment and visits the office at the warehouse only to discover an empty building. He then discovers his goods were sold to a local fancy dress shop. Realising that he has been the victim of fraud, Jerzy now wants his goods returned. Advise Jerzy.

Introduce your answer by identifying that the scenario is concerned with law relating to unilateral mistake, specifically mistake as to identity, and explain the effect of a successful action i.e. the return of the costumes. Alternatively, if the contract is simply voidable for fraud then (assuming the buyer is an innocent buyer) they will be able to retain the goods since they were bought before Jerzy could have rescinded his contract of sale. Acknowledge your approach- that the relevant cases will be addressed and applied in turn.

Start the main body with reference to the rule on face-to-face transactions Phillips v Brooks [1919] and Lewis v Averay [1972] and mention the different outcome in Ingram v Little [1961].

Apply it here to the initial meeting with Kelly posing as the regional manager, this works in favour of the fancy dress shop (buyer).

Now, explain the position with written correspondence and the rule from Cundy v Lindsay (1878). Also explain that it was supported by the leading case of Shogun Finance v Hudson [2003]. It can be contrasted with King’s Norton Metal v Edridge (1897).

Apply the reasoning of the cases and distinguish the facts from Kings’ Norton on the basis that Waitbury’s exists.

Whether this is a case of a face-to-face contract or not will dictate the outcome. At this point, provide a summary of Shogan Finance which concerned the fraudster who appeared in the showroom but also signed forms to acquire the financing from the separate finance company.

Acknowledge the importance attached to the function of the written document. It was for a credit check and so identity was fundamental enough for the contract to be for the person the fraudster pretended to be.

Also, address how the oral evidence (intending to contract with the fraudster at the showroom) could not be used to contradict what was represented in writing. Furthermore, it was made clear that the starting point should have been the written contract not the earlier oral statements.

A further point is the fact that the face-to-face aspect was not with the finance company, the other party to the contract.

Apply it all to Jerzy’s position. This can be based on the starting point of the contractual document that was completed at a distance in writing, rather than face-to-face. Jerzy would clearly rely on this is avoid the presumption arising from a face-to-face transaction.

On the other hand, the nature of the written document as a basis for a credit check made identity very important. The same could not be said here. However, it might be suggested that it is difficult to distinguish from the importance of identity on these facts and those of Cundy.

Finally, conclude on the likelihood of the contract being void for mistake. This could refer to it being fairly likely given the primacy of what is written.

4. (a) Hotel Zheng contracts with Ellen’s Patisserie for the weekly supply of 500 cupcakes topped with buttercream made using butter from the famous Dave’s Organic Dairy (DOD). Unknown to both parties, DOD ceased trading shortly before the contract was entered. Following Ellen’s failure to supply the cupcakes using the ‘DOD’ buttercream, Hotel Zheng claims damages from Ellen. Advise Ellen.

(b) Eco-Building is building company specialising in the building of eco-friendly homes. They enter a contract to build 2000 homes for Green holdings on a plot of land recently acquired by Green Holdings. Their negotiations started because of the Government policy of providing Eco-grants to builders. These grants were for £15,000 per house build to pay towards solar panels and air compressor units for heating. Unknown to the parties, two days before signing their contract, the Government formally revokes the building grants. Eco-Building now refuses to carry out the building work because of the unexpected increase in costs. Advise Eco-Building.

Introduce you answer by identifying that it concerns common mistake. Explain what is meant by the term and that if successful, the contracts would be void. Also refer to your approach - that you will address and apply the relevant issues in turn, but that general principles explained in part (a) are applicable to part (b).

a) Introduce this part by explaining why common mistake would mean there is no contract to breach.

Acknowledge the leading case as Bell v Lever Bros [1932] as the only case from the House of Lords and that the requirements have been clarified by later cases.

The most obvious ground here is a mistake about the existence of the subject matter of the contract. On this explain Couturier v Hastie (1856) and Griffith v Brymer (1903).

However, the way common mistake is established is based on principles clarified in Great Peace Shipping v Tsavliris Salvage (The Great Peace) [2002] that you need to address.

There must be a common assumption as to the existence of a state of affairs. Explain it based on the points from The Great Peace and refer to Triple Seven v Azman Air Services [2018] on the grounds and assumption having to be fundamental.

Apply it to the scenario, question how fundamental the use of DOD butter was. This will ultimately turn on the construction of the contract. But also, was it a common assumption of just by the hotel?

Next, explain how the non-existence of the state of affairs must make performance impossible (or radically different).

Apply it here by questioning how different performance would be with butter not from DOD. Also, raise the question about whether it is performable in the absence of DOD. For example, could it be said that the butter could be acquired from other sources storing it. Explain that the extra expense would be irrelevant given the policy from the cases on bad bargains (Bell v Lever Bros. and The Great Peace).

Address the rules on the limit of accepting the risks from William Sindle v Cambridge CC [1994]; McRae v Commonwealth Disposals (1951) and The Great Peace, as well as the role of fault.

Apply these to acknowledge that if it could be said that the risks of DOD no longer existing were accepted then it rules out common mistake. Likewise, if either party was at fault.

Conclude this part of the answer with a comment on the whether the contract could be void for common mistake. It is possible, but it depends on the construction of the contract and the application of the principle is highly exceptional.

b) Introduce this part by explaining that Eco Building would be in breach for their refusal to perform unless the contract is void for common mistake.

Mention that common mistake and the requirements have been defined already in (a) but explain that the requirements of fundamental assumption and the difference in performance on the facts could apply to a mistake as to a quality.

Now, explain the leading cases of Bell v Lever Bros and The Great Peace on this ground in turn. Explain the quality issue in each one and the strict approach adopted i.e. the basis for rejecting the argument.

Apply the principles to facts. This would acknowledge the likelihood of the argument failing because it could be said that it is more of a bad bargain. Was the assumption fundamental for both parties or just the builders? Does it make performance fundamentally different? On these facts, it could be said that the assumption appears less important than the assumption in Bell v Lever Bros and even The Great Peace.

Conclude by commenting that it is more likely that the builders’ refusal to perform would amount to a breach.