proper negotiation- mistake and misrepresentation

what is meant by a mistake

where one or more parties enter into a contract based on a false assumption- contract is considered defective.

what is meant by misrepresentation

A misrepresentation is a false statement of fact made that has the result of inducing the other party to enter a contract. If a misrepresentation is shown to have occurred, the effect will be that the contract becomes voidable. This means that the party who was induced into the contract as a result of the misrepresentation may choose to rescind the contract, but does not necessarily have to.

what happens if there is a mistake in the contract

void- can no longer sue as contract no longer exists.

what is a mutual mistake

both parties are mistaken about different aspects of the contract.

what is a common mistake

both parties are mistaken about the same thing

what is a unilateral mistake

one party is mistaken and the other party knows about the mistake.

what is a quality mistake

person is mistaken about the identity of subject matter. Could be a fraudster. Quality mistakes are not operative mistakes – contract valid

what is an identity mistake

are operative mistakes – contract void. Believes the goods/person are trustworthy. Having a false understanding of the product/goods

describe the case of Ingram v Little

found identity mistake for a face to face contract. Three ladies advertised for sale of their car and a man said he wanted to purchase the car. They asked him for some details, they declined offer of a cheque. He told them he was a respectable gentlemen but ladies did not believe this.  They checked if he was telling the truth about here he lived and it seemed to be true. They then accepted his offer. Cheque was worthless and the man sold the car to an innocent third party. The ladies sued the innocent third party – they thought he was someone he was not. The court agreed with the ladies- they took many steps to try and identify who the man was. The third party paid the ladies back.

describe the case of Philip v Brooks

Brooks goes into Philips jewellery shop: offers to pay by cheque. Claims to be a well known individual and gives his address. Only takes a ring- to try and secure trust. Philips sues brooks- Philips made a mistake about who he was selling to. Court rejected Philips statements about identity mistakes.

describe the case of the great peace

no such thing as equitable mistake. Defendant hired ship called great peace for five days. Entered into contract based on false representation- both believed it was 35 miles away from distressed ship, it was actually 400 miles away. Distress ship party cancelled great peace ship but the contract was still seen as valid as great peace could still have come and saved distressed ship.

give an example of an equitable mistake

 landlord and tenant entered into a contract. Both under the false assumption that there was no limit to how much the landlord could rent a property for. (instead of contract becoming void, court can modify contract

what is a statement

any form of communication that conveys info of facts to other party. Either spoken or written. It cannot rely on future predictions. For law to intervene, statement has to be serious enough to be treated with legal consequences

describe the case of Spice girls v Aprilia World Service

entered into a deal for a brand of scooters. Did not disclose that the spice girls were breaking up- misrepresentation.

describe the case of Bissett v Wilkinson

sale of land. Buyer was interested in livestock- told that land could accommodate up to 2000 sheep. Statement of fact or opinion? It was known to buyer that the seller did not have any experience in sheep faming- was merely making an educated guess. held it was not misrepresentation as it was merely an opinion

describe the case of Smith v land and house property corp

seller said the building has the most desirable tenant- what does this mean? Court found that this implied the financial and suitability of the tenant- misleading client to make them buy the property. held it was misrepresentation as Smith knew the actual position of the tenant whereas the buyer did not

describe the case of With v O’Flanagan

sale of medical practise- seller told buyer the amount of money medical practise earnt a month. Doctor fell ill so less patients came- money started to decrease. When contract was going ahead, doctor did it update buyer about the change in patients and therefore income. Court found that the failure to update the buyer constituted to a misrepresentation. Although statement was true at time, the doctor did not update the buyer when this changed.

what are the rules of misrepresentation

·       Misrepresentation must be material

·       Knowledge of representee

·       Representor must have intention that other party will act on their intentions

·       Actual reliance- client must rely on statement to successfully induce statement

describe the case of Edington v Fitzmaurice

inducement and the state of mind as fact. Company issued a prospectus to offer shares to expand the business. However, the company was under financial stress and they were planning on using money to pay off debt. Court said this was a statement of fact- lying about the future.

The court held that the misstatement of the reasoning behind issuing the debentures was a material misstatement of fact and that the plaintiff had been influenced by this statement

what is fraudulent misrepresentation

need misrepresentation, need statement to be fraudulent, need representor who makes statement to have intention to persuade other party to buy, needs inducement and loss suffered.

a deliberate or reckless false statement intended to induce another party to enter into a contract, causing them to suffer a loss.

when does negligent statement occur

when person genuinely believes statement is true even though it is not, but when realised, person does not take steps to notify other party

describe the case of Raffles v. Wichelhaus (1864)

The complainant, Mr Raffles, offered to sell an amount of Surat cotton to the defendant, Mr Wichelhaus. This Surat cotton would be brought to Liverpool by a ship from Bombay, India. This ship was called the Peerless, but there were two ships that had this name. The complainant and the defendant were both thinking about a different Peerless ship when they agreed to make the sale. One of the ships was due to leave Bombay in October, which was what the defendant had thought for his Surat cotton delivery, but the complainant was referring to the ship that was to leave in December. When the Surat cotton arrived in Liverpool, Mr Wichelhaus refused to pay, as in his mind, it was months late.

It was held that the contract between the complainant and defendant was not enforceable. When the contract was being discussed, there was ambiguity in the Peerless and what ship was being referred to, as well as no agreement on the terms on the sale. There had been no consensus ad idem or meeting of the minds between the parties to form a binding contract. The objective test made it clear that a reasonable person would not have been able to identify with certainty what ship had been agreed on.

describe the case of Couturier v. Hastie (1856)

The seller had a cargo of corn shipped from Greece for delivery to London. He then hired an agent. The agent agreed to sell that corn to a buyer, under a FOB contract. However, none of the parties were aware that just before they entered into the contract, the ship had overheated on the journey. The corn was damaged, so the ship berthed at a port in Tunis and sold it to a third-party. When the buyer discovered this, he repudiated the contract.

The seller sued the agent for the purchase price of the corn. The agent argued that he was not liable because he had never entered into a valid contract with the buyer. This was because the subject matter (corn) of the agreement between the agent and the buyer did not exist at the time of contracting

The Court held in favour of the agent. The agreement between the agent and the buyer presumed that there was a cargo on board the relevant ship which still existed. Since the cargo had ceased to exist prior to the agreement, there was no valid contract.

describe the case of Hartog v. Colin & Shields [1939]

The defendants, Colin and Shields, were hide merchants that were based in London. The complainant, Hartog, was a furrier from Belgium. The defendants entered into an oral agreement with the complainant to sell him 30,000 Argentinian hare skins and this would be at a price of 10d per skin. However, the defendant made a mistake on their written agreement that said they would sell the complainant 30,000 hare skins at 10d per pound. This would mean that the price difference was one third cheaper for the complainant than had previously been agreed. Hartog accepted this offer, but the defendants refused to fulfil contract.

It was held that there was no contract between the complainant and the defendant. Any contract would be void by the mistake of the hare skin price; the complainant would have known that it was normally sold per piece and not by pound. The court said that there is a duty to correct a mistake that is known to not be the real intention of the person making it. You cannot simply take advantage and ‘snap up’ the offer.