Chapter Five: Written Documents 1 Unsigned Documents 1



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5. Mistake in Assumptions


  • 2 types of mistakes in assumptions:

  • Ones that render the contract VOID (common law): once parties have agreed with sufficient certainty in the same terms on the same subject matter K is good UNLESS there is failure of a fundamental condition or fraud or some equitable ground (this is Bell v Lever  don’t really care about it

  • Ones that render the contract VOIDABLE (equity) – TEST:

    • Is there an assumption? Can’t rely on mistake in assumption if there is NO assumption made:

      • If parties are indifferent as to an issue/make no assumption about it (e.g. Wood – neither party cared what the stone was – was not the basis for the K)

      • won’t be an assumption where the mistake consists of a belief which is: (1) entertained by the party without any reasonable ground; AND (2) deliberately induced by him in the mind of the other party (McRae – party was grossly negligent about whether the tank existed or not =/ assumption)

    • Does one party expressly or impliedly assume the risk? If yes, they must bear the consequence when that risk transpires (Miller Paving)

    • If NO, Solle Test

      • (1) were the parties under a common misapprehension as to facts?

      • (2) is the common misapprehension fundamental (is agreement predicated on assumption? Is it impossible to perform K?); and

      • (3) is the party seeking to set it aside not at fault themselves/are they blameless

        • includes being both equitably and legally blameless (Magee)


Bell v Lever Brother Ltd.

Solle v Butcher

What is this about


Facts: K = lease of apartment; alleged mistake is shared assumption by both parties that apartment was not subject to rent control legislation. P rented from D for years at a rent higher than permissible by rent control legislation, P claims sums overpaid and landlord tried to get out of K based on mistake in assumptions, says would not have rented it for that long had he known.

Issue: Can the D avoid the K on the basis of mistake in assumption?

Held: For the D  P can elect btw rescission or paying full rent – parties were under a mistake as to how the Rent Acts applied. 
Terms of the subject matter not in dispute; merely a mistake about the attribute/quality of the lease. Thus tenancy is not a nullity. 


Magee v Pennine Insurance Co.

What is this about


Facts: Magee got car insurance and signed a declaration that he was principal driver when in fact it was his 18 yr old son; there was an accident & Magee put in a claim, settlement offer was made by letter & accepted verbally but then insurance co became aware of truth about principal driver and said they were not liable & refused to pay; Magee brought action for settlement $ as contained in letter (agreement of compromise).

Issue: Can the settlement/agreement of compromise be set aside in equity?

Held: YES – it was a binding K of compromise b/c contained the words “in settlement of your claim”; the common mistake of both parties, even on a fundamental matter, does not make K void at law but rather voidable in equity; Here, K is liable to be set aside and should be set aside on basis that Magee had no valid claim under the insurance policy (it was induced by misrepresentation and insurance co was entitled to repudiate on these grounds) and so NOT equitable that he have a valid claim on the agreement to compromise b/c it was made on basis of fundamental mistake

Notes: broadens test in Solle have to be equitable blameless as well as legally blameless

Miller Paving Limited v B Gottardo Construction Ltd

What this is about


Facts: Miller Ks with Gottardo for materials to build a highway, in 2001 they sign an agreement in which Miller acknowledges that it has been paid in full for all materials; a month later Miller realizes it hasn’t been paid in full, renders another invoice but Gottardo refuses to pay, relying on the 2001 agreement

Issue: Can Miller rely on common mistake/misapprehension to set aside the 2001 agreement and get paid?

Held: NO – Court generally shits all over Great Peace saying to adopt it would be to lose the flexibility req’d to remedy unjust results that arise and can only be dealt with under the equitable doctrine of common mistake; BUT imports that consideration of whether the parties have provided for who bears the risk of the relevant mistake in deciding the matter; here, the K requires Miller to bear the consequence when the risk transpires b/c they assumed the risk that payment in full had not actually been made (implicitly by signing the settlement agreement).

Scout v Coulson

What is this about


Issue

Ratio

Notes






Sherwood v Walker

Mistakes that are based on categorical error regarding reality


Issue

Ratio

Notes



  • When something is a fundamental mistake of fact on basis of category there is a counter-argument that reality (categories) are socially constructive

  • Need a doctrine to prevent people from asserting mutual mistake when people just don’t care, when they haven’t done due diligence

McRae v Commonwealth Disposals Comm.

What is this about


Facts: Commonwealth K’d to sell McRae an oil tanker and it’s contents at a specific location; no tank was at the location indicated and the place didn’t even seem to exist; this type of sale at this time carried with it only a chance for the purchaser to make a profit (but not a certainty of incurring a loss)

Held: Commission can’t rely on any mistake to avoid the K because any mistake was induced by the serious fault of their own: a party cannot rely on mutual mistake where the mistake consists of a belief which is: (1) entertained by him without any reasonable ground; AND (2) deliberately induced by him in the mind of the other party [even if Commission had a real belief, they were grossly negligent – took no steps to verify]

Wood v Boynton

What is this about


Facts: Wood sold a rock to Boynton for $1; turns out it was a diamond worth around $1000; neither had any clue that rock was a diamond, their was some thought it may be a topaz; Wood brings action to rescind K

Issue: Is there anything in the sale that entitles Wood to a rescission of the sale?

Notes: Not enough for an assumption here  it’s not the basis for the K; McRae is an application of this – no real assumption about it/she is indifferent (as is the dealer) about whether it is a topaz…both don’t care what the stone actually is


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