BetterLawNotes-5 (2)

CONTRACT LAW

Rupert Fox:

Alf appears to have been the victim of fraud. What remedies he has will depend on whether a court would hold that the contract he made with the fraudster is treated as void for mistake or voidable for misrepresentation.

If the contract is void for mistake, Alf will be able to reclaim the painting from the dealer opposite. For if the contract is void, this means that title to the painting would not have passed from Alf to the fraudster. This, in turn, would mean that the fraudster would have had no title to pass to the other gallery owner: nemo dat quod non habet & s 21 Sale of Goods Act 1979. In other words, if the contract is void for mistake, the painting will have remained Alf’s property all along, meaning it is still his to take back.

On the other hand, if the contract is held not to be not void for mistake but merely voidable for misrepresentation, then title would have passed (albeit provisionally) from Alf to the fraudster and then from the fraudster to the other gallery owner. While a misrepresentation gives rise to a right to rescind, in this case, by the time that Alf discovers that he has been the victim of a misrepresentation, it will be too late for Alf to rescind his contract with the fraudster. For title will already have passed from the fraudster to the other gallery owner, meaning that counter-restitution (ie, restoring both the fraudster and Alf to their pre-contract positions by the return of the painting and cheque) will no longer be possible. As such rescission would be barred and Alf would be left to pursue a (hopeless) claim against the fraudster for damages for deceit.

So, is the contract void for mistake? Generally where the parties are, as here, dealing face-to-face, the victim will be treated as having intended to deal with the person physically present: see Phillips v Brooks and Lewis v Averay. Alf’s mistake, induced by the fraudster’s misrepresentation, will be treated as a mistake as to attributes or creditworthiness and not sufficiently fundamental to render the contract void. While Alf might argue that the principle in Ingram v Little should be applied in his case, dicta in Shogun v Hudson suggest that a court is more likely to apply Lewis and hold the contract merely voidable for misrepresentation. If so, Alf cannot claim the painting back from the gallery owner and instead must try to find the fraudster and claim damages.

Cyril:

The first step is to identify the type of mistake. Here we are dealing with common or shared mistake: the parties have made the same mistake. They were agreed but their agreement was based on a common and false assumption. More particularly, this is a mistake as to a quality of the subject-matter, as opposed to a common mistake as to the possibility of performance. To render a contract void, a common mistake as to a quality of the subject-matter must be such as to make the subject-matter fundamentally different: Bell v Lever Bros. It seems clear from Bell v Lever Bros and Leaf v International Galleries (which also involved a mistake as to the identity of the artist of a painting) that the mistake made by Alf and Cyril was not sufficiently fundamental: Cyril got the very painting, ie the actual canvas, intended. As Alf would not appear to have any liability for of misrepresentation or breach of contract, Cyril will have no claim or remedy against Alf.

Dirk:

The contract between Alf and Dirk is not one of the utmost good faith and so there is no duty on Alf to disclose information which he knows Dirk would consider material: Bell v Lever Bros. In the absence of any representation or promise, Dirk will only have a remedy if he can show that the contract is void for mistake.

A unilateral (ie not shared) mistake only affects a contract where: (i) there is genuine ambiguity (ii) one party has contributed to the other’s mistaken assumption (iii) there is a mistake as to a term and other party knew of the first party’s mistake (iv) there is a mistake as to identity and other party knew of the first party’s mistake.

Here Dirk’s only hope of a remedy would be if he could show that he was mistaken as to a term of the contract and Alf knew that Dirk was so mistaken: Smith v Hughes and Hartog v Colin & Shields. If successful, Dirk would hand back the painting and get his money back.

Dirk would have to show that he believed it was a term of the contract that the painting was by Banksy and that Alf knew that Dirk thought this: in other words, that he thought that Alf was promising, or guaranteeing, that it was by Banksy and that Alf knew that Dirk thought that Alf was giving this guarantee.

But there is nothing in the facts to indicate either that:

(i) Dirk thought that Alf was promising that the painting was by Banksy. While it seems clear that Dirk assumed that Alf shared his belief, there appears to be no ground to indicate that Dirk assumed anything more than this. Indeed, it might be said that Dirk’s confidence in the identity of the artist means that there was no reason for Alf to make any promise;

(ii) Alf had any reason for thinking that Dirk thought that Alf was making any such promise. Again, while it is clear that Alf realised that Dirk was mistake, that mistake was as to the identity of the artist rather than the making of any promise.

In the same way that a car dealer will not generally guarantee the accuracy of the odometer on a used car, so too an art dealer will not generally guarantee the identity of the artist. The reason for this is the simple one that a party will generally not guarantee the accuracy of something beyond his knowledge and control.

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