Mistake And Misrepresentation In Australian Contract Law: A Case Study Discussion And Approach

By Author: Premkumar Nadarajan.
Total Articles: 26
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If a person ( say Mr. Albert) has made two statements to Mr. Robert, knowing them to be false, the issue is whether Mr.Albert is liable to the latter for misrepresentation or possibly for breach of a term or terms of the contract. Additionally when an individual who is a seller was mistaken (unilateral mistake)as to the identity of the buyer of his goods ( say a collection of rare postage stamps that he had), the issue is whether he can recover legal title to his asset by arguing unilateral mistake as to the buyer’s identity.Statements made during negotiations which later result in the making of a verbal contract may be either terms or misrepresentations. If the offending statements are part of the contract (terms), they will be either conditions or warranties (usually) or in rare cases intermediate terms. The best way to tell whether the statements are terms or not is to apply the tests adopted in Oscar Chess Ltd v Williams, where the court assessed the intention of the parties by reference to actual words spoken, inferences to be drawn from those words, whether reduced to writing and the comparative skill and knowledge ...
... of the parties.If terms, the innocent party has contractual remedies for breach of terms. If they are conditions, he may repudiate the contract and/or claim damages (see Associated Newspapers Ltd v Bancks). If they are terms of lesser importance, he may only claim damages for breach of warranties.If the statements are not terms, but statements of fact which induce the other party to buy, they are misrepresentations. These give rise to remedies to the misrepresentee, namely rescission and damages for fraudulent (or negligent) misrepresentation, and rescission only for innocent misrepresentation. The right to rescind may be lost by delay, affirmation, consumption or radical change to the subject matter, intervention of third parties, and other factors. Robert could argue that the two statements were terms of the contract. If a condition, he could return the item in issue and get his money back. If only a warranty, he could still claim damages (the reduction in value of the item concerned , for example a car) and keep the said item.( the car).Alternatively, Robert could argue that Albert had misrepresented the condition of the car. If he could prove that Albert did so intentionally, he is entitled to damages for fraudulent misrepresentation. This would give him the same solution as suing for breach of warranty, but it involves proving intent to defraud on Albert’s part. If Albert denies knowledge of the defects, this would be difficult. Robert could also press for rescission of the contract, since there is no evidence of any factors which would result in the loss of that right.Whether he sues for breach of condition or fraudulent misrepresentation, Robert will in either case be able to return the car and get his money back. If he has suffered any losses, he can claim them as well. If he sues for breach of warranty, he gets damages and keeps the car. If he sues for innocent misrepresentation, he returns the car and gets his money back.Albert should either take the car back and refund Robert’s money, or pay Robert the amount of the difference in value between the car as represented and the car as is. Mistake, if proven, makes the relevant `contract’ void and the legal consequence of this is that legal title cannot pass to the buyer under such a contract. (Cundy v Lindsay). Title stays at all times with the seller, and since it cannot pass to the first buyer, logically it cannot pass to any subsequent buyer. This occurred in Ingram v Little, where the sellers of the car successfully argued that they were mistaken as to the identity of the buyer, and that legal title to their car must therefore revert to them. The fact that Little had paid good money for the car was irrelevant.It is doubtful whether you can prove mistake in cases where you are dealing `face-to-face’ with your buyer. In Phillips v Brooks, the court rejected the mistake argument advanced by Phillips, preferring to conclude that his buyer had fraudulently misrepresented his identity. Misrepresentation results in the contract being voidable, not void. It follows that unless and until the seller takes steps to avoid (rescind) the contract, title can and will pass to the buyer. If the buyer resells the goods before rescission of the contract, the next buyer will acquire good title to the goods provided he is a `bona fide purchaser for value without notice of any defect in title’. Thus, Brooks obtained good title to the ring. Similarly, in Lewis v Averay, Averay obtained good title to the car because the court refused to accept that Lewis could successfully argue mistaken identity. The best he could do was to prove fraudulent misrepresentation of identity. In these cases, the correct view is that the second buyer will keep title to the goods, provided that the first contract has not been avoided, and provided further that the he (the 2nd buyer) is acting in good faith. This can usually be decided by looking at the price comparison between the first and second sale. The basis of a contract is consent where parties must have freely consented to the terms of thecontract.S.10 Contracts Act 1950.S. 13 defines ‘consent’ as‘Two or more persons are said to consent when they agree upon the same thing in the same sense.Section 14 Consent is said to be free when it is not caused by mistake in sections 21-23 Contracts Act 1950.In the UK, according to the case of Cundy v. Lindsay (1878) 3 App Cas 459, in a contract entered into under a mistake of identity would be void if the mistaken party can show thati) identity was material;ii) he or she intended to contract with a different entity and iii) the other party knew, or ought to have known of the mistake.Courts nowadays which will follow Phillips v Brooks and Lewis v Averay in preference to Ingram v Little ,now commonly regarded as a questionable decision. It is very unlikely that a seller will be able to retrieve his postage stamp collection from the buyer if it appears to the court to be a bona fide purchaser of the collection.If the seller had lost title to the postage stamp collection, the only alternative remedy would be to find and sue the perpetrator of the fraud.

lecturer at a private learning institution ( UTAR).