DOCSLIB.ORG

Overview of Indemnity Clauses

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text

Load more

Fall 2011 ATTORNEYS AT LAW www.eckertseamans.com l [email protected] Construction Law Dual shop operations require careful planning and implementation In This Issue… As construction contractors seek to replenish universally abhorred by unions, there is Page 1 their backlog in a struggling economy, many nothing improper about it when done correctly. Dual shop operations require are looking into forming separate union and However, lawful double-breasting requires careful planning & non-union companies to perform the same type careful attention to detail. Mistakes are common implementation of work in the same geographic area. This and a failure to properly establish and maintain An overview of indemnity practice is known as “double-breasting.” There a legitimate double-breasting operation can clauses are a number of advantages to the practice of prove to be extremely costly. double-breasting, so long as it is done correctly. Page 3 If the double-breasted operation is not properly Litigation history of a Double-breasting allows the contractor established, with the dual shops kept completely contractor as a factor in maximum flexibility to bid larger union projects, legally separate, the National Labor Relations public procurement while competing for non-union jobs free from Board will treat the union and non-union Page 4 collective bargaining restrictions. Although this companies as one entity and, accordingly, Be mindful of who you hire: practice of maintaining “dual shops” is continued on page 3 New GAO decision underscores potential conflict of interest problems with retaining former federal An overview of indemnity clauses agency employees When contractors and subcontractors review and “Non-Indemnifying Parties” or Page 5 construction contracts, they usually focus on the “Indemnitees” and “Indemnitors” is a clause To owners and general clauses most near and dear: (1) Price: How entitled “Indemnity.” Many contractors and contractors: Before much do I get paid?; (2) Payment: When do I subcontractors, by the time they get to that termination, review the bond get paid and is my payment dependent on the term, will either not read it or start to read it next party up the food chain getting paid (a and then stop halfway through. This is a Waivers of consequential damages “pay if paid” or “pay when paid” clause)?; and mistake, but a mistake that is only realized if an (3) Scope: What is my contractual scope of accident or claim arises. It is at that time that Page 6 work and which of the specification sections this clause can have substantial, unintended United States Supreme Court and drawings are in my scope? consequences, such as putting the company Emphatically Affirms Federal at risk for a claim when the company bears Policy Favoring Arbitration Almost always tucked near the end of the no responsibility other than the fact that the Construction Law Group News contract, replete with long run-on sentences and work related to the accident was in its scope. defined terms such as “Indemnifying Parties” continued on page 2 PITTSBURGH, PA • BOSTON, MA • CHARLESTON, WV • HARRISBURG, PA • PHILADELPHIA, PA RICHMOND, VA • SOUTHPOINTE, PA • WASHINGTON, DC • WHITE PLAINS, NY • WILMINGTON, DE An overview of indemnity clauses “ (continued) Indemnity is defined as the obligation resting on one What should a prudent contractor do? First party to make good a loss or damage another party and foremost, it should read the Indemnity has incurred. The scope of indemnity obligations clause and attempt to understand the runs the gamut from claims for personal injury and exposure and risk it would be agreeing to accept if it signs the contract. If the property damage to claims for money damages… contractor has any doubt or concerns, it should consult its counsel or, at a minimum, With that in mind, the three general Types of the indemnitee, either active or passive, its insurance broker. A competent insurance of indemnity clauses are: would bar indemnification from the broker should be experienced in indemnity indemnitor regardless of whether the clauses and should know, at a minimum, if Type 1 Indemnity Clause indemnitor may also have been a cause the risk posed by the indemnity clause is “ of the indemnitee’s liability. covered by the insurance required to be A Type 1 indemnity clause provides provided under the contract. “expressly and unequivocally” that the indemnitor will indemnify the indemnitee Once the Type of indemnity clause is determined, some principles to apply are as Here are some practical pointers for for, among other things, the “negligence follows. Avoid Type 1 clauses, if at all contractors and subcontractors to consider of the indemnitee,” and the indemnitee is possible. Type 1 clauses put your company when making that initial determination if indemnified whether its liability arises from at great risk to be responsible for damages they need assistance in analyzing the clause its active or concurrent negligence. Stated if anything occurs, even if it has no or, if they cannot negotiate the clause, more simply, one party will indemnify responsibility. Under a Type 1 clause, your whether they should even sign the contract. another party regardless of whether the party being indemnified was itself actively company could find itself indemnifying a party that caused the damage, even though Indemnity is defined as the obligation responsible for the damage. This means your company was not at fault. Type 2 resting on one party to make good a loss that the party that caused the injury is clauses are more palatable but, if at all or damage another party has incurred. potentially being indemnified by a party possible, do your best to negotiate to achieve The scope of indemnity obligations runs that had no role in the injury. a Type 3 clause. Under a Type 3 clause, if the the gamut from claims for personal injury indemnitee bears any responsibility for the and property damage to claims for money Type 2 Indemnity Clause loss, there is generally no indemnity. damages (consequential, incidental and A Type 2 clause requires the indemnitor other types of damages) from any to indemnify the indemnitee for his or her If this does not seem complicated enough, conceivable event or breach of contract. passive negligence, but not for active it is also important to know that a number negligence. Examples of Type 2 clauses of states have “anti-indemnity” statutes The various form contracts—AIA, EJCDC are: a clause providing for indemnity for which outlaw Type 1 clauses. Crafty and Consensus DOCS—all contain different the indemnitee’s liability “howsoever same attorneys will try to circumvent these indemnity clauses, and the types of may be caused” or “regardless of statutes by way of terms that attempt to clauses, and their breadth and scope vary responsibility for negligence” or “arising eliminate these statutory protections by widely depending on the craftiness of the from the use of the premises, facilities or compelling the contractor or subcontractor drafters and the perceived leverage of the services of [the indemnitee]” or “which to agree to waive them or by providing party offering the contract. might arise in connection with the agreed that another state’s laws (a state without work” or “from any and all claims for such “anti-indemnity” statutes) applies. Many courts have generally categorized damages to any person or property by Depending on the state and its “anti- indemnity clauses by one of three Types: reason of the use of said leased property.” indemnity” statute, these terms may “Type 1”; “Type 2”; and “Type 3.” In a Type 2 clause, an indemnitee will be or may not be enforceable. For purposes of this overview, this indemnified only if it was at most a passive categorization is useful in providing a cause of the damage, but will not be A final thought is to be sure that the primer to contractors and subcontractors indemnified if it was an active cause of the insurance coverage provided in the about indemnity clauses. damage. Thus, unlike a Type 1 clause, if insurance certificate corresponds with the the indemnified party did not directly cause indemnity you have agreed to provide. So there is no misunderstanding at the the damage, it will be indemnified. Many a contractor, when an accident outset, an “indemnitor” is the party that occurs, has found its carrier denying is agreeing to indemnify another party Type 3 Indemnity Clause insurance coverage, or reserving its rights and the “indemnitee” is the party that is This type of indemnity clause requires the to deny insurance coverage, because the getting the benefit of the indemnity. Also indemnitor to indemnify the indemnitee for policy did not cover an onerous indemnity “active negligence” refers to an event or the indemnitee’s liabilities caused by the clause. In the case of a catastrophic occurrence that caused the damage in indemnitor, but does not require that the accident, this can put the company at risk. which the indemnitee was directly involved indemnitor indemnify the indemnitee for or played some role. “Passive negligence” the indemnitee’s liabilities that were caused Scott D. Cessar is where the indemnitee did not play a role other than by the indemnitor. Under a Construction Law Group and/or was not a cause of the damage. Type 3 clause, any negligence on the part 2 CONSTRUCTION LAW REPORT Litigation history of a contractor as a factor in public procurement Construction projects can be fertile grounds for disputes and litigation. This raises the “ issue of whether to hire a contractor with a history of filing lawsuits. In the private sector, an owner can simply decline to hire A contractor should carefully consider whether such a contractor. However, public owners a dispute with a public owner is worth litigation, are usually obligated by competitive bidding laws to hire the “lowest responsible especially if there is a chance of more work with bidder.” Thus, their ability to bypass a the same owner.
Recommended publications
  • In Dispute 30:2 Contract Formation

    In Dispute 30:2 Contract Formation

    CHAPTER 30 CONTRACTS Introductory Note A. CONTRACT FORMATION 30:1 Contract Formation ― In Dispute 30:2 Contract Formation ― Need Not Be in Writing 30:3 Contract Formation ― Offer 30:4 Contract Formation ― Revocation of Offer 30:5 Contract Formation ― Counteroffer 30:6 Contract Formation ― Acceptance 30:7 Contract Formation ― Consideration 30:8 Contract Formation ― Modification 30:9 Contract Formation ― Third-Party Beneficiary B. CONTRACT PERFORMANCE 30:10 Contract Performance — Breach of Contract — Elements of Liability 30:11 Contract Performance — Breach of Contract Defined 30:12 Contract Performance — Substantial Performance 30:13 Contract Performance — Anticipatory Breach 30:14 Contract Performance — Time of Performance 30:15 Contract Performance — Conditions Precedent 30:16 Contract Performance — Implied Duty of Good Faith and Fair Dealing — Non-Insurance Contract 30:17 Contract Performance — Assignment C. DEFENSES Introductory Note 30:18 Defense — Fraud in the Inducement 30:19 Defense — Undue Influence 30:20 Defense — Duress 30:21 Defense — Minority 30:22 Defense — Mental Incapacity 30:23 Defense — Impossibility of Performance 30:24 Defense — Inducing a Breach by Words or Conduct 30:25 Defense — Waiver 30:26 Defense — Statute of Limitations 30:27 Defense — Cancellation by Agreement 30:28 Defense — Accord and Satisfaction (Later Contract) 30:29 Defense — Novation D. CONTRACT INTERPRETATION Introductory Note 30:30 Contract Interpretation — Disputed Term 30:31 Contract Interpretation — Parties’ Intent 30:32 Contract Interpretation —
  • Indemnity: "Pass-Through" Provisions

    Indemnity: "Pass-Through" Provisions

    Indemnity: "Pass-Through" Provisions January 2005 by: James Donohue, Esq. and Edward M. Koch, Esq. Overlooking the subtle nuances of indemnity provisions in a proposed contract is a common—and often costly—mistake. Parties eager to win a bid often look past contract language which can require them to pay not only for their own mistakes, but for those of another party, too. (For more background on indemnity, see, “Who Pays For Your Mistakes”, Executive Newsletter, Fall 2004, located in the Publications Section of www.whiteandwilliams.com). For matters being decided under Pennsylvania law, a recent Supreme Court decision illuminates a previously dim region of the indemnity landscape. In Bernotas v. Super Fresh Food Markets, Inc., the Court substantially abrogates the use of so-called “pass-through,” “conduit,” or “flow-through” indemnification provisions that are common in construction subcontracts. Under the Supreme Court’s decision, “passthrough” indemnification provisions will only be valid if the indemnification obligation is stated in clear and unequivocal terms. Form book or cut-and-paste boilerplate won’t do. INDEMNIFICATION, GENERALLY Indemnification refers to one party’s obligation to pay for the liability of another for certain specified events. The source of this obligation can be either through the common law or, as addressed by the Supreme Court in Bernotas, through contract. Historically, Pennsylvania courts have closely scrutinized contractual indemnification provisions. For example, one could seek indemnity from another for one’s own negligence, but general indemnity language was insufficient to affect this end. Instead, a clear and unequivocal statement of indemnification for one’s own negligence had to be clearly spelled-out in the contract provision in order for it to be effective under Pennsylvania law.
  • A New Look at Contract Mistake Doctrine and Personal Injury Releases

    A New Look at Contract Mistake Doctrine and Personal Injury Releases

    19 NEV. L.J. 535, GIESEL 4/25/2019 8:36 PM A NEW LOOK AT CONTRACT MISTAKE DOCTRINE AND PERSONAL INJURY RELEASES Grace M. Giesel* “[C]ourts cannot make for the parties better agreements than they themselves have been satisfied to make.”1 TABLE OF CONTENTS INTRODUCTION ............................................................................................... 536 I. THE SETTING: THE TYPICAL CASE ..................................................... 542 II. CONTRACT DOCTRINE APPLIES .......................................................... 544 III. CONTRACT MISTAKE DOCTRINE ......................................................... 545 IV. TRADITIONAL APPLICATION OF CONTRACT DOCTRINE TO THE TYPICAL PERSONAL INJURY RELEASE SITUATION.............................. 547 A. A Shared Mistake of Fact and Not a Speculation or Prediction . 547 B. The Injured Party Has the Risk of Mistake by Conscious Ignorance .................................................................................... 548 C. The Release Places the Risk of Mistake on the Injured Party ..... 549 D. Traditional Application of the Unilateral Mistake Doctrine to the Typical Personal Injury Release Situation ............................ 554 E. Conclusions about Traditional Application of the Mistake Doctrine ...................................................................................... 555 V. COURTS’ TREATMENT OF PERSONAL INJURY RELEASES .................... 555 A. Mistake Doctrine Applies with an Unknown Injury But Not with an Unknown Consequence of a Known Injury ...................
  • Beyond Unconscionability: the Case for Using "Knowing Assent" As the Basis for Analyzing Unbargained-For Terms in Standard Form Contracts

    Beyond Unconscionability: the Case for Using "Knowing Assent" As the Basis for Analyzing Unbargained-For Terms in Standard Form Contracts

    Beyond Unconscionability: The Case for Using "Knowing Assent" as the Basis for Analyzing Unbargained-for Terms in Standard Form Contracts Edith R. Warkentinet I. INTRODUCTION People who sign standard form contracts' rarely read them.2 Coun- sel for one party (or one industry) generally prepare standard form con- tracts for repetitive use in consecutive transactions.3 The party who has t Professor of Law, Western State University College of Law, Fullerton, California. The author thanks Western State for its generous research support, Western State colleague Professor Phil Merkel for his willingness to read this on two different occasions and his terrifically helpful com- ments, Whittier Law School Professor Patricia Leary for her insightful comments, and Professor Andrea Funk for help with early drafts. 1. Friedrich Kessler, in a pioneering work on contracts of adhesion, described the origins of standard form contracts: "The development of large scale enterprise with its mass production and mass distribution made a new type of contract inevitable-the standardized mass contract. A stan- dardized contract, once its contents have been formulated by a business firm, is used in every bar- gain dealing with the same product or service .... " Friedrich Kessler, Contracts of Adhesion- Some Thoughts About Freedom of Contract, 43 COLUM. L. REV. 628, 631-32 (1943). 2. Professor Woodward offers an excellent explanation: Real assent to any given term in a form contract, including a merger clause, depends on how "rational" it is for the non-drafter (consumer and non-consumer alike) to attempt to understand what is in the form. This, in turn, is primarily a function of two observable facts: (1) the complexity and obscurity of the term in question and (2) the size of the un- derlying transaction.
  • Unconscionability As a Sword: the Case for an Affirmative Cause of Action

    Unconscionability As a Sword: the Case for an Affirmative Cause of Action

    Unconscionability as a Sword: The Case for an Affirmative Cause of Action Brady Williams* Consumers are drowning in a sea of one-sided fine print. To combat contractual overreach, consumers need an arsenal of effective remedies. To that end, the doctrine of unconscionability provides a crucial defense against the inequities of rigid contract enforcement. However, the prevailing view that unconscionability operates merely as a “shield” and not a “sword” leaves countless victims of oppressive contracts unable to assert the doctrine as an affirmative claim. This crippling interpretation betrays unconscionability’s equitable roots and absolves merchants who have already obtained their ill-gotten gains. But this need not be so. Using California consumer credit law as a backdrop, this Note argues that the doctrine of unconscionability must be recrafted into an offensive sword that provides affirmative relief to victims of unconscionable contracts. While some consumers may already assert unconscionability under California’s Consumers Legal Remedies Act, courts have narrowly construed the Act to exempt many forms of consumer credit. As a result, thousands of debtors have remained powerless to challenge their credit terms as unconscionable unless first sued by a creditor. However, this Note explains how a recent landmark ruling by the California Supreme Court has confirmed a novel legal theory that broadly empowers consumers—including debtors—to assert unconscionability under the State’s Unfair Competition Law. Finally, this Note argues that unconscionability’s historical roots in courts of equity—as well as its treatment by the DOI: https://doi.org/10.15779/Z382B8VC3W Copyright © 2019 California Law Review, Inc. California Law Review, Inc.
  • Non Est Factum

    Non Est Factum

    Topic 7 - Factors affecting the contract Content& Topic 7 - Factors affecting the contract ..................................................................................................... 2 Factors affecting the contract - non est factum ...................................................................................... 3 Factors affecting the contract – mistake ................................................................................................ 3 Types of mistakes ................................................................................................................................................................. 3 Mistake – common mistake - void ....................................................................................................................................... 3 Mistake – mutual mistake ................................................................................................................................................... 5 Mistake – unilateral mistake ............................................................................................................................................... 5 Factors affecting the contract – Misrepresentation ................................................................................ 7 Factors affecting the contract –Undue influence ................................................................................... 8 Factors affecting the contract – Unconscionable conduct .....................................................................
  • Will Trust Revocation White P

    Will Trust Revocation White P

    RPPTL WHITE PAPER REVOCATION OF A WILL OR REVOCABLE TRUST IS SUBJECT TO CHALLENGE I. SUMMARY This proposal seeks to clarify the law in the area of wills and trust to explicitly provide that the revocation of a will or trust, as well as the amendment of a will or trust, may challenged on the grounds that the revocation, amendment, or codicil was procured by fraud, duress, mistake or undue influence. The proposed amendments also clarifies when the challenge may be brought. This bill does not have a fiscal impact on state funds. II. CURRENT SITUATION A. Post-Death Challenges to the Revocation of a Revocable Trust Currently, it appears that Florida law does not permit an undue influence challenge to a settlor’s revocation of a revocable trust even if that action is brought after the settlor’s death. F.S. Section 736.0406 discusses the effect of fraud, duress, mistake, and undue influence on the creation of a revocable trust. It provides: A trust is void if the creation of the trust is procured by fraud, duress, mistake, or undue influence. Any part of the trust is void if procured by such means, but the remainder of the trust not procured by such means is valid if the remainder is not invalid for other reasons. Thus, under F.S. Section 736.0406, the creation of a trust can clearly be challenged on the grounds of fraud, duress, mistake, or undue influence in post-death proceedings. However, nothing in that statute, or anywhere else in the Florida Trust Code, addresses whether a revocation or amendment of a revocable trust may be challenged on those same grounds.
  • Misrepresentation: the Restatement’S Second Mistake

    Misrepresentation: the Restatement’S Second Mistake

    HOFFER.DOCX (DO NOT DELETE) 1/31/2014 2:04 PM MISREPRESENTATION: THE RESTATEMENT’S SECOND MISTAKE Stephanie R. Hoffer* The contract defenses of mistake and misrepresentation can be used to unravel deals as big as a corporate merger and as small as the sale of a used car. These two defenses, while conceptually distinct in theory, contain a significant amount of overlap in practice, causing courts to conflate the two legal standards. A misrepresentation of one party, when believed, results in a mistaken belief of the other, and both defenses address fundamental flaws in bargaining that throw the contracting parties’ consent into question. The coextensiveness of the defenses suggests that, absent an overriding normative justification, the legal test and remedy should be the same for each. Such a norma- tive justification exists only in the case of fraudulent misrepresentation which, unlike mistake or nonfraudulent misrepresentation, involves the intentional infliction of a dignitary harm. In such cases, punish- ment and deterrence are appropriate normative goals but neither are addressed by currently prevailing common law. Providing a single test for cases of misrepresentation and mistake with recourse to puni- tive damages in cases of fraud would harmonize the defenses with their normative underpinnings and eliminate inefficient redundancies in the common law. TABLE OF CONTENTS I. INTRODUCTION ................................................................................. 117 II. MISTAKE ...........................................................................................
  • Promises, Mistake, and Reciprocity

    Promises, Mistake, and Reciprocity

    PROMISES, MISTAKE, AND RECIPROCITY MALCOLM SHARP* I T IS A SOURCE OF SATISFACTION to be given some credit for stimulating the study of contractors' bidding practices made by Professor Schultz. The study is an excellent example of what can be done with modest resources and an indication of how much could be done with greater means. It is true that the investigation made by Mr. Schultz does not lead to simple and indisputable conclusions. It is a study partly of practices, and here it meets the test of care and accuracy. It involves also an examina- tion of attitudes or judgments. Here, however much the judgments of members of a trade may need careful attention by courts, it is always possible that in some respects their judgments represent limited or biased points of view which must be discounted. There is not much indication that the judgments reported here need correction for such reasons; though Mr. Schultz gives us an appropriate warning about the interests of owners which might benefit from unlimited shopping around among bidders by contractors. Another difficulty with objective studies of commercial practices ap- pears in Mr. Schultz's paper in interesting form. It would probably not be entirely clear to a layman why the tabulation of responses leads to the conclusions stated at the end of the paper. There is, so it seems, a suffi- cient body of opinion supporting the view that a bid ought not to be with- drawn on account of a rise in prices, at least if the contractor to whom it has been submitted will be worse off than he would have been had the bid not been submitted at all.
  • Statutory Reform of the Law of Mistake Donald J

    Statutory Reform of the Law of Mistake Donald J

    Osgoode Hall Law Journal Article 3 Volume 18, Number 3 (October 1980) Statutory Reform of the Law of Mistake Donald J. Lange Follow this and additional works at: http://digitalcommons.osgoode.yorku.ca/ohlj Article Citation Information Lange, Donald J.. "Statutory Reform of the Law of Mistake." Osgoode Hall Law Journal 18.3 (1980) : 428-477. http://digitalcommons.osgoode.yorku.ca/ohlj/vol18/iss3/3 This Article is brought to you for free and open access by the Journals at Osgoode Digital Commons. It has been accepted for inclusion in Osgoode Hall Law Journal by an authorized editor of Osgoode Digital Commons. STATUTORY REFORM OF THE LAW OF MISTAKE By DONALD J. LANGE* Page I. INTRODUCTION 429 II. STATUTORY REFORMERS OF THE LAW OF CONTRACTUAL MISTAKE 430 I. THE LANGUAGE OF REFORM: COMPARING THREE STATUTORY MODELS OF CONTRACTUAL MISTAKE 436 A. Definitions of Mistake 436 B. Types of Mistake 440 C. Unjust Enrichment 445 D. Knowledge 450 E. Materiality 452 F. Risk of Error 455 G. Fault 456 H. Nature of Relief 459 I. Concluding Remarks 460 IV. STATUTORY MODELS REFORMING MISTAKE LAW GENERALLY 461 A. Background to the Statutory Models 461 B. Pomeroy's Model 464 C. American Models 465 D. New Zealand Model 470 E. Concluding Remarks 477 @ Copyright, 1981, Donald J. Lange. * Mr. Lange is a member of the 1980 graduating class of Osgoode Hall Law School. 19801 Law of Mistake I. INTRODUCTION The common law of contractual mistake has long been recognized as one of the most confused and complex areas of classical contract law, but only recently has there been a serious interest in the statutory reform of the area.
  • Understanding Unconscionability: Defining the Principle Jeffrey C

    Understanding Unconscionability: Defining the Principle Jeffrey C

    Loyola University Chicago Law Journal Volume 9 Article 2 Issue 4 Summer 1978 1978 Understanding Unconscionability: Defining the Principle Jeffrey C. Fort Assoc., Martin, Craig, Chester & Sonnenschein Follow this and additional works at: http://lawecommons.luc.edu/luclj Part of the Contracts Commons Recommended Citation Jeffrey C. Fort, Understanding Unconscionability: Defining the Principle, 9 Loy. U. Chi. L. J. 765 (1978). Available at: http://lawecommons.luc.edu/luclj/vol9/iss4/2 This Article is brought to you for free and open access by LAW eCommons. It has been accepted for inclusion in Loyola University Chicago Law Journal by an authorized administrator of LAW eCommons. For more information, please contact [email protected]. Understanding Unconscionability: Defining the Principle* JEFFREY C. FORT** INTRODUCTION The doctrine of unconscionability is firmly entrenched in Anglo- American contract law. However, since its inclusion in the Uniform Commercial Code (UCC or Code),' the doctrine has been the subject of much controversy. Literally hundreds of law review articles, com- ments and case notes have addressed it.' Much of this commentary * The author would like to acknowledge the invaluable and irreplaceable guidance and criticism furnished by the late Professor Robert Childres of the Northwestern University School of Law in the preparation of this article. This article is a further articulation of some of the views expressed by Professor Childres in his casebook on remedies, though the analysis here differs in several respects. Compare R. CHRDRES & W. JOHNSON, JR., EQurrY, RESTrrUTmoN AND DAMAGES 304-05 (2d ed. 1974). ** Associate, Martin, Craig, Chester & Sonnenschein. B.A., Monmouth College, 1972; J.D.
  • MISTAKE and FRUSTRATION

    MISTAKE and FRUSTRATION

    6 – MISTAKE and FRUSTRATION Distinction between common mistake and frustration – where shared mistaken assumption false prior to contracting, CM; where false after contracting, frustration; CA in The Great Peace noted similarities.” Mistake ‘Mistake’ in contract law is a misunderstanding/erroneous belief as to present fact. It is not taking the risk that one might be mistaken (eg. Leslie v Farrar Construction Ltd (2016)). Mistakes can be unilateral or common. Mistakes can be as to terms (what is being agreed), identity (who the other party is) or other matters (facts/circumstances influencing decision to contract). In civil systems, mistake is “the greatest defect that can occur”, a fatal flaw in consent (Pothier (1761)); however, in English law if the other party makes no representation or warranty to the contrary, mistaken party can’t recover – justified by need to observe contract made (terms could have protected party from it being false) (Atkin, Bell v Lever Bros). Unilateral Mistake: Terms and Quality Where one party makes a mistake about the terms of the contract, if the other party knew or ought to have known of the mistake, no contract has been formed on ordinary objective principles. - Hartog v Colin & Shields (1939) (negotiated price/skin, but final offer price/pound – change inexplicable, buyer could not reasonably have believed this was actual intention) Cannot reasonably rely on outward assent when the underlying mistake is or ought to have been known, or was the relying party’s responsibility. This is objectively assessed (when mistake actually was known, falls within ‘ought to have known’ category so is still objective).