Учебный год 22-23 / Mistake, Fraud and Duties to Inform in European Contract Law (The Common Core of European Private Law)-1

Mr Hudson who knew nothing about the hire-purchase agreement. Lord Nicholls and Lord Millett found confusion and contradictions in the existing case law; but they were also very keen to protect innocent third parties and therefore not to allow contracts to be void;79 and they noted that other jurisdictions also achieve a similar result in protecting the innocent third party.80 Lord Millett went so far as to say that81

German law reaches this conclusion by admitting a far wider exception to the nemo dat quod non habet rule than we accept, and this enables it to dispense with the need to decide the contractual effect of mistaken identity (and the meaning of ‘identity’ in this context) or to conduct a fruitless inquiry into the identity of the intended counterparty. Our inability to admit such an exception compels us to adopt a different analysis, but it would be unfortunate if our conclusion proved to be different. Quite apart from anything else, it would make the contemplated harmonisation of the general principles of European contract law very difficult to achieve.

The majority regarded this case as involving a straightforward application of the existing rules for the formation of contracts, and the interpretation of written contracts. So far, therefore, as we move into the twenty-first century we can say that the decisions in the courts -- in relation both to mistakes as to the subject matter of a contract (The Great Peace) and to mistakes of identity (Shogun) -- have reasserted the traditional common law rules, and have rejected the attempts of Lord Denning82 during the last century to make a shift from common law to equity and from void to voidable. But there are still voices in the House of Lords who would prefer to reopen some, at least, of these questions; and the fact that they are looking to other jurisdictions to see how these issues are dealt with elsewhere shows that -- as at its birth in the nineteenth century -- there may yet be a place for comparative law in the development in the twenty-first century of the doctrine of mistake in English law.

79At [35] (Lord Nicholls), [60], [82] (Lord Millett).

80At [35] (Lord Nicholls: other common law jurisdictions, notably the Uniform Commercial Code in the US); [84]--[86] (Lord Millett: the US and Germany).

81At [86]. Lord Hobhouse at [55] took a very different view: ‘to attempt to use this appeal to advocate, on the basis of continental legal systems which are open to cogent criticism, the abandonment of the soundly based nemo dat quod non habet rule (statutorily adopted) would be not only improper but even more damaging.’

82Solle v. Butcher [1950] 1 KB 671 (common mistake as to subject matter); Lewis v. Averay [1972] 1 QB 198 (mistake of identity).

4Case studies

important mistake as to the content of the declaration. The intention of the law is not and cannot be to release the parties from every potential economic risk. The right both to annul and adapt the contract on the ground of mistake should not be used as a means for getting out of contracts that turn out to be a bad deal later on. Therefore, mistakes as to value will often be seen as non-fundamental mistakes but this is not the case where the value of the contract -- as here -- is also part of the subject matter of the contract.

Anatole can only make a claim for his mistake as to the content of the declaration if and when the other party, namely Bob, does not deserve to be protected (§ 871 ABGB). Applying this article to the facts of the case, Bob neither (a) caused Anatole’s mistake nor (b) should he have recognised the mistake nor (c) did Anatole notify his mistake in good time before Bob had relied on the contract, since Bob had already put the contract into effect (at least by transporting the painting to New York). Therefore, none of the three conditions mentioned in § 871 ABGB are fulfilled. If however, it is assumed that Bob did not know the real value of the paintings when concluding the contract and the fact that the paintings were very valuable and were worth a huge sum only became apparent to both parties afterwards, then in this case Austrian law qualifies such a mistake common to both parties. Such a common mistake is operative although this opinion is controversial2 as the socalled common mistake is not expressly included in the cases mentioned in § 871 ABGB. Moreover, should both parties be mistaken then one party is not more or less worthy to be protected than the other.3 However, according to the line of authority of the majority of legal scholars and case law, Anatole may be able to claim on the ground of common mistake. He can annul the contract or adapt it depending on whether he would still have concluded the contract if he had been aware of the true facts or whether both parties would have concluded the contract under different terms and conditions if they had known the true facts.

(ii) Even if a common mistake is not accepted, Anatole will have another remedy under laesio enormis (Verkürzung über die Hälfte, reduction

2According to the doctrine of the OGH (Austrian High Court) (e.g. SZ 36/22; SZ 44/59; JBl 1976, 646; SZ 53/108; SZ 56/96; SZ 61/53; but apparently not commented SZ 54/71) and to the majority of scholars, Gschnitzer in Klang, Kommentar zum ABGB IV/1 (Vienna,

1968), pp. 133 ff.; A. Ehrenzweig, System des österreichischen allgemeinen Privatrechts

(Vienna, 1951) I/1, pp. 238 f.; Mayer-Maly in Klang IV/2, pp. 218; E. A. Kramer, ‘Zur Unterscheidung von Motivund Geschäftsirrtum’, ÖJZ 1974, pp. 452 ff.

3Koziol/Welser, Grundriß I, p. 130; Rummel in Rummel I Rz 118 zu § 871; P. Rummel, ‘Anmerkungen zum gemeinsamen Irrtum und zur Geschäftsgrundlage’, JBl 1981, 1.

the mistaken party to contract, which he would not have done had he known that this element was absent.6 Belgian law retains a subjective view of the substantial nature of a mistake: the parties’ intentions must be examined in concreto;7 some authors observe that mistake relating to substance amounts to a lack of (subjective) cause8 to the contract. Moreover, in order to be considered in an action based on fundamental mistake, the quality must have ‘entered into the contractual field’, that is that this particular quality either is considered fundamental in general or that it is regarded as such by a party, the other party being aware of this fact or, that the party contracting with the errans should have known, in the circumstances, that this particular quality was substantial.9 Annulment on the basis of a fundamental mistake will be excluded when the aggrieved party actually accepted the risk of a mistake occurring.10 The burden of proving the existence of a fundamental mistake is on the errans but all types of evidence are admissible.11 Finally, even when proven, a fundamental mistake will allow annulment of the

6 Ibid., no. 39.

7See, for instance, R. Kruithof, ‘Overzicht van rechtspraak (1974--1980) Verbintenissen’, TPR 1983, 548, no. 43; C. Goux, ‘L’erreur, le dol et la lésion qualifiée: analyse et comparaisons’ in La théorie générale des obligations, Formation permanente CUP (Liège, 1998), pp. 7 ff., no. 9: citing some recent case law, e.g. Mons, 31-3-1987 (JLMB 1987, 710) where the plaintiffs could obtain the annulment of a contract relating to the accomplishment of work on a building when they could demonstrate that the granting of a rehabilitation allowance from the public authority (which they in fact were not entitled to) constituted the character of a substantial quality without which they would not have contracted (the court had regard to the situation of the plaintiffs as a young couple at the start of their professional career); Liège, 11-12-1989 (Act. dr., 1991, 210) where the court decided that the quality of the land purchased as developable land was so important to the purchasers that it justified the annulment of the sale on the basis of a substantial mistake (since the land was in fact not developable). In both the cases described, it is clear that the ‘substantial quality’ of the subject matter of the contract had nothing to do with an objective quality of the thing itself.

8C. Renard, E. Vieujean and Y. Hannequart, Théorie générale des obligations, Les novelles -- Droit civil (Brussels, 1957), vol. IV nos. 640--4.

9See De Page, Traité élémentaire de droit civil belge, no. 43; M. Coipel, Théorie générale des contrats, Book 29, Guide juridique de l’entreprise (Diegem, 1996), no. 390, C. Parmentier, ‘La volonté des parties’ in Les obligations contractuelles (Brussels, 1984), pp. 65--6; P. Van Ommeslaghe, ‘Observations sur la théorie de la cause dans la jurisprudence et dans la doctrine moderne’, note under Cass, 13-11-1969, RCJB 1970, pp. 353 ff., no. 18. For a summary, see Goux, ‘L’erreur, le dol et la lésion qualifiée’, no. 11. As to case law, see Trib. trav. Brussels, 3-9-1990, JTT 1991, p. 13; Brussels, 21-11-1996, JT 1997, 180; Cass, 27-10-1995, JT 1996, 61.

10See Goux, ‘L’erreur, le dol et la lésion qualifiée’, no. 10 in fine and see Case 3.

11Cass, 28-12-1882, Pas 1883, I, 11; Cass, 11-3-1960, Pas 1960, I, 811; Cass, 28-3-1974, Arr. Cass, 1974, 834.

contract only when it can be considered as excusable.12 There is some dispute as to the in concreto13 or in abstracto14 examination of the excusable nature of a mistake.15 However, even when the mistake is examined in abstracto, case law often considers personal characteristics of the errans such as his age, experience, degree of information on the subject matter, social status etc.,16 which greatly reduces the practical significance of the controversy.

Applying these principles to the present case, it appears that Anatole has most probably made a fundamental mistake. Indeed, an action brought on the basis of fundamental mistake is the remedy most commonly applied in cases where a mistake bearing on the authenticity of a work of art has been made.17 The fact that authenticity was substantial to Anatole and that he did not accept the risk of mistake could easily be inferred from the description of the paintings made in Anatole’s own catalogue. Under the circumstances, it may also be assumed that it will be easily proven that the quality of the paintings (as non-authentic) had entered into the contractual field. However this mistake will probably not be held to be excusable, considering the fact that Anatole is, if not a professional seller of impressionist paintings, at least highly knowledgeable in this field.18

(ii) Fraud, a defect of consent that can lead to annulment of the contract under art. 1116 of the Civil Code, can be defined as ‘the use of reprehensible means by a person who wants to deceive another and induce the latter into deciding to accomplish, under the influence of the mistake that was created in his mind, a detrimental act of legal

12See Goux, ‘L’erreur, le dol et la lésion qualifiée’, no. 12; Cass, 6-1-1944, Pas 1944, I, 133; Cass, 28-6-1966, JLMB 1997, 12.

13Would a ‘reasonable man’ (bon père de famille) have erred under the same objective as well as subjective circumstances?

14Where the criterion of the ‘reasonable man’ is being taken into account only abstractly.

15Goux, ‘L’erreur, le dol et la lésion qualifiée’.

16Ibid.; C. Jassogne, ‘Réflexions à propos de l’erreur’, RGDC 1994, pp. 102 f., no. 3.

17M. Fontaine, ‘Les aspects juridiques de la commercialisation d’oeuvres d’art’, Ann. dr. Louvain 1988, pp. 383 ff., at p. 402.

18See for instance Antwerp, 22-4-1991, RW 1994--5, 405 (a mistake about the number of kilometres done by a used car is not excusable when it is made by a professional repairer of car parts); Civ Brussels, 19-5-1995, RGDC, 1996 (a purchaser who is a professional in the sale of works of art will not be allowed to annul the sale of a painting on the basis of mistake; even if it were admitted that the painting is not authentic, the mistake would be excusable for such purchaser); Fontaine, ‘Les aspects’, p. 404: ‘A specialist who erred on the authenticity of the work of art that he sells or purchases will most frequently bear the consequences of his mistake.’

significance (contract, unilateral declaration of will) the profit of which will go to the author of the fraudulent behaviour or to a third party’.19 This commonly used definition must be completed with the assertion that, in order to allow an action in annulment, the fraud must have induced the aggrieved party to contract.20 It should be emphasised that it is not necessary that the aggrieved party suffer a loss in order for fraud to lead to the contract being annulled. If fraud can be proven, the Cour de cassation has held that a mistake caused by fraud does not need to satisfy the requirement of excusability although this position has been criticised by some authors.21

However, Anatole might find it difficult here to prove the existence of fraud consisting in Bob’s intentional deceitful behaviour (the intentional element) made up either of positive manoeuvres (lies) or of fraudulent concealment (the material element),22 knowing that the majority opinion in Belgian law decides that fraudulent concealment constitutes fraud only when there was an obligation to speak incumbent on the party alleged to have acted fraudulently derived from legislation, usage, the professional situation, the specific position of the defrauding party or the circumstances.23

(iii) Although Belgian case law24 and majority authority recognise a more general principle of lésion qualifiée which applies to all kinds of contracts,25 and can be broadly stated as the prohibition for a contracting party to take advantage of the other’s inferiority to obtain engagements that are disproportional to his aim,26 this doctrine clearly does

19Free translation of a definition formulated by authors and case law and cited by Goux, ‘L’erreur, le dol et la lésion qualifiée’, no. 2.

20Otherwise, we would have a mere incidental fraud (dol incident) that may only form the basis for an action in damages: ibid., nos. 2 and 16.

21Cass, 23-9-1977, RCJB, 1980, 32; Cass, 29 May 1980, Pas 1980, I, 1190: ‘when fraud induces consent the party who acted fraudulently may not invoke the imprudence or negligence of his contracting party (. . .) the said imprudence or negligence may not dispense the author of the fraud from compensating entirely the harmful consequences inflicted upon the victim’ (emphasis added). See the authors and additional case law cited by Goux, ‘L’erreur, le dol et la lésion qualifiée’, no. 17.

22For a reminder of the intentional and material elements constituting fraud as a defect of consent: see Goux, ‘L’erreur, le dol et la lésion qualifiée’, no. 14.

23Ibid.

24Cass, 29-4-1993, JT 1994, p. 294. The Cour de cassation has not expressly admitted the concept but has accepted it implicitly.

25Civ Mons, 21-11-1990, JJP, 1991, 45.

26See Coipel, Théorie générale des contrats, no. 470; A. De Bersaques, ‘L’œuvre prétorienne de la jurisprudence en matière de lésion’ in Mélanges en l’honneur de Jean Dabin (Paris, 1963), vol. II, pp. 487 ff.; A. De Bersaques, ‘La lésion qualifiée et sa sanction’, note

94 m i s t a k e , f r a u d a n d d u t i e s t o i n f o r m

not apply on the facts. Even if it could be asserted that there is some disproportion between the parties’ respective performances, it cannot be maintained that it is a consequence of Bob’s abuse of Anatole’s weaker position.

Anatole’s best chance on the basis of fraud does not look very hopeful as proving Bob’s fraud might be difficult under the circumstances.

England

English law would not give Anatole any remedy on the facts as stated. The essence of the problem is a mistake made by the seller of an item where the buyer has not induced the mistake. English law will consider various possible remedies.

(i) Whether there is any contractual remedy available -- typically, damages for breach. But here Bob is in breach of no obligation (express or implied) in buying the paintings at what turns out to have been an undervalue. He made no promise to Anatole that the paintings were not as Anatole had himself described them. And the mere undervalue is not a ground for interfering with the contract: the court will not concern itself with the adequacy of consideration in a contract as long as there is consideration -- something of value which the law can recognise27 -- except sometimes where the undervalue might be evidence of

under Comm. Brussels, 20-2-1970, RCJB, 1970, 10; W. De Bondt, De leer der gekwalificeerde benadeling (Antwerp, 1985); D. Deli, ‘De leer der gekwalificeerde benadeling en de verhouding tot de imprevisieleer’, note under Antwerp, 21-1-1986, RW, 1986--7,

pp. 1494 f.; P.-H. Delvaux, ‘Contrats d’adhésion et clauses abusives en droit belge’ in La partie la plus faible dans les rapports contractuels (Paris, 1996), nos. 19--20; E. Dirix, ‘La réductibilité du salaire du mandataire: survivance d’une tradition’, note under Cass, 6-3-1980, RCJB 1982, 537, nos. 14 ff., esp. note 62; R. Kruithof, H. Bocken, F. De Ly and B. De Temmerman, ‘Overzicht van rechtspraak (1981--1992) -- Verbintenissen’, TPR 1994, pp. 394 ff., nos. 149--50; Parmentier, ‘La volonté des parties’, pp. 87 f.; J.-F. Romain, ‘Regain de la lésion qualifiée en droit des obligations’, JT 1993, pp. 749 ff.; S. Stijns, D. Van Gerven and P. Wery, ‘Chronique de jurisprudence (1985--1995) -- Les obligations: les sources’, JT 1996, pp. 689 ff., no. 65; W. Van Gerven, ‘Variaties op het thema misbruik’, RW, 1979--80, col. 2485 f.; P. Van Ommeslaghe, ‘Examen de jurisprudence (1974 à 1982) -- Les obligations’, RCJB 1986, pp. 33 ff., no. 24; M. Vanwijck-Alexandre, ‘La réparation du dommage dans la négociation et la formation des contrats’, Ann. Fac. Dr. Lg. 1980, 74, no. 42. Antwerp, 21-1-1986, RW 1986--87, p. 1488; Liège, 11-6-1986, RRD 1986, p. 240, JP Antwerp, 5-11-1986, RW, 1987--8, p. 1446; Trib. trav. Brussels, 5-9-1988, JTT 1988, p. 445; Trib. trav. Brussels, 26-9-1988, Chron. D. S. 1989, p. 58; J. P. Soignies, 17-5-1989, JJP, 1991, p. 42; Civ. Mons, 21-11-1990, JJP 1991, p. 45; Comm. Bruges, 7-1-1994, AJT 1994--5, p. 143; Civ. Brussels, 17-3-1995, RGDC 1995, p. 507; Liège, 17-10-1996, JT 1997, p. 569.

27 Thomas v. Thomas (1842) 2 QB 851 at p. 859.

improper conduct on the part of the contracting party who obtains the benefit of an unusually good bargain: for example, the undervalue may be one element which raises a presumption of undue influence by a strong party over a weak party;28 or where there is an ‘unconscionable bargain’ entered into by a ‘poor and ignorant man at a considerable undervalue’.29 But there is no such issue here, where the seller, the party seeking a remedy, is a specialist.

(ii)Remedies arising from misrepresentations made by the defendant in the action. The remedies will vary in their nature, and will depend on such things as the form and circumstances of the statement, and the state of mind (e.g. fraudulent or not) of the person who made it. But here the only relevant statement is made by Anatole (‘work of an unknown artist’) and there is no evidence of any statement by Bob. A party cannot use his own misrepresentation to claim a remedy. If, however, it could be established by evidence that Bob also made statements to Anatole that the paintings were not of a major artist, further issues would arise. In general, a contracting party can obtain a remedy for misrepresentation (whether damages or avoidance30 of the contract) only if he can be shown to have relied on the statement in suffering the loss claimed, or in having entered into the contract. Here, Anatole would still have some difficulty, since he originated the mistake by his statement in the catalogue: on the facts as given, it would be difficult for him to establish that Bob’s later statements (even if made) caused him to misunderstand what he was selling.

(iii)In English law, a contract is rarely vitiated by mistake. Where there is a claim that a contract was entered into on the basis of a mistaken understanding shared by the parties, one must ask whether the contract by its terms, express or implied, allocates the risk of the mistake to one of the parties: if so, the terms of the contract apply. If not, one asks whether the mistake is sufficiently serious to make the contract impossible of performance. This is not limited to literal, physical impossibility, but extends to the case where the contractual adventure, or purpose, cannot be fulfilled; but it is a narrow test, difficult to satisfy: the mistake must ‘render the subject matter of the contract essentially and radically different

28Allcard v. Skinner (1887) 36 Ch D 145, as applied in Royal Bank of Scotland v. Etridge (No. 2)

[2001] UKHL 44, [2002] 2 AC 773 at [29].

29Fry v. Lane (1888) 40 Ch D 312.

30For misrepresentation, the contract is voidable, but by the party without the need for a court order: Car and Universal Finance Co. Ltd. v. Caldwell [1965] 1 QB 525.