Mistake in contract : a study in comparative jurisprudence

Front matter

M IS-

DATE DUE

Cornell University Library

Preface

The discovery of the echt and unecht classes of mistake, however inappropriate these designations may be, has been said by Windscheid to have been one of the finest services which Savigny has rendered to jurisprudence. The former term comprises all those cases of contract in which consent exists, and which, though impeachable because of mistake, are valid tmtil impeached. The latter term comprises those cases in which real consent is lacking, resulting in the nullity of the contract, while the mistake is simply an accompanying feature.

It has been the object of this dissertation to examine the latter, or unecht, class of mistake in the Roman law, to show the present development of the theory in modem civil law, mainly in Germany, and then to present some original treatment df the same subject in the common law. To the writer the latter theme has proved v«ry interesting, for outside of the adjudicated cases there is no material, except in the writings of Pollock and Leake, who have treated the subject only as ancillary to the general law of contract. Proof, it is submitted, is given that the unecht class of mistake is unquestionably recognized in the common law, although a further important distinction has been made between mistake as to the act and mistake as to the content of the act, which distinction has not received general recognition in Germany. The paper will at least be an attempt to make a beginning in a field little cultivated heretofore by the writers on the common law.

6 PREFACE [148

Gratitude must be expressed to Professor Munroe Smithy under whom the writer pursued his work, not only for the use of some volumes not to be found in the Columbia Library, but especially for suggestions as to the proper scope and limitations of the paper as a dissertation and for criticism in the matter of style. E. C. McK.

Contents

INTRODUCTION Nature of the Subject

FAG<

Mistake as lack of real consent. Illustrations ii

PART I Roman dicta regarding mistake 15

Savigny's study of mistake and fraud 15

Savigny's theory of the juristic act 16

Mistake ^£r j« not a ground of nullity 17

Effects of mistake in special cases 18

Echter and utiechter Irrthum 22

Non-correspondence of will and declaration 22

Cases in which lack of correspondence is essential 23

Mistake as to the nature of the transaction 24

Mistake as to the identity of the person 24

Mistake as to the thing 25

Mistake in substantia 27

CHAPTER I Criticism of Savigny's THEORy

Criticism of Savigny's terms and proposed substitutes 30

Relation between mistake and non-correspondence of will 31

Equities of parties relying on declarations 32

149] 7

8 CONTENTS [150

CHAPTER II Modern Theories of Mistake Leonhard's version of Savigny's theory 34

Leonhard's theory of implied conditions precedent 36

Hartmann's rule of good faith 39

Objective theories of Bahr, Rover and Regelsberger 40

Damage theory of Schlossman 42

Positive law theory of Schall 43

Zitelmann's restatement of Savigny's theory 44

Views of Hesse, Bekker, Holder and Dernburg 45

French theory and practice 47

General acceptance of Savigny's theory 48

CHAPTER III Negligence and Excusability

The provisions of the German draft code 50

The provisions of the code as adopted 50

Opinions concerning the provisions of the draft code 51

Discussion of the question in German legal literattire . . - 54

Provisions of earlier codes 56

CHAPTER IV Essentiality of Mistake

Savigny's objective standard 57

Subjective standard in the German draft code 57

Opinions elicited by the provisions of the draft code 57

Retention of the subjective standard in the German code 58

Cases decided in the German courts 59

Discussion of the question in German legal literature 61

Provisions of earlier codes 63

CHAPTER V Error in Substantia Provisions of the German draft code 64

Adoption of Savigny's rule in the final revision 64

Application of the rule in decided cases 65

Discussion of the topic in German legal literature 66

Provisions of earlier codes 68

I5l] CONTENTS 9

tAaa

CHAPTER VI Nullity or Voidability Provisions of the German draft code 69

Opinions in favor of " relative nullity " 69

Meaning of this term 70

Provisions of the German code as adopted 70

Effect of these provisions 71

CHAPTER Vn

Jhering's Negative Interest in Contracts

Statement of the theory 72

Roman cases 73

Basis of liability: negligence or warranty ? 74

Acceptance of the doctrine in the German code 74

Acceptance by German writers 75

Criticism by German writers 76

Anticipation of the principle in earlier codes 76

CHAPTER I The Limitations of the'Subject

Exclusion of mistake in motive 77

Other topics excluded 77

Cases of dissensus 78

Cases of impossibility of performance 80

Cases of implied condition precedent 81

CHAPTERill

Theories and Opinions

Influence of European continental writers 85

Influence of English writers 85

Objective theories of Holland, Anson andJKerr 86

Pollock's presentation of Savigny's theory 89

Opinions of Leake, Fry, Benjamin and Wharton go lO CONTENTS [152

PACI

CHAPTER III Mistake as to the Act Cases of mistake as to the character of the act 92

Estoppel by reason of declarant's negligence 96

Cases of mistake in the person with whom one contracts loi

Cases in which the person is immaterial 103

Cases of mistake in the identity of the object 103

Eflfect of negligence in these cases 105

CHAPTER IV Mistake as to the Content of the Act Difference between the Roman and the English rule 106

Effect of the English rules of evidence 107

The rule as to written instruments 107

Further operation of the doctrine of estoppel 107

Common-law cases 108

Relation of equity to the law 112

Special relief on equitable grounds 113

Refusal of specific performance 113

Reformation and rescission of contracts 116

CHAPTER V Mistake as to Fundamental Quality Difference between the Roman and the English practice 119

The rule oi caveal emptor 119

Unrestricted application of caveat emptor 120

Restricted application 121

Recognition of mistake in substantia 122

Results of such recognition 125

Conclusion

Conflicting equities 127

Subjective and objective theories of the juristic act 127

Fundamental limitations on the subjective theory 128

Comparison of Roman, English and modern German rules .... 130

Value of the comparative method 131

Introduction

Nature of the Subject

Mistake, for the purpose of characterization in this article rather than by way of definition, may be said to consist simply in a lack of real consent. If I make a gift, but through aphasia, or some similar mental disturbance, designate and even deliver an object which I did not in fact have in mind, my consent is lacking. A person who marries the wrong party, as frequently happens when schatchens intermediate, has not really consented to such marriage. If I send an order for goods to one who has already sold out to his successor, and such successor fills out the order and sends me the bill, my consent is lacking, in the absence of knowledge on my part, to any liability to such successor. If I sign a deed thinking it to be a lease, my consent is absent. It is also absent when I sign any instrument whose content or purport is different fromi what I believed it to be. If I sell a piece of land according to a map, and sign a deed including more land than the map calls for, in the belief that the deed corresponds with the map, my consent is lacking to the transfer of the additional plot of land. Likewise a mortgagee does not give his consent to a loan upon the security of a term of years if the security is in fact a mere contingency in remainder. If I throw away a gold ring believing it to be brass, my consent to the abandonment or dereliction of the gold ring is absent. If some one pulls my door-bell and asks for some old newspapers, and I, upon glancing around, tell him to take a certain 153] "

barrelful, forgetting that before leaving upon my vacation I had placed all of my silverware in the bottom of the barrel, in order to mislead possible thieves, my consent is lacking to the transfer of the silver. It is likewise lacking whenever I purchase any article believing that it possessed qualities and attributes which it did not in fact possess, and which, according, to commonly accepted notions, would place the article in a category different from the one in which it must actually be placed.

All of these cases present instances of mistake involving an absence of true will, or a lack of real consent. The act or declaration or its content in each case is not intended or willed by the party subject to the mistake. The mistake accompanies and conceals a variation between the act or declaration and the will which should accompany it.

Mistake is a psychological concept, but a discussion of its psychological basis can be of very little assistance in the law. If a certain act or declaration is not intended or willed, if the consent to it is entirely lacking, the psychological and philosophical deduction is that there is no valid act or declaration. If the law were to start with this deduction, the entire subject of mistake would be extremely simple, for whenever this condition is present, nullity would necessarily be the only decree.

Upon general principles it is a fair conclusion that no one should be held liable for what he did not intend. In criminal law the intent is the essence of the act. In private law the intent is just as important. That such is the case is shown by the treatment accorded to the acts and declarations of lunatics, feeble-minded persons, drunkards when in a helpless condition, and persons known to be subject to certain mental diseases. In normal persons, also, the intent is an essential element. So far as the person is concerned who is laboring under the mistake, it is natural to assume

155] INTRODUCTION 13

the nullity of all acts and declarations to which the real consent of such person is lacking. The real difficulty is caused by the equities of the other party who is not laboring under any mistake, and who believes the particular act or declaration in question to be founded upon a corresponding will. It is manifestly unfair that such a party should suffer for the mistakes of another, or have his equities injuriously affected by mistakes of which he had not, and under the circumstances of the case could not be expected to have, any knowledge. In several of the above cases the only possible interests which could be affected are those of the party making the mistake. In all such cases there could be no hesitation in holding the act or declaration absolutely null. In others there is decided room for a difference of opinion, owing to the existence of equities which call loudly for protection.

The logical tendency, on the one hand, to hold that nullity must always follow when the real consent is absent, and the practical tendency, on the other hand, to protect the equities of innocent parties although the real consent of the mistaken party is absent, has led to the maintenance of two extreme doctrines of mistake or, more accurately, two theories of the juristic act.^ The former may well be called the subjective theory, while the latter may be called the objective theory. Those who hold the former would insist in all events that if, in connection with a mistake, there is an essential variation between the will and expression, and a consequent lack of real consent to the act or declara-

'The phrase "juristic act" is a comparatively recent accession to English jurisprudence. It is the best possible translation of the German term ^' Rechtsgesch&ft," long employed in German law to express the generic idea of an intentional legal act with definite consequences. In English law, the corresponding idea has always been expressed by the specific term in each instance. See Holland, Jurisprudence, p. no.

tion in question, nullity must always follow, irrespective of all equities. Those who hold the latter theory would always insist that even though such a mistake should exist, with a consequent lack of real consent, yet validity must be decreed, because the sole criterion as to what the will is, is the act or expression itself.

Both of these views in their extremes are incorrect. Either, if applied inconsiderately, would be far from producing equitable results. Probably a mean between the two would represent the correct theory. The following is submitted: Whenever there is an unintentional variation between the will and its expression, with a consequent lack of real consent, nullity is to be decreed, unless there are manifest equities which, for their protection, require that a preponderating influence shall be given to the expression. The real problem, therefore, which presents itself is an investigation of the nature of these equities, together with the conditions under which, and the extent to which, they shall be protected. This is the task of the present article.

The treatment of the subject will be comparative. The theory of the Roman law as formulated by Savigny will be first stated as a basis. In connection with it, mistake in motive will have to be defined and treated in so far as may be necessary to differentiate the subjects and to secure clearness of argument in the succeeding sections. The next task will be to state the theories of later continental jurists, to discover the present continental doctrine of nullity on the ground of mistake, and to give the reasons for it. The final task will be the treatment of the common law upon the same subject and along the same lines.

Part I Roman Law

The existence in the Digest of Justinian of several passages to the eflfect that a mistake must always exclude the existence of the will, has led to the formulation of the apparently very simple doctrine that all juristic acts based on or induced by mistake are void." The obstacle to the acceptation of this rule as final was found in the very clear doctrine of fraud (dolus). The doctrine of fraud assumed the validity of the contract until successfully attacked, either through the actio doli or through an exceptio doli to the action brought for the enforcement of the contract. The doctrine of mistake as interpreted from the passages in question assumed the nullity of the contract ab initio. The attempt to reconcile the two doctrines under a uniform theory of mistake led to infinite refinements and subtleties, the sole object of which was to conform the theory to the dicta and decisions in the Digest.

Savigny made a close study of the doctrine of fraud, and came to the conclusion that if a mistake were in itself sufficient to exclude the existence of the will or consent in one case, then it must have a similar effect in all cases.' The

'The authority upon this branch of the subject is Savigny, System del heutigen rdmiscken Rechts, vol. iii. 'Dig. 2, I, is; S, I, 2, pr.; 39, 3. 20; and so, 17, 116, S 2. •Savigny, System, iii, p. 342.

l6 MISTAKE IN CONTRACT [158

principle in its nature could admit of no exception. It would, therefore, follow that a contract entered into through a mistake must be void at the beginning. Nothing, however, was more clear in Roman law than) that a contract induced by fraud was prima facie valid. As a general rule, it could be attacked only through the exceptio doli, as a defense to the main action. Even in those rare cases in which the actio doli itself was permitted, i. e., when there was no other legal remedy — a limitation due to the odious nature of the action, on account of the infamia attached to it — ^the contract itself was not considered as null. In fact, the actio doli was directed against the fraud rather than against the validity of the contract. Savigny, therefore, laid down the principle that in itself a mistake had absolutely no effect upon the production or failure of production of the juristic act, and that it could only in exceptional cases have any effect upon the operation of the juristic act after it was produced.

Savigny was also led to this conclusion by an analysis of the juristic act. He reasoned that all expressions and acts are merely attempts to make clear to others what the will actually is. Inasmuch as the will is something indiscernible, acting inwardly, it needs indicia, whereby it can be known to others. These indicia whereby the will is disclosed are precisely the expression, be it in the form of words or acts.* The agreement between the will and its expression is not an accidental but a natural relation." The mere failure, therefore, of correspondence between the will and expression is in itself sufficient, under certain conditions, to render null any given act. The failure of correspondence may be due to mistake, or something else, but whatever the cause may be, it is the failure of correspondence alone, independ-

' Savigny, System, iii, p. 258. 'Ibid., pp. 258, 356.

ently of such cause, which is the true ground of nulHty. If, therefore, in cases of fraud, it is not the mistake but the fraud that malses the act voidable, and if, in cases of non-correspondence between the will and its expression, it is lack of correspondence, and not a possible accompanying mistake, that constitutes the true ground of nullity, fhe rule that a mistake in itself has no possible effect or operation is doubly justified.

Searching through the texts of the Roman law, Savigny found ample support for his theses. He showed by the actual decisions that the existence of a mistake was never a direct cause of nullity. He who has made a gift in compensation for supposed services, which in fact were never rendered, cannot recover back his money. ^ When two persons bargain, and a third party lends false weights to the vendor, who is innocent, the mistake does not affect the validity of the sale, but the contract must be completed by giving full weight. The mistake is a ground neither of nullity nor for further fulfilment, which latter depends on the terms of the contract itself. If, however, the contract is expressly made dependent upon the particular weights employed, the actio doli lies against the third party, which proves that the contract is not null for mistake.^ Again, if a creditor agrees to an acceptilatio, or discharge without payment, procured through the fraud of his debtor, the actio doli is permitted.' If in this case the discharge were void by reason of the creditor's mistake, he would have his original cause of action on the debt. If he had such a remedy, he would not be permitted to resort to the actio doli, which made the defeated defendant infamous. In this case, l8 MISTAKE IN CONTRACT [i6o

therefore, the proof is complete that the mistake does not affect the validity of the contract of release.

Were it not for such a rule as this, we should, in Savigny's opinion, be subjected in our daily business affairs to an intolerable degree of insecurity.^

To the rule that where consent exists mistake has regularly no significance, Savigny recognizes the following exceptions : First, the legal result which ordinarily attaches to an act or an omission may be expressly excluded by the law when the person acts or fails to act without knowledge of essential facts. Here the mistake operates directly; it excludes the ordinary legal result. Secondly, mistake may indirectly affect the legal results of an act, because the law gives a special but ordinary remedy, either in the form of an action or an exception. Thirdly, mistake may enable the person affected to apply for the extraordinary and equitable relief of restitutio in integrum.

Under the first exception may be mentioned the case of marriage with a widow during her period of mourning. If the marriage was entered into with knowledge of this fact, infamia was the penalty. Yet if it was an innocent act, the mistake operates directly to ward off the infamia.'^ Likewise an action to recover a loan made to a Miu^ fwmUias may be defeated through an exceptio raised under the Senatus consultum Macedonianum. Yet if the loan were made in ignorance of the fact that the defendant was a filius familias, the mistake operates directly to render the exceptio unavailable.'

The second exception includes all the cases of ordinary or regular relief from the legal results of an act because

' Savigny, System, iii, p. 355.

l6l] ROMAN LAW 19

of mistake. If one, through mistake, pays money which is not owed, the condictio was allowed for the purpose of recovering it.^ This was the condictio indebiti, and was by far the most important of all the condictiones sine causa, or actions based on unjust enrichment. Again, when one buys an article which has a hidden defect, his mistake is sufficient ground for holding that he may either repudiate the purchase, or require a reduction in price. This he was enabled to do under the edict of the aediles.''

Tlie third exception includes all cases of restitutio on account of mistake. Restitutio is an extraordinary remedy given in cases of damage resulting from innocent acts or omissions, and in favor of certain classes of persons. Such relief was granted with especial frequency in the case of acts and omissions in procedure. Thus, if a ward were sued in a case where a falsus tutor had given his auctoritas, a non-suit would follow for want of any ground of action, and legally no further action would lie. Yet if the ward had become enriched unjustly, a restitutio was granted by the praetor.* If a co-heir claimed to be the only heir, and a suit was brought against him for a debt due from the inheritance, the right of action was thereby lost as against the other co-heirs. But if the defendant was insolvent, the right of action was restored as against the others.* Whoever sued for more than he had a right to, lost all by plus petendo. But he could have his right of action restored provided he could show a justifiable mistake." If a slave were accepted through mistake as bail or surety, the mistake was a ground of restitution or renewal of the secur-

'Gaius, iv, § 53.

ity.^ A confession in open court was binding, but if the confession was based upon a mistake, the party would be put in his former position prior to the mistake.^ A mistake by a minor in loaning to a Mitis familias, or in accepting insufficient security, or in neglecting the period of honorwm possessio, will justify a restitutio.

It will be seen that in none of the above cases is the act void by reason of the mistake. There is no lack of correspondence between the will and its mSLnifestation, and therefore the act is per se valid. The mistake operates only to affect the legal results of the act. The doctrine is, therefore, well justified that where there is real consent, mistake is in itself immaterial, save in exceptional instances. When mistake does operate by way of exception to the general rule, there are in each instance equities which, rather than the mistake alone, seemi to be the real ground of relief. In other words, the remedy depends upon equitable features coupled with mistake. This view is borne out by Savigny when he maintains that each case must be considered by itself; that negligence regularly precludes all hope of relief; that there is a presumption of negligence in the case of mistake in law, but that it must be proved in the case of mistake in fact.

If we recur to the proposition, nulla voluntas errantis est, and consider in connection with it the cases above indicated, in which by way of exception an effect is attributed to mistake, we have an additional ground for repudiating the doctrine that mistake necessarily excludes consent, or is evidence of its absence. Most assuredly if such a doctrine were true, there would be no need whatever for the exceptions enumerated.^ It would, therefore, seem that in

' Savigny, System, iii, p. 356.

the light of every possible investigation, not only in the abstract, but also as supported by the actual decisions, the doctrine of mistake cannot be founded upon the general passages first above noted, which hold that a mistake necessarily excludes consent.

What, then, is the legitimate interpretation of such passages? Since the apparent meaning is evidently incorrect, they require special interpretation. They cannot be treated as independent passages. They require a study of the context and of related passages. Some of the cases in which the phrase is used are as follows : When an owner, through mistake, believes that his property belongs to another, and verbally expresses such an opinion, his ownership is not at all afifected.^ Neither is it affected when, through mistake as to the ownership, he agrees to assist a stranger in a real action for its recovery.'' The same must be held when, through such a mistake, he permits a stranger to enjoy the fruits.' The basis of such decisions as these, as Savigny points out, is that the nullity depends not on the mistake, but on the absence of any binding legality in the acts in question. The passages in question, therefore, cannot be taken in a literal sense. Tliey merely mean that, under the particular conditions of the given case, the transaction in question, presenting itself under the aspect of mistake, is null and void.*

The true doctrine of the Roman law is that a mistake has absolutely no effect in preventing the formation of a legal relationship, and only a limited effect in exceptional cases in excluding- or modifying the l^al results which ordinarily attach to such a relationship; and that even in these exceptional cases mistake cannot be pleaded if the

•Dig. 31, 79. 'Savigny, System, iii, p. 343.

party was guilty of culpable negligence. But limited as these exceptional cases are, we must recognize the fact that in them, and in them alone, is the mistake the ground of relief. They are the only cases in which we can speak of mistake as afifecting legal relations.

We cannot speak of the effects of a mistake except in those cases in which the usual and regular results of such juristic acts as depend upon the free will are excluded or modified through the existence of a mistake, because in view of such mistake the will is regarded as incomplete.^

It is in such cases that Savigny calls the mistake echt, or genuine, because of its direct efifect or influence upon the juristic act. Other cases of mistake, he insists, are not genuine or real, because it is not the mistake that is really significant, or that afifects the juristic act.

If the case in which a mistake occurs is in itself so constituted that it lacks the necessary conditions of a juristic fact, it is not the mistake which excludes the consequences of such a fact, and it is therefore incorrect to speak of any operation of the mistake in these cases. . . . Such cases may be designated as unechter Irrthum.^

The second category is of very great importance. In this class of mistakes it is the unintentional variation between will and expression which is the ground of nullity. Mistake is always present, and is undoubtedly the cause of the variation between the will and its expression; but the utmost that can be said for it is that it is an indirect cause of the nullity of the juristic act. Savigny, however, ignores even this indirect operation of the mistake and insists that

^Savigny, System, iii, p. 440. ^ Ibid.

it is the variation alone which causes the nulHty. " The mistake," he says, " is of importance in so far as we can recognize from it the fact that the will, which, in view of the declaration would necessarily be assumed to exist, is in fact not present, for which reason the legal consequences of the will cannot ensue." ^

In this class of cases it must be remembered that the variation between will and declaration is always unconscious. The two other forms of variation, i. e., concealed or mental reservation, which is a species of fraud, and unconcealed intentional variation, which is best illustrated by the drama, are both conscious, and being for this reason entirely unconnected with the subject of mistake are excluded from consideration in the present discussion.

The unconscious variation between the will and its declaration does not exclude consent and make the act void unless the variation is important, or " essential." The customary list of essential mistakes includes the following classes : mistake as to the nature of the legal relationship ; mistake as to the identity of the person ; and mistake as to the identity of the object, including mistake in substantia.

In each of these classes we perceive a mistake accompanying the juristic act, and from this fact we can always recognize the absence of the true will and likewise a resulting invalid juristic act. But it is not every accompanying mistake which will warrant the assertion of such absence, and it is therefore of great importance that we should lay down precise limits within which an influence is to be attributed to a mistake. The authorities have united in holding that only an essential mistake shall be taken into consideration, while all those of a trivial nature shall be ignored in ascertaining the existence of the will.''

24 MISTAKE IN CONTRACT [i66

Mistake as to the nature of the legal relationship occurs, for example, when one loans an article or sum of money to another, who understands the transaction as a gift. In this instance the binding obligation which is incident to a loan does not attach to the party making such a mistake.^ The transaction is, therefore, neither a loan nor a gift, and the plaintiff must seek his remedy in a vindicatio, or real action, or in a condictio based on a quasi-contractual obligation. Likewise if one makes a present of money to one who thinks it is a loan, the relationship peculiar to a loan does not arise. ^ But in this latter case the transaction operates as a gift, because the mistaken party has no beneficial interest in asserting his lack of consent. The fact that one is mistaken as to what legal relationship he is entering into presents a case of essential mistake, and will, therefore, result in the nullity of the juristic act or contract. The only modification of this principle arises through the absence of a beneficial interest, which might otherwise be affected.