The facts of the case are that a kitemaker namely, Bob asked Sally a thread maker to supply five tons of string against a consideration of $1000. Sally accepted the offer and sent him an invoice for $1000 for the supply of five tons of thread with a condition that in case of dispute arbitration will take place in California she subsequently shipped the ordered goods.
Bob accepted the invoice but stated that he would prefer arbitration at Missouri shipped goods were accepted by Bob but on inspection of the goods he realised that supplied string were not workable for kite flying, since string of higher thickness was required for kites. This mistake was neither discussed in the earlier order nor was any specific direction given by Bob to Sally. Confronted with this situation Sally offered to send thicker string against a consideration of $1000, the offer was accepted by the Bob, but two months later Sally refused to honour her commitment. In order to settle this dispute, we propose the following issues are relevant:
a) Is there a contract between Sally and Bob? If so, at what point in time was it formed?
b) Assuming there is a contract between Bob and Sally, what are the terms? More specifically, must Sally ship the thicker string? Will the contract be subject to arbitration? If so, where? And finally, is Sally bound to provide a warranty on the string?
From the above stated facts, it is evident that before the detection of mistake with regard to thickness of the string, a contract was formed between the parties except that there was no agreement on the place of arbitration as minds of the parties never met on this issue. However, once the disagreement and mistake came into notice of the parties, the contract became voidable, a similar issue was settled in T.C. Sherwood v Hiram Walker Case: 33 N.W. 919 (Mich. 1887) where it was held that where there is difference or misapprehension as to the substance of the things bargained for; and if the things actually received or delivered are different in substance from the things bargained for, there is no contract.
In the present case thickness of the string is vital in the commercial trade for distinction and value of string. The thickness of the thread obviously constitutes a different, distinguishable and independently marketable product. In this regard WTO Customs Tariff is of much relevance where thread of different thickness have been shown as different and distinct items, as such from the existence of mutual mistake or misunderstanding with regard to thickness of string, there was no contract.
Bob argues that a valid contract was made for the supply of strings and the same was evident from the mutual correspondence, consequently the Sally was under an obligation to supply the string of desired thickness.
On the other hand [it appears] that there was no contract in existence as mutual assent which is a prerequisite to the creation of a contract was found absent. Reliance is placed on the case of Board of School Commissioners of City of Indianapolis v. Bender (1904). 36 Ind. App. 164, 172, 72 NE 154, 157. As is evident both parties shared a common assumption about a vital fact upon which they based their bargain, and that assumption was later found to be false, in these circumstances the transaction is to be avoided because of the mistake as a quite different exchange of value occurs from the exchange of values contemplated by the parties. There is thus no contract, because the minds of the parties have in fact never met. Reliance was place on J. Calameri & J. Pevillo, The Law of Contracts § 9-26 (1987).
The necessity of mutual assent, or "meeting of the minds," is illustrated in the classic case of Sherwood v. Walker (supra) where the owners of a blooded cow indicated to the purchaser that the cow was barren. The purchaser also appeared to believe that the cow was barren. Consequently, a bargain was made to sell at a price per pound at which the cow would have brought approximately $80.00. Before delivery, it was discovered that the cow was with calf and that she was, therefore, worth from $750.00 to $1,000.00. The court ruled that the transaction was voidable:
"The mistake was not of the mere quality of the animal, but went to the very nature of the thing. A barren cow is substantially a different creature than a breeding one. There is as much difference between them ... as there is between an ox and a cow"
Like the parties in Sherwood, the parties in the instant case shared a common presupposition as to the existence of certain facts which proved false. Sally considered that the supply made was perfect and there was no violation of the contract as neither party suspected that string supplied was defective. The Bob is of the view that in the existing circumstances one party experienced unexpected gain while the other party experienced an unexpected loss. As both the parties never thought that the string for kites must be of specified thickness.
The discovery that the supplied string was unfit for consumption was unexpected. The loss caused to the Bob as such was unexpected. Hence here the seller seeks to retain a gain that was the outcome by the presence of fact quite different from those on which the parties based their bargain. Thus it appears that there was no agreement for the purchase or sale or for other disposition of the string of specified thickness, because there was no meeting of minds.
Sally contended that there stood a misunderstanding about the nature of string, hence in accordance with law there is no agreement and therefore no contract in terms of section 20 of the Reinstatement of Contracts. This proposition raised by the seller supports the existing legal position as stated in section 20 id.
Bob contends that grounds for making reformation of the contract do exist. As regards reformation it may be stated that reformation for mutual mistake is not available where facts upon which the mistake was based were not knowable at the time of contracting. Since the outcome of fact is unknowable, the parties can make a mistake concerning that fact. And where the existence of a fact is unknowable, the parties can not have a belief concerning that fact and they cannot make a mistake about it. Atlas Corp v. United States, 895 F.2d 745 (Fed. Cir, 1990).
Some courts have however allowed reformation of contracts: See for example, Karpinski Inqrassi, 28 N.Y. 2d 45 (1971) UCC 2-302 (1) 2-719 § 2-719 (2) & (3). In Aluminium Corporation's Case 499 F.Supp, 53 (W.D.Pa: 1980) duty of performance was excused. In fact reformation is allowed to remedy problem other than mistake in the expression of agreements, these remedies nevertheless have little to do with the intentions of the parties.
However, when Sally made a counter offer to supply goods @ $1000, which was accepted by Bob, an enforceable contract came into existence. Now we turn to another assumption that there exists a contract between the Bob and Sally. The terms of the contract state:
a) Supply of five tons of string against a payment of $1000/-,
b) The invoice state supply of five tons of string,
c) Sally opted for California arbitration,
d) Bob opted for Missouri arbitration,
e) After the discovery of misunderstanding about the nature of string Sally makes a counter offer for supply of thicker string against a consideration of $1000/-,
f) Bob accepted the counter offer,
g) A contract is formed.
It is evident that following terms were agreed after knowing that string sent was not fit for use in kites: i) counter offer for the supply of thick string by the Sally, ii) acceptance of the offer by Bob of the terms of the contract were: supply of thick string against a consideration of $1000/-.
After the discovery that supplied goods were not useable in kites Sally made a counter offer which was accepted by Bob, created a valid contract and Sally was bound to supply the thick string since in terms of UCC Article 2-207 (3), a contract for sale came into existence. The contract is not subject to arbitration as the parties differed and failed to agree on the state where arbitration can be made.
In terms of the § 2- 313 of UCC, no express warranty was created since there did not exist any affirmation, description of goods, or violation of sample.
(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates)
Comments
Comments are closed.