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II. C. Mistake
  • 1 Sherwood v. Walker

    1

    66 Mich. 568
    33 N.W. 919

    2
    SHERWOOD
    v.
    WALKER and others.
    3

    Supreme Court of Michigan

    4

    July 7, 1887.

    5

    Error to circuit court, Wayne county.

    6

    SHERWOOD, J., dissents. [919] C.J. Reilly, for plaintiff.

    7

    Wm. Aikman, Jr., (D.C. Holbrook, of counsel,) for defendants and appellants.

    8
    MORSE, J.
    9

    Replevin for a cow. Suit commenced in justice's court; judgment for plaintiff; appealed to circuit court of Wayne county, and verdict and judgment for plaintiff in that court. The defendants bring error, and set out 25 assignments of the same.

    10

    The main controversy depends upon the construction of a contract for the sale of the cow. The plaintiff claims that the title passed, and bases his action upon such claim. The defendants contend that the contract was executory, and by its terms no title to the animal was acquired by plaintiff. The defendants reside at Detroit, but are in business at Walkerville, Ontario, and have a farm at Greenfield, in Wayne county, upon which were some blooded cattle supposed to be barren as breeders. The Walkers are importers and breeders of polled Angus cattle. The plaintiff is a banker living at Plymouth, in Wayne county. He called upon the defendants at Walkerville for the purchase of some of their stock, but found none there that suited him. Meeting one of the defendants afterwards, he was informed that they had a few head [920] upon their Greenfield farm. He was asked to go out and look at them, with the statement at the time that they were probably barren, and would not breed. May 5, 1886, plaintiff went out to Greenfield, and saw the cattle. A few days thereafter, he called upon one of the defendants with the view of purchasing a cow, known as Rose 2d of Aberlone. After considerable talk, it was agreed that defendants would telephone Sherwood at his home in Plymouth in reference to the price. The second morning after this talk he was called up by telephone, and the terms of the sale were finally agreed upon. He was to pay five and one-half cents per pound, live weight, fifty pounds shrinkage. He was asked how he intended to take the cow home, and replied that he might ship her from King's cattle-yard. He requested defendants to confirm the sale in writing, which they did by sending him the following letter: WALKERVILLE, May 15, 1886.

    11

    T.C. Sherwood, President, etc.-DEAR SIR: We confirm sale to you of the cow Rose 2d of Aberlone, lot 56 of our catalogue, at five and half cents per pound, less fifty pounds shrink. We inclose herewith order on Mr. Graham for the cow. You might leave check with him, or mail to us here, as you prefer. Yours, truly, HIRAM WALKER & SONS.

    12

    The order upon Graham inclosed in the letter read as follows:

    13

    WALKERVILLE, May 15, 1886.

    14

    George Graham: You will please deliver at King's cattle-yard to Mr. T.C. Sherwood, Plymouth, the cow Rose 2d of Aberlone, lot 56 of our catalogue. Send halter with the cow, and have her weighed.

    15

    Yours truly, HIRAM WALKER & SONS.

    16

    On the twenty-first of the same month the plaintiff went to defendants' farm at Greenfield, and presented the order and letter to Graham, who informed him that the defendants had instructed him not to deliver the cow. Soon after, the plaintiff tendered to Hiram Walker, one of the defendants, $80, and demanded the cow. Walker refused to take the money or deliver the cow. The plaintiff then instituted this suit. After he had secured possession of the cow under the writ of replevin, the plaintiff caused her to be weighed by the constable who served the writ, at a place other than King's cattle-yard. She weighed 1,420 pounds.

    17

    When the plaintiff, upon the trial in the circuit court, had submitted his proofs showing the above transaction, defendants moved to strike out and exclude the testimony from the case, for the reason that it was irrelevant and did not tend to show that the title to the cow passed, and that it showed that the contract of sale was merely executory. The court refused the motion, and an exception was taken. The defendants then introduced evidence tending to show that at the time of the alleged sale it was believed by both the plaintiff and themselves that the cow was barren and would not breed; that she cost $850, and if not barren would be worth from $750 to $1,000; that after the date of the letter, and the order to Graham, the defendants were informed by said Graham that in his judgment the cow was with calf, and therefore they instructed him not to deliver her to plaintiff, and on the twentieth of May, 1886, telegraphed plaintiff what Graham thought about the cow being with calf, and that consequently they could not sell her. The cow had a calf in the month of October following. On the nineteenth of May, the plaintiff wrote Graham as follows: PLYMOUTH, May 19, 1886.

    18

    Mr. George Graham, Greenfield-DEAR SIR: I have bought Rose or Lucy from Mr. Walker, and will be there for her Friday morning, nine or ten o'clock. Do not water her in the morning.

    19

    Yours, etc., T.C. SHERWOOD.

    20

    Plaintiff explained the mention of the two cows in this letter by testifying that, when he wrote this letter, the order and letter of defendants was at his home, and, writing in a hurry, and being uncertain as to the name of the cow, and not wishing his cow watered, he thought it would do no harm to name them [921] both, as his bill of sale would show which one he had purchased. Plaintiff also testified that he asked defendants to give him a price on the balance of their herd at Greenfield, as a friend thought of buying some, and received a letter dated May 17, 1886, in which they named the price of five cattle, including Lucy, at $90, and Rose 2d at $80. When he received the letter he called defendants up by telephone, and asked them why they put Rose 2d in the list, as he had already purchased her. They replied that they knew he had, but thought it would make no difference if plaintiff and his friend concluded to take the whole herd.

    21

    The foregoing is the substance of all the testimony in the case.

    22

    The circuit judge instructed the jury that if they believed the defendants, when they sent the order and letter to plaintiff, meant to pass the title to the cow, and that the cow was intended to be delivered to plaintiff, it did not matter whether the cow was weighed at any particular place, or by any particular person; and if the cow was weighed afterwards, as Sherwood testified, such weighing would be a sufficient compliance with the order. If they believed that defendants intended to pass the title by writing, it did not matter whether the cow was weighed before or after suit brought, and the plaintiff would be entitled to recover. The defendants submitted a number of requests which were refused. The substance of them was that the cow was never delivered to plaintiff, and the title to her did not pass by the letter and order; and that under the contract, as evidenced by these writings, the title did not pass until the cow was weighed and her price thereby determined; and that, if the defendants only agreed to sell a cow that would not breed, then the barrenness of the cow was a condition precedent to passing title, and plaintiff cannot recover. The court also charged the jury that it was immaterial whether the cow was with calf or not. It will therefore be seen that the defendants claim that, as a matter of law, the title of this cow did not pass, and that the circuit judge erred in submitting the case to the jury, to be determined by them, upon the intent of the parties as to whether or not the title passed with the sending of the letter and order by the defendants to the plaintiff.

    23

    This question as to the passing of title is fraught with difficulties, and not always easy of solution. An examination of the multitude of cases bearing upon this subject, with their infinite variety of facts, and at least apparent conflict of law, ofttimes tends to confuse rather than to enlighten the mind of the inquirer. It is best, therefore, to consider always, in cases of this kind, the general principles of the law, and then apply them as best we may to the facts of the case in hand.

    24

    The cow being worth over $50, the contract of sale, in order to be valid, must be one where the purchaser has received or accepted part of the goods, or given something in earnest, or in part payment, or where the seller has signed some note or memorandum in writing. How.St. 6186. Here there was no actual delivery, nor anything given in payment or in earnest, but there was a sufficient memorandum signed by the defendants to take the case out of the statute, if the matter contained in such memorandum is sufficient to constitute a completed sale. It is evident from the letter that the payment of the purchase price was not intended as a condition precedent to the passing of the title. Mr. Sherwood is given his choice to pay the money to Graham at King's cattle-yards, or to send check by mail.

    25

    Nor can there be any trouble about the delivery. The order instructed Graham to deliver the cow, upon presentation of the order, at such cattle-yards. But the price of the cow was not determined upon to a certainty. Before this could be ascertained, from the terms of the contract, the cow had to be weighed; and, by the order inclosed with the letter, Graham was instructed to have her weighed. If the cow had been weighed, and this letter had stated, upon such weight, the express and exact price of the animal, there can be no [922] doubt but the cow would have passed with the sending and receipt of the letter and order by the plaintiff. Payment was not to be a concurrent act with the delivery, and therein this case differs from Case v. Dewey, 55 Mich. 116, 20 N.W.Rep. 817, and 21 N.W.Rep. 911. Also, in that case, there was no written memorandum of the sale, and a delivery was necessary to pass the title of the sheep; and it was held that such delivery could only be made by a surrender of the possession to the vendee, and an acceptance by him. Delivery by an actual transfer of the property from the vendor to the vendee, in a case like the present, where the article can easily be so transferred by a manual act, is usually the most significant fact in the transaction to show the intent of the parties to pass the title, but it never has been held conclusive. Neither the actual delivery, nor the absence of such delivery, will control the case, where the intent of the parties is clear and manifest that the matter of delivery was not a condition precedent to the passing of the title, or that the delivery did not carry with it the absolute title. The title may pass, if the parties so agree, where the statute of frauds does not interpose without delivery, and property may be delivered with the understanding that the title shall not pass until some condition is performed.

    26

    And whether the parties intended the title should pass before delivery or not is generally a question of fact to be determined by a jury. In the case at bar the question of the intent of the parties was submitted to the jury. This submission was right, unless from the reading of the letter and the order, and all the facts of the oral bargaining of the parties, it is perfectly clear, as a matter of law, that the intent of the parties was that the cow should be weighed, and the price thereby accurately determined, before she should become the property of the plaintiff. I do not think that the intent of the parties in this case is a matter of law, but one of fact. The weighing of the cow was not a matter that needed the presence or any act of the defendants, or any agent of theirs, to be well or accurately done. It could make no difference where or when she was weighed, if the same was done upon correct scales, and by a competent person. There is no pretense but what her weight was fairly ascertained by the plaintiff. The cow was specifically designated by this writing, and her delivery ordered, and it cannot be said, in my opinion, that the defendants intended that the weighing of the animal should be done before the delivery even, or the passing of title. The order to Graham is to deliver her, and then follows the instruction, not that he shall weigh her himself, or weigh her, or even have her weighed, before delivery, but simply, Send halter with the cow, and have her weighed.

    27

    It is evident to my mind that they had perfect confidence in the integrity and responsibility of the plaintiff, and that they considered the sale perfected and completed when they mailed the letter and order to plaintiff. They did not intend to place any conditions precedent in the way, either of payment of the price, or the weighing of the cow, before the passing of the title. They cared not whether the money was paid to Graham, or sent to them afterwards, or whether the cow was weighed before or after she passed into the actual manual grasp of the plaintiff. The refusal to deliver the cow grew entirely out of the fact that, before the plaintiff called upon Graham for her, they discovered she was not barren, and therefore of greater value than they had sold her for.

    28

    The following cases in this court support the instruction of the court below as to the intent of the parties governing and controlling the question of a completed sale, and the passing of title: Lingham v. Eggleston, 27 Mich. 324;Wilkinson v. Holiday, 33 Mich. 386;Grant v. Merchants' & Manufacturers' Bank, 35 Mich. 527;Carpenter v. Graham, 42 Mich. 194, 3 N.W.Rep. 974;Brewer v. Michigan Salt Ass'n, 47 Mich. 534, 11 N.W.Rep. 370;Whitcomb v. Whitney, 24 Mich. 486;Byles v. Colier, 54 Mich. 1, 19 N.W.Rep. 565;Scotten v. Sutter, 37 Mich. 527, 532; [923] Ducey Lumber Co. v. Lane, 58 Mich. 520, 525, 25 N.W.Rep. 568;Jenkinson v. Monroe, 28 N.W.Rep. 663.

    29

    It appears from the record that both parties supposed this cow was barren and would not breed, and she was sold by the pound for an insignificant sum as compared with her real value if a breeder. She was evidently sold and purchased on the relation of her value for beef, unless the plaintiff had learned of her true condition, and concealed such knowledge from the defendants. Before the plaintiff secured the possession of the animal, the defendants learned that she was with calf, and therefore of great value, and undertook to rescind the sale by refusing to deliver her. The question arises whether they had a right to do so. The circuit judge ruled that this fact did not avoid the sale and it made no difference whether she was barren or not. I am of the opinion that the court erred in this holding. I know that this is a close question, and the dividing line between the adjudicated cases is not easily discerned. But it must be considered as well settled that a party who has given an apparent consent to a contract of sale may refuse to execute it, or he may avoid it after it has been completed, if the assent was founded, or the contract made, upon the mistake of a material fact,-such as the subject-matter of the sale, the price, or some collateral fact materially inducing the agreement; and this can be done when the mistake is mutual. 1 Benj. Sales, 605, 606; Leake, Cont. 339; Story, Sales, (4th Ed.) 377, 148. See, also, Cutts v. Guild, 57 N.Y. 229;Harvey v. Harris, 112 Mass. 32;Gardner v. Lane, 9 Allen, 492, 12 Allen, 44; Huthmacher v. Harris' Adm'rs, 38 Pa.St. 491; Byers v. Chapin, 28 Ohio St. 300;Gibson v. Pelkie, 37 Mich. 380, and cases cited; Allen v. Hammond, 11 Pet. 63-71.

    30

    If there is a difference or misapprehension as to the substance of the thing bargained for; if the thing actually delivered or received is different in substance from the thing bargained for, and intended to be sold,-then there is no contract; but if it be only a difference in some quality or accident, even though the mistake may have been the actuating motive to the purchaser or seller, or both of them, yet the contract remains binding. The difficulty in every case is to determine whether the mistake or misapprehension is as to the substance of the whole contract, going, as it were, to the root of the matter, or only to some point, even though a material point, an error as to which does not affect the substance of the whole consideration. Kennedy v. Panama, etc., Mail Co., L.R. 2 Q.B. 580, 587. It has been held, in accordance with the principles above stated, that where a horse is bought under the belief that he is sound, and both vendor and vendee honestly believe him to be sound, the purchaser must stand by his bargain, and pay the full price, unless there was a warranty.

    31

    It seems to me, however, in the case made by this record, that the mistake or misapprehension of the parties went to the whole substance of the agreement. If the cow was a breeder, she was worth at least $750; if barren, she was worth not over $80. The parties would not have made the contract of sale except upon the understanding and belief that she was incapable of breeding, and of no use as a cow. It is true she is now the identical animal that they thought her to be when the contract was made; there is no mistake as to the identity of the creature. Yet 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 for all purposes of use as there is between an ox and a cow that is capable of breeding and giving milk. If the mutual mistake had simply related to the fact whether she was with calf or not for one season, then it might have been a good sale, but the mistake affected the character of the animal for all time, and for its present and ultimate use. She was not in fact the animal, or the kind of animal, the defendants intended to sell or the plaintiff to buy. She was not a barren cow, and, if this fact had been known, there would have been no contract. The mistake [924] affected the substance of the whole consideration, and it must be considered that there was no contract to sell or sale of the cow as she actually was. The thing sold and bought had in fact no existence. She was sold as a beef creature would be sold; she is in fact a breeding cow, and a valuable one. The court should have instructed the jury that if they found that the cow was sold, or contracted to be sold, upon the understanding of both parties that she was barren, and useless for the purpose of breeding, and that in fact she was not barren, but capable of breeding, then the defendants had a right to rescind, and to refuse to deliver, and the verdict should be in their favor.

    32

    The judgment of the court below must be reversed, and a new trial granted, with costs of this court to defendants.

    33

    CAMPBELL, C.J., and CHAMPLIN, J., concurred.

    34
    SHERWOOD, J., (dissenting.)
    35

    I do not concur in the opinion given by my brethren in this case. I think the judgments before the justice and at the circuit were right. I agree with my Brother MORSE that the contract made was not within the statute of frauds, and the payment for the property was not a condition precedent to the passing of the title from the defendants to the plaintiff. And I further agree with him that the plaintiff was entitled to a delivery of the property to him when the suit was brought, unless there was a mistake made which would invalidate the contract, and I can find no such mistake. There is no pretense there was any fraud or concealment in the case, and an intimation or insinuation that such a thing might have existed on the part of either of the parties would undoubtedly be a greater surprise to them than anything else that has occurred in their dealings or in the case.

    36

    As has already been stated by my brethren, the record shows that the plaintiff is a banker and farmer as well, carrying on a farm, and raising the best breeds of stock, and lived in Plymouth, in the county of Wayne, 23 miles from Detroit; that the defendants lived in Detroit, and were also dealers in stock of the higher grades; that they had a farm at Walkerville, in Canada, and also one in Greenfield in said county of Wayne, and upon these farms the defendants kept their stock. The Greenfield farm was about 15 miles from the plaintiff's. In the spring of 1886 the plaintiff, learning that the defendants had some polled Angus cattle for sale, was desirous of purchasing some of that breed, and meeting the defendants, or some of them, at Walkerville, inquired about them, and was informed that they had none at Walkerville, but had a few head left on their farm in Greenfield, and asked the plaintiff to go and see them, stating that in all probability they were sterile and would not breed. In accordance with said request, the plaintiff, on the fifth day of May, went out and looked at the defendants' cattle at Greenfield, and found one called Rose, Second, which he wished to purchase, and the terms were finally agreed upon at five and a half cents per pound, live weight, 50 pounds to be deducted for shrinkage. The sale was in writing, and the defendants gave an order to the plaintiff directing the man in charge of the Greenfield farm to deliver the cow to plaintiff. This was done on the fifteenth of May. On the twenty-first of May plaintiff went to get his cow, and the defendants refused to let him have her; claiming at the time that the man in charge at the farm thought the cow was with calf, and, if such was the case, they would not sell her for the price agreed upon. The record further shows that the defendants, when they sold the cow, believed the cow was not with calf, and barren; that from what the plaintiff had been told by defendants (for it does not appear he had any other knowledge or facts from which he could form an opinion) he believed the cow was farrow, but still thought she could be made to breed. The foregoing shows the entire interview and treaty between the parties as to the sterility and qualities of the cow sold to the plaintiff. The cow had a calf in the month of October.

    37

    [925] There is no question but that the defendants sold the cow representing her of the breed and quality they believed the cow to be, and that the purchaser so understood it. And the buyer purchased her believing her to be of the breed represented by the sellers, and possessing all the qualities stated, and even more. He believed she would breed. There is no pretense that the plaintiff bought the cow for beef, and there is nothing in the record indicating that he would have bought her at all only that he thought she might be made to breed. Under the foregoing facts,-and these are all that are contained in the record material to the contract,-it is held that because it turned out that the plaintiff was more correct in his judgment as to one quality of the cow than the defendants, and a quality, too, which could not by any possibility be positively known at the time by either party to exist, the contract may be annulled by the defendants at their pleasure. I know of no law, and have not been referred to any, which will justify any such holding, and I think the circuit judge was right in his construction of the contract between the parties.

    38

    It is claimed that a mutual mistake of a material fact was made by the parties when the contract of sale was made. There was no warranty in the case of the quality of the animal. When a mistaken fact is relied upon as ground for rescinding, such fact must not only exist at the time the contract is made, but must have been known to one or both of the parties. Where there is no warranty, there can be no mistake of fact when no such fact exists, or, if in existence, neither party knew of it, or could know of it; and that is precisely this case. If the owner of a Hambletonian horse had speeded him, and was only able to make him go a mile in three minutes, and should sell him to another, believing that was his greatest speed, for $300, when the purchaser believed he could go much faster, and made the purchase for that sum, and a few days thereafter, under more favorable circumstances, the horse was driven a mile in 2 min. 16 sec., and was found to be worth $20,000, I hardly think it would be held, either at law or in equity, by any one, that the seller in such case could rescind the contract. The same legal principles apply in each case.

    39

    In this case neither party knew the actual quality and condition of this cow at the time of the sale. The defendants say, or rather said, to the plaintiff, they had a few head left on their farm in Greenfield, and asked plaintiff to go and see them, stating to plaintiff that in all probability they were sterile and would not breed. Plaintiff did go as requested, and found there these cows, including the one purchased, with a bull. The cow had been exposed, but neither knew she was with calf or whether she would breed. The defendants thought she would not, but the plaintiff says that he thought she could be made to breed, but believed she was not with calf. The defendants sold the cow for what they believed her to be, and the plaintiff bought her as he believed she was, after the statements made by the defendants. No conditions whatever were attached to the terms of sale by either party. It was in fact as absolute as it could well be made, and I know of no precedent as authority by which this court can alter the contract thus made by these parties in writing,-interpolate in it a condition by which, if the defendants should be mistaken in their belief that the cow was barren, she could be returned to them and their contract should be annulled. It is not the duty of courts to destroy contracts when called upon to enforce them, after they have been legally made. There was no mistake of any material fact by either of the parties in the case as would license the vendors to rescind. There was no difference between the parties, nor misapprehension, as to the substance of the thing bargained for, which was a cow supposed to be barren by one party, and believed not to be by the other. As to the quality of the animal, subsequently developed, both parties were equally ignorant, and as to this each party took his chances. If this were not the law, there would be no safety in purchasing this kind of stock.

    40

    I entirely agree with my brethren that the right to rescind occurs whenever the thing actually delivered or received is different in substance from the [926] thing bargained for, and intended to be sold; but if it be only a difference in some quality or accident, even though the misapprehension may have been the actuating motive of the parties in making the contract, yet it will remain binding. In this case the cow sold was the one delivered. What might or might not happen to her after the sale formed no element in the contract. The case of Kennedy v. Panama Mail Co., L.R. 2 Q.B. 587, and the extract cited therefrom in the opinion of my brethren, clearly sustains the views I have taken. See, also, Smith v. Hughes, L.R. 6 Q.B. 597; Carter v. Crick, 4 Hurl. & N. 416.

    41

    According to this record, whatever the mistake was, if any, in this case, it was upon the part of the defendants, and while acting upon their own judgment. It is, however, elementary law, and very elementary, too, that the mistaken party, without any common understanding with the other party in the premises as to the quality of an animal, is remediless if he is injured through his own mistake. Leake, Cont. 338; Torrance v. Bolton, L.R. 8 Ch. 118; Smith v. Hughes, L.R. 6 Q.B. 597.

    42

    The case cited by my brethren from 37 Mich. I do not think sustains the conclusion reached by them. In that case the subject-matter about which the contract was made had no existence, and in such case Mr. Justice GRAVES held there was no contract; and to the same effect are all the authorities cited in the opinion. That is certainly not this case. Here the defendants claim the subject-matter not only existed, but was worth about $800 more than the plaintiff paid for it.

    43

    The case of Huthmacher v. Harris, 38 Pa.St. 491, is this: A party purchased at an administrator's sale a drill-machine, which had hid away in it by the deceased a quantity of notes, to the amount of $3,000, money to the amount of over $500, and two silver watches and a pocket compass of the value of $60.25. In an action of trover for the goods, it was held that nothing but the machine was sold or passed to the purchasers, neither party knowing that the machine contained any such articles.

    44

    In Cutts v. Guild, 57 N.Y. 229, the defendant, as assignee, recovered a judgment against D. & H. He also recovered several judgments in his own name on behalf of the T. Co. The defendant made an assignment of and transferred the first judgment to an assignee of the plaintiff,-both parties supposing and intending to transfer one of the T. Co. judgments,-and it was held that such contract of assignment was void, because the subject-matter contained in the assignment was not contracted for.

    45

    In the case of Byers v. Chapin, 28 Ohio St. 300, the defendant sold the plaintiffs 5,000 oil barrels. The plaintiffs paid $5,000 upon their purchase, and took some of the barrels. The barrels proved to be unfit for use, and the contract was rescinded by consent of the parties. The defendant, instead of returning all the money paid to the purchaser, retained a portion and gave plaintiffs his note for the remainder. The plaintiffs brought suit upon this note. The defendant claimed that, under the contract of sale of the barrels, they were to be glued by the plaintiffs, which the plaintiffs properly failed to do, and this fact was not known to defendant when he agreed to rescind, and gave the note, and therefore the note was given upon a mistaken state of facts, falsely represented to the defendant, and which were known to the plaintiffs. On the proofs, the jury found for the defendant, and the verdict was affirmed.

    46

    In Gardner v. Lane, 9 Mass. 492, it is decided that if, upon a sale of No. 1 mackerel, the vendor delivers No. 3 mackerel, and some barrels of salt, no title to the articles thus delivered passes.

    47

    Allen v. Hammond, 11 Pet. 63, decides that if a life-estate in land is sold, and at the time of the sale the estate is terminated by the death of the person in whom the right vested, a court of equity will rescind the purchase.

    48

    In Harvey v. Harris, 112 Mass. 32, at an auction, two different grades of flour were sold, and a purchaser of the second claimed to have bought a quantity [927] of the first grade, under a sale made of the second, and this he was not allowed to do, because of the mutual mistake; the purchaser had not in fact bought the flour he claimed. In this case, however, it is said it is true that, if there is a mutual agreement of the parties for the sale of particular articles of property, a mistake of misapprehension as to the quality of the articles will not enable the vendor to repudiate the sale.

    49

    The foregoing are all the authorities relied on as supporting the positions taken by my brethren in this case. I fail to discover any similarity between them and the present case; and I must say, further, in such examination as I have been able to make, I have found no adjudicated case going to the extent, either in law or equity, that has been held in this case. In this case, if either party had superior knowledge as to the qualities of this animal to the other, certainly the defendants had such advantage. I understand the law to be well settled that there is no breach of any implied confidence that one party will not profit by his superior knowledge as to facts and circumstances actually within the knowledge of both, because neither party reposes in any such confidence unless it be specially tendered or required, and that a general sale does not imply warranty of any quality, or the absence of any; and if the seller represents to the purchaser what he himself believes as to the qualities of an animal, and the purchaser buys relying upon his own judgment as to such qualities, there is no warranty in the case, and neither has a cause of action against the other if he finds himself to have been mistaken in judgment.

    50

    The only pretense for avoiding this contract by the defendants is that they erred in judgment as to the qualities and value of the animal. I think the principles adopted by Chief Justice CAMPBELL in Williams v. Spurr completely cover this case, and should have been allowed to control in its decision. See 24 Mich. 335. See, also, Story, Sales, 174, 175, 382, and Benj. Sales, 430. The judgment should be affirmed.

  • 2 Beachcomber Coins Inc. v. Boskett

    1
    166 N.J. Super. 442 (1979)
    2
    400 A.2d 78
    3
    BEACHCOMBER COINS, INC., PLAINTIFF-APPELLANT,
    v.
    RON BOSKETT, t/a R & B COINS, DEFENDANT-RESPONDENT.
    4

    Superior Court of New Jersey, Appellate Division.

    5
    Argued February 13, 1979.
    6
    Decided March 2, 1979.
    7

    [444] Before Judges CONFORD, PRESSLER and KING.

    8

    Mr. John W. Gilbert argued the cause for appellant.

    9

    Messrs. Goldenberg, Mackler & Feinberg, attorneys for respondent (no appearance for argument).

    10
    The opinion of the court was delivered by CONFORD, P.J.A.D. (retired and temporarily assigned).
    11

    Plaintiff, a retail dealer in coins, brought an action for rescission of a purchase by it from defendant for $500 of a dime purportedly minted in 1916 at Denver. Defendant is a part-time coin dealer. Plaintiff asserts a mutual mistake of fact as to the genuineness of the coin as Denver-minted, such a coin being a rarity and therefore having a market value greatly in excess of its normal monetary worth. Plaintiff's evidence at trial that the "D" on the coin signifying Denver mintage was counterfeited is not disputed by defendant. Although at trial defendant disputed that the coin tendered back to him by plaintiff was the one he sold, the implicit trial finding is to the contrary, and that issue is not raised on appeal.

    12

    The trial judge, sitting without a jury, held for defendant on the ground that the customary "coin dealing procedures" were for a dealer purchasing a coin to make his own investigation of the genuineness of the coin and to "assume the risk" of his purchase if his investigation is faulty. The judge conceded that the evidence demonstrated satisfaction of the ordinary requisites of the rule of rescission for mutual mistake of fact that both parties act under a mistake of fact and that the fact be "central" [material] to the making of the contract. The proofs were that the seller had himself acquired this coin and two others of minor value for a total of $450 and that his representative had told the purchaser [445] that he would not sell the dime for less than $500. The principal of plaintiff firm spent from 15 to 45 minutes in close examination of the coin before purchasing it. Soon thereafter he received an offer of $700 for the coin subject to certification of its genuineness by the American Numismatic Society. That organization labelled it a counterfeit, and as a result plaintiff instituted the present action.

    13

    The evidence and trial judge's findings establish this as a classic case of rescission for mutual mistake of fact. As a general rule,

    14
    * * * where parties on entering into a transaction that affects their contractual relations are both under a mistake regarding a fact assumed by them as the basis on which they entered into the transaction, it is voidable by either party if enforcement of it would be materially more onerous to him than it would have been had the fact been as the parties believed it to be [Restatement, Contracts, § 502 at 961 (1932);[1] 13 Williston on Contracts (3 ed. 1970), § 1543, 74-75]
    15

    By way of example, the Restatement posits the following:

    16

    A contracts to sell to B a specific bar of silver before them. The parties supposed that the bar is sterling. It has, however, a much larger admixture of base metal. The contract is voidable by B. [Op. cit. at 964]

    17

    Moreover, "negligent failure of a party to know or to discover the facts as to which both parties are under a mistake does not preclude rescission or reformation on account thereof." Restatement, op. cit., § 502 at 977. The law of New Jersey is in accord. See Riviere v. Berla, 89 [446] N.J. Eq. 596, 597 (E. & A. 1918); Dencer v. Erb, 142 N.J. Eq. 422, 429 (Ch. 1948). In the Riviere case relief was denied only because the parties could not be restored to the status quo ante. In the present case they can be. It is undisputed that both parties believed that the coin was a genuine Denver-minted one. The mistake was mutual in that both parties were laboring under the same misapprehension as to this particular, essential fact. The price asked and paid was directly based on that assumption. That plaintiff may have been negligent in his inspection of the coin (a point not expressly found but implied by the trial judge) does not, as noted above, bar its claim for rescission. Cf. Smith v. Zimbalist, 2 Cal. App.2d 324, 38 P.2d 170 (D. Ct. App. 1934).

    18

    Defendant's contention that plaintiff assumed the risk that the coin might be of greater or lesser value than that paid is not supported by the evidence. It is well established that a party to a contract can assume the risk of being mistaken as to the value of the thing sold. 13 Williston, Contracts, op. cit., § 1543A at 85. The Restatement states the rule this way:

    19

    Where the parties know that there is doubt in regard to a certain matter and contract on that assumption, the contract is not rendered voidable because one is disappointed in the hope that the facts accord with his wishes. The risk of the existence of the doubtful fact is then assumed as one of the elements of the bargain. [Restatement, op. cit., § 502, Comment f. at 964. See also Restatement, Contracts 2d, op. cit., § 296(b), Comment c at 4.]

    20

    However, for the stated rule to apply, the parties must be conscious that the pertinent fact may not be true and make their agreement at the risk of that possibility. 17 Am. Jur.2d, Contracts, § 145 at 492. In this case both parties were certain that the coin was genuine. They so testified. Plaintiff's principal thought so after his inspection, and defendant would not have paid nearly $450 for it otherwise. A different case would be presented if the seller were uncertain either of the genuineness of the coin or of its value if genuine, and had accepted the expert buyer's judgment on these matters.

    21

    [447] The trial judge's rationale of custom of the trade is not supported by the evidence. It depended upon the testimony of plaintiff's expert witness who on cross-examination as to the "procedure" on the purchase by a dealer of a rare coin, stated that the dealer would check it with magnification and then "normally send it to the American Numismatic Certification Service for certification." This testimony does not in our opinion establish that practice as a usage of trade "having such regularity of observance in a * * * trade as to justify an expectation that it will be observed with respect to the transaction in question," within the intent of the Uniform Commercial Code, N.J.S.A. 12A:1-205(2).[2]

    22

    The cited code provision contemplates that the trade usage is so prevalent as to warrant the conclusion that the parties contracted with reference to, and intended their agreement to be governed by it. Cf. Manhattan Overseas Co. v. Camden Co. Beverage Co., 125 N.J.L. 239, 244 (Sup. Ct. 1940), aff'd 126 N.J.L. 421 (E. & A. 1941). Our reading of the testimony does not indicate any basis for findings either that this was a trade usage within the Code definition at all or that these parties in fact accepted it as such to the extent that they were agreeing that because of it the sale was an "as is" transaction. Indeed, the same witness testified there was a "normal policy" among coin dealers throughout the United States of a "return privilege" for altered coins.

    23

    The foregoing conclusions make it unnecessary for us to discuss plaintiff's alternative contention that the contract was "unenforceable" because it constituted an illegal contract to purchase a counterfeit coin. We regard that position as devoid of merit.

    24

    Reversed.

    25

    [1] No substantial change in the rule was effected by Restatement, Contracts2d, § 294(1), Tent. Dr. No. 10 (1975) at 10. This provides:

    26

    (1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 296.

    27

    The exceptions in § 296 are not here applicable.

    28

    [2] Note, also, that evidence of a trade usage is not admissible unless the offering party gives the other party advance notice to prevent unfair surprise. N.J.S.A. 12A:1-105(6). Plaintiff received no notice that the judge intended to decide this case on the basis of the alleged trade usage.

  • 3 Smith v. Zimbalist

    1
    2 Cal.App.2d 324 (1934)
    2
    GEORGE H. SMITH, as Administrator, etc, Appellant,
    v.
    EFREM ZIMBALIST, Respondent.
    3
    Civ. No. 8083.
    4

    California Court of Appeals. Second Appellate District, Division One.

    5
    November 20, 1934.
    6

    Bicksler, Smith, Parke & Catlin and Frank D. Catlin, Jr., for Appellant.

    7

    Glen Behymer and B. L. Hoyt for Respondent.

    8
    Houser, J.
    9

    From the "findings of fact" made pursuant to the trial of the action, it appears that plaintiff, who was of the age of eighty-six years, although not a dealer in violins, had been a collector of rare violins for many years; "that defendant was a violinist of great prominence, internationally known, and himself the owner and collector of rare and old violins made by the old masters"; that at the suggestion of a third person, and without the knowledge by plaintiff of defendant's intention in the matter, defendant visited plaintiff at the home of the latter and there asked plaintiff if he might see plaintiff's collection of old violins; that in the course of such visit and inspection, "plaintiff showed a part of his collection to defendant; that defendant picked up one violin and asked plaintiff what he would take for the violin, calling it a 'Stradivarius'; that plaintiff did not offer his violins, or any of them, for sale, but on account of his age, after he had been asked what he would take for them, said he would not charge as much as a regular dealer, but that he would sell it for $5,000; that thereafter [326] defendant picked up another violin, calling it a 'Guarnerius', and asked plaintiff what he would take for that violin, and plaintiff said if defendant took both violins, he could have them for $8,000; that the defendant said 'all right', thereupon stating his financial condition and asking if he could pay $2,000 cash and the balance in monthly payments of $1,000." Thereupon a memorandum was signed by defendant as follows:

    10

    "I hereby acknowledge receipt of one violin by Joseph Guarnerius and one violin by Stradivarius dated 1717 purchased by me from George Smith for the total sum of Eight Thousand Dollars toward which purchase price I have paid Two Thousand Dollars the balance I agree to pay at the rate of one thousand dollars on the fifteenth day of each month until paid in full."

    11

    In addition thereto, a "bill of sale" in the following language was signed by plaintiff:

    12

    "This certifies that I have on this date sold to Mr. Efrem Zimbalist one Joseph Guarnerius violin and one Stradivarius violin dated 1717, for the full price of $8,000.00 on which has been paid $2,000.00."

    "The balance of $6,000.00 to be paid $1,000.00 fifteenth of each month until paid in full. I agree that Mr. Zimbalist shall have the right to exchange these for any others in my collection should he so desire."

    13

    That at the time said transaction was consummated each of the parties thereto "fully believed that said violins were made one by Antonius Stradivarius and one by Josef Guarnerius"; that preceding the closing of said transaction "plaintiff made no representations and warranties as to said violins, or either of them, as to who their makers were, but believed them to have been made one by Antonius Stradivarius and one by Josef Guarnerius in the early part of the eighteenth century; that plaintiff did not fraudulently make any representations or warranties to defendant at the time of said purchase"; that there was "a preponderance of evidence to the effect that said violins are not Stradivarius or Guarnerius violins, nor made by either Antonius Stradivarius or Josef Guarnerius, but were in fact made as imitations thereof, and were not worth more than $300.00". [327]

    14

    The action which is the foundation of the instant appeal was brought by plaintiff against defendant to recover judgment for the unpaid balance of the purchase price of the two violins.

    15

    [1] As is shown by the conclusions of law reached by the trial court from such facts, the theory upon which the case was decided was that the transaction in question was the result of "a mutual mistake on the part of plaintiff and defendant", and consequently that plaintiff was not entitled to recover judgment. From a judgment rendered in favor of defendant, plaintiff has appealed to this court.

    16

    In urging a reversal of the judgment, it is the contention of appellant that the doctrine of caveat emptor should have been applied to the facts in the case; that is to say, that in the circumstances shown by the evidence and reflected in the findings of fact, the trial court should have held that defendant bought the violins at his own risk and peril.

    17

    The substance of the argument presented by appellant is a recast of the decision at nisi prius in the case of Jendwine v. Slade, (1797) 2 Espinasse, 572. The syllabus in that case is as follows:

    18

    "The putting down the name of an artist in a catalogue as the painter of any picture, is not such a warranty as will subject the party selling to an action, if it turns out that he might be mistaken, and that it was not the work of the artist to whom it was attributed."

    19

    It there appears that therein (as similarly in the instant case) "several of the most eminent artists and picture dealers were called, who differed in their opinions respecting the originality of the pictures".

    20

    Lord Kenyon (the nisi prius judge) said: "It was impossible to make this the case of a warranty; the pictures were the work of artists some centuries back, and there being no way of tracing the picture itself, it could only be matter of opinion whether the picture in question was the work of the artist whose name it bore, or not. What then does the catalogue import? That, in the opinion of the seller, the picture is the work of the artist whose name he has affixed to it. The action in its present shape must go on the ground of some fraud in the sale. But if the seller only represents what he himself believes, he can be guilty of no fraud. The [328] catalogue of the pictures in question leaves the determination to the judgment of the buyer, who is to exercise that judgment in the purchase. ..."

    21

    In the case of Chandelor v. Lopus, (1603) 2 Cr. Rep. 4, 79 English Rep. 3 (Full Reprint), which in the state of New York for many years was relied upon as the leading authority in situations similar to that present herein, it was held that where one sold a jewel as a bezoar stone which in truth it was not, no action would lie, unless in the complaint or declaration it was alleged that the seller knew that it was not a bezoar stone, or that he warranted the stone to be such.

    22

    In Seixas v. Woods, (1804) 2 Caines (N.Y.), 48 [2 Am. Dec. 215] (Chancellor Kent writing a concurring opinion), a sale of wood which both parties to the transaction supposed was brazilletto, when in fact it was peachum,--in the absence of express warranty by the seller, was held binding on the buyer. It was also ruled that "mentioning the wood as brazilletto wood in the bill of parcels and in the advertisement some days previous to the sale, did not amount to a warranty to the plaintiffs".

    23

    In the case of Swett v. Colgate, (1822) 20 Johns. (N.Y.) 196 [11 Am. Dec. 266], it was held that where one, without express warranty, sold what he supposed was barilla, which he advertised as barilla, which he invoiced as barilla, and which prior to the sale thereof the purchaser examined "several times", but which after the sale was found to be kelp, the rule of caveat emptor, as announced in Chandelor v. Lopus, supra, would apply. And so in Welsh v. Carter, (1828) 1 Wend. (N.Y.) 185 [19 Am. Dec. 473], which likewise involved the sale of an article known as barilla, but which in fact was a fraudulent imitation of it and entirely worthless, the contract was held binding on the purchaser who, before the sale, was told that he "must judge for himself", and who had a sample of the "barilla" analyzed.

    24

    But with reference to the first cited case (Seixas v. Woods, supra, in which Chancellor Kent wrote a concurring opinion), in 2 Kent's Commentaries, section 479, in part it is said:

    25

    "There is no doubt of the existence of the general rule of law, as laid down in Seixas v. Woods; and the only doubt is whether it was well applied in that case, where [329] there was a description in writing of the article by the vendor which proved not to be correct, and from which a warranty might have been inferred. But the rule fitly applies to the case where the article was equally open to the inspection and examination of both parties, and the purchaser relied on his own information and judgment, without requiring any warranty of the quality; ..."

    26

    Likewise, in 2 Blackstone's Commentaries, *451, the exception to the general rule is there noted as follows: "But with regard to the goodness of the wares so purchased, the vendor is not bound to answer; unless he expressly warrants them to be sound and good, or unless he knew them to be otherwise, and hath used no art to disguise them, or unless they turn out to be different from what he represented them to the buyer."

    27

    In Hart v. Wright, (1837) 17 Wend. (N.Y.) 267, in commenting on the rule applied in Seixas v. Woods, supra, it is said:

    28

    "These cases have not been overruled, and their principles have not been seriously questioned anywhere. It has been doubted whether those which deny a warranty to be implied by description in a sale note, bill of parcels, &c.;, were not a wrong application of the common law rule (2 Kent's Comm., 479, 3d ed.); and they have been severely criticized and generally repudiated in our sister states, whose courts hold, with the English cases, that such a description is a warranty of kind and quality, as far as it goes (Yates v. Pym, 6 Taunt. 446; 2 Marsh. 141, S. C.; Shepherd v. Kain, 5 Barn. & Ald. 240; Gardiner v. Grey, 4 Campb., 144, as explained [Hastings v. Lovering], 2 Pick. (Mass.) 219, 220; Bridge v. Wain, 1 Stark. R. 504; Rowe v. Osborne, 1 Stark. R. 140; Prosser v. Hooper, 1 Moore, 106; Osgood v. Lewis, 2 Harr. & Gill, (Md.) 495, 522 to 527 [18 Am. Dec. 317]; Hastings v. Lovering, 2 Pick. (Mass.) 214, 220 [13 Am. Dec. 420]; Borrekins v. Bevan, 3 Serg. & Rawle, (Pa.) 23 [23 Am. Dec. 85]; contra, see Jendwine v. Slade, 2 Esp. R. 572; Conner v. Henderson, 15 Mass. 319 [8 Am. Dec. 103], and see Henderson v. Sevey, 2 Greenl. (2 Me.) 139)."

    29

    In Hawkins v. Pemberton, (1872) 51 N.Y. 198 [10 Am. Rep. 595], where a sale by auction had been made of what was assumed to be "blue vitriol", but which in fact was "mixed vitriol", after an extensive review of [330] the authorities it was held that the contract was unenforceable. And in the same case, in referring to the case of Chandelor v. Lopus, (1603) 2 Cr. Jac. 4, 79 English Rep. 3 (Full Reprint), upon the decision of which many of the former cases relied as an authority, in part the court said: "The doctrine (there) laid down is that a mere affirmation or representation as to the character or quality of goods sold will not constitute a warranty; and that doctrine has long since been exploded and the case itself is no longer regarded as good law in this country or England." (Citing authorities.) To the same effect, see Dounce v. Dow, 64 N.Y. 411; White v. Miller, 71 N.Y. 118 [27 Am. Rep. 13].

    30

    A case which in its facts closely resembles those in the instant case is that of Power v. Barham, (1836) 4 Ad. & E., 473, 111 English Repts., Full Reprint, (K. B.) 865. Therein the early case of Jendwine v. Slade, 2 Espinasse, 572 (1797), to which reference hereinbefore has been had, is cited and "distinguished". The syllabus in Power v. Barham, supra, is as follows: "In assumpsit for breach of a warranty of pictures, it was proved, among other things, that the defendant, at the time of the sale, gave the following bill of parcels: "Four pictures, Views in Venice, Canaletto, 1601'. The Judge left it to the jury upon this and the rest of the evidence, whether the defendant had contracted that the pictures were those of the artist named, or whether his name had been used merely as matter of description, or intimation of opinion, the jury found for the plaintiff, saying that the bill of parcels amounted to a warranty: Held, that the question had been rightly left to jury, and that the verdict was not to be disturbed.""

    31

    An American case which in principle is clearly applicable to the facts herein is that of Sherwood v. Walker, 66 Mich. 568 [33 N.W. 919, 11 Am.St.Rep. 531]. It there appears that the subject of the sale was a "blooded" polled Angus cow that both parties to the transaction assumed was barren and hence useless as breeding stock. In such assumed conditions the owner agreed to sell and the purchaser agreed to buy the cow at the market price of beef cattle, to wit, five and one-half cents per pound, or what amounted to about $80. Before the day arrived when the cow was to be delivered by the seller to the purchaser, it was discovered that the cow was with calf and consequently [331] that the cow was worth at least $750. It was held that the owner of the cow had the right to rescind the agreement of sale. But to the contrary of such ruling on practically similar facts, see Wood v. Boynton, 64 Wis. 265 [25 N.W. 42, 54 Am. Rep. 610].

    32

    In the case of Henshaw v. Robins, 9 Met. (50 Mass.) 83 [43 Am. Dec. 367], where the authorities are reviewed, the facts and the law are indicated in the syllabus as follows: "When a bill of parcels is given, upon a sale of goods, describing the goods, or designating them by a name well understood, such bill is to be considered as a warranty that the goods sold are what they are thus described or designated to be. And this rule applies, though the goods are examined by the purchaser, at or before the sale, if they are so prepared, and present such an appearance, as to deceive skilful dealers."

    33

    Reflecting particularly upon the situation shown by the facts in the instant case, is the following language which occurs in the course of the opinion: "But we are of opinion that the examination of the article by the plaintiff, at the time of the sale, is no evidence of his intention to waive any legal right. If the spurious nature of the article might have been detected on inspection, it might have been otherwise; but we must infer, from the instruction of the court, that the jury found that the article was so disguised that the deception could not have been detected by a skilful dealer in indigo, without resorting to an analytical experiment; so that no neglect can be imputed to the plaintiff in not making a careful examination." (See, also, Hecht v. Batcheller, 147 Mass. 335 [17 N.E. 651, 9 Am.St.Rep. 708].)

    34

    On examination of the case of Henshaw v. Robins, supra, the similarity of the facts therein to the facts in the instant case will immediately be noted, and the language of the opinion to the effect that if "the article was so disguised that the deception could not have been detected by a skilful dealer" so closely applies to the situation in the instant case that the conclusion reached by the court in the cited case is particularly important in reaching a conclusion herein.

    35

    The governing principle of law to the effect that an article described in a "bill of parcels", or, as in the instant [332] case, in a "bill of sale", amounts to a warranty that such article in fact conforms to such description and that the seller is bound by such description, has been applied in this state in the case of Flint v. Lyon, 4 Cal. 17, wherein it was held that where the defendant purchased an entire cargo of flour which was described as "Haxall" flour, he was not required by the contract to accept the same flour which in reality was "Gallego" flour, but which was of as excellent quality as "Haxall" flour. Therein, in part, the court said:

    36

    "What the inducement was to the defendant to purchase Haxall, we know not; but having purchased that particular brand, he was entitled to it, and could not be compelled to accept any other as a substitute. The use of the word 'Haxall' in the sale note amounted to a warranty that the flour was Haxall. (Citing authorities.) How, then, stands the case? The contract was founded in mistake, both parties supposing they were contracting concerning a certain article which had no existence, consequently the contract was void for want of the substance of the thing contracted for. Could then the acceptance of a different article than the one sold by Gorham, the sub-vendee, conclude the defendant? Certainly not! ..."

    37

    In principle, to the same effect, see, also, Burge v. Albany Nurseries, etc., 176 Cal. 313 [168 P. 343]; Barrios v. Pacific States Trading Co., 41 Cal.App. 637 [183 P. 236]; Firth v. Richter, 49 Cal.App. 545 [196 P. 277]; Rauth v. Southwest Warehouse Co., 158 Cal. 54 [109 P. 839]; Brock v. Newmark G. Co., 64 Cal.App. 577 [222 P. 195]; Brandenstein v. Jackling, 99 Cal.App. 438 [278 P. 880].

    38

    [2] Although it may be that by some authorities a different rule may be indicated, it is the opinion of this court that, in accord with the weight of the later authorities to which attention hereinbefore has been directed, the strict brule of caveat emptor may not be applied to the facts of the instant case, but that such rule is subject to the exception thereto to the effect that on the purported sale of personal property the parties to the proposed contract are not bound where it appears that in its essence each of them is honestly mistaken or in error with reference to the identity of the subject-matter of such contract. In other [333] words, in such circumstances, no enforceable sale has taken place. [3] But if it may be said that a sale, with a voidable condition attached, was the outcome of the transaction in the instant case, notwithstanding the "finding of fact" by the trial court that "plaintiff made no representations and warranties as to said violins", from a consideration of the language employed by the parties in each of the documents that was exchanged between them (to which reference hereinbefore has been had), together with the general conduct of the parties, and particularly the acquiescence by plaintiff in the declaration made by defendant regarding each of the violins and by whom it was made,--it becomes apparent that, in law, a warranty was given by plaintiff that one of the violins was a Guarnerius and that the other was a Stradivarius.

    39

    The findings of fact unquestionably show that each of the parties believed and assumed that one of said violins was a genuine Guarnerius and that the other was a genuine Stradivarius; the receipt given by defendant to plaintiff for said violins so described them, and the "bill of sale" given by plaintiff to defendant certifies that plaintiff "sold to Mr. Efrem Zimbalist (defendant) one Joseph Guarnerius violin and one Stradivarius violin dated 1717 for the full price of $8,000.00 on which has been paid $2,000.00. ..."

    40

    Without burdening this opinion with the citation of additional authorities, it may suffice to state that, although the very early decisions may hold to a different rule, all the more modern authorities, including many of those in California to which attention has been directed (besides the provision now contained in section 1734, Civ. Code), are agreed that the description in a bill of parcels or salenote of the thing sold amounts to a warranty on the part of the seller that the subject-matter of the sale conforms to such description. (See, generally, 22 Cal.Jur. 994; 55 Cor. Jur. 738 et seq.; 24 R. C. L. 171; and authorities respectively there cited.)

    41

    It is ordered that the judgment be and it is affirmed.

    42

    Conrey, P. J., and York, J., concurred.

  • 4 James Baird Co. v. Gimbel Bros.

    1

     

    2

    64 F. 2d 344
    JAMES BAIRD CO.
    v.
    GIMBEL BROS., INC.
    Circuit Court of Appeals, Second Circuit.
    No. 330.
    April 10, 1933

    3

     

    4


    Campbell, Harding, Goodwin & Danforth, of New York City (Garrard Glenn and William L. Glenn, both of New York City, of counsel), for appellant.

    Chadbourne, Stanchfield & Levy, of New York City (Leonard P. Moore and David S. Hecht, both of New York City, of counsel), for appellee.

    Before MANTON L. HAND, and SWAN, Circuit Judges.

    5

    L. HAND, Circuit Judge. The plaintiff sued the defendant for breach of a contract to deliver linoleum under a contract of sale; the defendant denied the making of the contract; the parties tried the case to the judge under a written stipulation and he directed judgment for the defendant. The facts as found, bearing on the making of the contract, the only issue necessary to discuss, were as follows: The defendant, a New York merchant, knew that the Department of Highways in Pennsylvania had asked for bids for the construction of a public building. It sent an employee to the office of a contractor in Philadelphia, who had possession of the specifications, and the employee there computed the amount of the linoleum which would be required on the job, underestimating the total yardage by about one-half the proper amount. In ignorance of this mistake, on December twenty-fourth the defendant sent to some twenty or thirty contractors, likely to bid on the job, an offer to supply all the linoleum required by the specifications at two different lump sums, depending upon the quality used. These offers concluded as follows: "If successful in being awarded this contract, it will be absolutely guaranteed, . . . and  . . . we are offering these prices for reasonable" (sic), "prompt acceptance after the general contract has been awarded." The plaintiff, a contractor in Washington, got one of these on the twenty-eighth, and on the same day the defendant learned its mistake and telegraphed all the contractors to whom it had sent the offer, that it withdrew it and would substitute a new one at about double the amount of the old. This withdrawal reached the plaintiff at Washington on the afternoon of the same day, but not until after it had put in a bid at Harrisburg at a lump sum, based as to linoleum upon the prices quoted by the defendant. The public authorities accepted the plaintiff's bid on December thirtieth, the defendant having meanwhile written a letter of confirmation of its withdrawal, received on the thirty-first. The plaintiff formally accepted the offer on January second, and, as the defendant persisted in declining to recognize the existence of a contract, sued it for damages on a breach.

    6

    Unless there are circumstances to take it out of the ordinary doctrine, since the offer was withdrawn before it was accepted, the acceptance was too late. Restatement of Contracts, §35. To meet this the plaintiff argues as follows: It was a reasonable implication from the defendant's offer that it should be irrevocable in case the plaintiff acted upon it, that is to say, used the prices quoted in making its bid, thus putting itself in a position from which it could not withdraw without great loss. While it might have withdrawn its bid after receiving the revocation, the time had passed to submit another, and as the item of linoleum was a very trifling part of the cost of the whole building, it would have been an unreasonable hardship to expect it to lose the contract on that account, and probably forfeit its deposit. While it is true that the plaintiff might in advance have secured a contract conditional upon the success of its bid, this was not what the defendant suggested. It understood that the contractors would use its offer in their bids, and would thus in fact commit themselves to supplying the linoleum at the proposed prices. The inevitable implication from all this was that when the contractors acted upon it, they accepted the offer and promised to pay for the linoleum, in case their bid were accepted. 

    7

    It was of course possible for the parties to make such a contract, and the question is merely as to what they meant; that is, what is to be imputed to the words they used. Whatever plausibility there is in the argument, is in the fact that the defendant must have known the predicament in which the contractors would be put if it withdrew its offer after the bids went in. However, it seems entirely clear that the contractors did not suppose that they accepted the offer merely by putting in their bids. If, for example, the successful one had repudiated the contract with the public authorities after it had been awarded to him, certainly the defendant could not have sued him for a breach. If he had become bankrupt, the defendant could not prove against his estate. It seems plain therefore that there was no contract between them. And if there be any doubt as to this, the language of the offer sets it at rest. The phrase, "if successful in being awarded this contract," is scarcely met by the mere use of the prices in the bids. Surely such a use was not an "award" of the contract to the defendant. Again, the phrase, "we are offering these prices for . . . prompt acceptance after the general contract has been awarded," looks to the usual communication of an acceptance, and precludes the idea that the use of the offer in the bidding shall be the equivalent. It may indeed be argued that this last language contemplated no more than an early notice that the offer had been accepted, the actual acceptance being the bid, but that would wrench its natural meaning too far, especially in the light of the preceding phrase. The contractors had a ready escape from their difficulty by insisting upon a contract before they used the figures; and in commercial transactions it does not in the end promote justice to seek strained interpretations in aid of those who do not protect themselves.

    8

    But the plaintiff says that even though no bilateral contract was made, the defendant should be held under the doctrine of "promissory estoppel." This is to be chiefly found in those cases where persons subscribe to a venture, usually charitable, and are held to their promises after it has been completed. It has been applied much more broadly, however, and has now been generalized in section 90, of the Restatement of Contracts. We may arguendo accept it as it there reads, for it does not apply to the case at bar. Offers are ordinarily made in exchange for a consideration, either a counter-promise or some other act which the promisor wishes to secure. In such cases they propose bargains; they presuppose that each promise or performance is an inducement to the other. Wisconsin, etc., Ry. v. Powers, 191 U. S. 379, 386, 387, 24 S. Ct. 107, 48 L. Ed. 229; Banning Co. v. California, 240 U. S. 142, 152, 153, 36 S. Ct. 338, 60 L. Ed. 569. But a man may make a promise without expecting an equivalent; a donative promise, conditional or absolute. The common law provided for such by sealed instruments, and it is unfortunate that these are no longer generally available. The doctrine of "promissory estoppel" is to avoid the harsh results of allowing the promisor in such a case to repudiate, when the promisee has acted in reliance upon the promise. Siegel v. Spear & Co., 234 N.Y. 479, 138 N.E. 414, 26 A. L.R. 1205. Cf. Allegheny College v. National Bank, 246 N.Y. 369, 159 N.E. 173, 57 L.R.A. 980. But an offer for an exchange is not meant to become a promise until a consideration has been received, either a counter-promise or whatever else is stipulated. To extend it would be to hold the offeror regardless of the stipulated condition of his offer. In the case at bar the defendant offered to deliver the linoleum in exchange for the plaintiff's acceptance, not for its bid, which was a matter of indifference to it. That offer could become a promise to deliver only when the equivalent was received; that is, when the plaintiff promised to take and pay for it. There is no room in such a situation for the doctrine of "promissory estoppel."

    9

    Nor can the offer be regarded as of an option, giving the plaintiff the right seasonably to accept the linoleum at the quoted prices if its bid was accepted, but not binding it to take and pay, if it could get a better bargain elsewhere. There is not the least reason to suppose that the defendant meant to subject itself to such a one-sided obligation. True, if so construed, the doctrine of "promissory estoppel" might apply, the plaintiff having acted in reliance upon it, though, so far as we have found, the decisions are otherwise. Ganss v. Guffey Petroleum Co., 125 App. Div. 760, 110 N.Y.S. 176; Comstock v. North, 88 Miss. 754, 41 So. 374. As to that, however, we need not declare ourselves.

    10

    Judgment affirmed.

  • 5 Elsinore Union Elementary School Dist. of Riverside County v. Kastorff

    1

    54 Cal.2d 380 (1960)

    2
    ELSINORE UNION ELEMENTARY SCHOOL DISTRICT OF RIVERSIDE COUNTY, Respondent,
    v.
    E. J. KASTORFF et al., Appellants.
    3

    L. A. No. 25739.
    Supreme Court of California. In Bank.
    July 1, 1960.

    4

    Wallace & Wallace, W. W. Wallace and A. W. Wallace for Appellants.

    5

    Ray T. Sullivan, Jr., County Counsel, and James H. Angell, Assistant County Counsel, for Respondent.

    6

    SCHAUER, J.

    7

    Defendants, who are a building contractor and his surety, appeal from an adverse judgment in this action [382] by plaintiff school district to recover damages allegedly resulting when defendant Kastorff, the contractor, refused to execute a building contract pursuant to his previously submitted bid to make certain additions to plaintiff's school buildings. We have concluded that because of an honest clerical error in the bid and defendant's subsequent prompt rescission he was not obliged to execute the contract, and that the judgment should therefore be reversed.

    8

    Pursuant to plaintiff's call for bids, defendant Kastorff secured a copy of the plans and specifications of the proposed additions to plaintiff's school buildings and proceeded to prepare a bid to be submitted by the deadline hour of 8 p. m., August 12, 1952, at Elsinore, California. Kastorff testified that in preparing his bid he employed work sheets upon which he entered bids of various subcontractors for such portions of the work as they were to do, and that to reach the final total of his own bid for the work he carried into the right hand column of the work sheets the amounts of the respective sub bids which he intended to accept and then added those amounts to the cost of the work which he would do himself rather than through a subcontractor; that there is "a custom among subcontractors, in bidding on jobs such as this, to delay giving . . . their bids until the very last moment"; that the first sub bid for plumbing was in the amount of $9,285 and he had received it "the afternoon of the bid-opening," but later that afternoon when "the time was drawing close for me to get my bids together and get over to Elsinore (from his home in San Juan Capistrano) he received a $6,500 bid for the plumbing. Erroneously thinking he had entered the $9,285 plumbing bid in his total column and had included that sum in his total bid and realizing that the second plumbing bid was nearly $3,000 less than the first, Kastorff then deducted $3,000 from the total amount of his bid and entered the resulting total of $89,994 on the bid form as his bid for the school construction. Thus the total included no allowance whatsoever for the plumbing work."

    9

    Kastorff then proceeded to Elsinore and deposited his bid with plaintiff. When the bids were opened shortly after 8 p.m. that evening, it was discovered that of the five bids submitted that of Kastorff was some $11,306 less than the next lowest bid. The school superintendent and the four school board members present thereupon asked Kastorff whether he was sure his figures were correct, Kastorff stepped out into the [383] hall to check with the person who had assisted in doing the clerical work on the bid, and a few minutes later returned and stated that the figures were correct. He testified that he did not have his work sheets or other papers with him to check against at the time. The board thereupon, on August 12, 1952, voted to award Kastorff the contract.

    10

    The next morning Kastorff checked his work sheets and promptly discovered his error. He immediately drove to the Los Angeles office of the firm of architects which had prepared the plans and specifications for plaintiff, and there saw Mr. Rendon. Mr. Rendon testified that Kastorff

    11

    "had his maps and estimate work-sheets of the project, and indicated to me that he had failed to carry across the amount of dollars for the plumbing work. It was on the sheet, but not in the total sheet. We examined that evidence, and in our opinion we felt that he had made a clerical error in compiling his bill. . . . In other words, he had put down a figure, but didn't carry it out to the 'total' column when he totaled his column to make up his bid. . . . He exhibited . . . at that time . . . his work-sheets from which he had made up his bid."

    12

    That same morning (August 13) Rendon telephoned the school superintendent and informed him of the error and of its nature and that Kastorff asked to be released from his bid. On August 14 Kastorff wrote a letter to the school board explaining his error and again requesting that he be permitted to withdraw his bid. On August 15, after receiving Kastorff's letter, the board held a special meeting and voted not to grant his request. Thereafter, on August 28, written notification was given to Kastorff of award of the contract to him.[1] Subsequently plaintiff submitted to Kastorff a contract to be signed in accordance with his bid, and on September 8, 1952, Kastorff returned the contract to plaintiff with a letter again explaining his error and asked the board to reconsider his request for withdrawal of his bid.

    13

    Plaintiff thereafter received additional bids to do the subject construction; let the contract to the lowest bidder, in the amount of $102,900; and brought this action seeking to recover from Kastorff the $12,906 difference between that [384] amount and the amount Kastorff had bid.[2] Recovery of $4,499.60 is also sought against Kastorff's surety under the terms of the bond posted with his bid.

    14

    Defendants in their answer to the complaint pleaded, among other things, that Kastorff had made an honest error in compiling his bid; that "he thought he was bidding, and intended to bid, $9500.00 more, making a total of $99,494.00 as his bid"; that upon discovering his error he had promptly notified plaintiff and rescinded the $89,994 bid. The trial court found that it was true that Kastorff made up a bid sheet, which was introduced in evidence; that the subcontractor's bids thereupon indicated were those received by Kastorff; that he "had 16 subcontracting bids to ascertain from 31 which were submitted"; and that Kastorff had neglected to carry over from the left hand column on the bid sheet to the right hand column on the sheet a portion of the plumbing (and heating) subcontractor's bid. Despite the uncontradicted evidence related hereinabove, including that of plaintiff's architect and of its school superintendent, both of whom testified as plaintiff's witnesses, the court further found, however, that

    15

    "it is not true that the right hand column of figures was totaled for the purpose of arriving at the total bid to be submitted by E. J. Kastorff . . . It cannot be ascertained from the evidence for what purpose the total of the right hand column of figures on the bid sheet was used nor can it be ascertained from the evidence for what purpose the three bid sheets were used in arriving at the total bid."

    16

    And although finding that "on or about August 15, 1952," plaintiff received Kastorff's letter of August 14 explaining that he "made an error of omitting from my bid the item of Plumbing," the court also found that

    17

    "It is not true that the plaintiff knew at any time that defendant Kastorff's bid was intended to be other than $89, 994.00 . . . It is not true that the plaintiff knew at the time it requested the execution of the contract by defendant Kastorff that he had withdrawn his bid because of an honest error in the compilation thereof. It is not true that plaintiff had notice of an error in the compilation of the bid by defendant Kastorff and tried nevertheless to take advantage of defendant Kastorff by forcing him to enter a contract on the basis [385] of a bid he had withdrawn. . . . It is not true that it would be either inequitable or unjust to require defendant Kastorff to perform the contract awarded to him for the sum of $89,994.00, and it is not true that he actually intended to bid for said work the sum of $99,494.00."[3]

    18

    Judgment was given for plaintiff in the amounts sought, and this appeal by defendants followed.

    19

    In reliance upon M. F. Kemper Const. Co. v. City of Los Angeles (1951), 37 Cal.2d 696 [235 P.2d 7], and Lemoge Electric v. County of San Mateo (1956), 46 Cal.2d 659, 662, 664 [1a, 1b, 2, 3] [297 P.2d 638], defendants urge that where, as defendants claim is the situation here, a contractor makes a clerical error in computing a bid on a public work he is entitled to rescind.

    20

    In the Kemper case one item on a work sheet in the amount of $301,769 was inadvertently omitted by the contractor from the final tabulation sheet and was overlooked in computing the total amount of a bid to do certain construction work for the defendant city. The error was caused by the fact that the men preparing the bid were exhausted after working long hours under pressure. When the bids were opened it was found that plaintiff's bid was $780,305, and the next lowest bid was $1,049,592.plaintiff discovered its error several hours later and immediately notified a member of defendant's board of public works of its mistake in omitting one item while preparing the final accumulation of figures for its bid. Two days later it explained its mistake to the board and withdrew its bid. A few days later it submitted to the board evidence which showed the unintentional omission of the $301,769 item. The board nevertheless passed a resolution accepting plaintiff's erroneous bid of $780,305, and plaintiff refused to enter into a written contract at that figure. The board then awarded the contract to the next lowest bidder, the city demanded forfeiture of plaintiff's bid bond, and plaintiff brought action to cancel its bid and obtain discharge of the bond. The trial court found that the bid had been submitted as the result of an excusable and honest mistake of a material and fundamental character, that plaintiff [386] company had not been negligent in preparing the proposal, that it had acted promptly to notify the board of the mistake and to rescind the bid, and that the board had accepted the bid with knowledge of the error. The court further found and concluded that it would be unconscionable to require the company to perform for the amount of the bid, that no intervening rights had accrued, and that the city had suffered no damage or prejudice.

    21

    On appeal by the city this court affirmed, stating the following applicable rules (pp. 700-703 of 37 Cal.2d):

    22

    "[1] Once opened and declared, the company's bid was in the nature of an irrevocable option, a contract right of which the city could not be deprived without its consent unless the requirements for rescission were satisfied. [Citations.] . . . [2] . . . the city had actual notice of the error in the estimates before it attempted to accept the bid, and knowledge by one party that the other is acting under mistake is treated as equivalent to mutual mistake for purposes of rescission. [Citations.] [3] Relief from mistaken bids is consistently allowed where one party knows or has reason to know of the other's error and the requirements for rescission are fulfilled. [Citations.]"

    "[4] Rescission may be had for mistake of fact if the mistake is material to the contract and was not the result of neglect of a legal duty, if enforcement of the contract as made would be unconscionable, and if the other party can be placed in statu quo. [Citations.] In addition, the party seeking relief must give prompt notice of his election to rescind and must restore or offer to restore to the other party everything of value which he has received under the contract. [Citations.]"

    "[5] Omission of the $301,769 item from the company's bid was, of course, a material mistake. . . . [E]ven if we assume that the error was due to some carelessness, it does not follow that the company is without remedy. Civil Code section 1577, which defines mistake of fact for which relief may be allowed, describes it as one not caused by 'the neglect of a legal duty' on the part of the person making the mistake. [6] It has been recognized numerous times that not all carelessness constitutes a 'neglect of legal duty' within the meaning of the section. [Citations.] On facts very similar to those in the present case, courts of other jurisdictions have stated that there was no culpable negligence and have granted relief from erroneous bids. [Citations.] [7] The type of error here involved is one which will sometimes occur in the conduct of reasonable and cautious businessmen, and, under all the circumstances, [387] we cannot say as a matter of law that it constituted a neglect of legal duty such as would bar the right to equitable relief."

    "[8] The evidence clearly supports the conclusion that it would be unconscionable to hold the company to its bid at the mistaken figure. The city had knowledge before the bid was accepted that the company had made a clerical error which resulted in the omission of an item amounting to nearly one third of the amount intended to be bid, and, under all the circumstances, it appears that it would be unjust and unfair to permit the city to take advantage of the company's mistake. [9, 10] There is no reason for denying relief on the ground that the city cannot be restored to status quo. It had ample time in which to award the contract without readvertising, the contract was actually awarded to the next lowest bidder, and the city will not be heard to complain that it cannot be placed in statu quo because it will not have the benefit of an inequitable bargain. [Citations.] [11] Finally, the company gave notice promptly upon discovering the facts entitling it to rescind, and no offer of restoration was necessary because it had received nothing of value which it could restore. [Citation.] We are satisfied that all the requirements for rescission have been met."

    23

    In the Lemoge case (Lemoge Electric v. County of San Mateo (1956), supra, 46 Cal.2d 659, 662, 664 [1a, 1b, 2, 3]), the facts were similar to those in Kemper, except that plaintiff Lemoge did not attempt to rescind but instead, after discovering and informing defendant of inadvertent clerical error in the bid, entered into a formal contract with defendant on the terms specified in the erroneous bid, performed the required work, and then sued for reformation. Although this court affirmed the trial court's determination that plaintiff was not, under the circumstances, entitled to have the contract reformed, we also reaffirmed the rule that

    24

    "Once opened and declared, plaintiff's bid was in the nature of an irrevocable option, a contract right of which defendant could not be deprived without its consent unless the requirements for rescission were satisfied. [Citation.]plaintiff then had the right to rescind, and it could have done so without incurring any liability on its bond."

    25

    (See also Brunzell Const. Co. v. G. J. Weisbrod, Inc. (1955), 134 Cal.App.2d 278, 286-287 [1, 2] [285 P.2d 989]; Klose v. Sequoia Union High School Dist. (1953), 118 Cal.App.2d 636, 641-642 [5] [258 P.2d 515].)

    26

    The rules stated in the Kemper and Lemoge cases would [388] appear to entitle defendant to relief here, were it not for the findings of the trial court adverse to defendant. However, certain of such findings are clearly not supported by the evidence and others are immaterial to the point at issue. [1] The finding that it is not true that the right hand column of figures on the bid sheet was totaled for the purpose of arriving at the total bid, and that it cannot be ascertained from the evidence for what purpose either the bid sheets or the right hand column total thereon were used in arriving at the total bid, is without evidentiary support in the face of the work sheets which were introduced in evidence and of the uncontradicted testimony not alone of defendant Kastorff, but also of plaintiff's own architect and witness Rendon, explaining the purpose of the work sheets and the nature of the error which had been made. We have examined such sheets, and they plainly show the entry of the sums of $9,285 and of $6,500 in the left hand columns as the two plumbing sub bids which were received by defendant, and the omission from the right hand totals column of any sum whatever for plumbing.

    27

    [2] The same is true of the finding that although "on or about August 15" plaintiff received Kastorff's letter of August 14 explaining the error in his bid, it was not true that plaintiff knew at any time that the bid was intended to be other than as submitted. Again, it was shown by the testimony of plaintiff's architect, its school superintendent, and one of its school board members, all produced as plaintiff's witnesses, that the board was informed of the error and despite such information voted at its special meeting of August 15 not to grant defendant's request to withdraw his bid.

    28

    [3] Further, we are persuaded that the trial court's view, as expressed in the finding set forth in the margin,[4] that "Kastorff had ample time and opportunity after receiving his last subcontractor's bid" to complete and check his final bid, does not convict Kastorff of that "neglect of legal duty" which would preclude his being relieved from the inadvertent clerical error of omitting from his bid the cost of the plumbing. (See Civ. Code, 1577; M. F. Kemper Const. Co. v. City of Los Angeles (1951), supra, 37 Cal.2d 696, 702 [6].) Neither should he be denied relief from an unfair, inequitable, and unintended bargain simply because, in response to inquiry from the board when his bid was discovered to be much the lowest submitted, he informed the board, after checking with his clerical assistant, that the bid was correct. He did not have his [389] work sheets present to inspect at that time, he did thereafter inspect them at what would appear to have been the earliest practicable moment, and thereupon promptly notified plaintiff and rescinded his bid. Further, as shown in the margin,[5] Kastorff's bid agreement, as provided by plaintiff's own bid form, was to execute a formal written contract only after receiving written notification of acceptance of his bid, and such notice was not given to him until some two weeks following his rescission.

    29

    If the situations of the parties were reversed and plaintiff and Kastorff had even executed a formal written contract (by contrast with the preliminary bid offer and acceptance) calling for a fixed sum payment to Kastorff large enough to include a reasonable charge for plumbing but inadvertently through the district's clerical error omitting a mutually intended provision requiring Kastorff to furnish and install plumbing, we have no doubt but that the district would demand and expect reformation or rescission. In the case before us the district expected Kastorff to furnish and install plumbing; surely it must also have understood that he intended to, and that his bid did, include a charge for such plumbing. The omission of any such charge was as unexpected by the board as it was unintended by Kastorff. Under the circumstances the "bargain" for which the board presses (which action we, of course, assume to be impelled by advice of counsel and a strict concept of official duty) appears too sharp for law and equity to sustain.

    30

    [4] Plaintiff suggests that in any event the amount of the plumbing bid omitted from the total was immaterial. The bid as submitted was in the sum of $89,994, and whether the sum for the omitted plumbing was $6,500 or $9,285 (the two sub bids), the omission of such a sum is plainly material to the total. In Lemoge (Lemoge Electric v. County of San Mateo (1956), supra, 46 Cal.2d 659, 661-662) the error which it was declared would have entitled plaintiff to rescind was the listing of the cost of certain materials as $104.52, rather than $10,452, in a total bid of $172,421. Thus the percentage of error here was larger than in Lemoge, and was plainly material.

    31

    The judgment is reversed.

    32

    Gibson, C. J., Traynor, J., McComb, J., Peters, J., White, J., and Dooling, J., concurred.

    33

    [1] On the bid form, provided by plaintiff, the bidder agreed

    34

    "that if he is notified of the acceptance of the proposal within forty-five (45) days from the time set for the opening of bids, he will execute and deliver to you within five (5) days after having received written notification a contract as called for in the 'Notice to Contractors.'" (Italics added.)

    35

    [2] Plaintiff's original published call for bids contained the following statement: "No Bidder may withdraw his bid for a period of forty-five (45) days after the date set for the opening thereof." Whether upon Kastorff's rescission for good cause prior to expiration of the 45 day period plaintiff could have accepted the next lowest bid is not an issue before us.

    36

    [3] Other findings are that Kastorff

    37

    "in the company of his wife and another couple left San Juan Capistrano for Elsinore . . . at 6:00 P.M. on August 12, 1952, a distance of 34 miles by way of California State Highway . . . Kastorff had ample time and opportunity after receiving his last subcontractor's bid to extend the figures on his bid sheet from one column to the other, to check and recheck his bid sheet figures and to take his papers to Elsinore and to check them there prior to close of receipt of bids at 8:00 P.M."

    38

    [4] See footnote 3, supra.

    39

    [5] See footnote 1, supra.

  • 6 Drennan v. Star Paving Co.

    1

    51 Cal. 2d 409 (1958)

    2
    WILLIAM A. DRENNAN, Respondent,
    v.
    STAR PAVING COMPANY (a Corporation), Appellant.
    3

    L. A. No. 25024.
    Supreme Court of California. In Bank.
    Dec. 31, 1958.

    4

    Atus P. Reuther, Norman Soibelman, Obegi & High and Earl J. McDowell for Appellant.

    5

    S. B. Gill for Respondent.

    6

    TRAYNOR, J.

    7

    Defendant appeals from a judgment for plaintiff in an action to recover damages caused by defendant's refusal to perform certain paving work according to a bid it submitted to plaintiff.

    8

    On July 28, 1955, plaintiff, a licensed general contractor, was preparing a bid on the "Monte Vista School Job" in the Lancaster school district. Bids had to be submitted before 8 p.m. Plaintiff testified that it was customary in that area for general contractors to receive the bids of subcontractors by telephone on the day set for bidding and to rely on them in computing their own bids. Thus on that day plaintiff's secretary, Mrs. Johnson, received by telephone between 50 and 75 subcontractors' bids for various parts of the school job. As each bid came in, she wrote it on a special form, which she [412] brought into plaintiff's office. He then posted it on a master cost sheet setting forth the names and bids of all subcontractors. His own bid had to include the names of subcontractors who were to perform one-half of one per cent or more of the construction work, and he had also to provide a bidder's bond of 10 per cent of his total bid of $317,385 as a guarantee that he would enter the contract if awarded the work.

    9

    Late in the afternoon, Mrs. Johnson had a telephone conversation with Kenneth R. Hoon, an estimator for defendant. He gave his name and telephone number and stated that he was bidding for defendant for the paving work at the Monte Vista School according to plans and specifications and that his bid was $7,131.60. At Mrs. Johnson's request he repeated his bid. Plaintiff listened to the bid over an extension telephone in his office and posted it on the master sheet after receiving the bid form from Mrs. Johnson. Defendant's was the lowest bid for the paving. Plaintiff computed his own bid accordingly and submitted it with the name of defendant as the subcontractor for the paving. When the bids were opened on July 28th, plaintiff's proved to be the lowest, and he was awarded the contract.

    10

    On his way to Los Angeles the next morning plaintiff stopped at defendant's office. The first person he met was defendant's construction engineer, Mr. Oppenheimer. Plaintiff testified: 

    11
    I introduced myself and he immediately told me that they had made a mistake in their bid to me the night before, they couldn't do it for the price they had bid, and I told him I would expect him to carry through with their original bid because I had used it in compiling my bid and the job was being awarded them. And I would have to go and do the job according to my bid and I would expect them to do the same.
    12

    Defendant refused to do the paving work for less than $15,000. Plaintiff testified that he "got figures from other people" and after trying for several months to get as low a bid as possible engaged L & H Paving Company, a firm in Lancaster, to do the work for $10,948.60.

    13

    The trial court found on substantial evidence that defendant made a definite offer to do the paving on the Monte Vista job according to the plans and specifications for $7,131.60, and that plaintiff relied on defendant's bid in computing his own bid for the school job and naming defendant therein as the subcontractor for the paving work. Accordingly, it entered judgment for plaintiff in the amount of $3,817 (the difference [413] between defendant's bid and the cost of the paving to plaintiff) plus costs.

    14

    Defendant contends that there was no enforceable contract between the parties on the ground that it made a revocable offer and revoked it before plaintiff communicated his acceptance to defendant.

    15

    There is no evidence that defendant offered to make its bid irrevocable in exchange for plaintiff's use of its figures in computing his bid. Nor is there evidence that would warrant interpreting plaintiff's use of defendant's bid as the acceptance thereof, binding plaintiff, on condition he received the main contract, to award the subcontract to defendant. In sum, there was neither an option supported by consideration nor a bilateral contract binding on both parties.

    16

    Plaintiff contends, however, that he relied to his detriment on defendant's offer and that defendant must therefore answer in damages for its refusal to perform. Thus the question is squarely presented: Did plaintiff's reliance make defendant's offer irrevocable?

    17

    Section 90 of the Restatement of Contracts states: "A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise." This rule applies in this state. (Edmonds v. County of Los Angeles, 40 Cal.2d 642 [255 P.2d 772]; Frebank Co. v. White, 152 Cal.App.2d 522 [313 P.2d 633]; Wade v. Markwell & Co., 118 Cal.App.2d 410 [258 P.2d 497, 37 A.L.R.2d 1363]; West v. Hunt Foods, Inc., 101 Cal.App.2d 597 [225 P.2d 978]; Hunter v. Sparling, 87 Cal.App.2d 711 [197 P.2d 807]; see 18 Cal.Jur.2d 407-408; 5 Stan. L. Rev. 783.)

    18

    Defendant's offer constituted a promise to perform on such conditions as were stated expressly or by implication therein or annexed thereto by operation of law. (See 1 Williston, Contracts [3d ed.], §24A, p. 56, §61, p. 196.) Defendant had reason to expect that if its bid proved the lowest it would be used by plaintiff. It induced "action . . . of a definite and substantial character on the part of the promisee."

    19

    Had defendant's bid expressly stated or clearly implied that it was revocable at any time before acceptance we would treat it accordingly. It was silent on revocation, however, and we must therefore determine whether there are [414] conditions to the right of revocation imposed by law or reasonably inferable in fact. In the analogous problem of an offer for a unilateral contract, the theory is now obsolete that the offer is revocable at any time before complete performance. Thus section 45 of the Restatement of Contracts provides:

    20
    If an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract, the duty of immediate performance of which is conditional on the full consideration being given or tendered within the time stated in the offer, or, if no time is stated therein, within a reasonable time.
    21

    In explanation, comment b states that the

    22
    main offer includes as a subsidiary promise, necessarily implied, that if part of the requested performance is given, the offeror will not revoke his offer, and that if tender is made it will be accepted. Part performance or tender may thus furnish consideration for the subsidiary promise. Moreover, merely acting in justifiable reliance on an offer may in some cases serve as sufficient reason for making a promise binding (see §90).
    23

    Whether implied in fact or law, the subsidiary promise serves to preclude the injustice that would result if the offer could be revoked after the offeree had acted in detrimental reliance thereon. Reasonable reliance resulting in a foreseeable prejudicial change in position affords a compelling basis also for implying a subsidiary promise not to revoke an offer for a bilateral contract.

    24

    The absence of consideration is not fatal to the enforcement of such a promise. It is true that in the case of unilateral contracts the Restatement finds consideration for the implied subsidiary promise in the part performance of the bargained-for exchange, but its reference to section 90 makes clear that consideration for such a promise is not always necessary. The very purpose of section 90 is to make a promise binding even though there was no consideration "in the sense of something that is bargained for and given in exchange." (See 1 Corbin, Contracts 634 et seq.) Reasonable reliance serves to hold the offeror in lieu of the consideration ordinarily required to make the offer binding. In a case involving similar facts the Supreme Court of South Dakota stated that 

    25
    we believe that reason and justice demand that the doctrine [of section 90] be applied to the present facts. We cannot believe that by accepting this doctrine as controlling in the state of facts before us we will abolish the requirement of a consideration in contract [415] cases, in any different sense than an ordinary estoppel abolishes some legal requirement in its application. We are of the opinion, therefore, that the defendants in executing the agreement [which was not supported by consideration] made a promise which they should have reasonably expected would induce the plaintiff to submit a bid based thereon to the Government, that such promise did induce this action, and that injustice can be avoided only by enforcement of the promise.
    26

    (Northwestern Engineering Co. v. Ellerman, 69 S.D. 397, 408 [10 N.W.2d 879]; see also Robert Gordon, Inc. v. Ingersoll-Rand Co., 117 F.2d 654, 661; cf. James Baird Co. v. Gimbel Bros., 64 F.2d 344.)

    27

    When plaintiff used defendant's offer in computing his own bid, he bound himself to perform in reliance on defendant's terms. Though defendant did not bargain for this use of its bid neither did defendant make it idly, indifferent to whether it would be used or not. On the contrary it is reasonable to suppose that defendant submitted its bid to obtain the subcontract. It was bound to realize the substantial possibility that its bid would be the lowest, and that it would be included by plaintiff in his bid. It was to its own interest that the contractor be awarded the general contract; the lower the subcontract bid, the lower the general contractor's bid was likely to be and the greater its chance of acceptance and hence the greater defendant's chance of getting the paving subcontract. Defendant had reason not only to expect plaintiff to rely on its bid but to want him to. Clearly defendant had a stake in plaintiff's reliance on its bid. Given this interest and the fact that plaintiff is bound by his own bid, it is only fair that plaintiff should have at least an opportunity to accept defendant's bid after the general contract has been awarded to him.

    28

    It bears noting that a general contractor is not free to delay acceptance after he has been awarded the general contract in the hope of getting a better price. Nor can he reopen bargaining with the subcontractor and at the same time claim a continuing right to accept the original offer. (See R. J. Daum Const. Co. v. Child, 122 Utah 194 [247 P.2d 817, 823].) In the present case plaintiff promptly informed defendant that plaintiff was being awarded the job and that the subcontract was being awarded to defendant.

    Defendant contends, however, that its bid was the result of mistake and that it was therefore entitled to revoke it. It [416] relies on the rescission cases of M. F. Kemper Const. Co. v. City of Los Angeles, 37 Cal.2d 696 [235 P.2d 7], and Brunzell Const. Co. v. G. J. Weisbrod, Inc., 134 Cal.App.2d 278 [285 P.2d 989]. (See also Lemoge Electric v. San Mateo County, 46 Cal.2d 659, 662 [297 P.2d 638].) In those cases, however, the bidder's mistake was known or should have been to the offeree, and the offeree could be placed in status quo. [7] Of course, if plaintiff had reason to believe that defendant's bid was in error, he could not justifiably rely on it, and section 90 would afford no basis for enforcing it. (Robert Gordon, Inc. v. Ingersoll-Rand Co., 117 F.2d 654, 660.) Plaintiff, however, had no reason to know that defendant had made a mistake in submitting its bid, since there was usually a variance of 160 per cent between the highest and lowest bids for paving in the desert around Lancaster. He committed himself to performing the main contract in reliance on defendant's figures. Under these circumstances defendant's mistake, far from relieving it of its obligation, constitutes an additional reason for enforcing it, for it misled plaintiff as to the cost of doing the paving. Even had it been clearly understood that defendant's offer was revocable until accepted, it would not necessarily follow that defendant had no duty to exercise reasonable care in preparing its bid. It presented its bid with knowledge of the substantial possibility that it would be used by plaintiff; it could foresee the harm that would ensue from an erroneous underestimate of the cost. Moreover, it was motivated by its own business interest. Whether or not these considerations alone would justify recovery for negligence had the case been tried on that theory (see Biakanja v. Irving, 49 Cal.2d 647, 650 [320 P.2d 16]), they are persuasive that defendant's mistake should not defeat recovery under the rule of section 90 of the Restatement of Contracts.

    29

    As between the subcontractor who made the bid and the general contractor who reasonably relied on it, the loss resulting from the mistake should fall on the party who caused it.

    30

    Leo F. Piazza Paving Co. v. Bebek & Brkich, 141 Cal.App.2d 226 [296 P.2d 368], and Bard v. Kent, 19 Cal.2d 449 [122 P.2d 8, 139], are not to the contrary. In the Piazza case the court sustained a finding that defendants intended, not to make a firm bid, but only to give the plaintiff "some kind of an idea to use" in making its bid; there was evidence that the defendants had told plaintiff they were unsure of the significance of the specifications. There was thus no offer, promise, [417] or representation on which the defendants should reasonably have expected the plaintiff to rely. The Bard case held that an option not supported by consideration was revoked by the death of the optioner. The issue of recovery under the rule of section 90 was not pleaded at the trial, and it does not appear that the offeree's reliance was "of a definite and substantial character" so that injustice could be avoided "only by the enforcement of the promise."

    31

    There is no merit in defendant's contention that plaintiff failed to state a cause of action, on the ground that the complaint failed to allege that plaintiff attempted to mitigate the damages or that they could not have been mitigated. Plaintiff alleged that after defendant's default, "plaintiff had to procure the services of the L & H Co. to perform said asphaltic paving for the sum of $10,948.60." Plaintiff's uncontradicted evidence showed that he spent several months trying to get bids from other subcontractors and that he took the lowest bid. Clearly he acted reasonably to mitigate damages. [10] In any event any uncertainty in plaintiff's allegation as to damages could have been raised by special demurrer. (Code Civ. Proc., §430, subd. 9.) It was not so raised and was therefore waived. (Code Civ. Proc., §434.)

    32

    The judgment is affirmed.

    33

    Gibson, C.J., Shenk, J., Schauer, J., Spence, J., and McComb, J., concurred.

  • 7 EA Coronis Assocs. v. M. Gordon Constr. Co.

    1
    90 N.J. Super. 69 (1966)
    2
    216 A.2d 246
    3
    E.A. CORONIS ASSOCIATES, A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
    v.
    M. GORDON CONSTRUCTION CO., A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANT-APPELLANT.
    4

    Superior Court of New Jersey, Appellate Division.

    5
    Argued November 15, 1965.
    6
    Decided January 12, 1966.
    7

    [71] Before Judges GOLDMANN, FOLEY and COLLESTER.

    8

    Mr. Sam J. Abraham argued the cause for appellant (Messrs. Magner, Abraham & Kahn, attorneys).

    9

    Mr. Peter A. Adams argued the cause for respondent.

    10
    The opinion of the court was delivered by COLLESTER, J.A.D.
    11

    Summary judgment on cross-motions therefor was entered in favor of plaintiff E.A. Coronis Associates (Coronis) on defendant M. Gordon Construction Company's (Gordon) counterclaim in the Superior Court, Law Division.

    12

    This litigation began when plaintiff brought suit on three contracts not here pertinent. Defendant admitted liability thereon, but counterclaimed for breach of a contract to supply and erect structural steel on one of its projects. Gordon is a general contractor. In anticipation of making a bid to construct two buildings at the Port of New York Authority's Elizabeth Piers it sought bids from subcontractors. Coronis designs, fabricates, supplies and erects structural steel. On April 22, 1963 it sent the following letter to Gordon:

    13

    [72] "April 22, 1963 Mr. David BenZvi Gordon Construction Co. Elizabeth Avenue Linden, N.J. Subject: Bldgs. 131 & 132 Elizabeth Port Authority Piers Structural Steel

    14

    Dear Mr. BenZvi:

    15

    We regret very much that this estimate was so delayed. Be assured that the time consumed was due to routing of the plans through our regular sources of fabrication.

    16

    We are pleased to offer:

    17

    All structural steel including steel girts and purlins Both Buildings delivered and erected ................... $155,413.50 All structural steel equipped with clips for wood girts & purlins Both Buildings delivered and erected ................... 98,937.50

    18

    NOTE: This price is predicated on an erected price of .1175 per Lb. of steel and we would expect to adjust the price on this basis to conform to actual tonnage of steel used in the project.

    19

    Thank you very much for this opportunity to quote.

    20

    Very truly yours, E.A. CORONIS ASSOCIATES /s/ Arthur C. Pease Arthur C. Pease"

    21

    Gordon contends that at some date prior to April 22 the parties reached an oral agreement and that the above letter was sent in confirmation.

    22

    Bids were opened by the Port Authority on April 19, 1963, and Gordon's bid was the lowest. He alleges that Coronis was informed the same day. The Port Authority contract was officially awarded to Gordon on May 27, 1963 and executed about two weeks later. During this period Gordon never accepted the alleged offer of Coronis. Meanwhile, on June 1, 1963, Coronis sent a telegram, in pertinent part reading:

    23

    "Due to conditions beyond our control, we must withdraw our proposal of April 22nd 1963 for structural steel Dor Buildings 131 and 132 at the Elizabeth-Port Piers at the earliest possible we will resubmit our proposal."

    24

    [73] Two days later, on June 3, 1963, Gordon replied by telegram as follows:

    25

    "Ref your tel. 6-3 and for the record be advised that we are holding you to your bid of April 22, 1963 for the structural steel of carge bldgs 131 and 132."

    26

    Coronis never performed. Gordon employed the Elizabeth Iron Works to perform the work and claims as damages the difference between Coronis' proposal of $155,413.50 and Elizabeth Iron Works' charge of $208,000.

    27

    Gordon contends that the April 22 letter was an offer and that Coronis had no right to withdraw it. Two grounds are advanced in support. First, Gordon contends that the Uniform Commercial Code firm offer section, N.J.S. 12A:2-205, precludes withdrawal and, second, it contends that withdrawal is prevented by the doctrine of promissory estoppel.

    28
    I.
    29

    Prior to the enactment of the Uniform Commercial Code an offer not supported by consideration could be revoked at any time prior to acceptance. American Handkerchief Corp. v. Frannat Realty Co., 17 N.J. 12 (1954). The drafters of the Code recognized that the common law rule was contrary to modern business practice and possessed the capability to produce unjust results. See Corbin, "The Uniform Commercial Code — Sales, Should it be Enacted," 59 Yale L.J. 821, 827 (1950). The response was section 2-205 (N.J.S. 12A:2-205) which reverses the common law rule and states:

    30

    "An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time it stated for a reasonable time. * * *" (Emphasis added)

    31

    Coronis' letter contains no terms giving assurance it will be held open. We recognize that just as an offeree runs a risk in acting on an offer before accepting it, the offeror runs a risk [74] if his offer in considered irrevocable. Cf., James Baird Co. v. Gimbel Bros. Inc., 64 F.2d 344 (2 Cir. 1933). In their comments to section 2-205 of the Code the drafters anticipated these risks and stated:

    32

    "However, despite settled courses of dealing or usages of the trade whereby firm offers are made by oral communication and relied upon without more evidence, such offers remain revocable under this Article since authentication by a writing is the essence of this section." Uniform Commercial Code (N.J.S. 12A:2-205), comment, par. 2.

    33

    We think it clear that plaintiff's writing does not come within the provision of section 2-205 of a "signed writing which by its terms gives assurance that it will be held open." See Wilmington Trust Company v. Coulter, 200 A.2d 441 (Del. Sup. Ct. 1964).

    34

    Having so concluded, we need not consider the question of whether the Coronis letter was an offer or whether the letter dealt with "goods." We note in this connection that Coronis quoted the price for structural steel delivered and erected.

    35
    II.
    36

    Defendant also argues that even if plaintiff's writing of April 22 is not a firm offer within the meaning of section 2-205, justice requires that we apply the doctrine of promissory estoppel to preclude its revocation. Restatement, Contracts, § 90 provides:

    37

    "A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise."[1]

    38

    [75] Defendant argues that it relied on plaintiff's bid in making its own bid and that injustice would result if plaintiff could now revoke. Thus, defendant contends that plaintiff's bid is made irrevocable by application of the doctrine of promissory estoppel.

    39

    No New Jersey case has applied the rule in our State. But our highest court has twice implied that in appropriate circumstances it would. Friedman v. Tappan Development Corp., 22 N.J. 523 (1956); American Handkerchief Corp. v. Frannat Realty Co., supra. The general rule is that estoppel only applies to representations of facts past or present. Berman v. One Forty-Five Belmont Ave. Corp., 109 N.J. Eq. 256, 261 (Ch. 1931). The significant function of promissory estoppel is to apply an estoppel to representations or promises as to future events. 31 C.J.S. Estoppel § 80, pp. 466, 467 (1964). Writing for the court in Friedman, Justice Heher recognized that the doctrine was not truly an estoppel in the historical sense. He described the doctrine by stating:

    40

    "The term `promissory estoppel' is of comparatively recent origin in our jurisprudence, not altogether clear in its quality and import. It is not a true estoppel, but a departure from the classic doctrine of consideration that the promise and the consideration must purport to be the motive each for the other, in whole or at least in part, and it is not enough that the promise induces the detriment or that the detriment induces the promise if the other half is wanting, Wisconsin & Michigan R. Co. v. Powers, 191 U.S. 379, 386, 24 S.Ct. 107, 48 L.Ed. 229 (1903), Holmes, C.J.; Coast National Bank v. Bloom, supra [113 N.J.L. 597, 602 (E. & A. 1934)], a professed adaptation of the principle of estoppel to the formation of contracts where, relying on a gratuitous promise, the promisee has suffered detriment. Martin v. Meles, 179 Mass. 114, 60 N.E. 397 (Sup. Jud. Ct. 1901), Holmes, C.J. There is in such circumstances no representation of an existing fact, but merely that the promisor at the time of making the promise intends to fulfill it. The reliance is on a promise, and not on a misstatement of fact, and so the estoppel is termed `promissory' to mark the distinction. Williston on Contracts (rev. ed.), section 139." (22 N.J., at pp. 535, 536)

    41

    The evolving nature of the doctrine under examination is illustrated by the variation in the expressions of the authorities in its characterization. Thus it has been called a "species [76] of consideration," Porter v. Commissioner of Internal Revenue, 60 F.2d 673, 675 (2 Cir. 1932), affirmed 288 U.S. 436, 53 S.Ct. 451, 77 L.Ed. 880 (1933); and the "equivalent of" or a "substitute for" consideration. Allegheny College v. National Chautauqua County Bank of Jamestown, 246 N.Y. 369, 159 N.E. 173, 175, 57 A.L.R. 980 (Ct. App. 1927). The doctrine has found basic acceptance throughout the country. However, the courts have not agreed on where the doctrine is to be applied. They frequently state that in this country promissory estoppel "has been generally confined to charitable subscriptions, where difficulty has been encountered in sustaining the promise under the conventional theories of consideration, and to certain promises between individuals for the payment of money, enforced as informal contracts." Friedman v. Tappan Development Corp., supra, at p. 536; 1 Williston, Contracts (3d ed. 1957), § 140, pp. 611, 612. While the doctrine is now recognized "almost universally" in the charitable subscription cases, 1A Corbin, op. cit., § 198, p. 204; 1 Williston, op. cit., p. 609, § 140, it also enjoys a much wider application. Annotation 48 A.L.R.2d 1069, 1079-1087 (1950); Annotation 115 A.L.R. 152, 156 (1938); 1A Corbin, op. cit., §§ 193-209. For example, promissory estoppel has been applied to preclude reliance on the statute of limitations, Waugh v. Lennard, 69 Ariz. 214, 211 P.2d 806 (Sup. Ct. 1949); to avoid the statute of frauds, Alaska Airlines v. Stephenson, 217 F.2d 295, 15 Alaska 272 (9 Cir. 1954); to prevent foreclosure of a mortgage, Bank of Fairbanks v. Kaye, 227 F.2d 566, 16 Alaska 23 (9 Cir. 1955); to enforce a pension plan, West v. Hunt Foods, 101 Cal. App.2d 597, 225 P.2d 978 (D. Ct. App. 1951); to require the granting of a franchise, Chrysler Corporation v. Quimby, 1 Storey 264, 51 Del. 264, 144 A.2d 123, 885 (Sup. Ct. 1958); to protect creditors by requiring directors of a corporation to convey land to it, Berman v. Griggs, 145 Me. 258, 75 A.2d 365 (Sup. Jud. Ct. 1950); to enforce a release given without consideration, Fried v. Fisher, 328 Pa. 497, 196 A. 39, 115 A.L.R. 147 (Sup. Ct. 1938); and to enforce an easement [77] granted without consideration or a writing, Miller v. Lawlor, 245 Iowa 1144, 66 N.W.2d 267, 48 A.L.R.2d 1058 (Sup. Ct. 1954).

    42

    We see no reason why, given an appropriate factual situation, the doctrine would not apply in this State. Our view is reinforced by the ever expanding scope of liability designed to compensate those injured by wrongful conduct. See, e.g., Ekalo v. Constructive Service Corporation of America, 46 N.J. 82 (1965); Falzone v. Busch, 45 N.J. 559 (1965); Schipper v. Levitt & Sons, Inc., 44 N.J. 70 (1965). As Justice Jacobs said in Schipper:

    43

    "The law should be based on current concepts of what is right and just and the judiciary should be alert to the never-ending need for keeping its common law principles abreast of the times. Ancient distinctions which make no sense in today's society and tend to discredit the law should be readily rejected. * * *" (at p. 90)

    44

    We see no difference between substantial reliance on a representation or promise as to current or past facts and as to future facts. It is only right and just that a promise a promisor knows will induce action of a substantial character be enforced if it is in fact relied on.

    45

    The authorities are not uniform in applying the doctrine of promissory estoppel to situations comparable to that before us. We believe the better line of authority applies the doctrine. N. Litterio & Co. v. Glassman Constr. Co., 115 U.S. App. D.C. 335, 319 F.2d 736 (D.C. Cir. 1963); Air Conditioning Co. of Hawaii v. Richards Constr. Co., 200 F. Supp. 167 (D. Hawaii 1963), affirmed on other grounds 318 F.2d 410 (9 Cir. 1963); Reynolds v. Texarkana Construction Company, 237 Ark. 583, 374 S.W.2d 818 (Sup. Ct. 1964); Drennan v. Star Paving Co., 51 Cal.2d 409, 333 P.2d 757 (Sup. Ct. 1958); Norcross v. Winters, 209 Cal. App.2d 207, 25 Cal. Rptr. 821 (D. Ct. App. 1962); Northwestern Engineering Co. v. Ellerman, 69 S.D. 397, 10 N.W.2d 879 (Sup. Ct. 1943); Union Tank Car Company v. Wheat Brothers, 15 Utah 2d 101, 387 P.2d 1000 (Sup. Ct. 1964). Cf., R.P. [78] Farnsworth & Co. v. Albert, 79 F. Supp. 27 (E.D. La. 1948), reversed 176 F.2d 198 (5 Cir. 1949); Harris v. Lillis, 24 So.2d 689 (La. Ct. App. 1946). Contra, James Baird Co. v. Gimbel Bros., Inc., 64 F.2d 344 (2 Cir. 1933); Southeastern Sales & Service Co. v. T.T. Watson, Inc., 172 So.2d 239 (Fla. D. Ct. App. 1965).

    46

    The Drennan case involved an oral bid by a subcontractor for paving work at a school project on which plaintiff general contractor was about to bid. Defendant's paving bid was the lowest, and the general contractor computed his own bid accordingly. Plaintiff was the successful bidder but the following day was informed by defendant it would not do the work at its bid price. The California Supreme Court, per Justice Traynor, applied the doctrine of promissory estoppel to prevent defendant's revocation of its bid, stating:

    47

    "When plaintiff used defendant's offer in computing his own bid, he bound himself to perform in reliance on defendant's terms. Though defendant did not bargain for this use of its bid neither did defendant make it idly, indifferent to whether it would be used or not. On the contrary it is reasonable to suppose that defendant submitted its bid to obtain the subcontract. It was bound to realize the substantial possibility that its bid would be the lowest, and that it would be included by plaintiff in his bid. It was to its own interest that the contractor be awarded the general contract; the lower the subcontract bid, the lower the general contractor's bid was likely to be and the greater its chance of acceptance and hence the greater defendant's chance of getting the paving subcontract. Defendant had reason not only to expect plaintiff to rely on his bid but to want him to. Clearly defendant had a stake in plaintiff's reliance on its bid. Given this interest and the fact that plaintiff is bound by his own bid, it is only fair that plaintiff should have at least an opportunity to accept defendant's bid after the general contract has been awarded to him." (333 P.2d, at p. 760)

    48

    The South Dakota Supreme Court was confronted with a virtually identical set of facts in the Northwestern Engineering case. In applying promissory estoppel it stated,

    49

    "Obviously it would seem unjust and unfair, after appellant was declared the successful bidder and imposed with all the obligations of such, to allow respondents to then retract their promise and permit the effect of such retraction to fall upon the appellant." (10 N.W.2d, at p. 883)

    50

    [79] Similarly, in the Reynolds case a subcontractor submitted a bid for the electrical work for a school project on which the general contractor was about to bid. The general contractor relied on the subcontractor's bid. In applying promissory estoppel to prevent revocation the court held that,

    51

    "Justice demands that the loss resulting from the subcontractor's carelessness should fall upon him who was guilty of the error rather than upon the principal contractor who relied in good faith upon the offer that he received." (374 S.W.2d, at p. 820)

    52

    We agree.

    53
    III.
    54

    To successfully establish a cause of action based on promissory estoppel Gordon must prove that (1) it received a clear and definite offer from Coronis; (2) Coronis could expect reliance of a substantial nature; (3) actual reasonable reliance on Gordon's part, and (4) detriment. Restatement, Contracts, § 90; N. Litterio & Co. v. Glassman Constr. Co., supra, 319 F.2d, at p. 739.

    55

    The Law Division did not think promissory estoppel would apply in the situation sub judice. Therefore we reverse. We also remand since it is necessary to determine if the elements of a promissory estoppel case are present. They are essentially factual and inappropriate to a summary judgment. R.R. 4:58-3; Robbins v. Jersey City, 23 N.J. 229 (1957). Gordon must show the existence of an offer. The April 22 letter is subsequent in time to Gordon's bid to the Port Authority. It cannot furnish the basis for this suit since it would have been impossible for Gordon to have relied on it when making its bid. However, it is alleged that the letter merely confirmed prior oral agreements. The true facts must await a full hearing.

    56

    Similarly, Gordon must show that Coronis could reasonably expect Gordon to rely on the bid. This will depend on Coronis' actual knowledge or the custom and usage in the trade. N. Litterio & Co. v. Glassman Constr. Co., supra; [80] Hedden v. Lupinsky, 405 Pa. 609, 176 A.2d 406 (Sup. Ct. 1962). Gordon must also show actual reliance.[2] Norcross v. Winters, supra. And we note that if Coronis' bid was so low as to put Gordon on notice that it was erroneous it cannot claim reliance. Drennan v. Star Paving Co., supra; MacIsaac & Menke Co. v. Freeman, 194 Cal. App.2d 327, 15 Cal. Rptr. 48 (D. Ct. App. 1961); cf., Feldman v. Urban Commercial, Inc., 70 N.J. Super. 463 (Ch. Div. 1961). Finally, of course, detriment must be shown.

    57

    Reversed and remanded.

    58

    [1] The Restatement does not use the term "promissory estoppel." It has been criticized as too broad. Professor Corbin approves of the Restatement's stating of the rule "in terms of action or forbearance in reliance on a promise." 1A Corbin, Contracts, § 204 (1963), cited with approval in Friedman v. Tappan Development Corp., 22 N.J. 523, 538 (1956). We use the term "promissory estoppel" for convenience.

    59

    [2] We do not consider whether the existence of section 2-205 of the Uniform Commercial Code precludes reliance on an offer not conforming to its provisions.

  • 8 STS Transport Service v. Volvo White Truck Corp.

    1
    766 F.2d 1089 (1985)
    2
    S.T.S. TRANSPORT SERVICE, INC., Plaintiff-Appellant,
    v.
    VOLVO WHITE TRUCK CORPORATION, Defendant-Appellee.
    3
    No. 83-2379.
    4

    United States Court of Appeals, Seventh Circuit.

    5
    Argued December 4, 1984.
    6
    Decided July 2, 1985.
    7

    [1090] Eugene L. Resnick, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill., for plaintiff-appellant.

    8

    Steven P. Handler, Hannafan & Handler, Chicago, Ill., for defendant-appellee.

    9

    Before CUDAHY, COFFEY and FLAUM, Circuit Judges.

    10
    CUDAHY, Circuit Judge.
    11

    Plaintiff appeals from a finding of unilateral mistake and rescission of a contract of sale. We affirm the judgment of the district court.

    12
    I.
    13

    Plaintiff-appellant S.T.S. Transport Service, Inc. ("S.T.S.") is an Illinois corporation whose principal place of business is located in Alsip, Illinois. Since its incorporation in 1978, S.T.S. has leased tractor trucks and trailers to other companies and has also hauled freight for customers. Volvo White Truck Corporation ("Volvo White") is a Virginia corporation with its principal place of business in Greensboro, North Carolina. There is a branch dealership of Volvo White in Alsip, Illinois. In 1979 and 1980 S.T.S. bought trucks and heavy equipment from White Motor Company ("White Motor"), a truck manufacturer whose assets were purchased in 1981 by Volvo White.

    14

    Early in 1981 S.T.S. expressed an interest in purchasing eight new tractor trucks from White Motor in Alsip. In order to avoid a down payment, S.T.S. wanted to trade in trucks it already owned and use its equity in those trucks as a down payment. After appraising the trucks S.T.S. intended to trade in, and after some negotiations concerning the appraised value, White Motor offered to sell S.T.S. eight 1981 Road Commander trucks on the following terms:

    15
    (a.) The 1981 Road Commander trucks would be sold to S.T.S. for a price of $58,749 each;
    16
    (b.) S.T.S. would trade White Motor one used truck for each new truck purchased;
    17
    (c.) S.T.S. would continue to make payments (to financing companies) on the used trucks through July, 1981;
    18
    (d.) White Motor would value six of the used trucks at the same amount that S.T.S. would owe on them in July, 1981; $26,560 each;
    19
    (e.) White Motor would give S.T.S. a credit of $25,000 on another of the trucks;
    20
    (f.) White Motor would arrange financing for S.T.S.
    21

    Provision (d.) meant that S.T.S. would receive no credit for any equity in six of the trucks it owned, but that White Motor would simply pay off the amount still owed by S.T.S. on those trucks. The list price of the Road Commander trucks was $80,784. The offer price of $58,749 was reached by adding a profit of $2,200 to the Alsip branch's base cost of $56,549 for the trucks. These terms were confirmed in a March 10, 1981 letter from White Motor to S.T.S. Apparently they were not satisfactory to S.T.S., and negotiations were suspended.

    22

    In August, 1981, while White Motor was the subject of bankruptcy proceedings, S.T.S. solicited a new offer from them. White Motor recalculated its costs and sent a letter, dated August 17, 1981, which set out the specifications of the eight Road Commander Trucks, and which concluded with the following paragraphs:

    23
    Net delivered price F.O.B. Alsip, including preparation, but excluding state/local taxes is..... $273,176.00.
    24
    We will pay off balance due to White Motor Credit Corporation on the (6) 1979 Western Stars. We assume you will make your payment to White Motor Credit Corporation on December 14, 1981, and then begin a new note with White Motor Credit Corporation effective January 30, 1982, as your first payment on the new equipment. There will be no prepayment return to you, that figure ($9,035) is included in the above figures.
    25
    [1091] We will also pay off the "estimated" money owed to I.T.T. of $31,755 once your trades are turned in. This is the estimated balance after your November 30, 1981 payment to I.T.T. We will receive the 1978 Freightliner and 1977 Peterbilt as trades and we will also receive the 1979 Western Stars.
    26
    Hope this isn't confusing. I just net'd everything out and gave you the bottom line. It's a good deal for you for 2 reasons, there is a $3,500.00 U.T.A. on this deal, and we expect 6% 1982 increase by September 1, 1981. You are actually purchasing 1982 units at 1981 prices with $3,500 off on top.
    27
    What do you think!!!!!!!!
    28

    A moment's calculations makes clear how widely the price suggested in the August 12 letter diverges from the earlier price. Eight trucks at the March 10 price of $58,749 would total $469,992; there was to be no credit for the equity of any of the trucks traded in, except for one, and the credit for that one was to be $25,000. Subtracting that credit from the total for the eight trucks would result in a net price of something just under $445,000. The new net price named in the August letter is some $170,000 — over $20,000 a truck — less.

    29

    Appellee Volvo White claims that the August figure was the result of a miscalculation. Intending to offer the eight new trucks for the lower price of $56,530 each, for a total of $452,240, White Motor subtracted from that figure not only $42,000 in credit that it was now willing to allow on the trade-in of two trucks, but the $137,064 in assessed value on six other trucks, an amount which equalled the outstanding debt on the trucks. Since S.T.S. was to be credited with no equity on those six used trucks, the assessed value should not have been subtracted from the price of the new trucks. White Motor merely intended to wipe out S.T.S.'s remaining debt on those trucks. By subtracting the amount they did from the price of the new trucks, White Motor in effect offered to credit S.T.S. with an amount equal to the amount of the debt remaining on each truck.

    30

    In response to further inquiries by S.T.S., White Motor sent out a second letter on September 2, 1981. This letter was in all respects identical to the August 17 letter, except that in place of the last line of the August letter the September 2 letter contained the following paragraph regarding interest rate charges:

    31
    If prime rate increases from todays [sic] rate of 20.5%, your rate to be charged will be 2.5% below the existing prime on date of delivery. If prime decreases, your rate will be the then existing add on rate charged by White Motor Credit Corporation.
    32

    Both letters were sent out by Joseph LaSpina, manager of the Alsip branch. LaSpina admitted at trial that he did not review the August 17 letter before it went out, and that he did not review or sign the September 2d letter; his name was signed on the first page by his secretary.

    33

    S.T.S. accepted the offer. In December, 1981, S.T.S. turned over to Volvo White all of the trade-in vehicles. S.T.S. also entered into a new lease agreement with Suburban Truck & Trailer, under the terms of which Suburban would lease five of the new trucks from S.T.S. for three years. S.T.S. expected the lease to produce gross income before expenses of $37,876.49 per truck per year.

    34

    In January, 1982, the parties became aware of the problem. Volvo White informed S.T.S. that the net purchase price for the new trucks was $452,000, and S.T.S. insisted that under the contract the purchase price was $273,176. On January 15, 1982, Volvo White sent a letter admitting that it had made a clerical error in the contract. It offered to go ahead at the $452,000 price or to call off the transaction, and it confirmed that the eight trade-ins, now in Volvo White's lot, would remain the property of S.T.S. until the deal was closed. Maintaining that it could not use the trade-in vehicles in its new leasing contract with Suburban, and maintaining that under the terms of the contract Volvo White should have taken over payments of the used trucks, S.T.S. neither reclaimed the trucks [1092] nor kept up payments on them. They were repossessed and sold later in the year for approximately $20,000 per truck.

    35

    S.T.S. claims that it lost an equity of $70,900 which it had built up in those trade-in units. It also claims that it lost a profit of $372,352 that it would have earned under its lease with Suburban.

    36

    S.T.S. had apparently been experiencing some financial difficulty in the latter half of 1981. In January and February, 1982, it sold its remaining tractor trucks. This lawsuit was commenced on June 11, 1982. A trial in the Northern District of Illinois was held during the week of June 13, 1983. S.T.S. sought as damages its lost profits under the Suburban lease. Volvo White counterclaimed for an unpaid balance on parts and materials Volvo White had provided to S.T.S.

    37

    The district court found first that S.T.S. had a duty to mitigate its damages. It found that S.T.S. should have gone ahead with the purchase at the higher price, so that it might fulfill its own commitment to provide trucks for Suburban, reserving the right to sue Volvo White for the difference under the U.C.C. It found that since the plaintiff did not mitigate in that way, it could not realize any of the damages it claimed.

    38

    But the district judge also found that the contract contained a mistake with respect to the price term, a mistake that would not have been discovered by merely proof-reading the document. Since she found a mistake, she also found that the mistake could be excused and the contract rescinded if the plaintiff could be returned to the status quo ante. She found that the costs of the parts and labor which were the subject of Volvo White's counterclaim were incurred in the process of getting the trucks ready for the trade-in, so that the status quo could be restored with respect to those obligations by excusing them. On the other hand, she was persuaded by the testimony of witnesses that S.T.S. intended to go out of business at the end of 1981, and that "there is nothing really to restore it to in that regard." Accordingly, she entered judgment for the plaintiff on the counterclaim but against the plaintiff on its principal claim.

    39

    On the question of equity, the district judge found that the used trucks probably could have been sold by S.T.S. for more than they were sold for after repossession, but that since S.T.S. had not taken advantage of the opportunity to reclaim the trucks, it was stuck with the price the trucks had actually been sold for. At that price, there was no equity, since the truck were sold for less than the amount owed on them.

    40
    II.
    41

    If the contract is void because of a mistake, then there is no question of mitigation, since the duty to mitigate (if there is such a duty) arises out of the breach of a valid contract. Where the court applies the doctrine of mistake, the parties are excused from the contract and consequently there is no breach. Thus, if the district court properly found a mistake concerning the price term and properly voided the contract, we need not reach the issue of mitigation.

    42

    The parties have stipulated that Illinois law governs. The sale of the trucks would be governed by the Uniform Commercial Code, chapter 26 of the Illinois Revised Code; but under § 1-103 of the Code, mistake and certain other questions are governed by the common law. 26 Ill.Rev.Stat. § 1-103.

    43

    Although the traditional case in which a contract is found to contain a mistake is one in which the parties understand a key term differently (hence, a case in which the mistake is mutual), the cases have also voided contracts — though more reluctantly — where only one party is mistaken as to the facts. In the typical case of this sort, a seller or contractor will miscalculate in adding up a list of items. Under the appropriate circumstances courts will now recognize a right to avoidance of this sort of mistake.

    44

    [1093] It is true that in an early case, Steinmeyer v. Schroeppel, 226 Ill. 9, 80 N.E. 564 (1907), the Illinois Supreme Court denied relief to sellers of lumber who had erred in addition of the items in a contract, saying that if it could be set aside for that reason it could be set aside for errors of judgment. 80 N.E. at 566. For example, if the mistake resulted from a miscalculation as to the economic climate, to undo the contract would fly in the face of the very reason for having contracts in the first place. Wil-Fred's Inc. v. Metropolitan Sanitary District of Greater Chicago, 57 Ill.App.3d 16, 14 Ill.Dec. 667, 372 N.E.2d 946 (1978). But that problem is solved by excluding miscalculations of judgment. E. FARNSWORTH, Contracts 666 (1982).

    45

    As the law now stands, three conditions must be fulfilled before a contract can be rescinded: (1) the mistake must relate to a material feature of the contract; (2) it must have occurred despite the exercise of reasonable care; and (3) the other party must be placed in the position it was in before the contract was made. John J. Calnan Co. v. Talsma Builders, Inc., 67 Ill.2d 213, 10 Ill.Dec. 242, 245, 367 N.E.2d 695, 698 (1977); Wil-Fred's Inc. v. Metropolitan Sanitary District of Greater Chicago, 372 N.E.2d at 951.

    46

    The mistake in this case relates to the price, which must be conceded to be material. The mistake must also have occurred in spite of the exercise of reasonable care. Although reasonable care is as difficult to be precise about in this sort of case as it is elsewhere, there are some fairly clear groupings of mistake cases that can serve as guideposts. Most helpful is the knowledge that Illinois courts will generally grant relief for errors "which are clerical or mathematical." Cummings v. Dusenbury, 129 Ill.App.3d 338, 84 Ill.Dec. 615, 619, 472 N.E.2d 575, 579 (1984) (citing Wil-Fred's, Inc. v. Metropolitan Sanitary District, supra). The reason for the special treatment for such errors, of course, is that they are difficult to prevent, and that no useful social purpose is served by enforcing the mistaken term. No incentives exist to make such mistakes; all the existing incentives work, in fact, in the opposite direction. There is every reason for a contractor to use ordinary care, and, if errors of this sort — clerical or mathematical — slip through anyway, the courts will generally find it more useful to allow the contract to be changed or rescinded than to enforce it as it is. Naturally there are cases of extreme negligence to which this presumption should not apply; and there is an exception of sorts where the contract has been relied upon. We will have something to say about this last at a later point.

    47

    Although it would be wrong to suppose that "merely" mathematical or clerical errors are easily distinguished from other errors such as those of judgment — a miscalculation about the economic climate, say — the distinction is clear enough for ordinary purposes. A merely mathematical or clerical error occurs when some term is either one-tenth or ten times as large as it should be; when a term is added in the wrong column; when it is added rather than subtracted; when it is overlooked.

    48

    The error involved here is of that sort, but if anything more difficult to detect. The Alsip manager, LaSpina, made the crucial calculations. The assessed value of the used trucks was subtracted from the price of the new trucks. Such a procedure is perfectly appropriate, ordinarily; whoever buys a new car expects to have the price reduced by the value of the trade-in. Here, however, the assessed value was set so as to match the outstanding debt on the trucks. Even so, had the offer been for S.T.S. to pay off the remaining debt on the trucks before they were traded in, the calculation would have been correct. But that was not the offer; Volvo White offered to take over the remaining debt on the trade-ins, so that there was nothing in the way of trade-in value to be subtracted from the purchase price. The assessed value was completely offset by the outstanding debt.

    49

    However foolish this mistake, once made it would not easily have been detected. [1094] S.T.S. points out that Volvo White conceded in testimony that neither of the two letters containing the term in question were reviewed by LaSpina before going out. But such an omission ought to bar recision only if it would have resulted in the error's being detected. Here, the mistaken calculations were made by LaSpina, and there is little reason to suppose that he would have detected the error had he proof-read the errors before they went out. The error involved, therefore, was not one that would have been detected by the exercise of ordinary care, and we do not think that the trial judge erred in rejecting the defense of negligence.

    50

    The question of reliance is no different from the question whether the parties can be put into the position they were in at the time the contract was signed. Here, S.T.S. claims that it lost the equity it had in the trucks traded in. If it did in fact lose those trucks because of reliance on the contract; and if in fact there was equity in the trucks — that is, if the market value of the trucks exceeded the remaining debt; then S.T.S. is entitled to claim that equity as the price of putting it back into the position it would have been in had it not relied on the contract.

    51

    The district court found that S.T.S. could have reclaimed its trucks at any time. At the time it became apparent that Volvo White was not going to honor the contract as written, sometime in January, 1982, S.T.S. could have arranged to sell the trucks on its own. A party to a contract cannot be allowed to create damages by continuing to rely on a contract which has either been breached, or been void from the start. As of January, 1982, S.T.S. was on notice that one of those two situations applied.

    52

    Moreover, there is no reason why the district court is obliged to do for S.T.S. what S.T.S. could easily have done on its own — namely, sell trucks at the market price. It would have been difficult to ascertain the January, 1982 market price when the trial took place in 1984; it would have been much easier to do by actually selling the trucks when the contract fell through.

    53

    Instead, S.T.S. refused to make further payments, and the trucks were repossessed and sold for amounts less than the amounts still owed on each. S.T.S. might have complained of the reasonableness of these sales, but it did not; in any case the sales do not appear to have been unreasonable.[1] The district court therefore correctly found that any loss of equity — if there was equity to begin with — was due to conduct of S.T.S., and that restoring S.T.S. to the status quo did not require payment for lost equity.

    54

    S.T.S. also incurred certain obligations in preparing the trucks for the trade-in; Volvo White has counterclaimed for repayment of approximately $9500 for parts and services priced during this period. The district judge found that these obligations were legitimately incurred in reliance on the contract and that before the contract can be rescinded those obligations must be excused. She therefore dismissed the counterclaim and rescinded the contract. Volvo White does not reassert its counterclaim on appeal.

    55

    Since the district court properly rescinded the contract, the question of mitigation does not arise. The judgment of the district court is affirmed.

    56

    [1] The trucks were sold for $20,000 each. Volvo White had appraised the trucks at $22,000-23,000; testimony for S.T.S. would have set the value at $30,000. Considering the conditions under which the trucks were sold, the selling price does not appear unreasonable, whichever estimate of market value we choose.

  • 9 Hinson v. Jefferson

    1
    215 S.E.2d 102 (1975)
    2
    287 N.C. 422
    3
    Barbara H. HINSON
    v.
    William W. JEFFERSON et al.
    4
    No. 75.
    5

    Supreme Court of North Carolina.

    6
    June 6, 1975.
    7

    [106] Gaylord & Singleton by L. W. Gaylord, Jr., Greenville, for defendants-appellants.

    8

    Everett & Cheatham by C. W. Everett, Sr., Bethel, for plaintiff-appellee.

    9
    COPELAND, Justice.
    10

    Plaintiff excepted to the signing and entry of the foregoing judgment and this constitutes her only assignment of error on appeal. An exception to a judgment rendered by the trial court, without an exception to the evidence or to the court's findings of fact, presents for appellate review the sole question of whether the facts found support the judgment. See, e. g., St. George v. Hanson, 239 N.C. 259, 78 S.E.2d 885 (1954); Best v. Garris, 211 N.C. 305, 190 S.E. 221 (1937). See also Parker v. Insurance Co., 259 N.C. 115, 130 S.E.2d 36 (1963); Putnam v. Triangle Publications, Inc., 245 N.C. 432, 96 S.E.2d 445 (1957).

    11

    G.S. § 1A-1, Rule 52(a)(1) provides that "[i]n all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon and direct the entry of the appropriate judgment." (Emphasis supplied.) This rule has been interpreted by this Court to require the trial judge to do the following three things in writing: "(1) To find the facts on all issues of fact joined on the pleadings; (2) to declare the conclusions of law arising on the facts found; and (3) to enter judgment accordingly." Coggins v. City of Asheville, 278 N.C. 428, 434, 180 S.E.2d 149, 153 (1971). This was also the rule under former G.S. § 1-185. See, e. g., Morehead v. Harris, 255 N.C. 130, 120 S.E.2d 425 (1961); City of Goldsboro v. Atlantic Coast Line Ry. Co., 246 N.C. 101, 97 S.E.2d 486 (1957).

    12

    [107] In the instant case the court found the facts to be as stipulated and thereafter directed entry of judgment in favor of defendants. However, the court failed to state separately its conclusions of law. The mere assertion that "plaintiff is not entitled to the relief prayed for by her," without stating the grounds for such a bare legal conclusion, does not comply with the requirements of Rule 52(a)(1). The purpose for requiring the conclusions of law to be stated separately is to enable appellate courts to determine what law the trial court applied in directing the entry of judgment in favor of one of the parties. See, e. g., Morehead v. Harris, supra; Jamison v. City of Charlotte, 239 N.C. 423, 79 S.E.2d 797 (1954).

    13

    The problems engendered by non-compliance with Rule 52(a)(1) are readily apparent in the instant case. We do not know what law or legal theory the trial court applied to the facts in denying plaintiff the relief prayed for. We can only assume that the trial court found none of plaintiff's legal theories to be persuasive. Plaintiff states in her sole assignment of error that she relies on the following legal points in support of her exception to the judgment:

    14

    "1. That the stipulated facts show that there was a mutual mistake of an existing material fact, common to both parties, and by reason thereof each has done what neither intended, coupled with a failure of consideration.

    "2. That in a conveyance of land by deed containing restrictions therein which restrict the use of the property for a certain purpose, the grantor thereby warrants that the property so conveyed and restricted can be used for the specific purpose to which its use is restricted by the deed of conveyance."

    15

    In general, we are bound by the findings of fact unless such facts are not supported by any competent evidence. See, e. g., Blackwell v. Butts, 278 N.C. 615, 180 S.E.2d 835 (1971); Knutton v. Cofield, 273 N.C. 355, 160 S.E.2d 29 (1968). Here the facts are conclusive since no exception was taken by either party to the court's findings. On the other hand, we are not precluded from reviewing the trial court's view of the applicable law arising on the facts. See generally 1 McIntosh N. C. Practice and Procedure §§ 1372-74 (1956) (Phillips' 1970 Supp.); 5A Moore's Federal Practice § 52.03(2) (1974); Wright & Miller, Federal Practice and Procedure: Civil § 2588 (1971). Hence, in the interest of justice, we deem it appropriate to proceed to determine the proper legal conclusions to be drawn from the trial court's findings.

    16

    Based on these uncontroverted facts, the Court of Appeals held that plaintiff was entitled to rescind the contract on the grounds of "mutual mistake of material fact" coupled with a "total failure of consideration." 24 N.C.App. at 238-39, 210 S.E.2d at 502-03. Assuming, arguendo, that the Court of Appeals was correct, and that this is a true mistake case, then it is one that must necessarily involve a mistaken assumption of the parties in the formation of the contract of purchase. In these mistaken assumption cases, unlike other kinds of mistake cases, the parties communicate their desires to each other perfectly; they intend to complete a sale, or a contract of sale, and their objective acts are in accord with their intent. Difficulties subsequently arise because at least one of the parties has, either consciously or unconsciously, mistaken beliefs concerning facts that make the sale appear more attractive to him than it actually is. For many cases see, e. g., J. Wade, Cases on Restitution (1966); J. Dawson & J. Palmer, Cases on Restitution (1958). See generally 3 A. Corbin, Contracts §§ 579-to-621 (2d ed. 1960); Restatement of Contracts § 502 (1962); Restatement of Restitution (1937); 6 S. Williston, Contracts (rev. ed. 1937); Annot., Vendor and Purchaser: Mutual Mistake as to Physical Condition of Realty as Ground for Rescission, 50 A.L.R.3d 1188 (1973); Atiyah & Bennion, Mistake in the Construction of Contracts, 24 Modern L.Rev. 421 (1961); Foulke, Mistake in the Formation and Performance [108] of a Contract, 11 Colum.L.Rev. 197 (1911).

    17

    In attempting to determine whether the aggrieved party is entitled to some kind of relief in these mistaken assumption cases, courts and commentators have suggested a number of factors as relevant. E. g., was the mistake bilateral or unilateral; was it palpable or impalpable; was one of the parties unjustly enriched; was the other party unjustly impoverished; was the risk assumed by one of the parties (i. e., subjective ignorance); was the mistake fundamental or collateral; was the mistake related to present facts or to future expectations; etc. See Rabin, A Proposed Black-Letter Rule Concerning Mistaken Assumptions in Bargain Transactions, 45 Tex.L. Rev. 1273 (1967) (hereinafter cited as Rabin). See also D. Dobbs, Remedies 716-84 (West 1973).

    18

    Our research has failed to disclose a prior North Carolina case applying the doctrine of mutual mistake pertaining to a physical condition of real property as a ground for rescission. But see MacKay v. McIntosh, 270 N.C. 69, 153 S.E.2d 800 (1967). However, we have found a few cases from other jurisdictions.

    19

    In Blythe v. Coney, 228 Ark. 824, 310 S.W.2d 485 (1958), the court allowed rescission where the vendor and purchaser of a residence were mistaken as to the adequacy of water pressure. The court declared that a contract may be rescinded for a mutual mistake regarding a material fact and that the mistaken assumption of the parties could be characterized as such a mistake in view of the evidence that the water meter in the home was unconnected at the time it was shown to the purchasers so that neither party was aware of the water shortage until after the sale.

    20

    Likewise, in Davey v. Brownson, 3 Wash. App. 820, 478 P.2d 258 (1970), cert. denied, 78 Wash.2d 997 (1971), the court relied on the doctrine of mutual mistake of a material fact in rescinding the sale of, inter alia, a 26-unit motel that, unknown to either party at the time of signing the contract, was infested with termites, a condition that could only be corrected by substantial structural repair. The court, quoting from Lindeberg v. Murray, 117 Wash. 483, 495, 201 P. 759, 763 (1921), stated: "We think it is elementary that, where there is a clear bona fide mistake regarding material facts, without culpable negligence on the part of the person complaining, the contract may be avoided, and equity will decree a rescission. We take it that the true test in cases involving mutual mistake of fact is whether the contract would have been entered into had there been no mistake. . . ." Id. at 824, 478 P.2d at 260.

    21

    One court has held that there were sufficient grounds for rescission of a sale of realty where both the vendor and the vendee were mistaken as to the suitability of the soil or the terrain for agricultural purposes. See, e. g., Binkholder v. Carpenter, 260 Iowa 1297, 152 N.W.2d 593 (1967); McDonald v. Benge, 138 Iowa 591, 116 N.W. 602 (1908); Smith v. Bricker, 86 Iowa 285, 53 N.W. 250 (1892); Hood v. Smith, 79 Iowa 621, 44 N.W. 903 (1890). Suffice it to say, all four decisions appear to be contra to the traditional doctrine of caveat emptor.

    22

    The closest mistaken assumption case we have found to our fact situation is A & M Land Development Co. v. Miller, 354 Mich. 681, 94 N.W.2d 197 (1959). In that case, the court held that the trial judge was correct in refusing to rescind the sale of 42 building lots slated for subdivision and development, because of mutual mistake regarding the poor absorptive qualities of the soil that resulted in a tentative refusal of septic tank permits to the subdivider. The court concluded that assuming there was a mutual mistake, to grant rescission would be improper since the purchaser received the property for which he contracted, notwithstanding that it was less attractive and less valuable to him than he had anticipated.

    23

    There are, however, several important distinguishing factors between the Miller case and our case. First, the purchaser in [109] Miller was a developer-speculator; in our case the purchaser is a consumer-widow. Second, the property in Miller was not rendered valueless for its intended use, but only rendered less valuable because it could not be developed as densely as originally anticipated; in our case the property was rendered totally valueless for the intended use.

    24

    In our view, the difficulty with the above listed factors and with the decisions we have examined is that in any given case several factors are likely to be present, and each may point toward a different result. For example, in A & M Land Development Co. v. Miller, supra, the mistake appears to have been mutual and it also appears to have been induced by misrepresentations of the vendor (i. e., vendor furnished reports of privately engaged engineers and local public sanitation officials indicating that the character of the soil was suitable for the use of individual septic tank systems). Yet, the court held that rescission would be improper since the purchaser received the property for which he had contracted. Perhaps the court felt that since the vendee was a developer-speculator he assumed the risk of soil defects. In short, the relation of one factor to another is not clear. Compare Vickerson v. Frey, 100 Cal.App.2d 621, 224 P.2d 126 (1950) (mistake regarding effect of building code held no grounds for rescission) with MacKay v. McIntosh, supra (mistake regarding zoning ordinance held grounds for rescission). But see Rabin, supra. In any event, because of the uncertainty surrounding the law of mistake we are extremely hesitant to apply this theory to a case involving the completed sale and transfer of real property. Its application to this type of factual situation might well create an unwarranted instability with respect to North Carolina real estate transactions and lead to the filing of many nonmeritorious actions. Hence, we expressly reject this theory as a basis for plaintiff's rescission.

    25

    Is plaintiff therefore without a remedy? Did plaintiff buy this property "at the end of the halter" (an expression of horse traders)? At this moment, plaintiff has naked legal title to a tract of real estate whose use to her is limited by the restrictive covenants and by the facts as stipulated to what she calls "the dubious pleasure of viewing the same." On the other hand, defendants have $3,500 of plaintiff's money. There can be no question but that the parties to this transaction never contemplated this particular use of the subject property. In fact, the deed, by its very terms, makes it clear that the intended use was for the construction of a single-family residence, strictly limited as to costs and as to design. The stipulation further indicates that both prior to and at the time of the conveyance neither defendants nor plaintiff knew that the property would not support a septic tank or on-site sewage disposal system.

    26

    In the face of these uncontroverted facts, defendants rely upon the doctrine of caveat emptor as a legal defense to plaintiff's action for rescission.

    27

    The common law doctrine of caveat emptor historically applied to sales of both real and personal property. Its application to personal property sales, however, has been restricted by the Uniform Commercial Code. See G.S. § 25-2-314 et seq. Over the years, as to real property, the number of cases that strictly apply the rule of caveat emptor appears to be diminishing, while there is a distinct tendency to depart therefrom, either by way of interpretation, or exception, or by simply refusing to adhere to the rule where it would work injustice. See, e. g., 7 Williston, Contracts §§ 926 and 926A (3d ed. 1963); 77 Am.Jur.2d Vendor and Purchaser §§ 329-37 (1975); 67 Am. Jur.2d Sales § 462 (1973); Haskell, The Case for an Implied Warranty of Quality in Sales of Real Property, 53 Geo.L.J. 633 (1965) (hereinafter cited as Haskell); Seavey, Caveat Emptor as of 1960, 38 Texas L.Rev. 439 (1960). See generally Annot., 50 A.L.R.3d 1188, supra; Annot., Liability of Builder-Vendor or Other Vendor of New Dwelling for Loss, Injury, or Damage Occasioned [110] by Defective Condition Thereof, 25 A.L.R.3d 383 (1969).

    28

    In recent years the rule of caveat emptor has suffered severe inroads in sales of houses to be built or in the course of construction. See generally Bearman, Caveat Emptor in Sales of Realty—Recent Assaults Upon the Rule, 14 Vand.L.Rev. 541 (1961); Bixby, Let the Seller Beware: Remedies for the Purchase of a Defective Home, 49 J. Urban Law 533 (1971); Haskell, supra; Jaeger, The Warranty of Habitability, 46 Chi-Kent L.Rev. 123 (1969) (Part I); 47 Chi-Kent L.Rev. 1 (1970) (Part II); Roberts, The Case of the Unwary Home Buyer: The Housing Merchant Did It, 52 Cornell L.Q. 835 (1967); Comment, Buyer's Remedies in the Sale of Real Property in California, 53 Calif.L.Rev. 1062 (1965); Note, Implied Warranties in the Sale of New Houses, 27 Md.L.Rev. 299 (1967). Today, it appears that a majority of the states imply some form of warranty in the purchase of a new home by a first purchaser from a buildervendor. See, e. g., Annot., 25 A.L.R.3d 383, supra, for a collection of the cases. See also M. Friedman, Contracts and Conveyances of Real Property 30-35 (3d ed. 1975) (hereinafter cited as Friedman).

    29

    During the course of this litigation, and subsequent to the oral arguments of this case in the Court of Appeals, this Court decided the case of Hartley v. Ballou, 286 N.C. 51, 209 S.E.2d 776 (1974). In that case, this Court, in an opinion by Chief Justice Bobbitt, approved the "relaxation of the rule of caveat emptor" in respect of defects of which the purchaser of a recently completed or partially completed dwelling was unaware and could not discover by a reasonable inspection, and substituted therefore, for the first time in this State, an implied warranty defined as follows:

    30

    "[I]n every contract for the sale of a recently completed dwelling, and in every contract for the sale of a dwelling then under construction, the vendor, if he be in the business of building such dwellings, shall be held to impliedly warrant to the initial vendee that, at the time of the passing of the deed or the taking of possession by the initial vendee (whichever first occurs), the dwelling, together with all its fixtures, is sufficiently free from major structural defects, and is constructed in a workmanlike manner, so as to meet the standard of workmanlike quality then prevailing at the time and place of construction; and that this implied warranty in the contract of sale survives the passing of the deed or the taking of possession by the initial vendee." Id. at 62, 209 S.E.2d at 783. At the same time, Hartley made it clear that such implied warranty falls short of "an absolute guarantee." "An implied warranty cannot be held to extend to defects which are visible or should be visible to a reasonable man . . . ." Id. at 61, 209 S.E.2d at 782. As to what constitutes a "reasonable inspection" under diverse factual situations, see, e. g., Performance Motors, Inc. v. Allen, 280 N.C. 385, 186 S.E.2d 161 (1972); Douglas v. W. C. Mallison & Son, 265 N.C. 362, 144 S.E.2d 138 (1965); Insurance Co. v. Don Allen Chevrolet Co., 253 N.C. 243, 116 S.E.2d 780 (1960); Driver v. Snow, 245 N.C. 223, 95 S.E.2d 519 (1956). Cf. G.S. § 25-2-316(3)(b).

    31

    We believe that many of the mutual mistake cases discussed supra were in fact embryo implied warranty cases. For example in Davey v. Brownson, supra, the purchaser obtained rescission because of termites on the ground of mutual mistake. Although the court denied its decision was based on implied warranty, it is difficult to understand the application of the mutual mistake doctrine. See also Blythe v. Coney, supra. See generally Friedman, supra, at 30-37. In this context, Hartley could easily be classified as a mutual mistake case, i. e., both parties assumed that the basement wall was sufficiently free from structural defects so as to prevent any water leakage. But, in Hartley we recognized the implied warranty as a limited exception to the general rule of caveat emptor; if we had elected to totally abolish the doctrine, then perhaps application of the mutual mistake theory [111] would have been appropriate. Hartley is not an abrogation of the doctrine of caveat emptor; on the contrary it is only a well-reasoned exception.

    32

    Concededly, this is not the Hartley fact situation. Hartley involved a buildervendor of new homes and a consumervendee. Nonetheless, we believe that Hartley provides the legal precedent for deciding this case. The basic and underlying principle of Hartley is a recognition that in some situations the rigid common law maxim of caveat emptor is inequitable. We believe this is one of those situations. As a result, we hold that where a grantor conveys land subject to restrictive covenants that limit its use to the construction of a single-family dwelling, and, due to subsequent disclosures, both unknown to and not reasonably discoverable by the grantee before or at the time of conveyance, the property cannot be used by the grantee, or by any subsequent grantees through mesne conveyances, for the specific purpose to which its use is limited by the restrictive covenants, the grantor breaches an implied warranty arising out of said restrictive covenants.

    33

    Defendant contends that if plaintiff is permitted to rescind, then any contract or conveyance can be set aside under a set of circumstances rendering the land no longer attractive to a purchaser. If we applied the mutual mistake doctrine, then there might be some merit to this argument. But, under the rule we have announced, a purchaser is bound by patent defects or by facts a reasonable investigation would normally disclose. In the instant case, it is clear that a reasonable inspection by the grantee either before or at the time of conveyance would not have disclosed that the property could not support a septic tank or on-site sewage disposal system.

    34

    Therefore, under the facts of this case, we hold that defendant grantors have breached the implied warranty, as set out above, and that plaintiff, by timely notice of the defect, once it was discovered, is entitled to full restitution of the purchase price; provided that she execute and deliver a deed reconveying the subject lot to defendants. The judgment of the Court of Appeals, as modified herein, is thus affirmed.

    35

    Modified and affirmed.

    36

    SHARP, C. J., and LAKE and MOORE, JJ., concur in result.

  • 10 McRae v. Commonwealth Disposals Commission

    1

    84 CLR 377
    HCA 79; (1951)

    2
    McRae
    v.
    Commonwealth Disposals Commission
    3

     HIGH COURT OF AUSTRALIA.
    (27 August 1951).

    4

    Webb J.(1)

    5

    Dixon(2), McTiernan(3) and Fullagar(2) JJ.

    6
    HEARING
    7

    Melbourne, 1950, March 20-24, 27, 28;
    Sydney, 1950, May 8;
    Melbourne, 1950, May 23. 23:5:1950
    Melbourne, 1951, February 23, 26-28; March 1, 2, 5; August 27. 27:8:1951
    APPEAL from Webb J.

    8
    DECISION
    9

    [378] 1950, May 8.

    10

    WEBB J. delivered the following written judgment:—

    11

    The plaintiffs claim against the defendants damages for breach of contract, the plaintiffs by the defendant Commonwealth Disposals Commission in April 1947.

    12

    [379] The defendants offered to deliver to the plaintiffs an oil barge as being the oil tanker sold, but the plaintiffs refused to accept delivery of it as not being an oil tanker. The defendants submit that a barge is an oil tanker, or alternatively, that if it is not an oil tanker, then there was a misdescription of the thing sold, and the defendants are not liable under the conditions of tender and the conditions of the sales advice note. In the further alternative the defendants submit that, if there was not a misdescription, then there had been a mutual mistake as to the identity of the subject matter, and therefore no contract. They also denied deceit and negligence.

    13

    I find that sometime before April 1945 an oil barge was wrecked on a reef surrounding Jomard Islands. Its position on the reef was latitude eleven degrees sixteen minutes forty seconds south, longitude one hundred and fifty-two degrees eight minutes east. It was still in that position when the defendants offered to give delivery of it to the plaintiffs. It was a steel vessel two hundred feet six inches long, forty feet broad and fourteen feet deep. It contained four tanks for the carriage of liquid cargo. It was not self-propelled. It was inspected by a salvage officer on behalf of the Commonwealth on 9th April 1945. Nos. 1 and 4 tanks were then dry and Nos. 2 and 3 contained about 1,000 tons of oil. On 11th April 1945 the Commonwealth endeavoured to salvage the vessel by lightening the buoyance by discharging some of the oil and towing the vessel off the reef. As a result the transverse bulkheads were strained and Nos. 2, 3 and 4 tanks contained about the same amount of oil; the hull was straining badly, and on 20th April there was a constant oil slick spreading.

    14

    [380] In October 1946 one Jarrett, an officer of the civil administration in New Guinea, told Bowser, who was then regional manager in New Guinea for the defendant Commission, that he wanted to make an offer for an oil tanker, which he said was within a radius of 200 miles of Samarai. He would not give Bowser a more precise position. Jarrett made an offer of 50 pounds. This offer was chiefly for the oil, but was for the tanker as well. Bowser told Jarrett the offer appeared too low, and that he could not consider it until Jarrett could tell him where the tanker was. Bowser suggested that Jarrett should see Sheehan, who was then the district superintendent of the defendant Commission at Port Moresby. Jarrett then saw Sheehan and told him he knew of an oil tanker and wanted to buy it; that it was outside Samarai, and that only he, Jarrett, knew where it was, and that it contained oil. Sheehan asked Jarrett what price he was offering. Jarrett asked Sheehan what he thought would be a fair price. Sheehan said he did not know. Then Jarrett asked whether 50 pounds would be a fair price. Sheehan again said he did not know. Jarrett said he was not particularly interested in the boat; that he was more interested in the oil. Sheehan suggested to Jarrett that he should make an offer. Jarrett agreed and dictated one. In this written offer Jarrett described the goods as "Contents of wrecked vessel situated at Jormound Islands — Fuel oil". Sheehan told Jarrett he would not approve of the sale, as he did not know whether the offer was reasonable, and would have to try to trace the oil tanker in the office lists. The next day Jarrett told Sheehan it was an American vessel as far as he knew. Sheehan replied that if it was it would not be on the Commission's lists. Sheehan, however, had authority to sell it even if it were an American vessel. He did not find it on the lists. He then sent a signal to the district officer at Samarai (Exhibit 6), stating that an application had been received for the purchase of "fuel oil said to be on reef at Jormound Islands" and asking whether the district officer knew anything about it. On 7th November 1946 one McMullen, who was the defendant Commission's liaison officer in New Guinea, told Sheehan he knew of a wrecked tanker on Jomard Island. Sheehan replied that he had received an offer of 50 pounds for its contents. McMullen inquired whether Sheehan meant "that American tanker". He promised Sheehan he would see what he could find out about it. Later he told Sheehan he did not get any information. In the same month, November 1946, one Davis, the general manager of the defendant Commission, was in New Guinea and wrote a memorandum to Bowser reading: "I discussed with Mr. McMullen this morning the question of the tanker lying on a reef about a hundred miles north of Samarai. Mr. McMullen was good enough to indicate that he would send out a party and I suggest that Mr. Strange go with this party to establish whether she is worthwhile for sale as a salvage job. If there is equipment of value on her, she could be offered for sale at the termination of the Rabaul Sale whilst the buyers from the South who will be interested in such vessels as the Naroota are still in the area."

    15

    Bowser believed Davis was referring to the same vessel as Jarrett. Bowser then spoke to McMullen, who said he was sending signals to the district officers.

    16

    In December 1946 Bowser took up a position in the Melbourne headquarters of the defendant Commission in charge of clearance of goods declared but not cleared in New Guinea.

    17

    On 5th January 1947 Sheehan wrote to the Australian Broadcasting Commission at Port Moresby arranging for the broadcasting on 7th, 8th and 9th January of the following announcement:—

    18

    "The Commonwealth Disposals Commission invites tenders for an oil tanker wrecked on Jourmaund Reef approximately 100 miles north Samarai. The vessel is said to contain oil. . . . Tenders should be lodged not later than 25th January 1947."

    19

    A copy of this letter was sent by Sheehan to the defendant Commission in Melbourne.

    20

    [381] On 13th February 1947 Bowser sent a signal to Sheehan at Port Moresby asking whether "the vessel containing oil and approximately 200 miles off Samarai" had been sold, and he received a reply that no offers had been made.

    21

    On 10th March 1947 Sheehan again wrote to the Australian Broadcasting Commission arranging for a similar announcement to be made on 12th, 13th and 14th March.

    22

    Bowser referred to Currie, who was the sales superintendent of the defendant Commission in Melbourne, the copy of the Port Moresby announcement received from Sheehan. Tenders were then advertised for in the Melbourne papers from about 7th March. There were three such advertisements, the last being on 29th March. Whether the advertisements in Melbourne were all in the same terms as the Port Moresby announcement does not appear; but the following advertisement appeared in the Melbourne Argus of 29th March 1947:— "Tenders are invited for the purchase of an oil tanker lying on Jourmaund Reef, which is approximately 100 miles North of Samarai. The vessel is said to contain oil. Offers to purchase the vessel and its contents should be submitted to the Commonwealth Disposals Commission . . . and should be lodged not later than 2 p.m. March 31, 1947."

    23

    [382] About the middle of March the plaintiff F. E. McRae, who is a Melbourne merchant dealing in metals and chemicals in partnership with the other plaintiff Keith McRae, as McRae Trading Company, and two other men saw Currie at the Commission's office in Melbourne. McRae said he had seen an advertisement regarding a "wrecked tanker" and would like to get additional information. Currie told him he had no further information than appeared in the advertisement, but that Bowser might know something. Currie also told McRae that from the very limited information available he did not think any considerable tender would be warranted. He then introduced McRae and the men with him to Bowser. Currie told Bowser that McRae was interested in the tanker on the Jourmaund Reef and would like additional information. Bowser said he was sorry he could not add to the information already given to McRae. He added that when he was in New Guinea he received an offer for "the wreck and contents" and that it was refused. McRae told Bowser either that he was going or thought of going to New Guinea. He asked what surplus goods were available there, and if there were any other wrecks. Bowser replied there were wrecks in New Guinea, but he was not sure whether they had been sold, and that McRae should talk to Sheehan about them when he reached New Guinea.

    24

    Before tendering McRae looked at maps and could not find Jourmaund Reef but he found Jomard Reef. He took this to be the one with which he was concerned.

    25

    Bowser next saw the plaintiff F. E. McRae about 2 p.m. on 31st March 1947, when the latter put an envelope on the typiste's table in the defendant Commission's Melbourne office. Bowser asked McRae whether he had managed to get to New Guinea. McRae replied that he had not. He added "that one often had a couple of hundred pounds on a horse on a Saturday and I might as well have a gamble on this". The plaintiff's tender was as follows:— "Offer for Vessel on Jourmaund Reef by McRae Trading Co. 345 Exhibition Street, Melbourne. 1 oil tanker as advertised 'Age' 29.3.47, 'Argus' 29.3.47. Lying on the Jourmaund Reef off Samarai. Price 285 pounds. Cheque enclosed deposit 20% 28 pounds 10.0."

    26

    On 11th April the Commission wrote a letter to the plaintiff informing him that his tender had been accepted. The letter also stated that a sales advice note to cover the transaction would be forwarded in the course of the next few days. On 15th April the sales advice note was sent to the plaintiffs by the defendant Commission. It states inter alia "your offer to purchase, the general conditions contained in Form O, and this acceptance shall constitute the contract". Form O contains four conditions, including Condition 3, which reads:— "Condition of property: The property shall be sold as and where it lies, with all faults, (if any), and save as expressly notified to the purchaser no warranty or condition whatsoever is given by the Commonwealth. While every effort shall be made to describe property correctly, the Commonwealth shall not be liable for compensation or otherwise by reason of any misdescription or alleged variation of property delivered, from sample or property inspected. Where, however, any purchaser considers himself prejudiced by reason of any alleged misdescription or variation from sample or property inspected, the Commonwealth, at its discretion may make such adjustment as is fair and reasonable."

    27

    [383] During the first half of April 1947 native craft had been wrecked or blown out of their course by storms in the vicinity of the Solomons. Shortly after, Sheehan met Campbell, the Harbour Master at Port Moresby, and asked him how far along the coast the storms would extend. Sheehan added that the defendant Commission had "a wrecked tanker for sale up Jomard way". Campbell replied that it could be blown off or washed off the reef, but he could not say definitely. On 14th April Sheehan sent a signal to the district officer Samarai (Exhibit X) reading:— "Would appreciate urgent reply details oil tanker Jourmaund Reef. Understand vessel now moved under water and contents nil. Can this be confirmed."

    28

    Actually Sheehan had no information except what Campbell gave him. He had no understanding that a vessel had moved under water and that the contents were nil. He said he sent the signal in this form for the sake of brevity, and, with some hesitation, I believe him. I can suggest no reason why he should be disbelieved. The barge had not moved under water, and it is common ground that there was in fact no oil tanker there. To this signal Sheehan received the following reply on 17th April (Exhibit Y):—

    29

    "Large approx. 100 ft. barge type tanker carrying oil machinery etc. apparently drifted on reef Jomard Entrance high water during 1944. When inspected . . . 1945 large hole stern admitted sea. Machinery ruined. Understand oil still in hold but quantity unknown. Vessel exposed low tide. Only partly submerged high tide. Can inspect when district vessel available. . . . . D.O. Misima"

    30

    Apparently Sheehan's signal to Samarai was referred to the assistant district officer Misima.

    31

    [384] On 15th April McRae asked Bowser whether he could give him a better position of the vessel, as otherwise he might spend some days searching for it. McRae mentioned that Jomard was more east of Samarai than north. Bowser said he would try to get some more information and would wire the district superintendet at Port Moresby, who Bowser said he assumed would obtain information from the district officers at Samarai and Misima. He also told McRae they were the people who would assist him in finding the locality. McRae asked Bowser whether he could give the name and size of the tanker. Bowser replied that he could not. Bowser then suggested that what McRae was endeavouring to get was the latitude and longitude. McRae assented. Bowser then sent a signal to Sheehan at Port Moresby. On receipt of this signal Sheehan took it to the Harbour Master, Campbell, and asked Campbell whether he could give the information. Campbell replied that he could, and appeared to work out bearings from a map and read them to Sheehan. Sheehan telegraphed them to Melbourne on 17th April. In this telegram the latitude was given as eleven degrees sixteen and a half minutes south and longitude one hundred and fifty-one degrees fifty-eight minutes east. The contents of this telegram were telephoned to the plaintiffs and then confirmed by letter on 18th April. On 19th April Sheehan wrote to the Melbourne office confirming his telegram of 17th April and enclosing a copy of the reply he had received from the assistant district officer Misima about the vessel on the reef at Jomard Entrance and the ruined condition of its machinery. This letter was received in the defendant Commission's Melbourne office on 22nd April.

    32

    On 23rd April the plaintiffs paid the balance of the purchase money, 256 pounds 10s. 0d.

    33

    On receipt by the plaintiffs of the particulars of location the Gippsland, which was then being altered for the King Island trade, was refitted for service in the tropics. A diver was engaged and salvage equipment obtained.

    34

    On 24th April Sheehan received a letter from the general manager of the defendant Commission stating that payment for the oil tanker had been effected and that a copy of the sales advice note had been forwarded to Port Moresby. Sheehan then advised the assistant district officer, Misima, that the vessel had been sold, and that the inspection referred to in the latter's telegram to Sheehan of 17th April, was not required.

    35

    In May 1947 Lindsay McRae, a brother of the plaintiffs, produced a copy of the sales advice note to Sheehan at Port Moresby. He had flown there with one Johnstone. Lindsay McRae said he had bought the tanker. Sheehan told him he could not personally deliver the tanker as he had never seen it, and that Lindsay McRae would have to go down to the district officer at Samarai or Misima and show him the sales advice note. He also told Lindsay McRae that Jarrett had made an offer earlier, but that he did not know where Jarrett was. Further conversation followed, which is now rejected. It was admitted under the impression at the time that the McRae who produced the sales advice note to Sheehan was one of the plaintiffs. Lindsay McRae asked for the bearings of the tanker and Sheehan showed him the letter he had sent to Melbourne on 19th April containing the bearings. He told Lindsay McRae he had obtained them from Campbell, and introduced him to Campbell.

    36

    [385] On 28th June the Gippsland left Sydney for Port Moresby and foundered on 24th July. The plaintiffs were on board, but they and the master and crew reached Port Moresby, where the Betty Joan was chartered by the plaintiffs for salvage operations. On 15th August 1947 Johnstone and Lindsay McRae proceeded in the Jessie from Port Moresby to the location given by the defendant Commission. They went ashore and walked around the reef there. They saw no boat or ship or any sign of wreckage; but they saw a log sixty feet long.

    37

    In October plaintiff F.E. McRae saw Bowser at the latter's office in Melbourne and told him a cable had been received from New Guinea that a through search had been made for the tanker at the location given by the defendant Commission; and that only a log was found; but that there was a barge eleven or twelve miles away to the east. Bowser said he would signal New Guinea and endeavour to get some information. He then sent the following signal to Civil Administration Port Moresby, dated 17th October (Exhibit E):— "Commission sold oil tanker located Jourmaund Reef to McRae Trading Company Melbourne. Grateful you check bearing supplied by District Officer Misima April 1947, latitude eleven degrees sixteen and half minutes south longitude one hundred and fifty one degrees fifty eight minutes east. Previous advices indicated location approximately one hundred miles north Samarai. Firm alleges thorough search made for oil tanker in area specified but unable locate. Understand barge containing oil and machinery located approximately twelve miles from bearing specified. Appreciate advice indicating whether barge was confused with oil tanker and any further details enable firm locate oil tanker. . . . Disposals".

    38

    On 11th December 1947 the acting general manager of the defendant Commission wrote to the plaintiffs (Exhibit I) setting out the following information received from the Acting Administrator of the Territory in reply to the defendant Commission's signal:— "Investigation into the matter contained in the attached signal has disclosed that on the last maintenance trip to Jomard Reef Light on 29.7.47, a search was made for the tanker in question. The search was carried out by Mr. B.M. Ritchie of this Department and Lieut, Salisbury, R.A.N.R. (S) of H.M.A.S. Tarangau. No trace of the wreck was found, but a number of objects resembling ship's frames were sighted in the position given by the District Officer Misima, and, as the barge (which is in fact an L.S.T. loaded with oil drums) was also sighted in its accepted position, there seems no doubt that the tanker has disintegrated and slipped into deeper water. There has been definitely no confusion between barge and tanker."

    39

    [386] After some correspondence between the solicitors for the parties the Commonwealth Crown Solicitor for the defendants wrote to the plaintiff's solicitors on 29th October 1948 (Exhibit R) stating that at the date of sale the vessel was located approximately in the position mentioned in the defendant Commission's letter to the plaintiffs of 18th April 1947 and that it was still there in May 1948. The letter proceeded to say the confusion that might have arisen from the Acting Administrator's letter of 11th December was regretted and that the defendants were prepared to make a refund or to make the vessel available.

    40

    [387] However, I do not think that this oil barge was an oil tanker as that term was understood in shipping circles in Melbourne and by the parties. In the American book by Day, published in 1923, there is a glossary of terms used in the petroleum industry, and the term "oil tanker" is defined to include an oil barge. This book was said by Johnstone, an expert witness for the plaintiffs, to be authoritative, although Johnstone did not agree with that definition. But whatever may have been the meaning of "oil tanker" in America in 1923 I am satisfied that in 1947 in Australia an oil tanker was understood to be a vessel not merely specially constructed for the carriage of oil in bulk but also self-propelled and ocean-going. Currie thought an oil tanker would be self-propelled. When Bowser on 17th October inquired whether the oil tanker had been confused with the barge he indicated his understanding that they were different types of vessel. Therefore the defendants cannot rely on the barge being an oil tanker. Nor can they set up that the barge was sold but was misdescribed as an oil tanker and that they are expressly exempted from liability for misdescription under the conditions of contract. If the defendants, knowing what the vessel they advertised was like, yet wrongly described it as a barge, it might be a case of misdescription, because an oil tanker and an oil barge are vessels and also have in common the feature of special construction for the carriage of oil in bulk, although a barge is not self-propelled or ocean-going. But neither Bowser nor Currie, nor any other servant of the defendants having any power or duty in connection with this transaction, thought that an oil barge was an oil tanker. What both the plaintiffs and the defendants had in mind throughout was an oil tanker as distinct from an oil barge. But there was no oil tanker to sell, and so there was no contract (Couturier v. Hastie [1856] EngR 713; (1856) 5 HLC 673 (10 ER 1065)). It was conceded by counsel for the plaintiffs that, if Jarrett had told the plaintiffs and the defendants that there was an oil tanker on the reef at Jomard Islands and thereupon the plaintiffs and the defendant Commission agreed on a sale, there would be no contract. But counsel also submitted that this was not the position because on 15th April 1947 the plaintiffs asked for the location of the vessel, and it was pin-pointed by giving Latitude and longitude. Counsel submitted that the plaintiffs could assume from this that there was something valuable at the location, and that, as the plaintiffs acted upon this information to their prejudice, the defendants were estopped from denying the existence of an oil tanker there. But, to furnish ground for an estoppel the statement must have been made as an inducement. It was not made to induce a contract, as the tender had then been accepted. The inducement, if any, could only have been to pay the balance of purchase money, which was still unpaid on 15th April, and to proceed to take delivery of the vessel at the location given. But I find that the only purpose the plaintiffs had in asking for the exact location, and that the defendant Commission had in giving it, was to save the time of the plaintiffs in looking for the vessel on the reef. The plaintiff, F.E. McRae, told Bowser as much on 15th April 1947. He admitted he had a conversation with Bowser on those lines.

    41

    Then as to the claim for damages for deceit or neglect of duty: The plaintiffs submit that the information in the telegram from the assistant district officer Misima to Sheehan on 17th April, stating that the vessel was a 100 ft. barge-type tanker and its machinery ruined, should have been disclosed to the plaintiffs forthwith or at latest on 22nd April 1947 when it was received in Melbourne. The balance of the purchase money was not paid until 23rd April. This information revealed that the vessel was not an oil tanker of a type the parties had in mind. Bowser then had a duty to inform the plaintiffs on 22nd April of the mutual mistake of the parties. But he remained silent and has failed to give a satisfactory explanation why he did so. Even if he thought that the plaintiff F.E. McRae had gone to New Guinea he could still have communicated with him or with the other plaintiff or with the office of the McRae Trading Company in Melbourne. The natural consequence of his silence was that the plaintiffs paid the balance of the purchase money, and went to the expense of searching for the oil tanker. But the refitting and equipment of the Gippsland and her dispatch to the wreck before it was surveyed was not a natural consequence. I find that Bowser, in keeping silent, intended these natural consequences, and that the defendant Commission is liable for the resulting damages to the plaintiffs. I assess the damages at 756 pounds 10s. 0d.

    42

    I find no further deceit or negligence.

    43

    I give judgment for the plaintiffs for 756 pounds 10s. 0d. As to the costs I desire to give the parties an opportunity of being heard. I will hear argument if necessary in Melbourne on May 23rd at 9.30 a.m.

    44

    [388] His Honour awarded the plaintiffs half the costs of the action.

    45

    From the above decision in so far as it was unfavourable to them the plaintiffs appealed to the Full Court of the High Court, and the defendants cross-appealed.  

    46

    [393] O.J. Gillard K.C. (with him L.S. Lazarus) for the appellants. 1. The Commission agreed to sell and the plaintiffs agreed to purchase "an oil tanker lying on Jourmaund Reef" for the sum of 285 pounds on the terms and conditions indorsed on the tender form on Exhibit B. 2. The agreement is comprised of the following documents:— (a) Advertisement in Argus 29/3/47, incorporated by reference in Exhibit B. (b) Tender Form, Exhibit B. (c) Letter dated 11th April 1947 from the Commission to the plaintiffs. 3. (a) The Court is bound to look at the whole correspondence between the parties to discover if and when the parties entered into contractual relations (Hussey v. Horne-Payne (1879) 4 App Cas 311; Williams v. Brisco (1882) 22 Ch D 441, at p 448, per Jessel M.R.). (b) But, there being a clear acceptance of the tender by letter dated 11th April 1947, any correspondence thereafter was otiose (Perry v. Suffields Ltd. (1916) 2 Ch 187; Lennon v. Scarlett & Co. [1921] HCA 42;(1921) 29 CLR 499). (c) If any new term were intended to be introduced into the contract by reference to the "sales advice note" so as to defeat the clear acceptance of the tender, then the expression of such intention should have been clear and unambiguous (Proprietors &c. of the English & Foreign Credit Co. Ltd. v. Arduin (1871) LR 5 HL 64, at p 79, per Lord Westbury). (d) The mere reference in the letter of 11th April to the forwarding of a sales note was at the most an ambiguous introduction of a new term into the contractual relations. (e) By the letter a definite contract of sale consisting of an accepted tender, the notification of acceptance thereof and the conditions therein set out was expressly established. 4. The contract so established requires the Commission to deliver "an oil tanker", and a failure to do so is a breach of condition, at least (Couchman v. Hill (1947) KB 554): cf. s. 18 of the Goods Act 1928 (Vict.). 5. The exonerating clause in clause 8, Exhibit B, only covers "warranty or guarantee", not "condition", and accordingly does not exonerate the Commission from delivering "an oil tanker" (Wallis, Son & Wells v. Pratt & Haynes (1911) AC 394; Baldry v. Marshall (1925) 1 KB 260; Andrews Bros. (Bournemouth) Ltd. v. Singer & Co. Ltd. (1934) 1 KB 17; Nicholson & Venn v. Smith Marriott (1947) 177 LT 189: cf. Hope v. R.C.A. Phototone of Australia Pty. Ltd. [1937] HCA 90; (1937) 59 CLR 348; L'Estrange v. F. Graucob Ltd. (1934) 2 KB 394. 6. The provision that the goods are sold "as and where they lie with all faults (if any)" means "an oil tanker" with all faults and does not exonerate the Commission from delivering "an oil tanker" (Shepherd v. Kain (1821) 5 B & Ald 240 (106 ER 1180); Taylor v. Bullen [1850] EngR 844; (1850) 5 Ex 779, at p 784 [1850] EngR 844; (155 ER 341, at p 343); Cowdoy v. Thomas (1877) 36 LT 22; Robert A. Munro & Co. Ltd. v. Meyer (1930) 2 KB 312, at p 327, per Wright J.): cf. Champanhac & Co. Ltd. v. Waller & Co. Ltd. (1948) 2 All ER 724, at p 726, per Slade J. 7. Alternatively by the terms of reference in the letter of 11th April 1947 the contract is comprised of the documents mentioned in clause 2 above, together with the sales advice note. 8. In the absence of proof the plaintiffs received or knew of Form O, it is submitted that they are not bound by the conditions. There was no proof that Form O was ever sent to or received by the plaintiffs, and until the conclusion of the case no reliance was placed on this document in the pleadings. (He referred to Cheshire & Fifoot, Law of Contracts, 1st ed. (1945), p. 87; Olle v. Marlborough Court Ltd. (1949) 1 KB 532, at p 549.) 9. If Form O is incorporated, then:— (a) In order to relieve the Commission from liability for non-delivery, it must be expressed in clear and unambiguous terms. "An ambiguous document is no protection" (per Lord Macnaghten in Elderslie S.S. Co. Ltd. v. Borthwick (1905) AC 93, at p 96 ): see also Wallis, Son & Wells v. Pratt & Haynes (1910) 2 KB 1003, at p 1016, per Fletcher Moulton L.J.; s.c. in House of Lords (1911) AC 394 ; Chartered Bank of India, Australia & China v. British India Steam Navigation Co. Ltd. (1909) AC 369, at p 375; Szymonowski & Co. v. Beck & Co. (1923) 1 KB 457, at pp 464, 466; (1924) AC 43, at p 48. (b) Form O was devised alio intuitu and was never intended to relieve the Commission from its responsibility to carry out the fundamental condition of delivering an oil tanker: see Vigers Bros. v. Sanderson Bros. (1901) 1 KB 608; J. Aron & Co. v. Comptoir Wegimont (1921) 3 KB 435; Szymonowski's Case (1923) 1 KB, at p 467; Green v. Arcos (1931) 47 TLR 262, at p 336; Wilensko &c. v. Fenwick & Co. (West Hartlepool) Ltd. (1938) 3 All ER 429. 10. To evade responsibility to deliver an oil tanker the defendants over there is no contract because— (a) the parties were under a mutual mistake of fact as to the existence of an oil tanker on Jourmaund Reef, or (b) alternatively it was an implied condition that there was an oil tanker lying on the reef. 11. As to the mutual mistake:— (a) There was no mutual mistake on the facts. There was a vessel which the Commission and Bowser chose to describe as an oil tanker, and this was the subject of the contract. The nature of the vessel which Bowser or Currie intended to sell is irrelevant; the vendor was the Commission (or Commonwealth). (He referred to Clare v. Lamb (1875) LR 10 CP 334, at p 338; Barker v. Janson (1868) LR 3 CP 303.) (b) The defendants Bowser and Currie and the Commission were negligent in representing that there was an oil tanker on Jourmaund Reef which induced the plaintiffs to enter into contract; they cannot rely upon any mistake induced by their own carelessness (Anson on Contracts, 19th ed. (1945), p. 159; Pollock on Contracts, 12th ed. (1946), pp. 400-402). Bowser on behalf of the Commission assumed the risk of the ability of the Commonwealth to perform the contract entered into with the plaintiffs. (He referred to Williston, Law of Contracts (1938), vol. 1, p. 31. s. 20; Smith v. Hughes (1871) LR 6 QB 597, at p 606; Raffles v. Wichelhaus (1864) 2 H & C 906 (159 ER 375); Scott v. Littledale (1858) 8 El & Bl 815, at p 821 [1858] EngR 226; (120 ER 304, at p 306).) (c) Assuming that there was no contract initially, then after the representation implied in the letter of 18th April 1947 written by the defendant Currie on behalf of the Commission and the conversation with Bowser at that time, the Commission is estopped from denying the existence of the contract or of the oil tanker (Low v. Bouverie (1891) 3 Ch D 82, at p 111, per Kay L.J.; Cornish v. Abington (1859) 4 H & N 549, at p 556 [1859] EngR 512; (157 ER 956); Smith v. Hughes (1871) LR 6 QB 597, at pp 606, 607; Sullivan v. Constable (1932) 48 TLR 267, at p 369; Balkis Consolidated Co. Ltd. v. Tomkinson (1893) AC 396, at pp 407, 410, 412; Consensus & Estoppel, by Prof. Hughes, 54 L.Q.R. 370; Cheshire and Fifoot, Law of Contracts (1945), pp. 194-196: Salmond & Williams, Law of Contracts, 2nd ed. (1945), p. 239; Pollock, Principles of Contract, 12th ed. (1946), pp. 421, 501). (d) Since Bell v. Lever Bros. Ltd. [1931] UKHL 2; (1932) AC 161 the proper analysis of the law is that the fact of non-existence does not bring about an avoidance on the ground of mistake, but results in non-performance of an implied condition as to the continued existence of the subject matter (per Denning L.J. in Solle v. Butcher (1950) 1 KB 671, at p 691): cf. Barr v. Gibson (1838) 3 M & W 390, at pp 399, 400 [1836] EngR 984; (150 ER 1196, at pp 1200, 1201); and Couturier v. Hastie [1856] EngR 713; (1856) 5 HLC 673 (10 ER 1065); ss. 11, 12, Goods Act. The test is: On what basis did the parties intend to contract? Here Bowser and the Commission intended to sell the vessel on the reef of Jourmaund Island and represented it as an oil tanker. The plaintiffs purchased the vessel so described. No implication can be made in these circumstances that it was fundamental to the contract, or there was a condition precedent thereto, that an oil tanker existed. 12. The duty of the Commission or the Commonwealth was to deliver an oil tanker. What was tendered was an oil barge, not an oil tanker. Even if there was formal delivery of the barge qua tanker at Port Moresby, the plaintiffs are not to be taken to have accepted until they have had a reasonable opportunity of examining the vessel (ss. 39 and 41, Goods Act 1928 (Vict.)). 13. The plaintiffs are entitled to the estimated loss directly and naturally resulting in the ordinary course of events from the seller's breach of contract (s. 55(2), Goods Act 1928). 14. In the alternative, the plaintiffs sue for damages for deceit arising out of— (a) the advertisement Exhibit A; (b) the letter Exhibit D. 15. The Commission and the Commonwealth were vicariously guilty of deceit through their officers, as at least McMullen knew of the oil barge and deliberately described it as an oil tanker. The others were so ignorant of the true position that with the knowledge they possessed they could not reasonably have believed that "an oil tanker" was lying on Jourmaund Reef 100 miles north of Samarai. (He referred to Derry v. Peek (1889) 14 App Cas 337, at p 376 , per Lord Herschell; Kerr on Fraud and Mistake, 6th ed. (1929), p. 33.) They were recklessly careless as to whether the statement was true or false. 16. In the alternative, knowledge of the true facts must be imputed to the Commonwealth, which (having this knowledge) made a false representation to induce persons to purchase an oil tanker. See Pearson & Son Ltd. v. Dublin (1907) AC 381; London County Freehold & Leasehold Properties Ltd. v. Berkeley Property & Investment Co. Ltd. (1936) 2 All ER 1039. 17. "There is a duty upon a seller to disclose to a buyer the fact that material representations true when made have become false before final consummation of the sale" (Williston, Law of Contracts (1938), vol. 5, p. 4187, s. 1499; Davies v. London & Provincial Marine Insurance Co. (1878) 8 Ch D 469, at p 475; Dalgety & Co. Ltd. v. Australian Mutual Provident Society [1908] VicLawRp 70; (1908) VLR 481, at p 506; [1908] VicLawRp 70; 14 ALR 299, at p 308; Brownlie v. Campbell (1880) 5 App Cas 925, at pp 949, 950; With v. O'Flanagan (1936) Ch 575 ; Bradford Third Equitable Benefit Building Soc. v. Borders (1941) 2 All ER 205, at p 220; Robertson & Moffat v. Belson (1905) VLR 555; Salmond & Williams, Law of Contracts, 2nd ed. (1945), p. 247; Cheshire and Fifoot, Law of Contracts (1945), p. 173). See also per Romer L.J. in Scott v. Coulson (1903) 2 Ch 249, at p 252; cf. Arkwright v. Newbold (1879) 17 Ch D 301. 18. As to damages for deceit, the plaintiffs are entitled to such expenses as they have incurred by reason of the misrepresentation, setting off any benefit gained by them (Halsbury, 2nd ed., vol. 23, p. 60; Mullett v. Mason (1866) LR 1 CP 559; Nicholls v. Taylor [1939] VicLawRp 20; (1939) VLR 119; Neal v. Ayers [1940] HCA 21; (1940) 63 CLR 524; Potts v. Miller [1940] HCA 43; (1940) 64 CLR 282, at p 294; McAllister v. Richmond Brewing Co. N.S.W. Pty. Ltd. (1942) 42 SR (NSW) 187; 59 WN 147; Milne v. Marwood [1855] EngR 181; (1855) 15 CB 778 (139 ER 632); Burrows v. Rhodes (1899) 1 QB 816, at p 834; Barley v. Walford [1846] EngR 7; [1846] EngR 7; (1846) 9 QB 197 (115 ER 1249)). 19. As to the action for negligence, it is submitted that, because of the relationship created by the tender and its acceptance, both parties were under a duty to co-operate in doing such things as were necessary to carry out the terms of the contract (Mackay v. Dick (1881) 6 App Cas 251, at p 263, per Lord Blackburn; Marshall v. Colonial Bank of Australasia [1904] HCA 31; (1904) 1 CLR 632, at pp 647, 652; Mona Oil Equipment & Supply Co. v. Rhodesia Railways Ltd. (1949) 2 All ER 1014, at p 1017; Luxor (Eastbourne) Ltd. v. Cooper (1941) AC 108, at p 118 , per Viscount Simon L.C.). As there was great doubt as to the true location of the subject matter, the Commission, in order to give effectual delivery, was under a duty to give a better location than set out in the advertisement and sales advice note. 20. In carrying out this co-operation the law would treat the Commission and the plaintiffs as "neighbours", thereby requiring the Commission to exercise proper care in giving the location of the subject matter of the contract. Heaven v. Pender (1883) 11 QBD 503; M'Alister (or Donoghue) v. Stevenson [1931] UKHL 3; (1932) AC 562; Le Lievre v. Gould (1893) 1 QB 491 and Old Gate Estates Ltd. v. Toplis (1939) 3 All ER 209 are distinguishable. (He referred to Grant v. Australian Knitting Mills (1936) AC 85, at p 103.). See also Winfield, Law of Tort, 3rd ed. (1946), pp. 377-379; International Products Co. v. Erie R.R. Co. (1927) 244 NY 331. Cf. Courteen Seed Co. v. Hong Kong & Shanghai Banking Corporation (1927) 245 NY 377; Halsbury, 2nd ed., vol. 7, p. 147. 21. As to damages for breach of contract, omnia praesumuntur contra spoliatorum (Wilson v. Northampton & Banbury Junction Railway Co. (1874) LR 9 Ch App 279 ). 22. What was purchased and sold was an oil tanker, and the plaintiffs should be compensated for the failure to deliver, remembering that the contract provided for delivery at some far distant place, thereby requiring the plaintiffs to incur expense (Monarch S.S. Co. Ltd. v. Karlshamns Oljefabriker(1948) AC 196, at pp 204, 210; Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. (1949) 2 KB 528 ). Assuming "foreseeability" to be necessary for an award of substantial damages (see per Denning J. in Minister of Pensions v. Chennell (1947) KB 250 , the nature of the contract required the plaintiffs to take delivery, involving salvage operations. The plaintiffs were bound to accept delivery, which required them to undertake expensive provision therefor. It was "on the cards" that the plaintiffs, having acquired such a valuable thing cheaply, would make all preparations to recover it. 23. Difficulty in assessing damages is no reason for refusing substantial damages. It is necessary to distinguish between cases where there is no proof of loss at all and those in which there is difficulty in proving the value of the loss (Chaplin v. Hicks (1911) 2 KB 786; Howe v. Teefy (1927) 27 SR (NSW) 301; 44 WN 102: Cf. Sapwell v. Bass (1910) 2 KB 486 ; Fink v. Fink [1946] HCA 54; [1946] HCA 54; (1946) 74 CLR 127.

    47

    [395] J.B. Tait K.C. (with him P. Murphy), for the respondents. Logically the first question is whether any enforceable contract arose out of the circumstances of this case. It is submitted, in the first place, that — unless the barge is to be regarded as a "tanker"— Webb J. was right to the extent to which he decided, on the authority of Couturier v. Hastie [1856] EngR 713; (1856) 5 HLC 673 (10 ER 1065), that the purported contract was void. If, however, it must be assumed that there was a contract, the conditions of the sales advice note are necessarily a part of it. It may be that the letter of 11th April 1947 advising the plaintiffs that their tender was accepted fixes the day of acceptance; but this letter refers to the sales advice note. It is submitted, therefore, that the note fixes the date; and this note is not pleaded as part of the contract. It may well be that great difficulty could occur in reconciling and applying provisions of the various documents which would have to be looked at as constituting the contract; but the parties themselves (including the plaintiffs) are to blame for that. If they will incorporate documents in stereotyped form which are not appropriate and then add further provisions by correspondence, they take on themselves the burden of difficulties of interpretation; but that does not mean that, when they do incorporate a particular document which presents difficulty, the Court can treat it as not being part of the contract. If there was a contract, the sale was by description, and what the plaintiffs' got was an "oil tanker" within the description of the thing sold. The test is whether the thing delivered (or tendered) differs so greatly from the thing described that they are really different things. That is not so here. There is no implication that what is sold is of any substantial value; indeed, the tender price suggests otherwise. The only implication is, under the Goods Act (Vict.), that the thing sold shall be of merchantable quality. Whatever provisions of the documents may be inappropriate, the exception relating to misdescription is certainly not so. It precisely meets this case. If the barge was not a "tanker", then the exception applies. Such an exception is clearly intended to put the responsibility on the buyer. It is the sort of provision one would expect to find in contracts of sale made by the Disposals Commission. The proper measure of damages for non-delivery of the thing contracted to be sold is the estimated loss directly and naturally resulting in the ordinary course of events (Pollock on Contracts, 12th ed. (1946), p. 529). Regard must be had to such consequences as may reasonably be supposed to be in the contemplation of the parties at the time the contract was made. The buyer is entitled to be put in the position in which he would have stood if the thing sold had been delivered (Williams Bros. v. Ed. T. Agius Ltd. (1914) AC 510; Benjamin on Sale, 7th ed. (1931), p. 1001; Goods Act (Vict.), s. 51(3)). See also Hasell v. Bagot Shakes & Lewis Ltd. [1911] HCA 62; (1911) 13 CLR 374, at p 381. The true practical measure of damages here on the assumption that there was non-delivery is at most the sum the plaintiffs were prepared to pay for what they expected to get — the tender price of 285 pounds. An objection to many of the items of damage claimed by the plaintiffs is that they were not proved in the sense of having been shown to flow from the non-delivery. Moreover, the loss of the ship Gippsland could not have been within the contemplation of the parties. As to the expense of the salvage expedition as a whole, it does not appear that this was lost because there was no tanker at the place specified. If there had been a tanker there but it had proved not worth the expense of salvage, the plaintiffs would have had the same loss, but it would not have been due to any breach of contract. As to deceit, it is submitted that there is no warrant in the evidence for the decision of Webb J. against the defendants. The most that appears from the evidence is innocent — not fraudulent — misrepresentation. As to the claim on the basis of negligence, it does not appear that at the relevant time the defendants were under any duty of care in relation to the plaintiffs. See Charlesworth on Negligence, 2nd ed. (1938), p. 14. In any event the observation already made as to the loss of the expense of the salvage expedition would apply similarly on the question of damages under this head. (He referred to Mayne on Damages, 11th ed. (1946), at pp. 75 et. seq., and, in particular, as to damages in tort, to Re An Arbitration between Polemis and Furness, Withy & Co. Ltd. (1921) 3 KB 560; Weld-Blundell v. Stephens (1920) AC 956, at pp 983, 984.) There is no parallel between this case and Chaplin v. Hicks (1911) 2 KB 786 . In the latter it was certain that a prize of fixed value would go to someone. In the present case it cannot be shown that the plaintiffs would have received anything of value under the contract.

    48

    O.J. Gillard K.C., in reply.

    49

    Cur. adv. vult.

    1951, August 27.

    50

    The following written judgments were delivered:—

    51

    DIXON AND FULLAGAR JJ. This is an appeal from a judgment of Webb J. in an action in which the plaintiffs claimed damages on three causes of action alleged alternatively — breach of contract, deceit and negligence. The judgment, as passed and entered, was in favour of the plaintiffs against the Commonwealth Disposals Commission for 756 pounds 10s. 0d. as damages for deceit, and his Honour awarded the plaintiffs one-half of the costs of the action. The plaintiffs appeal, asserting that they are entitled to damages far in excess of 756 pounds 10s. 0d. The defendants cross-appeal, asserting that the maximum amount recoverable by the plaintiffs on any view of the case was 285 pounds. The amounts actually claimed by the statement of claim were, on the basis of one set of allegations, some 250,000 pounds, and, on the basis of another set of allegations, some 10,000 pounds.

    52

    [396] The case presents serious difficulties, the facts being in some respects of an extraordinary character. Some aspects of them are probably not fully explained by anything that appears in the evidence. They are summarized chronologically in the judgment of Webb J., and that summary need not be repeated here. Though it may be necessary for some purposes to go back in point of time, we think that, for the purposes of this appeal, the proper starting-point is the acceptance by the Commission of a tender by the plaintiffs for the purchase from the Commission of a wrecked or stranded oil tanker. It would be premature to speak of that acceptance as creating a contract, because the defendants have contended throughout that the "contract" was "void", or, in other words, that no contract was ever made. Only one thing need be said before proceeding to the starting point. In the assumed background of the case lay the facts that during the war a considerable number of ships, including "oil tankers", became wrecked or stranded in the waters adjacent to New Guinea, that after the war the Commission had the function of disposing of these as it thought fit, and that a purchaser from the Commission of any of these wrecked or stranded vessels might, but not necessarily would, make a very large profit by salving and selling the vessel, or the materials of her hull and equipment, or her cargo. The realization of a profit in this way (and the evidence suggests that a purchaser would not contemplate a realization of profit by an immediate resale of what he had bought as such) could, of course, only be achieved after the expenditure of large sums of money. Such a purchaser would naturally regard himself as acquiring, at best, a chance of making a profit. But he would not regard himself as acquiring a certainty of making a loss.

    53

    [397] In the Melbourne newspapers, Age and Argus, of 29th March 1947, appeared an advertisement inserted by the Commission. The advertisement read:— "Tenders are invited for the purchase of an OIL TANKER lying on JOURMAUND REEF, which is approximately 100 miles NORTH OF SAMARAI. THE VESSEL IS SAID TO CONTAIN OIL. OFFERS TO PURCHASE THE VESSEL AND ITS CONTENTS should be submitted to the COMMONWEALTH DISPOSALS COMMISSION, Nicholas Building, 37 Swanston Street, Melbourne, indorsed 'OFFER FOR VESSEL ON JOURMAUND REEF', and should be lodged not later than 2 p.m., March 31, 1947." In response to this advertisement, the plaintiffs, who are brothers trading in partnership, submitted a tender dated 31st March 1947. The tender was on a printed form. It was headed "Offer for vessel on Jourmaund Reef". The form was divided into columns. In a column headed "Description of Goods" the words "1 oil tanker lying on Jourmaund Reef as advertised Age, Argus, 29/3/47" were inserted. In the next column, which was headed "Location of Goods" the words "On Jourmaund Reef, off Samarai" were inserted. The price quoted was 285 pounds, and a cheque for 28 pounds 10s. 0d. being the required deposit of ten per cent, was forwarded with the tender. Indorsed on the printed form of tender were a number of conditions. On 11th April 1947 the Commission wrote to the plaintiffs a letter saying:— "With reference to your tender of 31st March 1947, I desire to advise that your offer of 285 pounds net has been accepted. A sales advice note to cover this transaction will be forwarded in the course of the next few days." This letter was followed by another letter of 15th April 1947, which says:— "I wish to inform you that your offer to purchase dated 31.3.47 is accepted for the quantities, the items, and at the price set out hereunder and/or in the attachment hereto bearing the same sales advice number as this acceptance". Below appear the words "One (1) Oil Tanker including Contents wrecked on Jourmaund Reef approximately 100 miles north of Samarai. Price 285 pounds." Then come some provisions as to payment and delivery, followed by the signature on behalf of the Commission. After the signature come the words "Your offer to purchase, the general conditions contained in Form O, and this acceptance, shall constitute the contract. Kindly acknowledge receipt of this communication by return post". Finally, certain further "terms" are set out. The plaintiffs apparently did not, by return post or otherwise, acknowledge in writing the receipt of this remarkable "communication". Form O is a printed form which contains a number of "conditions of sale", most of which are entirely inappropriate to the particular case.

    54

    [398] The contention of the Commission that no contract ever came into existence between itself and the plaintiffs was based on extrinsic facts which will have to be considered in a moment. It was not denied that, apart from those facts, a contract would have been made, and, on the assumption that a contract was made, a good deal of argument took place as to what were the terms of that contract. It will be convenient to deal with this matter at this stage. No less than five documents are involved — the advertisement, the tender, the letter of 11th April, the letter of 15th April, and "Form O". Mr. Gillard, for the plaintiffs, contended that the terms of the contract made were to be found in the first three documents only. He said that the letter of 11th April was an unequivocal acceptance of the offer contained in the tender, that the reference to "sales advice note" was not to be understood as contemplating the addition of further terms so as to make the letter in effect a counter-offer, and that the letter of 15th April was merely an ineffective attempt to add further terms to a contract which was concluded on the receipt of the plaintiffs' letter of 11th April. He referred to a well-known line of cases of which Bellamy v. Debenham (1890) 45 Ch D 481 and Lennon v. Scarlett & Co. [1921] HCA 42; (1921) 29 CLR 499 are good examples. Mr. Tait, for the Commission, contended that the plaintiffs must be taken to have accepted the terms set out and referred to in the second letter, and that the terms of the contract were to be found in all five of the documents. He admitted that in the terms so found there was overlapping and inconsistency, and that some of those terms were entirely inappropriate to the subject matter of the contract, but he said that these facts merely meant that difficult problems of construction might arise. We are disposed to accept the view put by Mr. Gillard, but the question does not seem to us to matter, and for this reason. The only condition on which Mr. Tait affirmatively relied was a condition which is contained in clause 8 of the terms indorsed on the tender form. That clause provides that the goods "are sold as and where they lie with all faults" and that no warranty is given as to "condition description quality or otherwise". This clause cannot, in our opinion, help the Commission in this case. What the Commission sold was an "oil tanker". It was, therefore, a condition of the contract that what was supplied should conform to the description of an oil tanker, and it is settled that such a clause as clause 8 has no application to such a condition: see, e.g., Wallis, Son & Wells v. Pratt & Haynes (1911) AC 394 and Robert A. Munro & Co. Ltd. v. Meyer (1930) 2 KB 312; and cf. Shepherd v. Kain (1821) 5 B & Ald 240 (106 ER 1180).

    55

    [399] There was, however, another communication from the Commission to the plaintiffs, which is of considerable importance. The accepted tender described the subject matter as an "oil tanker lying on Jourmaund Reef as advertised Age, Argus, 29/3/47". The advertisement described her as "lying on Jourmaund Reef, which is approximately 100 miles North of Samarai". Now there appears to be no reef anywhere in the locality which is charted or officially known as "Jourmaund Reef". There is a channel between two islands or reefs charted as "Jomard Entrance", and a few miles to the east of that channel is an island or reef charted as "Jomard Island". Jomard Island, however, is not approximately 100 miles from Samarai, but approximately 170 miles from Samarai, and its bearing from Samarai is not North but a little South of East. The plaintiffs, having bought as they thought, their tanker, looked for "Jourmaund Reef" on a map. They, of course, failed to find it, but they found Jomard Island, and thereupon, not unnaturally, asked the Commission to give them the precise latitude and longitude of the tanker. The Commission gave a latitude and longitude by telephone on 18th April, and confirmed this by a letter written on the same day. The letter read:— "Confirming our telephone conversation of this morning, in connection with the location of the Oil Tanker on Jourmond" (sic) "Reef, I wish to advise it is located as follows:— Latitude 11 degrees 16 1/2 minutes South: Longitude 151 degrees 58 minutes East". The result of this letter was to resolve any ambiguity in the description of the locality of the tanker and to identify with precision, as against the defendant Commission, the place referred to in the relevant documents as the place where the thing which they were purporting to sell was lying.

    56

    Now, the simple fact is that there was not at any material time any oil tanker lying at or anywhere near the location specified in the letter of 18th April. There was, at a point about eleven miles east of the location specified, a wrecked vessel described as an "oil barge". Some years before 1947 strenuous but unavailing efforts to salve this vessel had been made by a fully equipped expedition sent out by the Commonwealth Salvage Board. It was contended before Webb J., and also, though faintly, before us, that this vessel was a tanker and that delivery of her to the plaintiffs would constitute performance of the contract by the Commission. Webb J. rejected this contention, and the evidence clearly establishes that a "tanker", according to common understanding, is a self-propelled, ocean-going vessel, fully equipped both for navigation and for the carriage of oil in bulk. A barge is merely a floating repository for oil, adapted to be towed, but not otherwise capable of movement under control. The existence of the wrecked barge in question here is not, we think, a directly relevant factor in the case, though it may serve to explain to some extent how a rumour that there was a wrecked tanker somewhere began to circulate in the offices of the Commission.

    57

    [400] We say advisedly that such a rumour began to circulate, because there was indeed no better foundation for any supposition on the part of the officers of the Commission that they had a tanker to sell. They had no more definite information than was derived from an offer by a man named Jarrett to buy for 50 pounds the contents of a wrecked vessel, which he said was within a radius of 200 miles from Samarai, and from what can be quite fairly described as mere gossip. The reckless and irresponsible attitude of the Commission's officers is clearly indicated by the description in the advertisement of the locality of the tanker. In an even worse light appears an attempt which was made later, without any foundation whatever, to suggest that at the time of the making of the contract there had been a tanker in the place specified but that she had since been washed off the reef in a storm. Unfortunately the plaintiffs, for their part, took the matter seriously. They believed, and there is evidence that they had some reason for believing, that an oil tanker wrecked at the place indicated was likely to prove a profitable proposition, and accordingly they paid on 23rd April the balance of their purchase money, and then proceeded to fit up a small ship, which they owned, with diving and salvage equipment, and they engaged personnel, and proceeded from Melbourne to New Guinea. It is sufficient at this stage to say that they expended a large sum of money in discovering that they had bought a non-existent tanker.

    58

    The plaintiffs, as has been said, based their claim for damages on three alternative grounds. They claimed, in the first place, for damages for breach of a contract to sell a tanker lying at a particular place. Alternatively they claimed damages for a fraudulent representation that there was a tanker lying at the place specified. In the further alternative, they claimed damages for a negligent failure to disclose that there was no tanker at the place specified after that fact became known to the Commission. The second and third of these alleged causes of action depend wholly or partly on certain further facts which have not so far been mentioned. On 19th April 1947 a telegram was sent from the District Officer at Misima to the Port Moresby office of the Commission, which read: "Your S4382 stop Large approx. 100 ft. barge type tanker carrying oil machinery etc. apparently drifted on reef, Jomard Entrance high water during 1944 stop When inspected by Lieut. Middleton 1945 large hole stern admitted sea Machinery ruined stop Understand oil still in hold but quantity unknown Vessel exposed low tide only partly submerged high tide Can inspect when district vessel available". This unquestionably refers to the wrecked barge. How and why this telegram came to be sent is one of the minor mysteries of this case: no Port Moresby message numbered S4382 was produced. It seems reasonable to infer that the plaintiffs' request for a precise "fix" for their tanker prompted the making of inquiries which ought to have been made much earlier, and that the missing "S4382" was a belated attempt to find out whether the Commission had really had anything to sell to the plaintiffs. On 14th April the Port Moresby office of the Commission had telegraphed the District Officer at Samarai, saying:— "S4392 Would appreciate urgent reply details oil tanker Jourmaund Reef stop Understand vessel now moved under water and contents nil stop Can this be confirmed?" It seems quite possible that one of the quoted numbers is a mistake for the other, and that the telegram of 17th April is really in response to that of 14th April, which had been passed on from Samarai to Misima. Anyhow, the telegram of 17th April was set out in a letter of 19th April from the Port Moresby office to the Melbourne office of the Commission. The letter was minuted by Bowser, one of the officers of the Commission who were mainly responsible for the "selling" of the "tanker", as follows:—

    59

    "Received 21/4/47. McRae (successful tenderer) already advised and confirmed by letter location of vessel". In the meantime Port Moresby had replied to Misima, saying:— "Appreciate report stop Vessel sold Melbourne syndicate Inspection not required".

    60

    [401] The plaintiffs put their claim in deceit in this way. They said, first, that there was a false and fraudulent representation in the original advertisement. They said, secondly, that, even if the original representation as to the existence of a tanker was innocent, the representation was a continuing representation and the Commission knew, on 21st April at the latest, that it was false. By thereafter allowing the plaintiffs, on the faith of the truth of the representation, to pay the balance of purchase money and incur expenditure, they rendered themselves liable in deceit. The plaintiffs put their final alternative claim in this way. They said that, when the Commission was asked for the precise location of the vessel, they owed to the plaintiffs a duty to exercise reasonable care in obtaining the information required. The duty arose from the position of the parties. They at least believed that they were contractually bound. It must have been obvious to the Commission that the plaintiffs were likely to spend real money in reliance on the information supplied. So far from exercising any sort of care in the matter, they merely obtained a rough estimate of the latitude and longitude of Jomard Entrance and gave the result to the plaintiffs. The grossness of the negligence is emphasised by the fact that, on the very day (17th April) on which the latitude and longitude were telegraphed from Port Moresby to Melbourne, the Port Moresby office of the Commission received the telegram from Misima which should, the plaintiffs say, have made it plain to them that there was no tanker at Jomard Entrance.

    61

    [402] Webb J. held that the contract for the sale of a tanker was void — in other words, that no contract for the sale of a tanker was ever made. He considered that the well-known case of Couturier v. Hastie [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); [1853] EngR 764; (1853) 9 Ex 102 (156 ER 43); [1856] EngR 713; (1856) 5 HLC 673 (10 ER 1065) compelled him to this conclusion. His Honour held, however, as we read his judgment, that the plaintiffs had made out their case on the second aspect of their claim in deceit. He assessed damages on the basis that the plaintiffs were entitled to the return of the price paid plus an amount (necessarily, of course, approximate only) representing what it would have cost (without any preparations for salvage operations) to inspect the locality and ascertain that there was no tanker there. His Honour has not expressly stated the basis of his assessment, but it was common ground before us that this was the basis on which he proceeded.

    62

    The first question to be determined is whether a contract was made between the plaintiffs and the Commission. The argument that the contract was void, or, in other words, that there was no contract, was based, as has been observed, on Couturier v. Hastie [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); (1853) 9 Ex 102 (156 ER 43); (1856) 5 HLC 673 (10 ER 1065). It is true that Couturier v. Hastie [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); (1853) 9 Ex 102 (156 ER 43); (1856) 5 HLC 673 (10 ER 1065) has been commonly treated in the text-books as a case of a contract avoided by mutual mistake, and it is found cited in the company of such cases as Gompertz v. Bartlett [1853] EngR 970; (1953) 2 El & Bl 849 (118 ER 985) and Strickland v. Turner [1852] EngR 199; (1852) 7 Ex 208 (155 ER 919). Section 7 of the English Sale of Goods Act 1893 is generally regarded as expressing the effect of the case. The case has not, however, been universally regarded as resting on mistake, and Sir Frederick Pollock, in his preface to vol. 101 of the Revised Reports, at p. vi, says:— "Couturier v. Hastie shows how a large proportion of the cases which swell the rubric of relief against mistake in the textbooks (with or without protest from the text-writer) are really cases of construction". And in Solle v. Butcher (1950) 1 KB, at p 691 Denning L.J. observed that the cases which it had been usual to classify under the head of "mistake" needed reconsideration since the decision of the House of Lords in Bell v. Lever Bros. Ltd. [1931] UKHL 2; (1932) AC 161. No occasion seems to have arisen for a close examination of Couturier v. Hastie [1852] EngR 774; [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); [1853] EngR 764; (1853) 9 Ex 120 (156 ER 43); (1856) 5 HLC 673(10 ER 1065), but such an occasion does now arise.

    63

    [403] The facts of the case were simple enough. A question of del credere agency was involved, which has no relevance to the present case, and the facts may be stated without reference to that question. A sold to B "1,180 quarters of Salonica Indian corn of fair average quality when shipped, at 27/- per quarter f.o.b., and including freight and insurance, to a safe port in the United Kingdom, payment at two months from date upon handing over shipping documents." At the date of the contract the vessel containing the corn had sailed from Salonica, but, having encountered very heavy weather, had put in at Tunis. Here the cargo had been found to have become so heated and fermented that it could not be safely carried further. It had accordingly been landed at Tunis and sold there. These facts were unknown to either party at the date of the contract. On discovering them, B repudiated the contract. After the expiration of the two months mentioned in the contract, A, being able and willing to hand over the shipping documents, sued B for the price. The case came on for trial before Martin B. and a jury. Martin B. directed the jury that "the contract imported that, at the time of the sale, the corn was in existence as such, and capable of delivery" (1852) 8 Ex, at p 47 (155 ER, at pp 1253, 1254). The jury found a verdict for the defendant, and the plaintiff had leave to move. The Court of Exchequer (Parke B. and Alderson B., Pollock C.B. dissenting) made absolute a rule to enter a verdict for the plaintiff. This decision was reversed in the Court of Exchequer Chamber, and the House of Lords, after consulting the Judges, affirmed the decision of the Exchequer Chamber, so that the defendant ultimately had judgment.

    64

    [404] In considering Couturier v. Hastie [1852] EngR 774; (1952) 8 Ex 40 (155 ER 1250); (1853) 9 Ex 102 (156 ER 43); (1856) 5 HLC 673 (10 ER 1065) it is necessary to remember that it was, in substance, a case in which a vendor was suing for the price of goods which he was unable to deliver. If there had been nothing more in the case, it would probably never have been reported: indeed the action would probably never have been brought. But the vendor founded his claim on the provision for "payment upon handing over shipping documents". He was not called upon to prove a tender of the documents, because the defendant had "repudiated" the contract, but he was able and willing to hand them over, and his argument was, in effect, that by handing them over he would be doing all that the contract required of him. The question thus raised would seem to depend entirely on the construction of the contract, and it appears really to have been so treated throughout. In the Court of Exchequer, Pollock C.B., in the course of argument, said (1852) 8 Ex, at p 49 (155 ER, at p 1254):— "The question is purely one of construction. I certainly think that the plain and literal meaning of the language here used imports that the thing sold, namely the cargo, was in existence and capable of being transferred." This was, in effect, what Martin B. had told the jury, and what it means is that the plaintiff had contracted that there was a cargo in existence and capable of delivery. Parke B., in giving the judgment of the majority of the Court (1852) 8 Ex, at p 54 (155 ER, at p 1256), said:—

    65

    "It is very true that, when there is a sale of a specific chattel, there is an implied undertaking that it exists; and, if there were nothing in this case but a bargain and sale of a certain cargo on the 15th May, there would be an engagement by the vendor, or a condition, that the cargo was in existence at that time." He went on to say, however, that there was very much more in the contract, and that there was enough to make it plain "that the true meaning of the contract was that the purchaser bought the cargo if it existed at the date of the contract, but that, if it had been damaged or lost, he bought the benefit of insurance but no more" (1852) 8 Ex, at p 55 (155 ER, at p 1257).

    [405] The judgment of the Exchequer Chamber was delivered by Coleridge J. The view that the contract was void is probably derived from certain expressions which were used in the course of this judgment. But it does seem clear that again the question of construction was regarded as the fundamental question in the case. In stating the question for decision Coleridge J. (1853) 9 Ex, at p 106 (156 ER, at p 45) refers first to the direction of Martin B. to the jury, and says that the Lord Chief Baron had agreed with the opinion of Martin B. whereas the other learned Barons had differed from him. The judgment below, he says (1853) 9 Ex, at p 107 (156 ER, at pp 45, 46), "turned entirely on the meaning of the contract", and he proceeds to set out its terms in full. "The question", he says, "turns entirely upon the terms of the contract". The argument for the defendant is then put as including the proposition "that a vendor of goods undertakes that they exist", and (1853) 9 Ex, at p 108 (156 ER, at p 46) the argument for the plaintiff as being "that this was not a mere contract for the sale of an ascertained cargo, but that the purchaser bought the adventure, and took upon himself all risks from the shipment of the cargo". The final conclusion reached is expressed at the end of the judgment (1853) 9 Ex, at p 110 (156 ER, at pp 46, 47) by saying that "the basis of the contract in this case was the sale and purchase of goods, and all the other terms in the bought note were dependent upon that, and we cannot give to it the effect of a contract for goods lost or not lost". In the light of these passages it seems impossible to regard the expressions (1853) 9 Ex, at p 109 (156 ER, at p 46) "If the contract for the sale of the cargo was valid" and "the contract failed as to the principal subject-matter of it" as meaning that the contract was treated as being void. All that the passages in which those expressions occur seem in their context to mean is that the principal subject matter of the contract was a cargo of goods, that the purchaser did not buy shipping documents representing non-existent goods, that the consideration to the purchaser had failed, and that he could not therefore be liable to pay the contract price.

    In the House of Lords again the Lord Chancellor, in giving judgment (1856) 5 HLC, at p 681 (10 ER, at pp 1068, 1069), said:— "The whole question turns upon the meaning and construction of the contract". A little later he said:— "What the parties contemplated . . . was that there was an existing something to be sold and bought, and, if sold and bought, then the benefit of insurance should go with it." In other words, there was not an absolute obligation to pay the price on delivery of the shipping documents (as the plaintiff contended), but an obligation to pay on delivery of those documents only if they represented at the time of the making of the contract goods in existence and capable of delivery. And this is all that the Lord Chancellor really had in mind, we think, when later he says:—

    "If the contract of the 15th May had been an operating contract, and there had been a valid contract at that time existing, I think the purchaser would have had the benefit of insurance in respect of all damage previously existing."

    66

    [406] In Bell v. Lever Bros. Ltd. [1931] UKHL 2; (1932) AC 161, at pp 218-222 Lord Atkin, though he does not mention Couturier v. Hastie [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); (1853) 9 Ex 102 (156 ER 43); (1856) 5 HLC 673 (10 E.R., 1065). itself, discusses Gompertz v. Bartlett [1853] EngR 970; (1853) 2 El & Bl 849 (118 ER 985) and Gurney v. Womersley [1854] EngR 845;[1854] EngR 845; (1854) 4 El & Bl 133 (119 ER 51) and other cases which have sometimes been regarded as turning on mistake avoiding a contract ab initio, and His Lordship concludes the discussion with a very important observation. He says (1932) AC, at p 222:— "In these cases I am inclined to think that the true analysis is that there is a contract, but that the one party is not able to supply the very thing, whether goods or services, that the other party contracted to take; and therefore the contract is unenforceable by the one if executory, while, if executed, the other can recover back money paid on the ground of failure of the consideration". This observation accords with the reasons actually given for the decisions in Gompertz v. Bartlett [1853] EngR 970; [1853] EngR 970; (1853) 2 El & Bl 849(118 ER 985) and Gurney v. Womersley (1854) 4 El & Bl 133 (119 ER 51) . In the former case, in which the action was for money had and received, Lord Campbell C.J. (1853) 2 El & Bl, at p 853 (118 ER, at p 987) said:— "The action is maintainable on the ground that the article does not answer the description of that which was sold." And Coleridge J. (1853) 2 El & Bl, at pp 854, 855 (118 ER, at pp 987, 988) said:— "The vendee is entitled to have an article answering the description of that which he bought". So in Gurney v. Womersley [1854] EngR 845; (1854) 4 El & Bl 133 (119 ER 51), where also the action was for money had and received, Wightman J. (1854) 4 El & Bl, at p 142 (119 ER, at p 55) said that the defendants had "professed to sell a genuine bill" and that the bill given "failed in what was the substance of the description". So again in Strickland v. Turner [1852] EngR 199; (1852) 7 Ex 208 (155 ER 919) the case is put by Pollock C.B., who delivered the judgment of the Court, entirely on the ground of failure of consideration. "The money which was paid", he said, "was paid wholly without consideration, and may be recovered back" (1852) 7 Ex, at p 219 (155 ER, at p 924). This language clearly imports the existence of a contract. If there were no contract, there could be no failure of consideration. The case of Scott v. Coulson (1903) 1 Ch 453; (1903) 2 Ch 249 stands on a different footing and belongs to a class of case in which relief is given on equitable grounds.

    67

    [408] The observation of Lord Atkin in Bell v. Lever Bros. Ltd. (1932) AC, at p 222 seems entirely appropriate to Couturier v. Hastie [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); [1853] EngR 764; (1853) 9 Ex 102 (156 ER 43); (1856) 5 HLC 673 (10 E.R. 1065). In that case there was a failure of consideration, and the purchaser was not bound to pay the price: if he had paid it before the truth was discovered, he could have recovered it back as money had and received. The construction of the contract was the vital thing in the case because, and only because, on the construction of the contract depended the question whether the consideration had really failed, the vendor maintaining that, since he was able to hand over the shipping documents, it had not failed. The truth is that the question whether the contract was void, or the vendor excused from performance by reason of the non-existence of the supposed subject matter, did not arise in Couturier v. Hastie [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); (1853) 9 Ex 102 (156 ER 43); (1856) 5 HLC 673 (10 E.R. 1065).  It would have arisen if the purchaser had suffered loss through non-delivery of the corn and had sued the vendor for damages. If it had so arisen, we think that the real question would have been whether the contract was subject to an implied condition precedent that the goods were in existence. Prima facie, one would think, there would be no such implied condition precedent, the position being simply that the vendor promised that the goods were in existence. That is the real meaning of the direction of Martin B. to the jury, and so the argument for the defendant, as has already been pointed out, included the proposition that "a vendor of goods undertakes that they exist and that they are capable of being tranferred, although he may not stipulate for their condition" (1853) 9 Ex, at p 107 (156 ER, at p 46). So in Barr v. Gibson [1836] EngR 984; (1838) 3 M & W 390 (150 ER 1196) , where the contract was for the sale of a ship, Parke B. (1838) 3 M & W, at pp 399, 400 (150 ER, at pp 1200, 1201) said:— "And therefore the sale in this case of a ship implies a contract that the subject of transfer did exist in the character of a ship". It should be noted in this connection that in Solle v. Butcher (1950) 1 KB 671, at pp 691, 692 Denning L.J. said that the doctrine of French law, as enunciated by Pothier, is no part of English law. His Lordship was without doubt thinking of the passage quoted from Pothier in a note to the report of the argument in the House of Lords in Couturier v. Hastie (1856) 5 HLC, at p 678 (10 ER, at pp 1067, 1068). Although we would not be prepared to assent to everything that is said by Denning L.J. in the course of this judgment, we respectfully agree with this observation. When once the common law had made up its mind that a promise supported by consideration ought to be performed, it was inevitable that the theorisings of the civilians about "mistake" should mean little or nothing to it. On the other hand, the question whether a promisor was excused from performance by existing or supervening impossibility without fault on his part was a practical every-day question of which the common law has been vividly conscious, as witness Taylor v. Caldwell (1863) 3 B & S 826 (122 ER 309), with its innumerable (if sometimes dubious) successors. But here too the common law has generally been true to its theory of simple contract, and it has always regarded the fundamental question as being: "What did the promisor really promise?" Did he promise to perform his part at all events, or only subject to the mutually contemplated original or continued existence of a particular subject-matter? So questions of intention or "presumed intention" arise, and these must be determined in the light of the words used by the parties and reasonable inferences from all the surrounding circumstances. That the problem is fundamentally one of construction is shown clearly by Clifford v. Watts (1870) LR 5 CP 577.

    68

    [409] If the view so far indicated be correct, as we believe it to be, it seems clear that the case of Couturier v. Hastie [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); (1853) 9 Ex 102 (156 ER 43);(1856) 5 HLC 673 (10 E.R. 1065). does not compel one to say that the contract in the present case was void. But, even if the view that Couturier v. Hastie [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); (1853) 9 Ex 102 (156 ER 43); [1856] EngR 713; (1856) 5 HLC 673 (10 E.R. 1065). was a case of a void contract be correct, we would still think that it could not govern the present case. Denning L.J. indeed says in Solle v. Butcher (1950) 1 KB, at p 692:— "Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew he was under a mistake. A fortiori if the other party did not know of the mistake, but shared it". But, even if this be not wholly and strictly correct, yet at least it must be true to say that a party cannot rely on mutual mistake where the mistake consists of a belief which is, on the one hand, entertained by him without any reasonable ground, and, on the other hand, deliberately induced by him in the mind of the other party. It does not seem possible on the evidence to say that Bowser or Sheehan was guilty of fraud in the sense that either knew at the date of the contract that the Commission had no tanker to sell. And even at the later stage, after the receipt of the message from Misima, it is difficult to impute to them actual knowledge that there was no tanker at Jomard Entrance. The message should have conveyed to them the fact that the only vessel lying in the vicinity was almost certainly worthless, and ordinary commonsense and decency would have suggested that the contents of the message ought to be communicated to the plaintiffs. But the message referred to a "barge type tanker", and it is quite possible that this description would fail to bring home to their minds that there was no tanker. A finding of actual knowledge that they had nothing to sell does not seem justified by the evidence, though it is difficult to credit them at the time of the publication of the advertisements with any honest affirmative belief that a tanker existed. The confusion as to locality in the description advertised is almost enough to exclude the inference of any such affirmative belief. But, even if they be credited with a real belief in the existence of a tanker, they were guilty of the grossest negligence. It is impossible to say that they had any reasonable ground for such a belief. Having no reasonable grounds for such a belief, they asserted by their advertisement to the world at large, and by their later specification of locality to the plaintiffs, that they had a tanker to sell. They must have known that any tenderer would rely implicitly on their assertion of the existence of a tanker, and they must have known that the plaintiffs would rely implicitly on their later assertion of the existence of a tanker in the latitude and longitude given. They took no steps to verify what they were asserting, and any "mistake" that existed was induced by their own culpable conduct. In these circumstances it seems out of the question that they should be able to assert that no contract was concluded. It is not unfair or inaccurate to say that the only "mistake" the plaintiffs made was that they believed what the Commission told them.

    69

    [410] The position so far, then, may be summed up as follows. It was not decided in Couturier v. Hastie [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); (1853) 9 Ex 102 (156 ER 43); (1856) 5 HLC 673 (10 ER 1065) that the contract in that case was void. The question whether it was void or not did not arise. If it had arisen, as in an action by the purchaser for damages, it would have turned on the ulterior question whether the contract was subject to an implied condition precedent. Whatever might then have been held on the facts of Couturier v. Hastie [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); (1853) 9 Ex 102 (156 ER 43); (1856) 5 HLC 673 (10 ER 1065), it is impossible in this case to imply any such term. The terms of the contract and the surrounding circumstances clearly exclude any such implication. The buyers relied upon, and acted upon, the assertion of the seller that there was a tanker in existence. It is not a case in which the parties can be seen to have proceeded on the basis of a common assumption of fact so as to justify the conclusion that the correctness of the assumption was intended by both parties to be a condition precedent to the creation of contractual obligations. The officers of the Commission made an assumption, but the plaintiffs did not make an assumption in the same sense. They knew nothing except what the Commission had told them. If they had been asked, they would certainly not have said: "Of course, if there is no tanker, there is no contract". They would have said: "We shall have to go and take possession of the tanker. We simply accept the Commission's assurance that there is a tanker and the Commission's promise to give us that tanker." The only proper construction of the contract is that it included a promise by the Commission that there was a tanker in the position specified. The Commission contracted that there was a tanker there. "The sale in this case of a ship implies a contract that the subject of the transfer did exist in the character of a ship" (Barr v. Gibson (1838) 3 M& W, at pp 399, 400 (150 ER, at pp 1200, 1201)). If, on the other hand, the case of Couturier v. Hastie [1852] EngR 774; [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); [1853] EngR 764; (1853) 9 Ex 102 (156 ER 43); (1856) 5 HLC 673 (10 ER 1065) and this case ought to be treated as cases raising a question of "mistake", then the Commission cannot in this case rely on any mistake as avoiding the contract, because any mistake was induced by the serious fault of their own servants, who asserted the existence of a tanker recklessly and without any reasonable ground. There was a contract, and the Commission contracted that a tanker existed in the position specified. Since there was no such tanker, there has been a breach of contract, and the plaintiffs are entitled to damages for that breach.

    70

    Before proceeding to consider the measure of damages, one other matter should be briefly mentioned. The contract was made in Melbourne, and it would seem that its proper law is Victorian law. Section 11 of the Victorian Goods Act 1928 corresponds to s. 6 of the English Sale of Goods Act 1893, and provides that "where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made the contract is void". This has been generally supposed to represent the legislature's view of the effect of Couturier v. Hastie [1852] EngR 774; [1852] EngR 774; (1852) 8 Ex 40 (155 ER 1250); (1853) 9 Ex 102 (156 ER 43); [1856] EngR 713; (1856) 5 HLC 673 (10 ER 1065). Whether it correctly represents the effect of the decision in that case or not, it seems clear that the section has no application to the facts of the present case. Here the goods never existed, and the seller ought to have known that they did not exist.

    71

    The conclusion that there was an enforceable contract makes it unnecessary to consider the other two causes of action raised by the plaintiffs. As to each of these, the plaintiffs would have been, to say the least, faced with serious obstacles. We have already referred to the evidence bearing on the issue of fraud. And the claim based on negligence would have encountered the difficulties which were held by a majority of the Court of Appeal to be fatal to the plaintiff in Candler v. Crane Christmas & Co. (1951) 1 All ER 426.

    72

    [411] The question of damages, which is the remaining question, again presents serious difficulties. It is necessary first to arrive at the appropriate measure of damages. The contract was a contract for the sale of goods, and the measure of damages for non-delivery of goods by a seller is defined in very general terms by s. 55(2) of the Goods Act 1928 as being "the estimated loss directly and naturally resulting in the ordinary course of events from the seller's breach of contract". This states, in substance, the general prima-facie rule of the common law as to the measure of damages for breach of contract. But, if we approach this case as an ordinary case of wrongful non-delivery of goods sold, and attempt to apply the ordinary rules for arriving at the sum to be awarded as damages, we seem to find ourselves at once in insuperable difficulties. There was obviously no market into which the buyers could go to mitigate their loss, and the rule normally applied would require us to arrive at the value of the goods to the buyer at the place where they ought to have been delivered and at the time when they ought to have been delivered. But it is quite impossible to place any value on what the Commission purported to sell. The plaintiffs indeed, on one basis of claim which is asserted in their statement of claim, assessed their damages on the basis of an "average-sized tanker, 8,000-10,000 ton oil tanker, valued at 1,000,000 pounds, allowing for the said tanker lying on Jourmaund Reef, valued at 250,000 pounds", and, for good measure, they added their "estimated value of cargo of oil" at the figure of 50,000 pounds. But this, as a basis of damages, seems manifestly absurd. The Commission simply did not contract to deliver a tanker of any particular size or of any particular value or in any particular condition, nor did it contract to deliver any oil.

    73

    [412] It was strongly argued for the plaintiffs that mere difficulty in estimating damages did not relieve a tribunal from the responsibility of assessing them as best it could. This is undoubtedly true. In the well-known case of Chaplin v. Hicks (1911) 2 KB 786, at p 792 Vaughan Williams L.J. said:— "The fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages for his breach of contract". That passage, and others from the same case, are quoted by Street C.J. in Howe v. Teefy (1927) 27 SR (NSW) 301, at pp 305-306; 44 WN 102, at pp 103, 104, but the learned Chief Justice (1927) 27 SR (NSW), at p 306; 44 WN, at p 104 himself states the position more fully. He says:— "The question in every case is: has there been any assessable loss resulting from the breach of contract complained of? There may be cases where it would be impossible to say that any assessable loss had resulted from a breach of contract, but, short of that, if a plaintiff has been deprived of something which has a monetary value, a jury is not relieved from the duty of assessing the loss merely because the calculation is a difficult one or because the circumstances do not admit of the damages being assessed with certainty". The present case seems to be more like Sapwell v. Bass (1910) 2 KB 486 than Chaplin v. Hicks (1911) 2 KB 786. And see Fink v. Fink [1946] HCA 54; (1946) 74 CLR 127, at p 143, per Dixon and McTiernan JJ. It does not seem possible to say that "any assessable loss has resulted from" non-delivery as such. In Chaplin v. Hicks (1911) 2 KB 786, if the contract had been performed, the plaintiff would have had a real chance of winning the prize, and it seems proper enough to say that that chance was worth something. It is only in another and quite different sense that it could be said here that, if the contract had been performed, the plaintiffs would have had a chance of making a profit. The broken promise itself in Chaplin v. Hicks (1911) 2 KB 786 was, in effect, "to give the plaintiff a chance": here the element of chance lay in the nature of the thing contracted for itself. Here we seem to have something which cannot be assessed. If there were nothing more in this case than a promise to deliver a stranded tanker and a failure to deliver a stranded tanker, the plaintiffs would, of course, be entitled to recover the price paid by them, but beyond that, in our opinion, only nominal damages.

    74

    [413] There is, however, more in this case than that, and the truth is that to regard this case as a simple case of breach of contract by non-delivery of goods would be to take an unreal and misleading view of it. The practical substance of the case lies in these three factors— (1) the Commission promised that there was a tanker at or near to the specified place; (2) in reliance on that promise the plaintiffs expended considerable sums of money; (3) there was in fact no tanker at or anywhere near to the specified place. In the waste of their considerable expenditure seems to lie the real and understandable grievance of the plaintiffs, and the ultimate question in the case (apart from any question of quantum) is whether the plaintiffs can recover the amount of this wasted expenditure or any part of it as damages for breach of the Commission's contract that there was a tanker in existence. In the opinion of Webb J. it would have been reasonable, and within the proper contemplation of the Commission, that the plaintiffs should take steps, but should do no more than take steps, to see whether there was a tanker in the locality given, and, if so, whether any and what things should be done to turn her to account. And his Honour estimated the reasonable cost of taking such steps at the sum of 500 pounds. This view, however, seems to assume that the plaintiffs would be, or ought to be, in doubt as to whether they really had succeeded in buying a tanker. But they were clearly entitled to assume that there was a tanker in the locality given. The Commission had not, of course, contracted that she or her cargo was capable of being salved, but it does not follow that the plaintiffs' conduct in making preparations for salvage operations was unreasonable, or that the Commission ought not to have contemplated that the course in fact adopted would be adopted in reliance on their promise. It would be wrong, we think, to say that the course which the plaintiffs took was unreasonable, and it seems to us to be the very course which the Commission would naturally expect them to take. There was evidence that salvage operations at the locality given would not have presented formidable difficulties in fair weather. The plaintiffs were, of course, taking a risk, but it might very naturally seem to them, as business men, that the probability of successful salvage was such as to make the substantial expense of a preliminary inspection unwarranted. It was a matter of business, of weighing one consideration with another, a matter of which business men are likely to be the best judges. So far as the purpose of the expenditure is concerned, the case seems to fall within what is known as the second rule in Hadley v. Baxendale [1854] EngR 296; (1854) 9 Ex 341 (156 ER 145). A fairly close analogy may be found in a case in which there is a contract for the sale of sheep, and the buyer sends a drover to take delivery. There are no sheep at the point of delivery. Sheep have not risen in price, and the buyer has suffered no loss through non-delivery as such. But he will be entitled to recover the expense which he has incurred in sending the drover to take delivery: cf. Pollock v. Mackenzie (1866) 1 QSCR 156 , and see also Foaminol Laboratories Ltd. v. British Ortid Plastics Ltd. (1941) 2 All ER 393, esp at p 397.

    75

    [414] There is, however, still another question. Mr. Tait not only strongly opposed the view so far expressed, but he also contended that, even if that view were accepted, it still could not be held that the alleged damage flowed from the alleged breach. Let it be supposed, he said in effect, that the plaintiffs acted reasonably in what they did, and let it be supposed that the Commission ought reasonably to have contemplated that they would so act. Still, he said, the plaintiffs are faced with precisely the same difficulty with which they are faced if the case is regarded as a simple and normal case of breach by non-delivery. Suppose there had been a tanker at the place indicated. Non constat that the expenditure incurred by the plaintiffs would not have been equally wasted. If the promise that there was a tanker in situ had been performed, she might still have been found worthless or not susceptible of profitable salvage operations or of any salvage operations at all. How, then, he asked, can the plaintiffs say that their expenditure was wasted because there was no tanker in existence?

    76

    The argument is far from being negligible. But it is really, we think, fallacious. If we regard the case as a simple and normal case of breach by non-delivery, the plaintiffs have no starting-point. The burden of proof is on them, and they cannot establish that they have suffered any damage unless they can show that a tanker delivered in performance of the contract would have had some value, and this they cannot show. But when the contract alleged is a contract that there was a tanker in a particular place, and the breach assigned is that there was no tanker there, and the damages claimed are measured by expenditure incurred on the faith of the promise that there was a tanker in that place, the plaintiffs are in a very different position. They have now a starting-point. They can say: (1) this expense was incurred; (2) it was incurred because you promised us that there was a tanker; (3) the fact that there was no tanker made it certain that this expense would be wasted. The plaintiffs have in this way a starting-point. They make a prima-facie case. The fact that the expense was wasted flowed prima facie from the fact that there was no tanker; and the first fact is damage, and the second fact is breach of contract. The burden is now thrown on the Commission of establishing that, if there had been a tanker, the expense incurred would equally have been wasted. This, of course, the Commission cannot establish. The fact is that the impossibility of assessing damages on the basis of a comparison between what was promised and what was delivered arises not because what was promised was valueless but because it is impossible to value a non-existent thing. It is the breach of contract itself which makes it impossible even to undertake an assessment on that basis. It is not impossible, however, to undertake an assessment on another basis, and, in so far as the Commission's breach of contract itself reduces the possibility of an accurate assessment, it is not for the Commission to complain.

    77

    [415] For these reasons we are of opinion that the plaintiffs were entitled to recover damages in this case for breach of contract, and that their damages are to be measured by reference to expenditure incurred and wasted in reliance on the Commission's promise that a tanker existed at the place specified. The only problem now remaining is to quantify those damages, but this is itself a most serious problem, because the evidence is left by the plaintiffs in a highly unsatisfactory state. Whether the evidence has been so left because of the loss of records or because of misplaced confidence in the view that any wrecked or stranded tanker must be worth something like a quarter of a million pounds need not be considered. Two things seem clear, for what they are worth. The first is that the plaintiffs did expend and waste a sum of money very considerably in excess of 500 pounds. The second is that the plaintiffs have, in their statement of claim, and also in their evidence, sought to exaggerate grossly the amount of their claim.

    78

    What actually happened may be summarized as follows. The plaintiffs owned a small steam vessel named the Gippsland. This vessel was, at the date of the making of the contract, being refitted in Sydney for trading between Melbourne and King Island. After the making of the contract the plan of refitting seems to have been modified in some respects with a view to making her suitable for salvage work. Certain salvage equipment was purchased and placed on board. A crew was engaged, and Mr. J.E. Johnstone, a shipwright and diver, and an acknowledged expert in salvage work, was also engaged. The ship sailed from Sydney for the supposed locality of the tanker on 28th June 1947. While she was on the voyage north, Mr. Johnstone and a brother of the plaintiffs proceeded together by air to Port Moresby. The ship foundered in the vicinity of Port Moresby on 24th July 1947. Why she took so long to reach this locality from Sydney is not explained, but she appears to have called at Brisbane and other northern ports. No lives were lost when she sank, and the ship's company landed at Port Moresby. Mr. F.E. McRae, one of the plaintiffs, entered into negotiations for the charter of a vessel named the Betty Joan, but in the meantime his brother and Mr. Johnstone went to Samarai and there chartered a boat named the Jessie for the purpose of looking for the tanker. They found, of course, no tanker, and returned to Port Moresby, where they informed Mr. McRae of the position.

    79

    [416] The plaintiffs make their claim on the basis of wasted expenditure under ten heads, several of which it is plainly impossible to support at all. The first claim is under the head of "equipment", and relates to certain equipment purchased for the Gippsland. This claim is wholly untenable. Some of the items in it, such as navigating lights and signalling lamps, are ordinary necessities of a ship's equipment, and some were purchased months before the date of the contract. But in any case this was all capital expenditure represented by acquired assets, and it is out of the question to claim it as damages. One would assume, though there is no clear evidence on the matter, that it was covered by insurance.

    80

    The second claim is under the head of "reconditioning", and refers to work done on the Gippsland herself. Again it is plain that this claim must be wholly disallowed. About one-third of the amount claimed proves to relate to work done long before the date of the contract, but again the whole of it is capital expenditure.

    81

    [417] The third claim is of a different character and does not relate to actual expenditure at all. It is made under the head of "loss of revenue", and represents the profit which the Gippsland might have been expected to make if she had not been devoted to the futile tanker enterprise. As framed, this claim was based on the profit anticipated as likely to accrue from the use of the vessel under a contract with a company called King Island Scheelite No Liability. In April 1947 no contract with that company had been concluded, but negotiations were proceeding for the use of the vessel in trading between King Island and Melbourne. Mr. Laird, the witness who gave evidence for the plaintiffs on these matters, said that in consultation with Captain Guthrie he had estimated that, if the last offer of the King Island company had been accepted, a profit of 75 pounds per week would have been realized, and he said or implied that that offer would have been accepted if better terms could not have been obtained. On this basis the claim ultimately put forward under this head was for 1,050 pounds, a sum which represents 75 pounds per week for fourteen weeks. Put baldly as a claim for this estimated loss of profit as such, the claim might be thought to be in its nature too remote, and in its amount conjectural to a degree. But the plaintiffs would be entitled to include in their damages the daily value of their vessel for a period which would not be excessively estimated as ten weeks, and the estimate based on Mr. Laird's calculations may be used as a basis — though it can only provide a rough and approximate basis — for arriving at this daily value. It would appear from cross-examination that the estimate was made after taking into account the obvious physical contingencies, but it has, we think, to be substantially discounted for the contingency of the ship being idle for part of the period. There is no evidence as to her earnings in the past. To allow 50 pounds per week does not seem unreasonable, and at that rate the plaintiffs should be allowed 500 pounds under this head.

    82

    The next four heads of claim are heads under which we think that the plaintiffs are entitled to recover damages. But, whereas one would have expected that the claim in each of these four cases would be capable, if not of precise computation, at least of a close approximation, we find that the evidence is for the most part of the vaguest kind. In most cases it is not possible to do more than make an estimate as best one can.

    83

    The fourth claim is made under the head of travelling expenses. It is difficult to avoid the conclusion that better evidence could have been given about this. It is said by Mr. Laird to include 200 pounds for the cost of searching for the wreck, and, as such, may be taken to include the cost incurred by McRae and Johnstone in going from Port Moresby to Samarai and the hire of the Jessie. We know also that McRae and Johnstone travelled by air from Melbourne to Port Moresby, and it seems proper to allow a further sum of 200 pounds in respect of this expense. Beyond this, either the evidence is too vague to justify any claim or it shows that the claim is unjustified or made under another head. The plaintiffs should recover 400 pounds under this head.

    84

    The fifth claim is made under the head of "Ship's Stores, etc." The plaintiffs would, we should think, be entitled to the value of coal and other stores consumed before the Gippsland foundered but not for what went down with the ship. So far as coal is concerned, an invoice in Exhibit NN shows that about sixty tons was loaded at Bowen at a cost of about 100 pounds, and a note on the invoice states that the balance on board when the ship went down was twenty-five tons. Since Bowen is about half-way between Sydney and Port Moresby, this probably justifies an estimate that the ship had used about seventy tons between leaving Sydney and foundering and an allowance of 120 pounds for coal consumed may be made. Beyond this, there is no real material on which to found any estimate. Exhibit NN consists simply of a mass of invoices, which include a host of articles which are not ship's stores in any relevant sense, and for which no claim could be made. The best that can be done seems to be to make a rough man-day estimate for two months, and allow (say) 720 pounds. We would allow 840 pounds under the fifth head of claim.

    85

    [418] The sixth head of claim relates to special expenses of Mr. Johnstone, which are itemised in Exhibit PP. The account has only been paid in part by the plaintiffs. Mr. Johnstone's travelling expenses have already been allowed at 100 pounds under the fourth head of claim. It is not clear why he spent eight weeks in Port Moresby, though the amount claimed in respect of these eight weeks seems moderate enough. He had some undefined financial interest in the venture, and no clear evidence was given as to his contract or arrangement with the plaintiffs. Mr. Johnstone, however, had very special qualifications and experience in matters of salvage. It was certainly reasonable to engage his services, and his claim cannot be narrowly scanned. The sum of 400 pounds should be allowed under this head of claim.

    86

    The seventh head of claim relates to "crew's wages". Here at last we get something like definite evidence, though it reveals that the amount of the claim is again exaggerated, and the evidence is still defective. However, it finally appeared from evidence given by Captain Guthrie that a total sum of 1,400 pounds was paid in wages. This sum apparently includes Captain Guthrie's own salary, and it covers a period commencing on 13th November 1946 and ending on the dates on which the members of the crew arrived back at their home ports. But, while this figure may be taken to represent the whole wages bill of the Gippsland for the period mentioned, it cannot be taken to mean that all the members of the crew who sailed from Sydney were paid from 13th November 1946, because Captain Guthrie gave the monthly rate of pay of each man, and, if every man were paid at the rate stated for the whole period mentioned, the total sum paid would be very much larger than 1,400 pounds. The monthly rates of pay given by Captain Guthrie seem reasonable and it seems proper to allow a wages bill at those rates for two months. On this basis we arrive at a figure of 768 pounds.

    87

    Nothing can be claimed under either of the next two heads of claim. The eighth is "Claims by Crew" and represents amounts claimed by the crew in respect of clothing and other property lost when the ship foundered. These claims appear to have been, in part at least, covered by insurance and met by the insurers, but the Commission cannot in any case be responsible for consequences of the sinking of the ship. The ninth claim is for insurance premiums. The carrying of insurance is an ordinary incident of the ownership and operation of a ship, whatever she is doing. The tenth and last claim is for 150 pounds for office expenses. It seems reasonable to suppose that some office expenses were incurred and wasted, and, though nothing much better than a guess is possible, it is probably fair enough to add 100 pounds for these.

    88

    [419] The total amount now arrived at is 3,008 pounds, and we may fairly take the figure of 3,000 pounds as representing, as nearly as can be estimated on the very defective evidence, the loss suffered by the plaintiffs for which damages are recoverable. To this must be added the sum of 285 pounds paid by the plaintiffs.

    89

    For convenience we have throughout treated the Commission as the party responsible to the plaintiffs. But, in our view, the cause of action lies in contract, and reg. 7 of the National Security (Disposal of Commonwealth Property) Regulations provides that the Commission may make contracts on behalf of the Commonwealth. Accordingly we think that the judgment should be against the Commonwealth.

    90

    The appeal should be allowed and the judgment of Webb J. set aside. In lieu thereof there should be judgment for the plaintiffs against the Commonwealth for the sum of 3,285 pounds as damages for breach of contract. There is no reason why the plaintiffs should not have the full costs of the appeal. With regard to the costs of the action, Webb J. gave no reasons for allowing the plaintiffs only one-half of their costs, but it was doubtless because he considered that the costs had been increased by the raising of matters (whether technically "issues" or not) on which the plaintiffs had failed and by the generally extravagant nature of their claim. We think that the costs may have been to some extent increased by the raising of unjustifiable claims. On the other hand, the whole case was one of very exceptional difficulty, the plaintiffs were fully justified in raising alternative bases of claim, and the extent to which costs were necessarily increased by the claim based on the supposed value of a tanker and by the unwarranted claims in respect of expenditure would be proportionately very small and hardly such as, in our opinion, to justify any attempt to apportion costs either by direct order or on taxation. It may be added that the conduct of the Commission's officers throughout, including their attitude when a claim was first made, is not such as would incline any court readily to exercise any discretion in favour of the defendants. We think that the plaintiffs should have their costs of the action. The cross-appeal should be dismissed with costs.

    91

    [420] McTIERNAN J. I concur in the conclusions that there was a contract, that it was not void for mistake and that the plaintiffs should recover from the Commonwealth Disposals Commission the sum mentioned in the order of the Court as damages for breach of the contract; that the appeal should be allowed and the cross-appeal dismissed, in each case with costs.

    92
    ORDER
    93

    Appeal allowed with costs. Discharge judgment of Webb J., and in lieu thereof adjudge that plaintiffs do recover from the defendant Commonwealth of Australia the sum of 3,285 pounds as damages for breach of contract. Order that defendant Commonwealth pay plaintiffs' taxed costs of action. Cross-appeal dismissed with costs.

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