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Associated Japanese Bank v Credit Du Nord SA [1989] 1 WLR 255

Contract – Common Mistake – Fraud – An Example of a Rogue – Void – Mutual Mistake – Bankruptcy

Facts

The complainants, Associated Japanese Bank, bought three engineering machines from a client that turned out to be a rogue. They bought this machinery and as part of the contract, they leased it back to him, with a guarantee from the defendants, Credit Du Nord SA. The rogue had failed to keep up with the payments agreed by the lease and went bankrupt. In response, the complainants sued the defendants for the money. However, the parties discovered that the engineering machines did not exist. 

Issues

The issue in this case was whether the contract between the complainant and the defendant could be set aside or made void, due to the engineering machines not actually existing.

Held

The court held that the contract between the complainants and defendants was void. The machines were fundamental to the contract and the mistake to their existence was shared by both parties, making the subject matter of the contract very different from what they had believed they had entered in to. The court stated that for common mistake to render a contract void, the subject matter must be ‘essentially and radically different’ from what the parties believed to exist. The mistake must go to the root of the contract and cannot simply be made as an excuse to avoid unwanted obligations. Thus, since the three engineering machines did not exist, the contract was void by common mistake.


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