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Equity as a Vehicle for Law Reform:
The Case of Unilateral Mistake
Irit Samet*
In this paper I ask whether English Law should permit rescission for unilateral mistakes
in the formation of contract, in circumstances where the defendant (D) knew or should
have known about the claimant’s (C) mistake, and if so, should Equity be (re)employed
to deploy the remedy. The paper introduces the Caveat Emptor Common Law rule on
this issue, which rules out rescission, and the various considerations that count in its
favour. I argue that neither considerations from efficiency, nor those based in ethics can
justify the current rule, and that new, flexible and morally-sensitive resolution is called
for. If we examine the way in which Equity intervenes to reform areas of law where
the Common Law fails to provide a satisfactory solution to legal disputes, we will see
that the Caveat Emptor rule displays exactly the kind of defects that Equity does a
very good job at remedying. The law on the duty to disclose information at the precontractual stage emerges as an excellent example for Equity’s great potential as a vehicle
for improving the law in a measured, nuanced and imaginative way.

*

Reader in Private Law, Dickson Poon School of Law, King’s College,
London.

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Samet, Equity as a Vehicle for Law Reform

I.

Introduction

II.

Justifying the Common Law Rule
A.

Moral Value 1: No Legal Duty to Prevent Harm

B.

Moral Value 2: Self-Reliance

C.

Social Benefit 1: Certainty

D.

Social Benefit 2: Law for Export

E.

Social Benefit 3: Generating Socially-Beneficial Information

III.

When and Why Equity Intervenes in the Parties’ Common Law Rights

IV.

The Moral Demerits of the CAVEAT EMPTOR Rule, and Why Equity is the
Right Way to Correct Them

V.

I.

A.

Legal Duty to Prevent Harm

B.

Who’s Self-Reliance?

C.

Certainty and Other Legal Virtues

D.

Generating (very little) Socially-Beneficial Information

Conclusion

Introduction

“This by nature is equitable, that no one be made richer by another’s
loss”.1
The situation is painfully familiar: a party to contractual negotiations
has information which is highly relevant for the subject matter of the
purported deal. Keeping it to himself would improve his stakes, but the
other party would be labouring under a mistake so that her share of the
pie would be lower than if she were fully informed. The question whether
the state would come to her assistance once the contract is signed and she
becomes conscious of the information is part of the law on “contractual
mistake”; this, it is widely agreed, is a “confusing and problematic area
[of law] in England and in many of the common law countries which
adopted the English doctrine”.2 In this paper, I discuss a very specific
1.

2.

Dig 12.6.14 (Pomponius Sabinus 21), cited in John P Dawson, Unjust
Enrichment: A Comparative Analysis (Boston: Little, Brown and Company,
1951) at 3.
Catharine MacMillan, Mistakes in Contract Law (Portland: Hart
Publishing, 2010) at 1.

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aspect of the law on contractual mistake, and ask whether it should be
reformed, and by what means: should we permit rescission for unilateral
mistakes in the formation of contract, in circumstances where the
defendant knew or should have known about the claimant’s mistake?3
And if so, should equity be (re)employed to deploy the remedy? To
answer these questions, I will first introduce the Common Law rule on
this issue and the various considerations that count in its favour. I then
ask in which cases, and in what way, equity intervenes to reform areas
of law where the common law fails to provide a satisfactory solution.
The next section argues that many of the justifications offered for the
Common law rule on unilateral mistake fail, and that as a result the rule
displays the kind of difficulties that equity is designed to address. The law
on the duty to disclose information at the pre-contractual stage emerges
as an excellent example for the great potential of equity to improve the
law in a measured, nuanced and imaginative way.
The basic rule of English contract law which applies to situations of
un-induced unilateral mistake, of which the other party knew, says that
the
claimant has no basis for avoiding the contract. Even if the defendant knows
that the claimant would never have entered the contract or anything like it
had he known the truth, t h e defendant is fully entitled to take advantage
of the mistake.4

In spite of some well-known exceptions found in common law and
regulation (mainly in special contexts like insurance, family, financial
3.

4.

There are many adjacent issues which I will not discuss here, like the
timing of the relief, the quality of the remedy or the position of third
parties. Unilateral mistakes can also occur when a party wrongly believes
that the written contract reflects the terms agreed upon by the parties.
The law here is very clear: if the other party knows about (or suspects) a
mistake he needs to shout (Commission for the New Towns v Cooper (Great
Britain) Ltd, [1995] Ch 259 (CA (Eng))). This is a case of equitable
estoppel and is thus a branch of a different equitable doctrine. See Terence
Etherton, “Contract Formation and the Fog of Rectification” (2015) 68:1
Current Legal Problems 367at 17-18.
Hugh Beale, Mistake and Non-disclosure of Facts: Models for English
Contract Law, (Oxford: Oxford University Press, 2012) at 18.

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Samet, Equity as a Vehicle for Law Reform

markets, etc.), the residual rule is clear cut: “caveat emptor” or, “[i]f
you don’t know, ask. If you didn’t ask, don’t complain”.5 The Caveat
Emptor rule is a concrete expression of the belief that in a perfectly
competitive market, aggregate utility is maximized when every person
rationally pursues her own ends. Misrepresentation, undue influence and
unconscionable behaviour interfere with the ideal market conditions and
English law is more than happy to allow rescission when such reprehensible
practices are proved;6 failure to look after your own interests is a different
story. A peculiar gap thus emerges between the overall thrust of English
contract law towards rules which promote fairness and social market,
and the residual law that applies to un-induced unilateral mistakes which
remains staunchly individualistic.7
Until the 19th century and the administrative fusion between
common law and equity courts the common law courts did not attribute
any importance to mistake in the formation of contract.8 One important
reason for the neglect was that chancery procedures (cumbersome as they
were) were much better suited to ascertaining mistakes. As a result, suits
that involved mistake were channelled by the barristers to the Court of
Chancery, so that the common law had no opportunity to develop a

5.

6.

7.

8.

Beale, supra note 4 at 106. A detailed list of the traditional exceptions can
be found in SM Waddams, “Precontractual Duties of Disclosure” in Peter
Cane & Jane Stapleton, eds, Essays for Patrick Atiyah (Oxford: Clarendon
Press, 1991) at 237.
The discussion here excludes contracts that are afflicted with undue
influence or unconscionable bargain which raise a different set of
questions, and the remedy for which is usually considered to be based
on unjust enrichment principles. For a discussion of restitution in these
cases as based on unconscionability, see Prince Saprai, “Unconscionable
Enrichment?” in Robert Chambers, Charles Mitchell & JE Penner,
eds, Philosophical Foundations of the Law of Unjust Enrichment (Oxford:
Oxford University Press, 2009) at 417.
On the transformation of English contract law to a social-market
embracing law see Hugh Collins, The Law of Contract, 4d (London:
Cambridge University Press, 2008) ch 2.
MacMillan, supra note 2 at 38.

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doctrine concerning the effect of mistake on contractual obligations.9
Parties who laboured under a mistake and sought to rescind (or rectify)
the resulted contract could find sympathy with the courts of equity
who would intervene for victims of both suggestio falsi and suppressio
veri. The latter was of course the greater innovation, as it went far beyond
the doctrine of fraud — the closest counterpart which would be familiar
to the common law jurists. But the equitable doctrine of unilateral
mistake, like most of equity’s jurisdiction, was never systematised to the
level of its common law contemporaries. Only some general principles
can be extracted from the (not too many) cases, while the treatises of
the 19th century provide contradictory accounts, which too often do
not follow the case law.10 If a party seeks to enforce a contract in spite
of the occurrence of mistake, one author tells us, he “must necessarily
make that court [of common law] an instrument of injustice; … courts
of equity have interposed, be restraining the party whose conscience
is thus bound from using the advantage he has improperly gained”.11
When equity intervened it did so in the more flexible and particularistic
manner that typifies it.12 It offered restitution (a remedy which was
conceived by its 19th century resuscitators as equitable in nature)
to claimants who proved their mistake, and the unconscionability of

9.

10.

11.
12.

Ibid at 39-44. A parallel line of cases in which remedy was offered to
the mistaken party developed in Scotland, but today it is “considered
controversial, and at most a narrow exception to the rule that an
uninduced unilateral error is not sufficient to annul a contract”: see Reid
& MacQueen, supra note 4 at 355-56.
As shown in MacMillan, supra note 2; see also Reid & MacQueen,
supra note 4 (a parallel line of cases in which remedy was offered to
the mistaken party developed in Scotland, but today it is “considered
controversial, and at most a narrow exception to the rule that an uninduced unilateral error is not sufficient to annul a contract” at 355-58).
John Mitford, A Treatise on the Pleadings in Suits in the Court of Chancery
(London: W Owen, 1787) as in MacMillan, supra note 2 at 45.
On the flexible nature of the equitable doctrines and how this is essential
to their function see Henry Smith, An Economic Analysis Of Law Versus
Equity (2010) [unpublished, archived at Harvard Law School, Harvard
University] (in the context of property law).

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Samet, Equity as a Vehicle for Law Reform

the other party who was silent.13 But this equitable jurisdiction to assist
parties who suffered harm as a result of un-induced unilateral mistake
withered away as fusion kicked in, and claims concerning mistake were
heard by a unified High Court. And so, the question of this paper can
be posed as: should equity reclaim its pre-fusion power and intervene in
the parties’ common law rights where the defendant knew or should have
known about the claimant’s substantive mistake?

II.

Justifying the Common Law Rule

Before we can judge whether equity should reclaim its authority to assist
a party who worked under a mistake known to the other party (but not
induced by him), we need to assess the merits of the law as it stands
now. Under the current Caveat Emptor rule, parties to a contract are not
under a duty to disclose information concerning the subject matter of the
contract. People are expected to make all relevant investigations before
committing to a contract, and have only themselves to blame if they fail
to do so. As the courts of common law readily admit, the rule would
strike the person on the street as unethical: “a man of tender conscience
or high honour would be unwilling to take advantage of the ignorance of
the other party”; it is a piece of law that clearly departs from our moral
principles: “whatever may be the case in a court of morals, there is no
legal obligation on the vendor to inform the purchaser that he is under
a mistake, not induced by the act of the vendor”.14 In what follows I
will present, briefly, some arguments to the effect that the inconsistency
between the court of law and “the courts of morals” can be justified by
second-order considerations of morality and public welfare. If valid,
they show that the “tender conscience or high honour” which rejects the
13.

14.

Even where restitutio ad integrum was impossible see Alati v Kruger (1955)
94 CLR 216 (HCA) at 224 (when the parties were not in a position to
give back exactly what each received under the contract ). Also see more
examples of equity’s flexibility in this matter in Jamie Glister & James
Lee, Hanbury & Martin Modern Equity, 19d (London: Sweet & Maxwell,
2012) at 29-001.
Smith v Hughes (1871), LR 6 QB 597 (Eng) at 604, per Chief Justice
Cockburn, and at 607, per Justice Blackburn.

(2016) 2(2) CJCCL

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Caveat Emptor rule merely reflects moral intuitions that cannot survive a
more reflective survey of the full range of considerations which apply to
the legal treatment of un-induced mistakes.
In his book on restitution, Hanoch Dagan offers a powerful
argument for the position that the law on restitution should be read as an
expression of our commitment to the values of autonomy and utility, as
well as to the value of community welfare.15 This is not the place to assess
the merits of his argument, but in what follows I discuss considerations
in favour of the Caveat Emptor rule that concern both the parties to the
dispute and the wider community. If, like Ernest Weinrib, you believe that
only consideration of corrective justice (i.e. strictly between the parties
to the dispute) should be taken into account when deciding disputes
about the right to restitution (and in private law in general), you will
discard reasons B-E below as irrelevant.16 But if, like Dagan, you believe
that a solution to these issues should be offered from a wide perspective
which includes the effect of the decision on society as whole, you will
(hopefully) find all the arguments (and counter arguments) in Part IV
interesting and relevant. One more methodological note about mixing
arguments from morality and efficiency: when thinking about rules of
contract law, we need not worry too much about efficiency-oriented
considerations crowding out concerns of morality. For in this area of the
law, they actually tend to work in tandem, and lead in the same direction.
As Charles Fried explains, the “convergence of [law-and-economics and
normative analyses] is particularly salient [in] the design of institutions
that facilitate the coordination, through agreements, of the energies of

15.
16.

Hanoch Dagan, The Law and Ethics of Restitution (London: Cambridge
University Press, 2004) ch 2.
For example, see Ernest Weinrib, “Restoring Restitution” (2005) 91:3
Virginia Law Review 861.

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Samet, Equity as a Vehicle for Law Reform

otherwise independent persons”.17 Contradictory results may, of course,
be found, but in our case these often incommensurable values converge
quite nicely, and I will therefore leave this thorny issue for another time.

A.

Moral Value 1: No Legal Duty to Prevent Harm

One argument against imposing a duty of disclosure on parties to
contractual negotiations links it to the law’s general reluctance to impose
positive duties to assist other people in need. English law does not
normally order us to save other people, even from severe harm, unless
we actively contributed to its occurrence. This, it is widely agreed, is a
good policy. The regulation of society ought to be achieved by means of
prohibiting harmful acts, rather than by obliging citizens to engage in
harm-preventing activities.18 Two compelling thoughts are mentioned in
support of this “no action no liability” principle. First, “a legal system that
proscribed non-doing alongside doing would be profoundly intrusive …
present individuals with fewer opportunities to avoid liability … (and is)
likely to impinge to a greater extent upon one’s interests”.19 Obligations
to act limit the liberty of citizens to a greater degree than prohibitions
since forbidding us from doing still leaves us with the freedom to engage
in endless other non-doing actions. But when we are ordered to do X,
in contrast, this is likely to tie us up for the duration, as we can hardly
17.

18.

19.

Charles Fried, “The Ambitions of Contract as Promise” in Gregory Klass,
George Letsas & Prince Saprai, eds, Philosophical Foundations of Contract
Law (Oxford: Oxford University Press, 2014) at 23; see also Avery Katz,
“Economic Foundations of Contract Law” in Klass, at 175; Eyal Zamir
& Barak Medina, Law, Economics, and Morality (New York: Oxford
University Press, 2010)(who say with regards to the parties’ duties in the
pre-contractual stage that “incorporating deontological constraints with
economic analysis of contract law may be fruitful” at 350).
On the viability of the “act requirement” as a descriptive, as well as
evaluative claim, see Douglas Husak, “Does Criminal Liability Require an
Act?” in Douglas Husak, The Philosophy of Criminal Law: Selected Essays
(New York: Oxford University Press, 2010) at 287-393.
AP Simester, “Why Omissions are Special” (1995) 1:3 Legal Theory
311 at 325; and Tony Honoré, Responsibility and Fault (Portland: Hart
Publishing, 1999) at 54.

(2016) 2(2) CJCCL

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engage (attentively) in more than two activities at a time.20 A good
legal system, one that is concerned to protect the liberty of the citizens,
would therefore operate by way of banning harm-causing activities, and
introduce only a few positive prescriptions to top up these prohibitions,
where this is necessary.
The other reason for the law’s reluctance to order us to prevent harm
is rooted in a widely held view about moral responsibility. By focusing
on the people whose actions brought about a certain harm, and largely
ignoring those who failed to help the victim to escape it, the law mirrors
an essential difference in the degree of their respective responsibility for
that harm. The standard example contrasts the man who did not help
a drowning child, with the man who pushed her into the deep waters.
While the behaviour of the person who noticed the unfortunate event
but went on reading his paper on the beach is morally reprehensible
(or monstrous), his blameworthiness is markedly different from that
of the person who drove her over the cliff. Wrapping them together in
one blanket of moral and legal responsibility would dilute the sense of
personal responsibility, as perpetrators and bystanders will come to share
a vague impersonal group responsibility. The norms of a legal system,
which aims to gain the moral approval of the citizenry, must reflect this
deep-seated moral intuition about the strong link between accountability
and agency by sharply differentiating people who bring about harm
from people who fail to prevent it. Together, these arguments present
a powerful case against imposing legal responsibility for failing to help
other people when their problem was not of your doing. The common
law goes as far as declining to mandate actions to save other people’s lives,
20.

Michael S Moore, Placing Blame: A Theory of the Criminal Law (New
York: Oxford University Press, 2010) at 241; Jonathan Bennett, “Morality
and Consequences” (The Tanner Lectures on Human Values delivered
at Bransenose College, Oxford University, 6, 19, 23 May 1980) at
66 [unpublished]. This is not necessarily the case in respect of every
prohibition and obligation to act, as demonstrated by Patricia Smith,
“Omission and Responsibility in Legal Theory” (2003) 9:3 Legal Theory
221 at 232-33; Victor Tadros, Criminal Responsibility (Oxford: Oxford
University Press, 2007) ch 7.3.1, and others. But as a general observation
about the operation of the law in democratic societies it is good enough.

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even when the effort required is minimal.21 The thought is that the huge
gap that is thereby created between what we owe each other in morality
and in law can be understood in light of the setback to freedom which
legal positive duties inevitably lead to. And if a duty to save lives cannot
overcome this mighty barrier, a duty to save people from self-induced
mistakes stands no chance. The Caveat Emptor rule is thus understood as
an expression of fundamental principles which concern the relationship
between law, liberty and moral responsibility.

B.

Moral Value 2: Self-Reliance

“I can buy my neighbour’s land for a song, although I know and he
doesn’t that it is oil-bearing. That isn’t dishonest, it is ‘smart business’
and the just reward for my superior individualism”.22 In this and other
similar quotes from around the common law world, the Caveat Emptor
rule is perceived as sending a message to patrons of the law that unless
their agency (in the philosophical sense) is defective, or they are in some
serious way dependent on the other party, they are expected to look
after their own affairs. This expectation is a mark of respect for people’s
autonomy, and of their ability (and right) to decide how to allocate their
resources — in this case, whether, and how much, to invest in finding
out what is (for them) the true value of a certain contract. Moreover,
industrious women and men that look after their business, rather than
look to others to get them out of the mud should be rewarded, as such
diligence is the basis for economic prosperity. The Caveat Emptor rule is
thus an expression of dearly held values of autonomy and self-reliance.

C.

Social Benefit 1: Certainty

The next argument in favour of the Caveat Emptor rule highlights the way
in which it exemplifies a cluster of legal virtues that are often grouped
together under the heading “rule of law”. The rule of law is an exemplary
21.

22.

Civil law systems take a different stance, see Martin Vranken, “Duty to
Rescue in Civil Law and Common Law: Les Extrêmes se Touchent?”
(1998) 47:4 International and Comparative Law Quarterly 934.
Blair v National Security Insurance Co, 126 F (2d) 955 (3rd Cir 1942
(US)) at 958, per Chief Justice Clark.

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state of affairs wherein
legal norms fixed and announced beforehand – norms which make it possible
to foresee with fair government in all its actions is bound by certainty how the
authority will use its coercive power, and to plan one’s individual affairs on the
basis of this knowledge.23

The rule of law is designed to protect human dignity from the arbitrary
power of the state by limiting the extent to which its agents can meddle
with people’s long term planning.24 If I cannot know with reasonable
clarity what the law is going to be like in the long term (because it changes
constantly, or is retroactive), or if I cannot know what it demands of me
(because it is unclear or unpublicized), or if it is impossible to predict how
it will apply to my circumstances (because it is ad hoc or not enforced by
the judiciary), then I cannot design my projects in a way that stirs clear
of the law. As a result, my investment in meaningful long-term projects
can be frustrated by the state at any moment. Such appalling state of
affairs is not only an affront to the citizens’ sense of dignity, but it will
also decrease the overall efficiency of transactions, the planning of which
requires information about the relevant law.25
Lon Fuller’s famous list of rule of law desiderata is designed to replace
the arbitrary reign of humans who are given excessive discretion (be they
judges or government officials) with rule of rules that set in a clear way
what would be the legal ramifications of your actions. A good law, he
says, “is the enterprise of subjecting human conduct to the governance of
rules”;26 or, in the words of Justice Scalia: “A government of laws means a
government of rules”.27 These observations are thought to be true for any
23.

24.
25.

26.
27.

This is an adaptation of Hayek’s definition (adopted by Raz), with “legal
norms” replacing his “rules” see Joseph Raz, The Authority of Law: Essays
on Law and Morality (New York: Oxford University Press, 1979) at 210.
Ibid at 220.
Louis Kaplow, “General Characteristics of Rules” in Gerrit de Geest &
Francesco Parisi, eds, Production of Legal Rules (Northampton: Edward
Elgar, 2011) at 502; and review of the literature in Barbara Luppi &
Francesco Parisi, “Rules versus Standards” in Geest, ibid.
Lon L Fuller, The Morality of Law (New Haven and London: Yale
University Press, 1964) at 106.
Morrison v Olson, 487 US 654 (1988).

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Samet, Equity as a Vehicle for Law Reform

area of law. But when it comes to what Lord Mansfield called "mercantile
transactions", the legal virtue of certainty is of such importance, that
he thought that “it is of more consequence that a rule be certain, than
whether the rule is established one way or the other”.28 This may be a
little extreme, but the message is clear: in the context of legal norms that
effect commercial relationships, adherence to the rule of law ideal is of
a particular value, as the ability to calculate one’s risk is a crucial factor
in determining the worthiness of a transaction. Respect for autonomy
(in choosing what transactions to engage in) and concern for efficiency
both push hard for a commercial law that comprises of clear, general
and predictable rules. From this point of view, the Caveat Emptor rule
is an exemplary norm; it makes it crystal clear what is required around
the negotiation table and what is not, and cuts the costs of litigations, as
there is minimum space for court discretion as to its application. Sticking
to the rule, even when the defendant turns out to be a selfish opportunist,
may seem offensive at first sight, but sticking to the rule is the only way
to secure the benefits promised by the rule of law. Under the surface, the
caveat emptor law is a boon to the citizens’ autonomy, well-being and
material welfare.

D.

Social Benefit 2: Law for Export

The benefits of a system of legal rules that abides by the requirements
of the rule of law desiderata accrue to any legal system that adopts this
model. But in England, zealous devotion to the virtues of clarity and
predictability generates an extra social good: it supports a lucrative line
of export, namely, commercial litigation. As Hugh Beale explains,
[o]ur courts handle many cases that have no real connection with England
save that the parties have chosen that the contract should be governed by
English law. This is often coupled with a choice of England and Wales as the
jurisdiction. This ‘law for export’ has deliberately been kept even closer to the
classical model than the law for domestic consumption.29

The English strict position on rescission for unilateral mistakes is a
primary example of such adherence to rule-based law in which the need
28.
29.

Vallejo v Wheeler (1774), 1 Cowp 143 (KB (Eng)) at 153.
Beale, supra note 4 at 116.

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for discretionary ex-post judicial decision-making is, to a great extent,
eliminated. This approach is indeed very different from the position of
other European systems, which may explain why drafters of many
business to business (“B2B”) contracts indeed choose England as their
jurisdiction. The relevant section of the Principles of European Contract
Law captures the spirit of the typical European law on this crucial issue:
Article 4:103 (Fundamental Mistake as to Facts or Law) establishes
that a party who has entered a contract under a mistake of fact may avoid
it provided that:
a) the other party knew or ought to have known of the mistake, and it was
contrary to good faith and fair dealing to leave the mistaken party in error; and
b) the other party knew or ought to have known that the mistaken party, had
it known the truth, would not have entered the contract or would have done
so only on fundamentally different terms.30

The flexibility and discretion which are embedded in norms of this
kind make the European law less clear and predictable than its English
counterpart. And as predictability carries with it a parcel of benefits that
are of utmost importance in the commercial world, the Caveat Emptor
rule may well be making a direct contribution to a thriving export sector.31

E.

Social Benefit 3: Generating Socially-Beneficial
Information

In what has by now become a classic in legal economics, this argument
demonstrates how a rule that allows a negotiating party to keep valuable
information to himself incentivises entrepreneurial folks to unearth
the true value of a piece of property which a placid owner may miss

30.
31.

Ole Lando & Hugh Beale, eds, Principles of European Contract Law
(Netherlands: Kluwer Law International, 2000) at 191.
More on English law as an export sector can be found at: http://www.
theguardian.com/law/2013/feb/07/uk-law-booming-export-crime and
https://www.justice.gov.uk/downloads/publications/corporate-reports/
MoJ/legal-services-action-plan-0313.pdf.

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Samet, Equity as a Vehicle for Law Reform

altogether.32 A standard example is the owner of land who uses it for
agricultural purposes without ever bothering to find out whether it holds
riches like minerals or natural gas; another is the owner of an art collection
who neglects to investigate the pedigree of the works on her walls, and
thus deprives the world of a long-lost masterpiece. Those who are willing
to take the initiative and invest in finding out the true value of a piece of
property they do not own, will only do so if they can somehow benefit
from it.33 And so, by allowing parties to keep to themselves information
about the subject matter of the contract, the law dangles the chance of fat
profit in front of their eyes and encourages them to make the necessary
investment. If information which affects the price need not be shared
with lacklustre owners, the go-getters will presumably keep trying to
uncover the real potential of what's around them. And so, again, we need
to lift our eyes from the predicament of the owner who finds out that her
ignorance led her to enter a loss-making deal; if instead, we focus on the
interests of society at large, the Caveat Emptor rule, which at first looked
morally bankrupt, will appear in a wholly different light. In a state of
scarce resource, we should strive to end underuse of property which is the
result of sheer passivity. The Caveat Emptor rule is promoting a state of
affairs in which property ends up in the hand of those who realise its full
potential. And this is the most efficient manner of allocating our limited
resources.

III.

When and Why Equity Intervenes in the Parties’
Common Law Rights

In the rest of this paper I will argue that while the concerns raised by
the above arguments are genuine and must be taken on board when
thinking about the law's response to situations of unilateral mistake, they
32.

33.

Jack Hirshleifer, “The Private and Social Value of Information and the
Reward to Inventive Activity” (1971) 61 The American Economic Review
561.
Anthony T Kronman, “Mistake, Disclosure, Information, and the Law
of Contracts” (1978) 7:1 Journal of Legal Studies 1 (“[a] rule permitting
non-disclosure is the only effective way of providing an incentive to invest
in the production of such knowledge” at 9).

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cannot support the current Caveat Emptor rule. We should, instead,
reclaim the equitable authority to rescind the contract where the claimant
can prove that the defendant knew, or should have known, that she is
unaware of a critical piece of information, and nevertheless went ahead
with the contract without alerting her to the mistake. The Caveat Emptor
rule should become a well-defined exception to a rule that mandates
disclosure of important details to the other party.
If equity were to intervene so as to disallow the informed party to
insist on enforcing his contractual rights (to performance or compensation
in its lieu), it would not do so on the basis of defective consent on the
part of the ignorant party. Rather, equity would step in because the
conscience of the defendant is affected by the way he sticks to
his common law rights. Unconscionability, as Catharine MacMillan
shows, has always been the historical basis of intervention in cases
of un-induced unilateral mistake. “The principle is that it is against
conscience for a man to take advantage of the plain mistake of another,
or, at least, that a court of equity will not assist him in so doing”.34
Equity, in other words, works in a very specific way, by introducing a
new factor to the equation: the defendant’s conscience. It is therefore one
thing to say that the rules on pre-contractual disclosure ought to change,
and quite another to argue that a good way to do so is by means of
equitable jurisdiction. And so, in this section, I look briefly at the very
particular way in which equity acts to correct defects in common law
rules. When we then move to examine why and where the Caveat Emptor
rule fails, it will become clear that the unique way in which equity steps
in to undo the damage of failing common law rules is particularly suitable
for this situation; or, so I hope.
For many critics, even if the current law on unilateral mistake requires
reform, equity would be the wrong means of bringing it about. Equity’s
distinctive modus operandi, they claim, disqualifies it from adjudicating
commercial law disputes, or, indeed, from deciding the majority of cases
in private law. This is because equity grants excessive discretion to judges,
34.

Manser v Back (1848), 6 HARE 443 (Ch (Eng)) at 448; MacMillan, supra
note 2 at 45.

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Samet, Equity as a Vehicle for Law Reform

gives them a de facto licence to decide cases according to their private
beliefs and encourages them to bend the common law rules when these
do not reflect the current moral sensitivities of the society (or class) in
which the court is embedded. In that way, it introduces into private
law a highly unwelcome dimension of subjectivity and uncertainty and
shows disrespect for the democratic processes of law making. Famous
proponents of equity, like Justice Benjamin Cardozo from US Supreme
Court, readily admit that equity’s way of doing things has an adverse
effect on the generality and certainty of the law: “[t]he plastic remedies
of the chancery are moulded to the needs of justice”; one of equity’s
central characteristic, he maintained, is its ability to answer “the call of
the occasion”.35 And thus, whereas Cardozo J celebrates the way in which
equity empowers the judge to deviate from steadfast rules, wave aside
the need for precedential stability and focus on a just solution to the
case at hand, the critics believe that this behaviour disqualifies it from
adjudicating disputes in private law.
All the features of equity which are of concern to this critique of
equity as a mode of decision making in law are encapsulated in the
concept of “unconscionability”, which “was and remains the fulcrum
upon which entitlement to equitable relief turns”.36 Equity, right from its
birth, embarked on a quest after legal results that please the conscience.37
And even as legal historians debate the question of what this reference to
“conscience” meant for the very first courts of equity, there is no doubt
that since the celebrated case of the Earl of Oxford’s Case,38 chancery
35.
36.
37.

38.

Foreman v Foreman, 167 NE 428 at 429 (Cali App Ct 1929 (US)); Judge
Cardozo in Adams v Champion, 294 US 231 (1935) at 237.
Lift Capital Partners Pty Ltd v Merrill Lynch International, [2009] NSWSC
7 (Austl) at para 126, per Justice Barrett.
Helmut Coing, “English Equity and the Denunciatio Evangelica of the
Canon Law” (1955) 71:2 Law Quarterly Review 223 at 224 (in that,
it was different from civilian systems which never pursued this course
even when they implemented parallel mechanisms of naturalis aequitas
borrowed from Roman law); and Timothy S Haskett, “The Medieval
English Court of Chancery” (1996) 14:2 Law and History Review 245 at
267.
(1615) Rep Ch 1 (Eng).

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judges who talked about conscience referred to the inner compass
which tells us right from wrong: “The Office of the Chancellor says
Lord Ellesmere ‘Chancellor is to correct Men’s consciences for Frauds,
Breach of Trusts, Wrongs … ”39 and therefore “[w]hen a Judgment is
obtained by Oppression, Wrong and a hard Conscience, the Chancellor
will frustrate and set it aside, not for any error or Defect in the Judgment,
but for the hard Conscience of the Party”.40
The idea that legal relationships can be assessed by the court
according to their fit with conscience was never to everyone's liking. As
early as 1526 we can find Thomas Audley grumbling about “a law called
‘conscience’, which is always uncertain, and depends on the greater part
on the ‘arbytrement’ of the judge; by reason thereof no man is certain
of knowing his title to any land”.41 And ever since then judging in
accordance with the standard of conscionability has been described,
by proponents and opponents alike, as tending “not so much to the
formation of fixed and immutable rules, [but] rather to a determination
of the conscionability or justice of the behaviour of the parties according
to recognised moral principles”;42 and equity’s grand aims and critical
principles were understood as determining its adaptable and flexible
nature. As soon as equity in England emerged in the 1980s from a long
period of hibernation and took the decisive step of “mov[ing] out of the
39.
40.

41.

42.

Ibid at 7.
Ibid at 11. See also AJ Duggan, “Is Equity Efficient?” (1997) 113:4
Law Quarterly Review 601 at 617, 619. For the view that the term
“conscience” in medieval times signified a different (more flexible)
evidence gathering procedures, see MR Macnair, “Equity and Conscience”
(2007) 27:4 Oxford Journal of Legal Studies 659.
Cited by Margaret McGlynn, The Royal Prerogative and the Learning of the
Inns of Court (Cambridge: Cambridge University Press, 2004) at 188; and
John Selden’s quip from a hundred and fifty years later as in John Selden,
Richard Milward & Edward Arber, Table-talk (London: A Murray & Son,
1689)(“[f ]or Law we have a measure … [but equity judges want to] make
the standard for the measure, we call a foot, a Chancellor’s Foot” at 46
solidified into an idiom that haunts equity to this day).
ICF Spry, The Principles of Equitable Remedies: Specific Performance,
Injunctions, Rectification and Equitable Damages, 7d (Sydney: Lawbook
Co, 2007) at 6.

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family home and … into the market place”, 43 the old concerns about its
subjectivity resurfaced with vengence. The target was, again, equity’s
resort to categories of conscience: “unconscionability” declared one
fierce opponent of equity’s renewed force, “[is] as vague and unstable
a concept as could well be found”.44 The heaviest fire is directed
against the suggestion that unconscionability can be used as a general
liability head, over and above what we find in individual doctrines
which contain an unconscionability element, like breach of trust or
proprietary estoppel.45
But unconscionability can take a less adventurous form as an
integral part of well-defined doctrines so that its meaning is developed
in tandem with other parts of the doctrine as the courts go about
deciding cases that fall under its heading. When applied in that way, the
conscionability standard is considered by many to be a most useful tool
for achieving the goals set by the doctrine of which it is a part. Thus,
in the recent case of Cavendish Square Holding BV v Talal El Makdessi 46
(“Cavendish”) the UK Supreme Court decided that the question whether
a contractual obligation amounts to a “fine” — and would hence be
struck down — is to be determined by an unconscionability test.47
Looking back at the historical roots of the doctrine, the court observes that
whereas the Common Law rule on when a clause would be considered an
unenforceable fine was “mechanical in effect and involve[d] no exercise
43.
44.

45.

46.
47.

Lord Justice Millett, “Equity – The Road Ahead” (1995–96) 6 King’s
College Law Journal 1 at 4.
Peter Birks, “Meagher, Gummow and Lehane’s Equity Doctrines and
Remedies” (2004) 120:2 Law Quarterly Review 344 at 345; on the 30
years stagnation of equity in English law until the 80s see PJ Millett,
“Equity’s Place in the Law of Commerce” (1998) 114:2 Law Quarterly
Review 214.
In England, see Hussey v Palmer, [1972] EWCA Civ 1 (Lord Denning’s
(in)famous “constructive trust of a new model”) that has been described
in Carly v Farrelly, [1975] 1 NZLR 356 (SC) by Justice Mohan (“justice
[being] consigned to the formless void of individual moral opinion” at
367).
Cavendish Square Holding BV v Talal El Makdessi, [2015] UKSC 67
[Cavendish].
Ibid at para 213.

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of discretion at all”, in the “equitable jurisdiction … the classification
of terms for the purpose of the penalty rule depends on the substance
of the term and not on its form or on the label which the parties have
chosen to attach to it”.48 This latter approach was endorsed by the
post Judicature Acts High Court. In Cavendish, the Supreme Court set
out to dispel some misguiding frills that had been added to the test
over the years, and firmly established that “[t]he question whether [the
clause is] enforceable should depend on whether the means by which the
contracting party’s conduct is to be influenced are ‘unconscionable’”.49
Indeed, as the Court immediately admits, it can be argued that the oldnew rule "undermines the certainty which parties are entitled to expect
of the law”.50 However, the Court’s discretion in this context is welldefined and confined to examination of the remedies for breach, rather
than a “jurisdiction to review the content of the substantive obligations
which the parties have agreed [on]”.51 As such the conscionability test
preserves the right balance between the need for a flexible substancebased mode of decision-making, and the values of predictability and
stability, so crucial to contract law.52 An equitable duty not to withhold
critical information in the pre-contractual stage would similarly employ
the unconscionability standard in a regimented form.
Yet, embeddedness in the doctrine is unlikely to appease all the critics.
For the conscionability element, even in its tamed version, still expresses
equity’s willingness to employ flexible, morally-sensitive principles, and
a mode of legal reasoning that is ex-post and discretionary in nature.
Equity, to put it this way, undercuts the rule of law in that it replaces
certain, predictable and general rules with investigations into something
as tentative as the defendant’s conscience. I have argued elsewhere that
the view of conscience as an idiosyncratic inner voice — a “set of deepseated but idiosyncratic convictions” — is what gives rise to many of
48.
49.
50.
51.
52.

Else (1982) Ltd v Parkland Holdings Ltd, [1994] 1 BCLC 130 (CA (Civ)
(Eng)) at 144, per Justice Hoffmann; Cavendish, supra note 46 at para 15.
Ibid at para 31.
Ibid at para 33.
Ibid at para 42.
Ibid.

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the worries lest legal categories of conscionability will lead to oversubjective results.53 Equity, however, is employing a completely different
model of conscience. The equitable standard of conscionability is built
on an objectivist model which takes seriously both the phenomenon
of conscience as a deep personal conviction and the objectivity of the
moral principles it invokes.54 The “voice of conscience” is an expression
of a powerful inclination to abide by what we perceive as a universal
moral duty, even in the face of adverse consequences to our interests.55
The conscionability standard thus invites the court to delve into a pool
of shared morality, viz, the collection of norms that are accepted by
conscientious people, and scoop out the answer to the question “what
was the moral duty of the defendant in the circumstances”?56
The appeal to shared morality assumes that the answers to many of
the moral dilemmas faced by defendants are out there, and that a sincere
53.

54.
55.
56.

As the subjective interpretation of the term would suggest, see Irit Samet,
“What Conscience Can Do for Equity” (2012) 3:1 Jurisprudence 13.
Some like Peter Birks, profess moral relativism that undermines any claim
by the conscience to offer a path for moral truth (Peter Birks, “Annual
Miegunyah Lecture: Equity, Conscience, and Unjust Enrichment”
(1999) 23:1 Melbourne University Law Review 1). See David Enoch,
“Disagreement”, Taking Morality Seriously (Oxford: Oxford University
Press, 2011) at 159 (for one of many powerful attacks on moral relativism
of this kind).
Or so I have argued: see Samet, supra note 53.
Immanuel Kant, Critique of Practical Reason (Cambridge: Cambridge
University Press, 1997) at 5.
Such appeal to common morality is not at all unique to equity. Tort
law and property law make extensive use of shared understanding of
the normative basis of legal rights and duties, both in order to confer
legitimacy on the legal result and in order to use the moral “know how”
to reduce the information costs of abiding by the law. See e.g. John CP
Goldberg & Benjamin C Zipursky, “The Moral of MacPherson” (1998)
146:6 University of Pennsylvania Law Review 1733 at sec III; Andrew
S Gold & Henry E Smith, “How Private Law is Simply Moral” online:
<lawf.biu.ac.il/library/mb/9GoldSmith.pdf>; Jeremy Waldron, “Inhuman
and Degrading Treatment: The Words Themselves” (2010) 23:2 Canadian
Journal of Law & Jurisprudence 269 at 284. In the context of property
law see Smith, supra note 12.

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quest and attention to one’s inner moral compass makes them readily
available. The concern lest equity gives the judge a carte blanche
to impose on the parties his or her own idiosyncratic values, with all
the damage that such licence would cause to the rule of law, is therefore
unwarranted.
Once we have cleared the suspicions that equity is a “sort of moral
U.S. fifth cavalry riding to the rescue every time a claimant is left worse off
than he anticipated as a result of the defendant behaving badly”57 we can
look for the working principle on the basis of which equity departs from
the common law. Equity, I wish to argue, has a specialised role to play
in our system, a role that is closely associated with the conscionability
standard and its appeal to moral norms. Unfortunately, I do not have
enough space here to expand on the argument or demonstrate how
it works across a wide range of equitable doctrines.58 Below is a brief
summary of a theory about the way in which equity works to amend
defects in the common law. My hope is that even in this nascent form,
it will help us understand why resorting to equity would be a good way
of reforming the law on un-induced unilateral mistake.
Equity has a clear vocation, and a distinct way of fulfilling it: it
operates on the side of the common law to promote a legal virtue which
I call the “[a]ccountability [c]orrespondence”: when legal rules impose
liability it should ideally correspond to the pattern of moral duty in
the circumstances to which the rules apply. Barring unusual cases, the
best way in which law can serve morality is by complying with the
accountability correspondence requirement, namely, by ensuring that
where legal liability is attached to an action it closely follows the matrix

57.

58.

David Neuberger, “The Stuffing of Minerva’s Owl? Taxonomy and
Taxidermy in Equity” (2009) 68 Canadian Journal of Linguistics 537 at
540; see also Ben McFarlane, The Law of Proprietary Estoppel (Oxford:
Oxford University Press, 2014) ch 5 for a careful and comprehensive
review of the meaning of unconscionability in estoppel cases law.
As I attempt to do in my forthcoming book Irit Samet, Equity Goes to
Market (Oxford: Oxford University Press, 2017).

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of moral accountability for this action.59 Major reforms which were
designed to introduce greater convergence between legal liability and
our perception of moral accountability have been introduced in many
areas of law.60 This is because a law in which the legal result is out of
kilter with our deep convictions about moral accountability is not only
dubious from the perspective of justice, it is also bound to alienate its
addressees — the judiciary as well as the citizens.
The law, like any social institution, requires legitimacy if it is to
develop and operate effectively.61 And citizens are much more likely
to become self-regulatory, that is, adopt a proactive approach for law
abidance (rather than merely respond to external incentives) where the
59.

60.

61.

The principle of accountability correspondence does not take a stance in
the question which actions should have legal liability attached to them.
It only says that once we decide that agents of action X should bear legal
consequences, legal liability and moral responsibility for this action should
be aligned.
Prominent examples would be the struggle to lessen the effects of “legal
luck” on criminal responsibility, and the move from the traditional view
that company directors’ duty is to maximise of shareholders’ profits,
to the idea that they need to advance the “company’s success” which
is measured also by reference to “the firm’s impact on the community
and the environment” and its “reputation for high standards of business
conduct” (see Yoram Shachar, “Wresting Control from Luck: The Secular
Case for Aborted Attempts” (2008) 9:1 Theoretical Inquiries in Law 139;
Companies Act 2006 (UK), c 46, s 172; Florian Wettstein, “The Duty
to Protect: Corporate Complicity, Political Responsibility, and Human
Rights Advocacy” (2010) 96 Journal of Business Ethics 33; Michael
Blowfield & Alan Murray, Corporate Responsibility (Oxford: Oxford
University Press, 2011)).
Numerous legal policies seem to be premised on the thought that
compliance is secured by the presence of sanctions for wrongdoers, but
recent studies suggest that deterrence, although it sometimes significantly
influences law-related behaviour, will, at other times, have no such effect
(see Daniel Kahan, “The Secret Ambition of Deterrence” (1999) 113:2
Harvard Law Review 413); see also Daniel Nagin, “Criminal Deterrence
at the Onset of the 21st Century” (1998) 23 Crime and Justice: A Review
of Research 1 (much of the discussion was focused, naturally, on criminal
policies).

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government and its institutions — like the police and the courts — are
perceived as legitimate.62 In the context of legal systems, legitimacy would
mean “the belief that the law and agents of the law are rightful holders
of authority; that they have the right to dictate appropriate behaviour
and are entitled to be obeyed”.63 Such sense of legitimacy can be
rooted in different aspects of the authority’s actions and decisions.64
For our purposes, it is important to note that legitimacy perceptions,
and the respect (or disrespect) for the law that follows, are strongly
influenced by people’s evaluation of legal results as just (or unjust). The
connection between perceived legitimacy and the citizen’s tendency to
identify with the law and follow it willingly is so strong, that at the end
of their classic study of the correlation between community views and
criminal codes, Paul Robinson and John Darley state that “the moral
credibility of the criminal code is its single most important asset”.65 The
62.
63.

64.

65.

Tom R Tyler, Why People Obey the Law (Princeton, New Jersey: Princeton
University Press, 2006) ch 5.
Jonathan Jackson et al, “Why Do People Comply with The Law?
Legitimacy and the Influence of Legal Institutions” (2012) 52:6 British
Journal of Criminology 1053.
For example see Tyler, supra note 62, ch 9-11; Stephen Schulhofer, Tom
Tyler & Aziz Huq, “American Policing at a Crossroads: Unsustainable
Policies and the Procedural Justice Alternative” (2011) 101:2 Journal of
Criminal Law and Criminology 305 (it has been shown that when legal
enforcement institutions, like the police, follow principles of procedural
fairness (understood mainly as allowing defendants a fair opportunity to
state their case), it will significantly reduce the cost and alienation that are
associated with policies which rely on threats to secure obedience); see also
Jackson, supra note 63 (for similar results in the UK).
Paul H Robinson & John M Darley, Justice, Liability, and Blame:
Community Views and the Criminal Law (Boulder: Westview Press, 1995)
at 202. On the strong effect of result-based evaluation of the law on
obedience, see also June L Tapp & Felice J Levine, “Persuasion to Virtue:
A Preliminary Statement” (1970) 4:4 Law & Society Review 565; June
L Tapp & Lawrence Kohlberg, “Developing Senses of Law and Legal
Justice” (1971) 27:2 Journal of Social Issues 65; Kevin Carlsmith, John
Darley & Paul Robinson, “Why Do We Punish? Deterrence and Just
Deserts as Motives for Punishment” (2001) 83 Journal of Personality and
Social Psychology 284.

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“community views” about how a certain set of circumstances should be
resolved is thus “an essential consideration that ought to be influential
factor in the policy-making and code drafting process, [because] [t]he
compliance power of criminal law is directly proportional to its moral
credibility”.66
This conclusion can be carried over to other areas of the law. Thus,
rules of private law, company law, administrative law, etc., which divert
from the community’s strong moral intuitions should have a parallel
adverse effect on the citizens’ attitude to the law. Note that the damage
to the sense of respect for the law is not limited to the specific area of
law in which the perceived injustice is to be found. Research shows that
in the face of a perceived injustice of a legal rule or result (in various
areas from duties of landlord and tenants to civil forfeiture) people
tend to flout the law as a whole in many subtle, lower level and harder-todetect ways such as littering, tax avoidance and services theft.67
These findings have deep ramifications for areas in which the
common law is so keen on realising the rule of law ideals of predictability,
clarity and generality that it is willing to severely compromise the
moral merits of the legal result. Think of the numerous situations in
which the common law would enforce bright-line rules of property and
contract law and refuse to make exceptions for circumstances where an
opportunistic party used these rules to relinquish her moral responsibility
for the defendant in a way that strongly offends the public’s sense of

66.
67.

Robinson & Darley, supra note 65 at 6.
As argued by many and demonstrated in empirical research by Janice
Nadler, “Flouting the Law” (2005) 83:5 Texas Law Review 1399 at 1401.

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justice and fairness.68 The strict Caveat Emptor rule is an excellent
example of this willingness on the part of the common law to sacrifice
the moral credibility of the legal result at the altar of the rule of law
desiderata of certainty, predictability and generality. As we saw, even its
proponents admit that the results of the Caveat Emptor rule stand in
stark contradiction to people’s moral intuitions. Moreover, as will
become clear in the next section, a deeper scrutiny reveals that the
moral standing of the Caveat Emptor rule is much more dubious than its
proponents claim, and the gut feeling that it departs from basic moral
norms is correct. At the same time, the rule allows shrewd actors to
take unconscionable advantage of its clear-cut edges, i.e. they would be
able to enjoy the clarity of its application, and obtain an advantage that
68.

Examples abound: in the context of negotiation to transfer rights in land,
the common law would allow A to evade responsibility for B’s detrimental
reliance on A’s words as long as they were not put down in writing; C can
insist on enforcing a contract with D, regardless of the fact that it is clear
that the document fails to accurately record the agreement of the parties
as intended; E would be allowed to keep property which he inherited
in a will, even where he orally promised the deceased to hand it over to
someone else (as such gifts did not abide by the writing formalities of the
Wills Act). In these and many other cases, the claimants could prove the
morally relevant facts of their case: the pledge, the reliance, the frustrated
expectation, the promise to a dying friend. But the crystal clear rules
which regulate the transfer of property rights, bequests of property upon
death and the interpretation of contracts trample the moral obligation
under foot. The courts of equity, in contrast, paid close attention to the
particularity of the situation, and employed open-ended conscience-based
principles that enabled them to trace the pattern of moral responsibility
in each case. Accordingly, in the above situations, writing formalities were
waived so that the defendants were made to account for a setback in the
claimant’s life which they encouraged him to take risks (in “proprietary
estoppel” (e.g. in Crabb v Arun District Council, [1975] EWCA Civ 7
a gap between the wording of the contract and parties’ intention could
give rise to a right to rescind e.g. Mackenzie v Coulson (1869), LR 8 Eq
368 (Ch (Eng)); and promisors were made to fulfil their promises to the
dead man, even where testamentary rules were not complied with (via the
equitable doctrine of secret trusts e.g. McCormick v Grogan (1869), LR 4
HL 82.

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offends our shared conscience.
The common law’s treatment of un-induced unilateral mistake
is therefore afflicted with a dangerous fissure between the defendant’s
(lack of ) legal liability and his moral duties towards the claimant. The
Caveat Emptor rule is not the only context in which the courts are ready
to bite the bullet and concede a deep inconsistency between legal and
moral duty in relation to the defendant’s actions. Their attitude to such
unfortunate conflicts can be one of complacency:
the application of... [legal] propositions may produce a result which appears
unfair. So be it…I am convinced that in determining rights, particularly
property rights, the only justice that can be attained by mortals… [is] justice
which flows from the application of sure and settled principles.69

Equity adopted a very different approach. The courts of equity
were willing to change the legal result and compromise the clarity,
generality and predictability of the common law rules in order to avoid
a dangerous fissure between the pattern of moral responsibility and that
of legal liability for the same set of facts. In order to align moral and
legal responsibility, the courts of equity would pay close attention to the
particularity of the situation, and employ open-ended conscience-based
principles that enable them to track the pattern of moral responsibility
in each case. In that way, they stave off the serious danger created by the
common law tendency to lose sight of the importance of maintaining
equilibrium between intuitive perception of the morally right result and
abstract considerations of common good (in the form of unity and
reliability of the legal rules). Instead of sticking blindly to formalistic
rule of law requirements, equity listens to the warning of Justice Marshall
of the US Supreme Court: “however admirable its resolute adherence
to the law as it was, a decision contrary to the public sense of justice
[would] … diminish respect for the courts and for law itself ”.70
This, I believe, is the essence of the conscionability standard: it
69.
70.

Cowcher v Cowcher, [1972] 1 All ER 943 (Fam) at 948, per Justice
Bagnall.
Flood v Kuhn, 407 US 258 (1972)(Justice Marshall, dissenting, quoting
from Peter L Szanton, “Stare Decisis: A Dissenting View” (1959) 10:4
Hastings Law Journal 394 at 397).

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directs the court to find out whether assisting the defendant to
enforce his common law right would tip the balance between the
need to preserve the rule of law virtues of the norm and the need
to ensure accountability correspondence. If it so does, then equity will
prevent the defendant from standing on his rights so as to restore the
correlation between the legal consequences of the defendant’s actions and
the pattern of moral rights and duties that it gives rise to. The law would
thus be made to support the inter-personal morality of the parties, and
as a result, strengthen the legitimacy of the system in the eyes of the
community.
But the conscionability standard is not only for the courts. It
can, thanks to its strong connotation, be used by the citizens to guide
their behaviour.71 By using a term like “conscience” that is universally
associated with morally-oriented deliberation as a foundation for legal
liability, equity sends a strong message to the citizens that the law expects
them to rise above considerations of self-interest even when they deal
with other market participants. It tells them that the call of conscience
should be heeded not only when dealing with family and friends, but
also when doing business with strangers. Their conscience (if they
keep it in good working condition) will tell them how to plan their
actions so that they end up on the right side of the law. The call of
conscience should be used by the law’s addressees as an additional source
of information, which they must consult (on top of legal instruments
and balance sheets) when deciding whether, and how, to use their
legal rights. Once this message is internalised, people will work hard
to nurture and protect this inner compass from conscience-muting

71.

For a presentation of the expressivist theory of law see Elizabeth S
Anderson & Richard H Pildes, “Expressive Theories of Law: A General
Restatement” (2000) 148:5 University of Pennsylvania Law Review
1503. On the potential of the expressive character of law to lift the
moral standards of its addressees see sources in Kenworthey Bilz & Janice
Nadler, “Law, Psychology, and Morality” in Brian H Ross, ed, Psychology
of Learning and Motivation, vol 50 (New York: Academic Press, 2009) at
102.

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mechanisms of rationalisation and self-deception;72 for otherwise they
may lose a valuable guide to the do and don’ts of behaviour in market.
They will understand, in other words, that feelings of guilt and shame
are warning signs not only of moral culpability, but also of potential
trouble with the law, which may cost them dear.
If my account of the reference to conscience is viable, the court of
equity sees itself as appealing to the defendant’s ability to decipher the
moral intricacies of her situation, arrive at correct appreciation of her
moral duty and act on it. Once she does not so act, because she chose
to ignore the call of her conscience, or to give in to conscience silencing
psychological mechanisms, she will not be allowed to take shelter behind
a formal ideal of the rule of law and the values of certainty, clarity and
generality it enshrines. In the next section, I move to inspect more closely
the claims in favour of the Caveat Emptor rule. We will see that in fact,
our instinctive response to the Caveat Emptor rule, which was dismissed
in Smith v Hughes73 as the sensibility of a “tender conscience”, closely
traces the result of a deeper analysis of the values the rule instantiates and
the social benefits it may generate. Equity, I will claim, should therefore
step (back) in, and change the Caveat Emptor rule so as to realign the
moral responsibility with the legal liability of a person who let the other
party sign a contract in the knowledge that she misses a critical piece
of information about the deal.

72.

73.

On our strong tendency to succumb to self-deception and rationalisation
about the moral standing of our actions see for example Alfred R Mele,
Self-Deception Unmasked, Princeton Monographs in Philosophy (New
York: Princeton University Press, 2003); Michael K Green, “Kant and
Moral Self-Deception” (1992) 83 Kant-Studien 149 at 164; and Daniel
Goleman, Vital Lies, Simple Truths: The Psychology Of Self-Deception (New
York: Simon & Schuster, 1996) part II at 55-91.
Supra note 14.

(2016) 2(2) CJCCL

IV.

565

The Moral Demerits of the Caveat Emptor Rule,
and Why Equity is the Right Way to Correct
Them

In this section, I want to show that the justifications provided for the
Caveat Emptor rule are either defective on their own terms, wrongly
presented as ideology free, or too slight to justify the stark departure
from moral standards which it embodies. As the discussion unfolds it will
become clear why a norm based on a conscionability standard is highly
suitable to fix the deep problems of the current bright line rule. We will
see that, indeed, efficiency considerations which ought to inform a
good solution to the disclosure conundrum can many times be addressed
by a set of fine-tuned well defined rules. But a truly successful ordering
of disclosure duties in the pre-contractual stage would require an openended standard which combines clear guidelines with room for discretion
in applying moral criteria.
Melvin Eisenberg summarises the view of many when he writes that
“social morality indicates that if one actor knows a material fact that is
relevant to the transaction, and knows that the other actor does not know
the fact, non-disclosure is sharp dealing, or a kind of moral fraud”.74 In
Part II above, I tried to show that the Caveat Emptor rule is not merely
a reflection of a different attitude to the ethical standards in business (or
the lack thereof ); it is not just that “conduct which on the continent is
regarded as fraud is regarded in England as good business”.75 The claim
was that an array of arguments show that, on deeper inspection, the
Caveat Emptor rule serves the common good on more than one level,
and that therefore its unpalatable surface belies its real moral merit. In
what follows, I address these arguments and argue that, in most cases,
the Caveat Emptor rule does not serve the common good, but rather the
interests of a small section of the public. To make the law on un-induced
unilateral mistakes do justice in the wide range of cases to which it applies,
the Caveat Emptor rule should become a carefully curved exception to
74.
75.

Melvin Eisenberg, “Disclosure in Contract Law” (2003) 91:6 California
Law Review 1645 at 1653-65.
Beale, supra note 4 at 73.

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Samet, Equity as a Vehicle for Law Reform

a general rule that would require disclosure of critical information in
the pre-contractual stage.76

A.

Legal Duty to Prevent Harm

The Caveat Emptor rule, we saw, can be read as motivated by the belief
that legal duties “to do X”, and in particular to save strangers from
predicaments you did not cause, unduly infringes on personal freedom.
However, the reasons behind the “no duty to save” policy are not
incontestable, and their applicability to the case of unilateral mistake is
particularly dubious. First, the idea that moral responsibility changes in
such a dramatic way between actions and omissions is far from consensual.
For some serious thinkers, our tendency to feel less guilty for failing to
help, than for inflicting harm, is nothing but a rationalisation that enables
us to keep to our comfortable lives.77 Moreover, it is widely agreed that
special relationships, like friendship, mentorship or parenthood, break
down the distinction (as much as there is one) between responsibility
for damaging action, and responsibility for omitting to help. Teachers,
for example, are not only under a moral obligation not to molest their
pupils, but they are also obligated to act when they suspect that a pupil

76.

77.

See also Eisenberg, supra note 74 (“The law should require disclosure of
material facts except in those classes of cases in which a requirement of
disclosure would entail significant efficiency costs” at 1655); Zamir &
Medina, supra note 17 who say that the set of rules on pre-contractual
deception, which is informed by considerations of morality, as well as
of efficiency, “should prohibit all forms of deception, including false
assertions, half-truths, and silence” at 278; and Nicholas J Mcbride
“Rescission of Settlement for Mistake and Non-disclosure” (1999) 58:3
Cambridge Law Journal 461, n 46.
As helping those in need is so much more demanding than merely
avoiding causing unnecessary pain. See for instance Jonathan Glover,
Causing Death and Saving Lives (London: Penguin Group, 1977) ch 7;
Jonathan Bennett, “Whatever the Consequences” (1966) 26 Analysis 83.

(2016) 2(2) CJCCL

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is being abused by others.78 Association can differentiate the person in
need of help from the nameless mass of strangers so that a duty to go out
of your way to help (and not merely refrain from harming) arises.
The situation of parties to contractual negotiation arguably gives rise
to a proximity that can beget a positive duty to correct other people’s
mistakes. The strong policy consideration against enacting positive
legal duties can be suspended in that case because the number of
strangers whom you are requested to assist is well defined and limited.
Indeed, if the defendant is a business owner who engages in contractual
negotiations much of the day, the number of strangers whose mistake
it would be his responsibility to correct would be high. But even
then, he will only need to correct those mistakes of which he knows, or
should have known. In such cases, a flexible unconscionability standard
would become handy: an equitable standard will allow the court to look
closely at the particular case and mark out those errors that, given the
volume of the defendant’s business and the interaction he in fact had
with the complainant, she could not expect him to correct. This is likely
to change from one case to another, but the conscionability standard
should give enough guidance to parties as to when they are expected to
save a person, with whom they are negotiating, from acting under a
mistake. In this way, a cleverly deployed equitable rule can point out
those cases where a duty to assist another person in trouble would be too
onerous to be imposed by the law (even if in morality one may be obliged
to do so).

B.

Who’s Self-Reliance?

A major building block in the justification of the Caveat Emptor rule is
a value laden distinction between a proactive party who makes all the
78.

See Irit Samet, “Proprietary Estoppel and Responsibility for Omissions”
(2015) 78:1 Modern Law Review 85. A similar change in responsibility
levels happens with people who hold special positions such as community
leaders. In equity, land owners are expected to correct strangers’ mistakes
about their proprietary rights, or otherwise, forever hold their piece, as
the doctrine of proprietary estoppel will force them to accept the situation
assumed by the stranger’s action.

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Samet, Equity as a Vehicle for Law Reform

necessary inquiries and a lacklustre one who waits for others to supply her
with the material she needs in order to make an informed choice about
the contract. Whether you put it in terms of the state’s role in fostering
the virtue of self-reliance, or of the law’s aim to promote efficiency (here,
by incentivising entrepreneurial spirit), the message is similar: the law
will not assist those who cannot be bothered to take care of their own
business. But such presentation of the way in which the Caveat Emptor
rule operates is misleading. In its current universal application, what it
does many times is simply allow the strong to prevail over the weak. As
Hugh Beale observed:
the caveat emptor approach depends on the buyer being sophisticated enough
to ask the right questions—or to take advice. And the latter is not just a
question of sophistication; it is also one of the cost of taking legal advice.79

The idea that the Caveat Emptor rule rewards the entrepreneurial is built
on an assumption that the parties are equal in their ability to assemble
all the information they require, and that whether they in fact did so
is down to their approach, i.e. a “go-getter” or a “sitting on the fence”
type. But since the rule covers the whole spectrum of potential parties to
contracts, from big business to small and medium ones, as well as private
people, its operation often merely reflects the power relations between
the parties, not their virtues or vices.
And just as the Caveat Emptor rule does not necessarily recompense
the industrious, disclosure duties do not, usually, reward laziness. Treatise
writers in the nineteenth century were already careful to note that in
proscribing non-disclosure, equity took care not to protect the negligent.
There was “no case in which the Court of Equity had been successfully
asked to interpose in favour of a man who wilfully was ignorant of that

79.

Beale, supra note 4 at 28. Later, at 30 he maintains that the presence of
“a blanket rule of non-disclosure … [expresses] a very strong ideological
message about self-reliance, or [shows that] that we are unable to devise a
workable rule to deal with the problem”.

(2016) 2(2) CJCCL

569

which he ought to have known”.80 The standard of conscionability is
flexible enough to allow the court to factor in the expectation that
people do what they can to look after their affairs to the best of their
ability. The particularistic nature of the equitable inquiry allows the judge
to ask to what extent the specific claimant is responsible for her ignorance
with regards to a crucial matter that concerns her position. From the
point of view of a party who considers whether to spend the time and
resources on finding the information she needs — and it may take a
lot of time and money to find out what exactly one should ask once
we venture beyond the standard set of questions — it would be very
unwise to sit back and rely on the disclosure requirement. For “there is
no certainty that the existence of your mistake will become known to
the other party and so trigger the duty to point it out”.81 It is even less
certain that the other party would be deemed as someone who “should
have known” about your mistake and as unconscionable in failing to
correct it. A disclosure duty would not incentivise a "sit around" attitude
to information gathering. It is the party who is unconscious even of the
possibility of making further inquiries who is most likely to fall back on
the disclosure duty of the other side.

C.

Certainty and Other Legal Virtues

From the point of view of the rule of law ideal, we saw, the Caveat
Emptor rule is an exemplary legal norm. It has a minimal penumbra of
uncertainty, its operation is hence easy to predict, and it applies across a
wide range of cases so that a nuanced understanding of the phenomenon
is not necessary in order to assess its effect on one’s actions. However, this
fit with the rule of law virtues of certainty, predictability and generality
comes at a high price. The gap that the Caveat Emptor rule opens between
the pattern of legal liability and that of moral duty is deep and, for reasons

80.

81.

Duke of Beaufort v Joseph Neeld, [1845] 8 ER 1399 (HL) as in MacMillan,
supra note 2 at 50 (and more cases cited there). Similar limitation can be
found in the French law and the principles of European contract law, see
Beale supra note 4. See also Eisenberg, supra note 74 at 1684-85.
Beale, supra note 4 at 82.

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Samet, Equity as a Vehicle for Law Reform

I reviewed in Part III, dangerous.82 If equity (re)assumes its authority to
intervene in order to close (or, at least, narrow) this gap, will the result
be fatal to the certainty of the law on un-induced unilateral mistake?
Not necessarily. The first thing to note is that mistakes about a critical
aspect of the contract are only likely to occur in out-of-the-ordinary
contracts, or with regards to odd pieces of information. This is because
run of the mill situations will very often be covered by standard practices
of investigations and off-the-shelf questionnaires.83 Moreover, especially
when it comes to sellers, a disclosure duty should not introduce a big
transformation in the current practice. Ample research in economics
shows that sellers will frequently share information with the other party
even if they have no legal obligation to do so, as the advantage gained
by non-disclosure will often unravel under competition.84 In addition,
numerous statutes and regulations require disclosure by sellers.85 This
means that only in a limited number of cases would the equitable norm
operate to undo a deal to which one party only entered because she
was unaware of a critical piece of information known to the other party.
Moreover, one of the biggest benefits of a clear certain rule, namely,
that people can calculate its effects on their action and plan accordingly
(by purchasing insurance, etc.) does not pertain to the typical case of a
unilateral mistake. Unilateral mistakes often come as a nasty surprise,
not as a realisation of risk whose chances of occurring one could have
82.

83.

84.
85.

As celebrated novels like Michael Frayn’s Headlong testify, the existence
of the “no need to disclose” rule is known to the wide public (New York:
Faber & Faber, 1999). The book describes the disastrous results of an
attempt to take advantage of the rule in the context of art dealings, and
was shortlisted for the Man Booker Prize.
Many such forms can be found on the internet; for the sale of land see
for instance <http://www.houseweb.co.uk/house/sell/hips/PIQ.pdf>;
for sale of business see <http://www.certifiedacquisitions.com/uploads/
Seller_Questionnaire.pdf>.
Eisenberg, supra note 74 at 1678 (and sources cited there).
E.g. The Consumer Protection from Unfair Trading Regulations 2008 (UK),
SI 2008/1277 s 6; The Provision of Services Regulations 2009 (UK), SI
2009/2999 s 8; consultation on The Occupational and Personal Pension
Schemes (Disclosure of Information)(Amendment) Regulations 2015 (UK), SI
2015/482.

(2016) 2(2) CJCCL

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calculated in advance. A description of the Caveat Emptor rule in terms
of certainty would not cut much ice with the surprised party, especially if
she is a non-specialist and therefore expects the law to mirror the widely
shared moral intuition that the other party should have alerted her that
she labours under an error. Another point to note is that the effect
of uncertainty on third parties would be dramatically reduced due to
the way in which equity protects bona fides purchasers.86 The worry lest
third parties will have to bear the risk of relying on a contract that is in
fact voidable strongly militates against releasing the mistaken party from
the contract. Equity, with its built-in mechanism of sheltering innocent
outsiders from such risks is thus well suited for the task of reforming the
Caveat Emptor rule.
Furthermore, as I explained in Part III, the standard of
conscionability can be used by the law’s addressees as a useful guide,
even if it cannot achieve the level of certainty secured by fixed ex-ante
rules. In the context of un-induced unilateral mistakes, a norm that
instructs you to reveal critical information, if you suspect that the other
party is unaware of it, is pretty clear and certain.87 True, as we will
see below, a successful disclosure duty would include some exceptions
whose application requires court discretion. In the large majority of
cases, however, a duty to alert the other party to a mistake that is known
to you may be burdensome, but is in no way unclear. Certainty is
therefore mainly jeopardised by the availability of a remedy where
one party should have known about the other party’s mistake. The
extent to which a conscionable person ought to infer that the other
party is ignorant and take steps to ascertain it may, indeed, be less
than clear-cut. Nevertheless, the reference to conscience — a concept
whose moralistic connotations are obvious to everyone — directs the
law’s addressees towards an ethical approach to the issue of ignorance in
pre-contractual negotiation. A conscience in a good working condition,
86.
87.

That was already the case when equity granted rescission for unilateral
mistakes in the 18th and 19th century: see MacMillan, supra note 2.
See Beale, supra note 4 at 119-22. For another way of reducing the
effect of uncertainty is to allow opt out in business to business (“B2B”)
contracts.

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Samet, Equity as a Vehicle for Law Reform

i.e. an alert sensitive inner compass, would tell its owner that the less
than favourable conditions which the other party agrees to may be a
result of some ignorance on his part (rather than, say, generosity, lack
of experience or absentmindedness). Conscience would drive the party
in the know to ask “by the way, did you know that X?” even when that
may rob him of an advantage, and the conscionability standard would
make it clear that, to stir clear of the law, one should follow this advice.
This is not the certainty of a fixed ex-ante general rule, but it is a legal
principle that definitely offers the parties to contractual negotiations a
useful guide on how to conduct themselves so as to avoid interference
by the state. A conscionability-based duty of disclosure will therefore
strike a better balance between the value of certainty and the ideal of
accountability coherence, i.e. a state of affairs in which the law follows
the pattern of moral responsibility in the circumstances.88

D.

Generating (very little) Socially-Beneficial
Information

One of the most compelling arguments in favour of the Caveat Emptor
rule is the way in which it incentivises the entrepreneurial to obtain
useful information about other people’s property. While the lacklustre
owner fails to fully realise the potential of the resource over which she
was given control, the eager beaver probes the quality of her property,
tempted by the chance of making a nice turnover if he manages to buy
it from her for what she thinks it is worth. This is all very nice, but in
fact the Caveat Emptor rule can potentially encourage socially valuable
investigations in a very limited number of factual scenarios, while its
application is general and far-reaching. If we look at the problem of uninduced unilateral mistake from a perspective of economic efficiency,
our point of departure should be that mistakes always increase the
resources which must be devoted to the process of allocating goods to
88.

See Beale, ibid (who says about his suggestion for disclosure duty: “I
think that this proposal, though less certain than the current law, would
nonetheless be workable. Rules that are a great deal less certain are used in
countries whose economies seem as successful as our own” at 99).

(2016) 2(2) CJCCL

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their highest-valuing users.89 And so, a rule that allows the enforcement
of contracts which are based on an error must be justified by showing
that the benefits it entails exceed the costs inherent to mistakes. A closer
look at the Caveat Emptor rule reveals that it incentivises valuable
investigations only in very specific cases, with the result that the current
wholesale right to withhold information is inefficient.
Since Kronman’s 1978 ground-breaking paper on the efficiency of
disclosure duties, it has been the consensus that, broadly speaking, we
should distinguish between information that was acquired by a party in
a “casual” manner and information which she deliberately obtained, as
only the latter ought to be protected by a right not to disclose.90 Why,
from efficiency point of view, should we oblige the party who casually
came by a relevant piece of information to reveal it to the other party?
Mistakes, like accidents, are costly, and in principle should be avoided
“since the actual occurrence of the mistake, always (potentially) increases
the resources which must be devoted to the process of allocating goods
to their highest valuing users”.91 Only if non-disclosure generates a
substantial social benefit should the informed party be allowed to keep it
to herself. Casually getting hold of information which is relevant to other
people’s property does not generate sufficient social benefit to justify the
cost of allowing a mistake to determine the course of a contract.92 But
neither is it the case that all deliberate acquisitions of information are
beneficial to such a degree that encouraging them warrants a right to keep
it to yourself; it all depends on the kind of information thus attained.
For instance, in contrast with the famous US Supreme Court decision

89.

90.
91.
92.

Kronman, supra note 33; see also Zamir & Medina, supra note 17 (who
conclude: “Ordinarily, the cost of transferring the correct information
to the uninformed party is small and its benefit clear. Accordingly,
prohibitions against deceit and pre-contractual disclosure duties are prima
facie efficient” at 269).
Kronman, supra note 33 at 13.
Ibid at 2-3.
Stumbling on information by chance is indifferent to incentives to act one
way or another. See more detailed argument in Eisenberg, supra note 74 at
1656-61.

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in Laidlaw v Organ,93 the deliberate obtainment of mere foreknowledge
(i.e. information that will, in due time, be evident to all) is not worthy
of encouragement as it does not increase the pie, only the share of the
person who happened to have the information.94
Another substantial limitation on the ability of the Caveat Emptor
rule to incentivise the search for socially beneficial information relates to
the position of sellers. As Melvin Eisenberg shows,95 the distinguishing
characteristics of sellers make it the case that they should always
be required to disclose material facts concerning their property. Sellers
typically have asymmetric access to adventitiously acquired information
about the property they are selling, while they are sufficiently incentivised
to look for other information about a property they own; they do not
need the extra incentive in the form of a right to withhold information
about the subject matter of the contract.96 From the perspective of clarity
and predictability it would have been good if the disclosure duty could
swiftly apply to all sellers. But justice and efficiency dictate some finetuned exceptions. Thus, when a universally known practice in a specific
market (e.g. commercial real estate) is one of “each party to herself ”,
expectation that information would be disclosed cannot be justified.
Similarly, if a party was ignorant about a material fact in circumstances
where a diligent buyer would have been put on notice, or because she
failed to conduct a reasonable research, the law should not absolve her
93.
94.

95.
96.

15 US (2 Wheat) 178 (1817) [Laidlaw].
Hirshleifer, supra note 32 at 562; Laidlaw, supra note 93; Robert Cooter
& Thomas Ulen, Law and Economics, 3d (New York: Addison-Wesley,
2000) at 273-74. Many cases of foreknowledge would fall under what
Cooter and Ulen called “redistributive information”, i.e. such that only
“creates a bargaining advantage that can be used to redistribute wealth in
favor of the informed party”. Working to obtain this kind of knowledge
is socially wasteful and should be discouraged by imposing disclosure
duties. Only with regards to information that “can be used to produce
more wealth”, we can show that “[e]fficiency demands giving people
strong incentives to [produce it] …” by exempting them from the duty to
disclose it at 273-74.
Supra note 74.
Ibid (see detailed discussion at 1674-77); Zamir & Medina, supra note 17
at 272.

(2016) 2(2) CJCCL

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of her contractual obligations.97 The disclosure duty of sellers should
therefore be drafted as a standard which, while it establishes a pretty
general duty of disclosure for sellers, does allow the court to peg the
sellers’ duty of disclosure to the level of their moral responsibility for this
particular erroneous buyer.
In contrast with the above rule that mandates a disclosure duty on
sellers which can be, all and all, reasonably clear on the edges, a just
and efficient regulation of buyers’ disclosure duties will have to take the
form of a flexible open-ended standard that accommodates the more
prevalent exceptions to the duty to alert the seller to her mistake.
Apart from the above case of the studious buyer who worked hard to
reveal hidden qualities of a piece of property, in some social context the
pre-contractual interaction is best understood as a game in which buyers
troll for mistakes by sellers. Used book trades and art auctions are the
most obvious examples of such social games — where sellers cannot
legitimately expect buyers to reveal their assessment that the item they
wish to buy is actually worth much more than the owner’s asking price.98
Other, less obvious, situations may fall into this category, and a space
should be left for the court to exercise discretion as to whether this is
the case. Another set of circumstances where a buyer should be allowed
to keep critical information to himself is where
a certain [building] project requires assembling a considerable number of
parcels. Revealing the entrepreneur’s plan to prospective sellers would result
in … a ‘holdout’ [i.e. some agents may exploit the need for their consent
to extract a portion of the producer surplus in excess of their opportunity
costs].99

A duty to disclose information in this case would thus open the door not
only to inefficiency but to opportunism and an unfair distribution of the
97.
98.

99.

See examples in Eisenberg, supra note 74 at 1683-85.
Ibid at 1686; see also Peter Walker, “Multimillion-dollar Photo of Billy
the Kid Playing Croquet was $2 Junk Shop Find”, The Guardian (13
October 2015), online: <www.theguardian.com/us-news/2015/oct/13/
billy-the-kid-croquet-junk-shop-two-dollars> (example of a photo bought
for $2 in a junk shop and sold for $2.3 million can be found in this
article).
Zamir & Medina, supra note 17 at 273.

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Samet, Equity as a Vehicle for Law Reform

pie.100
The bottom line of all these complex considerations is that the
Caveat Emptor rule increases the efficient use of property only in a
narrow range of cases which involve resourceful buyers. And even in
these cases, the claim that the only (or by far the best) way to incentivise
socially valuable explorations of other people’s property is to allow the
entrepreneurial buyer to keep critical information to himself has not
gone unchallenged.101 Anyway, as Eisenberg clearly shows, the chances
that in our times one will be able to find out valuable information
about another’s property (such as the existence of minerals or natural
gas) are slim, while exploration companies that engage in the business
do not exploit the right to withhold information in their negotiations
with owners.102 In most cases of industrious parties who worked hard to
discover hidden qualities of property they do not own, the claim that one
has a right not to share his findings with the owner will not be raised.
In some other situations, court discretion would be necessary in order
to avoid holdouts and for adjusting liability to responsibility in special
100. It is worthwhile mentioning that up until now courts in the US have
failed to tailor their decisions in contract disputes in accordance with legal
economics finding about the utility of each course of action: see Kimberly
D Krawiec & Kathryn Zeiler, “Common-Law Disclosure Duties and
the Sin of Omission: Testing the Meta-Theories” (2005) 91:8 Virginia
Law Review 1795 at 1818-21 who argue, on the basis of a large scale
statistical survey of American cases, that courts are not more likely to
require disclosure when the information is casually acquired as opposed
to deliberately acquired; see also Eric A Posner, “Economic Analysis of
Contract Law After Three Decades: Success of Failure?” (2003) 112:3
Yale Law Journal 829 (the answer is “failure”, at least when it comes to
influence on actual courts’ decisions).
101. Other mechanisms to profit from the obtainment of such information
are at hand. For example, where inheritance goes to next of kin, no
matter how remote, you find people who specialise in tracing such remote
relatives of lone deceased. They then approach the potential heir with
the promise to reveal the identity of the long lost relative in return for a
hefty percentage of the inheritance. A similar approach can be taken with
respect to unknown qualities of one’s property.
102. Eisenberg, supra note 74 at 1687-91.

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market conditions. The bottom line is that the secrecy allowed by Caveat
Emptor rule ought to become an exception to a general standard which
obligates disclosure in the pre-contractual stage as required by justice
and efficiency. Again, a conscionability based standard which allows
the court to exclude such scenarios from a general disclosure duty would
work very well.

V.

Conclusion

The law on un-induced unilateral mistakes probably comes into effect
only in a rather small number of contract cases. Economic reality and
practices which developed over the years often lead both sellers and
buyers to be frank about their assessment of the subject matter of the
contract. Nevertheless, the decision taken by each legal system as to the
duty of people who negotiate a contract to save the other party from
making a costly error says a lot about its most fundamental values. The
message that it sends to the parties about the ethical level they should
aspire to attain ripples well beyond the specific issue of disclosure. In
the case of the English Caveat Emptor rule, the common law professes
a set of individualistic values, or tolerance of sheer selfishness, that do
not reflect the moral convictions of the wider community. Arguments to
show that the Caveat Emptor rule actually embodies a commitment to
a lofty rule of law ideal and promotes economic utility fail to show that
the alternative (viz a fairly wide duty of disclosure that follows ethical
standards) will seriously undermine the law’s aspiration to legality, or
efficiency. On the contrary, the disutility of mistakes and erosion of the
legal system’s legitimacy — both clear risks of the Caveat Emptor rule —
strongly militate against adhering to the current law. A change is needed;
but by what means?
English law, I have argued, has a ready-made device for introducing
the necessary reform: the nineteenth century equitable jurisdiction to
rescind a contract where insisting on its performance (or expectation
damages) would be unconscionable since the defendant knew, or
should have known, that the claimant only entered the deal because
she was ignorant of a crucial fact. An ex-post flexible standard of that kind
will allow the court to take into account subtle differences between

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Samet, Equity as a Vehicle for Law Reform

cases which may change the moral standing of the defendant and/or the
benefit to society from forcing a disclosure duty in a particular case.
Moving from the bright-line Caveat Emptor rule to a conscionabilitybased standard would indeed detract from the certainty of the law in that
area. But equity does not simply neglect the rule of law value; it is bent
on reintroducing a balance between the demands of clarity, generality
and predictability, and the ideal of coherence between law and moral
principles. We saw how the invocation of conscience provides a pretty
good guide on how the law would apply in different situations — a guide
that relies on our inbuilt ability to recognise, and be motivated by, our
moral duty. Coupled with the demand that the mistake is substantial
and an in-built protection for innocent third parties, an equitable
conscionability-based disclosure duty will lend relatively few surprises on
people who know the law and think about it seriously. The unfortunate
situation of un-induced unilateral mistake is thus an excellent example
of the prowess of equity: through its carefully-developed mechanisms it
is able to realign legal liability and moral responsibility in a way which
is respectful of the rule of law ideal and sensitive to the shared values of
the community.