CL: 10 & 11 Mistake & Illegality

Question 1

Operative Mistake

Answer 1

A mistake which is recognised in law of contract as preventing a contract taking legal effect,
Contract is void - nullity from its beginning - void ab initio

Question 2

Void

Answer 2

No legal effect from the outset

Question 3

At the heart of the concept of the mistake

Answer 3

Parties have not truly reached an agreement;

Either the parties cannot be said to have reached agreement because of the mistake

Mistake makes contract something other than intended

Question 4

Categories of mistake

Answer 4

1) Common Mistake
2) Mutual Mistake
3) Unilateral Mistake

Question 5

Common Mistake

Answer 5

… occurs where both parties to an agreement are suffering from the same misapprehension.

Consider whether the underlying common mistake is sufficiently fundamental to affect the validity of the contract.

Question 6

Mutual Mistake

Answer 6

Occurs where both parties are mistaken but they are mistaken about different things.

In other words, they have negotiated at cross-purposes

Question 7

Unilateral Mistake

Answer 7

Occurs where only one party is mistaken and the other party knows, or is deemed to know, of the mistake

Question 8

Common mistake about quality of goods

Answer 8

In absence of contractual misdescription, mistake about quality does not void the contract.

Even if affects utility or value of goods

Question 9

Limited category where mistake is so severe contract would be void for mistake as to quality.

Answer 9

• Test unclear
• “essentially different” or “radically different” subject matter
• Mistake renders assumed performance “impossible”

Bell v Lever Brothers [1932]

Question 10

Bell v Lever Brothers 1932

Question 11

Leaf v International Galleries 1950

Answer 11

Painting - constable

Question 12

Circumstances where common mistake will not operate

Answer 12

• The mistake is not sufficiently fundamental
• One party is at fault
• Contract makes provision for the issue

Question 13

Mutual mistake

Answer 13

Both parties are mistaken about different things, they have negotiated at cross purposes.

Question 14

What is the objective test employed in determining if a mutual mistake has been made?

Answer 14

What a reasonable third party would believe the agreement to be based on the words and conduct o the parties.

Question 15

What may be decided following an objective test for a mutual mistake

Answer 15

• How the agreement is
• No meaning at all
• Binding if reasonable person infers contract

Question 16

Unilateral Mistake

Answer 16

One party is mistaken and other party knows/is deemed to know.

Acceptance does not correspond with the offer - no real agreement reached

Question 17

Hartog v Colin Shields 1939

Answer 17

Defendant could not take up an offer when aware that party had made a mistake as to the offer terms

Question 18

Unilateral mistake as to the expression of intention

Answer 18

Offeror makes a material mistake in expressing their intention, and the other party knows, or is deemed to know, of the error, the mistake is likely to lead to the contract being void.

Hartog v Colin & SHields 1939

Question 19

Unilateral mistake as to the nature of document signed

Answer 19

Exception to the general rule.

Mistaken belief as to the nature of the document.

Defence of: non est factum (“It is not my deed”)

Question 20

L’Estrange v Graucob 1934

Answer 20

Bound by terms if they did not read or understand its contents

General rule

Question 21

Non Est factum available when mistake is due to:

Answer 21

• Blindness, illiteracy, or senility
• A trick or fradulent misrepresentation as to the nature of the document, providing that all reasonable precautions were taken

Question 22

Thoroughgood’s Case 1584

Answer 22

• Illiterate woman
• Deed signed believing it regarded arrears of rent.
• Was actually releasing a claim the woman had over another man.
• Held to be a nullity

Question 23

Unilateral mistake as to the identity of the person contracted with.

Answer 23

Contract with a party who is not who the other party pretends to be.

Whether or not a contract is void depends on the precise circumstances

Question 24

Common mistake as to the existence of the subject matter

Answer 24

• Void, unless contract impliedly /expressly allocates this risk

Question 25

Common mistake as to a fact or quality fundamental to the agreement

Answer 25

Void only in the most severe instances of mistake

Question 26

Mutual mistake as to the identity of the subject matter

Answer 26

Void

Question 27

Unilateral mistake as to identity of the person contracted with

Answer 27

Void, but very hard to show in face to face transactions

Question 28

Unilateral mistake as to the person contracted with

Answer 28

One party mistakenly believes they are contracting with a person that the other party is pretending to be.

Question 29

Lewis v Averay [1972] - Facts

Answer 29

• Car £450 for sale
• Fraudster claimed to be Richard Green, actor
• Let fraudster take car for the cheque
• Car sold on for £200 in good faith.

Question 30

Lewis v Averay [1972] - Held

Answer 30

Held: Not void for mistake if the seller is able to establish that identity by sight and hearing.

Not void for mistake, although voidable for misrepresentation.

Rebuttable only if identity rather than attributes was of “vital importance”

Question 31

Impact on title if contract void for mistake

Answer 31

Mistake is about identity

Void from the beginning

Title does not pass

Question 32

Impact on title if contract voidable for misrepresentation

Answer 32

Mistake is about attributes

Voidable - one that can later be avialable

s23 of the Sale of Goods Act provides that - if title is then bought in good faith without notice of defect - buyer gains good title.

No remedy

Question 33

Nemo dat quod non habet

Answer 33

Non one gives who possesses not

Question 34

What happens if the parties don’t contract face to face

Answer 34

Cundy v Linday 1878
Shogurn Finance Ltd v Hudson 2004

Question 35

Cundy v Linday 1878

Answer 35

Blenkiron & Co was a reputable company.
Blenkarn was naughty and signed his name to make it look like Blenkiron.
Void for mistake as to identity

Question 36

Shogun Finance Ltd v Hudson
2004

Answer 36

• Name Mr Patel signed
• Genuine driving licence, although unlawfully obtain.
• Checked credit rating
• Sold onto 3rd party - Mr Hudson.

Held: Shogun Finance Ltd was entitled to the return of the contract as was void for mistake

Question 37

King’s Norton Metal Co Ltd v Edrdge Merrett & Co Ltd (1897)

Answer 37

Distance selling not found to be void for mistake identity.
Goods sent to Hallam and Co - successful letter head
Mistake was attributes not identity
(Cundy v Lindsay)

Question 38

Illegality prior to Patel v Mirza [2016]

Answer 38

General rule was that a contract to perform an illegal action/contrary to public policy contract would be declared void and unenforceable

Question 39

Following Patel

Answer 39

A court will adopt a discretionary approach, apply principles of public policy and proportionality

Question 40

Patel v Mirza 2016 - Facts

Answer 40

• Insider dealing; but Mr Patel sought return of money as info not provided.
• Mirza defended on the basis of illegality
• SC held that illegality should not apply. .

Question 41

Patel v Mirza - SC “trio of necessary conditions”

Answer 41

• Consider the underlying purpose of the prohibition that has been transgressed and whether the purpose will be enhanced by denial of claim.
• Consider any other relevant public policy on which the denial of the claim may have an impact
• Consider whether denial of the claim would be a proportionate response to the illegality - bearing in mind punishment is a matter for crime courts

Question 42

SC underlying question in Patel v Mirza

Answer 42

“whether allowing recovery for something which was illegal would produce inconsistency and disharmony in the law, and so damage the integrity of the legal system”