Mistake and Ilegality Flashcards
What is an operative mistake?
A mistake which is recognised in the law of contract as preventing a contract from taking legal effect – the contract will be void from the outset.
What are the three categories of mistake?
- Common mistake
- Mutual mistake
- Unilateral mistake
What constitutes a common mistake?
Common mistake occurs where both parties to an agreement are suffering from the same misapprehension.
In the absence of contractual misdescription, the general proposition is that mistake about the quality of goods does not void the contract. This is the case even if the mistake as to quality affects the utility of the goods to the buyer, or, alternatively, affects the value of the goods in question.
It has been suggested that there is a limited category of cases where the mistake is so severe that the contract will be void for mistake as to quality. The test to be applied to engage this exception is unclear. It could be a question of whether the mistake is such that the subject matter is
‘essentially different’ from that intended (Bell v Lever Brothers [1932] AC 161), or alternatively whether the mistake renders the assumed performance ‘impossible’, or alternatively whether the subject matter is rendered ‘radically different’.
The restrictive approach to common mistake in Bell v Lever Brothers was endorsed in Leaf v International Galleries [1950] 2 KB 86. Although Leaf’s action was in misrepresentation, the court stated, obiter, that a claim in mistake in relation to a painting both the buyer and seller mistakenly believed to be a Constable would fail. The parties had contracted for the sale of a painting, and this is what the buyer received under the contract. It is worth noting, however, that a remedy in
misrepresentation may be available in such circumstances.
What are the circumstances where common mistake will not operate?
(a) The mistake is not sufficiently fundamental.
(b) One party is at fault.
(c) The contract makes provision for the issue.
What constitutes a mutual mistake?
Mutual mistake occurs where both parties are mistaken but they are mistaken about different things. In other words, they have negotiated at cross purposes.
What this means is that in these circumstances the court will employ an objective test and decide what a reasonable third party would believe the agreement to be, based on the words and conduct of the parties themselves. Using this test, it may be decided that the agreement was that
which A understood it to be or that which B understood it to be, or it may be decided that no meaning can be attributed to the agreement at all. The result is that if, from the available evidence, a reasonable person would infer the existence of a contract in a given sense, the court will hold that a contract in that sense is binding upon both parties, notwithstanding a material mistake.
What constitutes a unilateral mistake?
Unilateral mistake occurs where only one party is mistaken and the other party knows, or is deemed to know, of the mistake. Where unilateral mistake has occurred, the acceptance does not correspond with the offer, and there is consequently no real agreement reached.
What is a unilateral mistake of identity?
In a face-to-face transaction the court will presume that the seller intended to deal with the person in front of them. This is a difficult presumption to rebut and requires the seller to show that identity, not attributes (ie creditworthiness) was of ‘vital importance’. Although there is a
misrepresentation of attributes, this is rarely a useful remedy for the innocent party. The innocent party is usually the seller and will generally want to argue that the property purportedly sold has not in fact been sold, and therefore still belongs to the seller – this requires the contract to be void for mistake, not merely voidable for misrepresentation.
* In a distance selling transaction it is easier for the seller to show that they intended only to deal with the person named in the correspondence and if proved a finding of mistake will follow. Mistake renders a contract void and title will remain with the original seller.
What is illegality in contract law?
When determining the remedial consequences of entering an illegal contract the underlying policy question to be considered is ‘whether allowing recovery for something which was illegal would produce inconsistency and disharmony in the law, and so cause damage to the integrity of the legal system’.
* In order to determine this question, the Supreme Court in Patel v Mirza identified the following ‘trio of necessary conditions’:
(a) ‘to consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim,
(b) to consider any other relevant public policy on which the denial of the claim may have an impact, and
(c) to consider whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts.’
