Mistake and Illegality Flashcards
what is a mistake in contracts?
where one or both parties made a fundamental mistake in respect of an agreement such that agreement was not truly reached
what is the legal effect of contracts entered into as a result of mistake?
the contract is void - there is no legal effect from the outset
this means that title to any property remains with the original owner (even if a bona fide third party acquired it for consideration)
what are the 3 types of mistake?
(1) common mistake: both parties suffer from the same misapprehension
(2) mutual mistake: both parties are mistaken about different things (negotiating at cross-purposes)
(3) unilateral mistake: only one party is mistaken and the other party knows or is deemed to know of the mistake
when will a contract be void for a common mistake?
both parties suffer from the same misapprehension and:
- the mistake is sufficiently fundamental to the contract
- neither party is at fault for the mistake
- the contract does not make provision for the issue in question
will a contract be void for common mistake if the mistake is about the quality of goods in question?
no - even if the mistake as to quality affects the utility of the goods to the buyer or the value of goods
this is unless the mistake is so severe such that the subject matter is essentially different from that intended or the mistake renders the performance impossible (rare)
when will a contract be void for a mutual mistake?
where A offers one thing but B accepts another
the court will employ an objective test to decide what a reasonable person would believe the agreement to be based on the words and conduct of the parties – if a reasonable person infers the existence of a contract then the court will hold the contract binding despite the mutual mistake
when will a contract be void for a unilateral mistake?
where one party is mistaken AND the other party knows or is deemed to know of the mistake
example:
(1) X makes a mistake in expressing their intention
(2) X signs a document under a mistaken belief as to the nature of the document
(3) identity of the contracting parties
when will a contract be void for a unilateral mistake when one party is mistaken as to the other party’s identity in face-to-face cases?
The court presumes that the mistaken party intended to deal with the person in front of them - so no mistake and contract is valid
to rebut this, the mistaken party must show that the identity of the other party was of ‘vital importance’ to entering into the contract - and not collateral matters (e.g., creditworthiness)
if this cannot be rebutted then the mistaken party can sue in fraudulent misrepresentation but their remedy is more limited to rescission which may not be available if title to goods transferred to a bona fide third party for consideration
when will a contract be void for a unilateral mistake when one party is mistaken as to the other party’s identity in communications at a distance scenarios?
the mistaken party can show they only intended to deal with the person named in the correspondence - thus making identity a term of the contract
if this is shown, a mistake is proven and the contract is void
how does the court assess the consequences of entering into a contract to perform an illegal act?
the court considers the question of ‘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’
it considers:
(1) the underlying purpose of the prohibition and whether this is enhanced by denying the claim
(2) any other relevant public policy on which denial of the claim would impact
(3) 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
