Mistake and Illegality Flashcards
list the strict limitations on the doctrine of common mistake.
1) it does not operate if one party is at fault
2) The contract must not make express provision on the matter.
3) Mistake must be fundamental (ie must render performance of the contract impossible or radically different from what the parties anticipated).
List the three types of mistake.
1) Common mistake - both parties have made the same fundamental mistake;
2) Cross purpose mistake - parties are at cross purposes about the same crucial aspect of the contract; and
3) Unilateral mistake - where only one party is mistaken (eg mistaken as to the identity of the other contracting party).
Give an example of an instance where the court will find a fundamental common mistake.
Where both parties are mistaken as to the existence of the subject matter. of the contract.
However, a simple mistake as to the quality of the subject matter is not usually sufficient to affect the validity of the contract.
Explain the doctrine of a cross purpose mistake.
Despite either or both parties alleging a contract exists on preferential terms for themselves, it is objectively impossible to resolve the ambiguity over what was agreed.
In this situation the only possible conclusion must be that there was no contract.
Give an example of the cross purpose mistake doctrine.
Case of Raffles.
Contract for sale of cotton from specific ship called Peerless (in reality there were two ships named peerless).
On objective analysis there was no way of determining which party was right, as there was no way of knowing which ship was the subject of the contract. Contract was void.
Explain the doctrine of unilateral mistake.
Generally relied upon where there is mistake as to the identity of the other contracting party.
However, contract will only be void where identity of the other contracting party is of vital importance.
Explain the leading case where unilateral mistake was used.
Case of Cundy.
rogue set up business under name Blenkarn on same street as reputable business Blenkiron. He signed the contract Blenkiron. Other party thought he was contracting with the reputable company.
Rogue ordered goods and then sold them to innocent customers before paying for them.
Only way to recover goods was to argue mistaken identity.
This was allowed, as it would have been impossible to rescind the contract given the goods were now in the hands of innocent parties (meaning they could not rely on misrepresentation).
Explain the circumstances where rescission is available following mistaken identity (unilateral mistake).
This is a viable option only where the goods have not been sol on to innocent parties. If they have, the contract will be rescission barred and only damages would be available.
If an innocent party is sold goods by someone who has not paid for them, this would now breach the implied term (either in the SGA 1979 or the CRA 2015) that the seller has legal title to the goods they are selling.
Explain the guidelines used to determine whether there is a claim for mistake or misrepresentation.
1) If parties are dealing face to face, strong presumption innocent party intends to deal with the person in front of them. Contract is therefore unlikely voidable for mistake but might be for misrepresentation.
2) Where dealings are conducted exclusively in writing, there is no presumption (as above). Written agreement will be construed to determine with whom the innocent party intended to contract. If with someone other than the rogue, contract might be void for mistake.
3) Nature of the transaction - may indicate to the rogue it is vital they possess particular attributes and if they do not, the offer is not addressed to them. EG someone orally commissions a portrait from unknown artist (passing off as famous painter) rogue could not accept the offer and there would be no contract.
4) If person or entity rogue is imitating actually exists and is known to mistaken party, this suggests offer is not addressed to the rouge so there could be no contract with the rogue (it would be void).
When is a contract illegal?
Where its formation, purpose or performance involves the commission of a legal wrong (eg breach of statuary provision or violation of public policy).
As a general rule, illegal contracts are void.
What happens if the contract is legal, but is carried out in an illegal way?
If the illegal act is purely incidental to the contract, then it is unlikely to be void (eg a contract for delivery of goods will not be void just because the delivery driver is caught speeding).
what view do the courts take where a contract is performed illegally, and both or one of the parties intended illegal performance?
The court act is void as the courts take the view neither party should be entitled to enforce the contract.
If only one party knew it was going to be performed illegally, then the innocent party is likely able to enforce the contract.
When might contracts containing terms on the restraints of trade be enforceable?
1) There is a legitimate business interest to protect (eg customers, employees,oyees and trade secrets); and
2) Restraint is reasonable in terms of geographical area, duration and scope of prohibited activities.
What is the remedy for breaching a reasonable restraint of trade term in a contract?
If reasonable, the party who imposed it may apply for an injection to prevent or minimise a breach; or
Claim damages to compensate for loss suffered as a result of the breach.
Are damages available for contracts based on mistaken identity?
No.
Only possible remedy is rescission (unless rescission barred where, for empale , goods had been sold on to an innocent party).
