Mistake and Illegality Flashcards
What is meant by a contract being void?
A contract which is void has no legal effect from the outset.
What is an operative mistake?
An operative mistake is 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 is the effect of an operative mistake?
The contract will be void from the outset.
What are the three categories of mistake?
1) Common mistake
2) Mutual mistake
3) Unilateral mistake
What is a common mistake?
A common mistake occurs where both parties to an agreement are suffering from the same misapprehension. It is necessary to consider whether the underlying common mistake is sufficiently fundamental to affect the validity of the contract.
E..g at the time of the contract, unbeknown to both parties, the subject-matter of the contract is not in existence i.e. it has been destroyed. Unless the contract is interpreted as providing for this possibility, then the contract is void.
What is a mutual mistake?
A mutual mistake occurs where both parties are mistaken but they are mistaken about different things. In other words, they have negotiated at cross-purposes.
E.g. A is offering one thing whilst B is accepting another - cannot be said there were ever in agreement
Such a contract will be void.
What is a unilateral mistake?
Occurs where only one party is mistaken and the other party knows, or is deemed to know of the mistake.
Common mistake as to fact or quality fundamental to the agreement
In the absence of contractual misdescription, the general proposition is that mistake about the quality of goods does not void the contract. – Even if the mistake affects the utility of the goods to the buyer or the value of the goods in question.
Maybe in some cases where the mistake is ‘radically different’ or ‘essentially different’
e.g. both were wrong thinking a painting was a Constable (but it wasn’t) there as no case in mistake (although maybe there would be in misrepresentation)
What are the circumstance where common mistake will not operate?
- The mistake is not sufficiently fundamental
- One party is at fault
- The contract makes provision for the issue
What is the test for a mutual mistake?
Court will apply 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.
May decide 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.
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.
Unilateral mistake as the expression of intention
Where the 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.
E.g. one party making a mistake as to price (eg £1 per pound instead of £1 per piece, three pieces per pound) - the court found that the defendant’s offer was not an accurate reflection of their true intention and that there was no binding contract. The claimants could not “snap up” an offer when that party was aware that the other had made a mistake relating to the offer terms.
Unilateral mistake as to the nature of the document signed
General rule: a person is bound by the terms of any instrument which they sign or seal even though they did not read it or did not understand its contents.
Exception: under certain circumstances where a person signs or seals a document under a mistaken belief as to the nature of the document - they may be able to raise the defence of non est factum (it is not my deed).
What is the defence of non est factum?
Non est factum (it is not my deed) may be available where the mistake was due to either
a) blindness, illiteracy, or senility of the person signing; or
b) a trick or fraudulent misrepresentation as to the nature of the document, provided that person took all reasonable precautions before signing.
Example: an illiterate woman was induced to execute a deed in the belief that it was concerned with arrears of rent - when the document was actually a deed releasing another from claims which the woman had against him. Held that the deed was a nullity.
Unilateral mistake as to the identity of the person contracted with
In this mistake, one party mistakenly believes they are contracting with a person that the other party is pretending to be - whether or not such a contract is void depends on the precise circumstances.
What is the presumption in unilateral mistakes of identity?
It is presumed that the seller intended to deal with the person in from of them identified by sight and hearing - in such instances the contract will not be void for mistake, but can be voidable for misrepresentation.
