Mistake and Illegality Flashcards
Recognising when a client may need to argue a contract is void for mistake or illegality. Advising on the different types of mistake and advising on when, and how a contract may be illegal.
What is the doctrine of mistake
The doctrine of mistake only operates in exceptional circumstances where one party, or indeed both parties, can establish the contract was entered under a mistake that was so fundamental as to effectively negate agreement and therefore the existence of a contract.
What are the different types of mistakes in a contract?
Common mistake
Cross-purpose mistake
Unilateral mistake
in all cases the mistake must precede the contract and have it induced.
What is common mistake?
Where both parties have made the same fundamental mistake.
What is cross purpose mistake?
Where the parties are literally at cross purposes about some crucial aspect of the contract.
Objectively, it is impossible to resolve the ambiguity over what was agreed. That being the case, the only possible conclusion is that there was no contract.
What is unilateral mistake
Where only one party is mistaken, eg mistaken as to the very identity of the other contracting party.
However, only a genuine mistake of this nature where the identity of the other party is of vital importance will render the contract void.
If the mistake is as to anything less eg a mistake as to the other party’s attributes such as creditworthiness, then it will not generally affect the validity of the contract.
As a general rule, in face to face situations it will be much harder for a person to argue they intended to deal with someone other than the person physically present in front of them.
What are the limitations on the operation of common mistake?
It will not operate if one party is at fault.
The contract must not make express provision on the matter.
The mistake must be fundamental, i.e it must render performance of the contract impossible or radically different from what the parties anticipated.
A mistake as to the quality of the subject matter will not usually be deemed sufficiently fundamental to affect the validity of a contract.
How do you determine whether the contract is voidable for misrepresentation or void for mistake
- If the parties are dealing face to face there is a strong presumption that the innocent party intends to deal with the person in front of them rather than the person they are pretending to be. As such the contract is unlikely to be declared as void for mistake although it might be rescinded for misrepresentation.
- Where the dealings are conducted exclusively in writing, the above presumption does not apply. Instead, the written agreement must be construed to determine with whom the innocent party intended to contract. If it was with someone other than the rogue then the contract might be void for mistake.
- The nature of the transaction may indicate to the rogue that it is vital they possess a particular attribute and if they do not do so, the offer is not addressed to them. For example, if someone orally commissions a portrait from an unwon artist passing themselves off as a famous painter, the rogue could not accept the offer, in other words, there would be no contract with the rogue.
- if the person/entity who the rogue is pretending to be actually exists and is known to the mistaken party, it suggest the offer is not addressed to the rogue. So again there could be no contract with the rogue: it would be void.
When would a contract be classed as void or voidable when it comes to mistaken identity
If the intention is to contract with someone else then the contract would be void.
If there is mistakes as to someone’s attributes eg creditworthiness then the contract is voidable.
When would a contract be illegal?
Where its formation, purpose or performance involves the commission of a legal wrong eg breach of a statutory provision or violation of public policy
If a contract is illegal is it void or voidable?
As a general rule, illegal contracts are void and courts will not allow recovery of benefits conferred in the performance of an illegal contract.
What happens if a contract is formed legally but then carried out in a way that is illegal.
If the illegal act is purely incidental ( minor) to performance of the contract it is unlikely to affect the validity of the contract.
What is the situation where both parties were aware that performance was illegal?
Then the courts tend to take the view that neither party should be entitled to enforce the contract.
What is the situation where one of the parties did not know of the illegal performance of the contract by the other party?
The innocent party may be able to enforce it.
Contracts illegal at common law?
Courts will refuse to enforce some contracts at common law on the basis that they are contray to public policy or morality.
Examples of a clauses that are void as being contray to public policy
Coveanants in restraint to trade eg clauses in employment contracts restraining senior employees from working for a competitor when their employment ends.
As a matter of public policy individuals and business should be able to work and operate to generate income for themselves.
subject to exceptions.. these are there is a legitimate business interest to protect for example customer, employees and trade secrets; and The restraint is reasonable in terms of geographical area, duration and scope of prohibited activities.
