Mistake and Illegality Flashcards
What is the effect of mistake and illegality, if they impact a contract?
Effect of mistake and illegality is to make contracts void (as if there was never a contract)
- No other remedy
- Mistake is a last resort and difficult to establish
When must the mistake take place to render a contract void?
The mistake must be fundamental and have taken place prior to entering the contract
What are the 3 different types of mistake?
1) Common mistake
- Both parties have made the same fundamental mistake
- Fundamental means it must render performance impossible or radically different from what parties anticipated
- For example, as to existence of the subject matter
2) Cross-purpose mistake
- The parties are at cross-purposes and objectively, it is impossible to resolve the ambiguity
- In one example, X thought the goods came on a ship called A1 in October and Y thought the goods came on a ship called A2 in December
- Same name ship and product, but different consignments – impossible to resolve
3) Unilateral mistake
- One party has made a fundamental mistake
- Usually, in relation to the identity of the other party
What does a unilateral mistake as to identity entail?
Must be a mistake as to actual identity, rather than to an attribute (eg. creditworthiness) of the other party
- Mistakes as to an attribute may be misrepresentation
- Difficult to establish in a F2F situation that you do not intend to deal with the person standing in front of you
- So, contract may be rescinded for misrepresentation, but unlikely to be void for mistake
Mistake and misrepresentation can appear similar in relation to identity.
Give an example scenario to show why mistake might be a last resort and claiming misrepresentation favoured
If X is selling their car and someone comes to buy it claiming to be Y, but they are actually Z, this is a misrepresentation – but why not argue misrepresentation instead of mistake?
Misrepresentation makes a contract voidable, meaning rescission can be barred
- One way this can happen is if a bona fide purchaser has acquired an interest in the goods (ie if Z sells the car onto another, A)
- This results in two innocent parties – court sides with bona fide purchaser usually
If rescission barred, X may argue mistake as a last resort, which would mean the original contract was void, so Z didn’t get title to car and neither did A
- Whichever party doesn’t get the car (X or A) will sue Z for damages, but only if they can find Z and if Z has funds – this is why mistake is a last resort, because it may leave one innocent party without a remedy
What is illegality in relation to contracts?
If a contract is illegal, it is void
1) Contract may be illegal at the start
- A contract to commit a crime or one contrary to public policy - these would be void from the outset
2) Contracts may be illegal because of the way they have been performed
(2a) If it has been performed illegally in an incidental way, it won’t make it void
- Delivery contract, but driver was speeding – makes no difference
(2b) If it is being performed in an illegal way, if both parties knew this, it will be void
- If one party did not know, they may be able to enforce the contract
- The defaulting party won’t be able to enforce it
Not illegal to refuse to do something against your beliefs
What are covenants in restraint of trade in contracts? Are they enforceable?
They are prima facie void as being contrary to public policy, as they stop somebody earning a living
- They stop former employees from working for competitors, using confidental information etc
They may be upheld if:
(a) There is a legitimate business interest to protect; and
- Protecting trade secrets, employees, customers, goodwill etc
(b) The clause is reasonable in scope, geographical area and time
- Can only extend to type of business in which employer is involved
