Mistake & Illegality Flashcards
What is mistake?
Where the contract was entered into under a mistake that was so fundamental as to effectively negate the agreement and therefore the existence of a contract?
What are the three different types of mistake?
Common mistake
Cross-purpose mistake
Unilateral mistake
What are the conditions of mistake?
In all cases, the mistake must precede the contract and have induced it.
What is common mistake?
Where both parties have made the same fundamental mistake
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, ie it must render performance of the contract
impossible or radically different from what the parties anticipated.
What common mistake as to the subject matter of the contract must be made for the contract to be void?
Where both parties are mistaken as to the very existence of the subject matter of the contract. However, a simple mistake as to the quality of the subject matter will not usually be deemed sufficiently fundamental to affect the validity of a contract.
What is cross-purpose mistake?
Where the parties are literally at cross-purposes about some
crucial aspect of the contract.
What is unilateral mistake?
Where only one party is mistaken. Usually arises where there is a mistake as to the very identity of the other contracting party.
When will a mistake about the other contracting party void the contract?
Where there is a genuine mistake as to the identity and not simply a mistake as to the other party’s attributes such as creditworthiness.
In face-to-face situations it will be much more difficult for a person to argue they intended to deal with someone other than the person physically present in front of them.
How do you work out whether the contract is voidable
(for misrepresentation) or void (for mistake) in mistaken identity cases?
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 (ie the rogue) rather than the person
they are pretending to be. As such, the contract is unlikely to be declared void for mistake
although it might be rescinded for misrepresentation.
Where 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 unknown 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 (eg a registered company) it suggests the offer is not addressed to the
rogue. So again 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 a statutory provision or violation of public policy.
What are the consequences of finding a contract illegal?
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 when the contract is formed legally but carried out in a way that is illegal?
If the illegal act is purely incidental to the performance of the contract it is unlikely to affect the validity of the contract: it is enough that the wrongdoer is punished for what they did.
How does knowledge of illegality by the parties affect the contract?
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; the contract is void.
Where one party did not know of the illegal performance of the contract by the other party, the innocent party may be able to enforce it.
On what basis will the courts refuse to enforce contracts at common law?
On the basis that they are contrary to public policy or morality
