Mistake & Illegality

Question 1

What is the effect of mistake on a contract?

Answer 1

It makes the contract void (as if there was never a contract at all)

Question 2

What is the effect of illegality on a contract?

Answer 2

It makes the contract void (as if there was never a contract at all)

Question 3

What is a common preceding mistake?

Answer 3

Both parties have made the same fundamental mistake

• Will not operate if only one party is at fault
• The contract must not make express provision on the matter
• The mistake must be fundamental ie. it must render the performance of the contract impossible or radically different from what the parties intended

eg. A mistake as to the existence of the subject matter of the contract (but not as to the quality of the subject matter)

Question 4

What are the 3 types of preceding mistake?

Answer 4

1. Common mistake
2. Cross-purpose mistake
3. Unilateral mistake

Question 5

What is a unilateral preceding mistake?

Answer 5

Where only one party has make a fundamental mistake - typically about the identity of the other party

• Must be a mistake as to the actual identity rather than an attribute (eg. creditworthiness)
• Obviously much more difficult to show this in face-to-face dealings

Question 6

How can you tell if something is a preceding mistake or a misrepresentation?

Answer 6

If the parties are dealing face-to-face, strong presumption that the parties intended to deal with the person in front of them → not mistake, although might be rescinded for misrepresentation

If the innocent party intended to contract with someone else in a written contract → may be void for mistake

Question 7

What is the difference between misrepresentation & mistake?

Answer 7

Misrepresentation makes a contract voidable - but rescission may be barred, eg. because of a bona fide purchaser

Mistake makes the original contract void (so eg. bona fide purchaser never acquired an interest in the goods)

Question 8

When can contracts be illegal?

Answer 8

At the start (eg. a contract to commit a crime)

or

In the way they have been performed

Question 9

How can contracts be illegal?

Answer 9

Because they violate a statutory provision, the common law or public policy

Question 10

If a contract is illegal because of the way it has been performed, when will it be void?

Answer 10

If it is performed illegally in an incidental way (eg. delivery contract - driver speeding), the overall contract is not void

If it is performed in an illegal way, it will be void if both parties knew

• If one party did not know the contract was being performed in an illegal way, they may be able to enforce it
• Party at fault cannot enforce

Question 11

When might a contract performed in an illegal way be enforceable?

Answer 11

If one party did not know that the contract was being performed in an illegal way (only enforceable by the innocent party)

Question 12

What are covenants in restraint of trade & will they be upheld?

Answer 12

eg. Clause in employment contracts stopping senior employees from working for a competitor when their employment ends

Prima facie they are void as contrary to public policy

BUT they may be upheld if:

• There is a legitimate business interest to protect (eg. trade secrets, customers, goodwill); and
• The clause is reasonable in:
  -Scope (only extends to type of business employer in)
  -Area
  -Time

*ie. Will be upheld only if they offer reasonable protection for that legitimate business interest

Question 13

What is a cross-purpose preceding mistake?

Answer 13

The parties are at a cross-purposes & it is objectively impossible to resolve the ambiguity

eg. Cargo of cotton to be delivered off ship Peerless from Bombay - one party thought it was cotton off ship called Peerless that sailed from Bombay in October, the other thought it was from the ship called Peerless that sailed from Bombay in December

Question 14

What must a mistake be in order to render a contract void?

Answer 14

Fundamental and made prior to entering into the contract