Vitating factors - Mistake and Illegality

Question 1

Mistake

Answer 1

Doctrine operates only 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.

Question 2

Mistake - common mistake

Answer 2

Both parties have
made the same fundamental mistake.

Strict limitations:
* 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.

Question 3

Mistake - cross-purpose mistake

Answer 3

One or other party may
assert that a contract exists, each on terms favourable to that party, objectively it is impossible
to resolve the ambiguity over what was agreed.

Question 4

Mistake - unilateral mistake

Answer 4

Where only one party is mistaken.

Often relied on where there has been a mistake as to the identity of the other contracting party.
If the mistake is as to anything less then it will not generally affect the validity of the contract.

Question 5

Mistake or misrepresentation?

Answer 5

(a) 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although it might be rescinded for misrepresentation.

(b) 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.

(c) 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.

(d) 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.

Question 6

Illegal contracts

Answer 6

Reason for contract to be void.

A contract is illegal where its formation, purpose or performance involves the commission of a legal wrong.

If the
illegal act is purely incidental to 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. e.g. deliverer of goods caught speeding.

Where both parties were aware that performance was illegal
then contract is void.
If only one party, innocent party may be able to enforce contract.

Question 7

Illegality - Contracts illegal at common law

Answer 7

Courts will refuse to enforce some contracts at common law on the basis that they are contrary to public policy or morality e.g. clauses that restrain trade - restrain senior employees from working for competitor.

However, restraints of trade may be enforceable if:
* there is a legitimate business interest to protect eg customers, employees and trade secrets; and
* the restraint is reasonable in terms of geographical area, duration and scope of
prohibited activities.

Question 8

Illegality - Contracts illegal at common law - Covenants in restraint of trade

Answer 8

If a restraint of trade is reasonable then the party who imposed it may apply for injunctive
relief to prevent or curtail a breach or otherwise apply for damages
to compensate for loss suffered as a result of the breach.