Mistake and Illegality Flashcards
(33 cards)
What should you be able to recognize regarding contracts after completing this chapter?
When a client may need to argue that a contract is void for mistake or illegality
This includes understanding the different types of mistake and when a contract may be illegal.
What are the three different types of mistake?
- Common mistake
- Cross-purpose mistake
- Unilateral mistake
Define common mistake.
A 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
Provide an example of a common mistake.
Both parties are mistaken about the existence of the subject matter of the contract, such as a car that has been destroyed.
What is a cross-purpose mistake?
A situation where both parties have different understandings of a crucial aspect of the contract.
What was the outcome of the case Raffles v Wickelhaus?
The court found the contract void due to a latent ambiguity about which ship named ‘Peerless’ was referenced.
Define unilateral mistake.
A mistake where only one party is mistaken, often regarding the identity of the other contracting party.
What is a crucial aspect of unilateral mistake?
The identity of the other party must be of vital importance for the contract to be rendered void.
Provide a case example of unilateral mistake.
Cundy v Lindsay, where a rogue impersonated a reputable company to order goods.
What is the general rule regarding contracts in face-to-face situations?
The innocent party intends to deal with the person in front of them rather than someone else.
What distinguishes illegal contracts from void contracts?
Illegal contracts involve the commission of a legal wrong at formation or during performance.
What happens if a contract is illegal at the time of formation?
The contract is generally void and no recovery of benefits is allowed.
What is an example of an illegal contract?
A contract to commit a crime.
What is the significance of St John Shipping Corp v Joseph Rank Ltd?
The court held that the contract was not void even though the charterers committed an offence, as the statute did not prohibit contracts performed in breach of the load line rule.
What is the outcome if both parties are aware of illegal performance?
Neither party is entitled to enforce the contract; it is void.
What is an example of a contract illegal under statute?
Contracts that have the effect of restricting trade within the UK, as per the Competition Act 1998.
What are covenants in restraint of trade?
Clauses that are prima facie void as they are contrary to public policy, such as clauses in employment contracts that restrain employees from working for competitors.
Under what conditions can restraints of trade be enforceable?
- There is a legitimate business interest to protect
- The restraint is reasonable in terms of geographical area, duration, and scope
Provide an example where covenants in restraint of trade may be unenforceable.
Covenants in the contracts of employment of coach drivers may be unenforceable if they have no legitimate business interest to protect.
What is the likelihood that covenants in restraint of trade for coach drivers will be enforceable?
Unlikely due to lack of legitimate business interest
Coach drivers are not privy to confidential information and their departure is unlikely to adversely affect business.
What must any restraints of trade for senior employees be?
Reasonable
Reasonable restraints are limited to specific geographical areas and appropriate timeframes.
What is an example of an unreasonable restraint of trade for senior employees?
Restraining them from working for a coach operator in Scotland
The restraint must be relevant to the employer’s business interests.
How does the duration of restraint affect its reasonableness?
Longer durations are more likely to be unreasonable
Duration must be appropriate considering the employee’s status.
