Contract FLK1

Q: What is the effect of mistake and/or illegality on a contract?

A: Both mistake and illegality can render a contract void, meaning it is treated as if it never existed.

Q: Why is mistake considered a last resort in contract law?

A: Mistake is difficult to establish as it requires a fundamental error made before contract formation, and courts are cautious in applying this doctrine due to its severe consequences.

Q: What is a 'common mistake' in contract law?

A: A common mistake occurs when both parties share the same fundamental error, typically concerning the existence of the contract’s subject matter, rather than its quality.

Q: Give an example of a common mistake that would void a contract.

A: If both parties mistakenly believe an item exists (e.g., a rare artwork that has been destroyed), the contract may be void due to a common mistake.

Q: What is a 'cross-purpose (mutual) mistake'?

A: A cross-purpose mistake occurs when each party has a different understanding of the agreement, resulting in an irresolvable ambiguity, making the contract void.

Q: Provide an example of a cross-purpose mistake.

A: If two ships with the same name leave the same port at different times, but each party believes a different ship's cargo is involved, the contract may be void for cross-purpose mistake.

Q: What is a 'unilateral mistake' in contract law?

A: A unilateral mistake is when only one party is fundamentally mistaken, usually regarding the identity (not attributes) of the other party.

Q: Would a unilateral mistake void a contract?

A: A unilateral mistake can render a contract void only when it meets strict criteria concerning the mistake’s nature and the other party’s knowledge. In most cases, however, unilateral mistakes about attributes or financial standing do not void the contract.

For a unilateral mistake to void a contract:

1. The Mistake Must Be Fundamental: The mistake must relate to a key element such as the identity of the other party, not characteristics or attributes like reliability or financial standing.

2. The Other Party's Knowledge: If the other party knowingly exploits or misrepresents their identity, the court may be more inclined to find the contract void. For example, if one party deceives the other into thinking they are someone else (e.g., a famous person), it can void the contract.

3. Face-to-Face Dealings: In face-to-face transactions, it is generally harder to prove a fundamental identity mistake since courts assume the seller intended to contract with the person physically present.

Q: Can a contract be void if there is a mistake about the other party's creditworthiness?

A: No, a mistake about attributes like creditworthiness does not void a contract; the mistake must concern the actual identity of the other party.

Q: What is 'illegality' in contract law?

A: Illegality refers to contracts that are void because they involve illegal acts or contravene public policy.

Q: What is 'inherent illegality' in a contract?

A: Inherent illegality exists when a contract is illegal from the start, such as agreements to commit crimes, making it void.

Q: What happens if a legally valid contract is performed illegally?

A: If both parties are aware of the illegal performance, the contract is void. If only one party is aware, the innocent party may still enforce the contract.

Q: What are 'restrictive covenants' in employment contracts?

A: Restrictive covenants limit a former employee's ability to work in competing businesses. They are prima facie void but can be upheld if reasonable and protecting a legitimate business interest.

Q: Under what conditions can a restrictive covenant be upheld in court?

A: A restrictive covenant can be upheld if it is reasonable in scope, duration, and geography and protects a legitimate business interest like trade secrets or client relationships.