Common Law Mistake in Contract

What happens if I have made a mistake when entering into a contract?

If you believe that you should not have entered into a contract but that the terms of the contract are correct then you will need to look fully at the terms and conditions concerning cancellation and termination of the contract.

What happens if there is a mistake in the contract I have entered into?

If the contract that you have entered into contains a mistake then it may affect the validity of the contract. What will happen concerning the validity of a contract will depend on the nature and the kind of mistake made but in most cases this will result in the contract being void.

Mistake

What is meant by mistake?

Mistake in contract can be broken down to into the following four categories:

  1. Common Mistakes 
  2. Unilateral Mistakes
  3. Mutual Mistakes  
  4. Mistakes relating to Identity

Common Mistakes

In the situation of a common mistake the parties are in agreement with each other but have entered into the contract upon the same misapprehension, i.e. they have both relied on the mistake when entering into the contract. In the case of a common mistake which “goes right to the root of the contract” this will result in the contract being void as the mistake was fundamental to the contract.

The following common mistakes will cause the contract to become void:

  • Mistake in relation to the existence of the subject matter – where the subject matter of the contract does not exist of ceases to exist the contract will be void at common law
  • Mistake in relation to the title – in the case where the contract is to transfer property from one person to another but the second person in fact already owns the property but neither party was aware of this the contract will be void at common law
  • Mistake in relation to the performing of the contract – if the obligations specified within a contract are in fact impossible to perform then the contract will be void at common law

What is the case concerning a mistake in relation to the quality of the subject matter of a contract?

If the mistake is in relation to the quality of the subject matter of the contract then the contract will still be valid at common law. An example of this is a contract between two people for the sale of a painting where both parties believed the painting to be painted by a particular artist. The fact that there was a mistake in relation to the artist would not make the contract void at common law.

The only way a contract will be void due to a mistake in relation to the quality of the subject matter if the quality of the goods was fundamental to the contract.

Unilateral Mistakes

  • A unilateral mistake is where one party is mistaken while the other party is aware of this mistake and takes advantage of it when forming the contract. A unilateral mistake of this manner will eliminate the consent required for the proper formation of a contract meaning that there is no contract in existence.
  • In order for a contract to be void due to a unilateral mistake the mistake must relate to the terms and conditions of the contract. A unilateral mistake in relation to the quality of the subject matter of a contract will not result in the contract being void.
  • It is not enough for one party simply to be mistaken in relation to the terms and conditions of a contract. For the contract to be void due to the unilateral mistake the other party must have been aware of this mistake and then used it to their advantage in forming the contract.

Mutual Mistakes

  • A mutual mistake is a misunderstanding between the parties entering into a contract as to the intentions of the other party. A mutual mistake between the parties will eliminate the consent required for the proper formation of a contract meaning that there is no contract in existence.
  • Where there is problems understanding what the agreement actually relates to an objective test will be applies asking the question what a reasonable third party would take the contract to mean.
  • If the mutual mistake relates to the identity of the subject matter the contract will be held to be void. If the mutual mistake relates to the quality of the subject matter  the contract is unlikely to be held to be void.

Mistakes relating to Identity

  • A contract will become void at common law where a mistake was made in relation to the identity of the other party with whom the contract is made and that the identity of that person is central to the formation of the contract.
  • This is difficult to prove as a lot of the time when forming a contract the parties will meet in person. When this is the case there is a presumption that you have intended to do business with the person in their presence making it very difficult for the contract to be deemed void.