Mistakes in contract law

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

In certain cases, a contract can be ended if one of the parties has made a mistake in some respect when entering into the contract. If you believe you should not have entered into a contract because of a mistake, even though the terms of the contract are correct, you will need to consider any terms and conditions concerning cancellation and termination of the contract.

If the contract contains a mistake, it may affect the validity of the contract. This will depend on the nature and the kind of mistake made, and in many cases will result in the contract being void.

Mistake

There are four types of mistake in contract law:

  1. Common mistake.
  2. Unilateral mistake.
  3. Mutual mistake.
  4. Mistake relating to identity.

Common mistake

Where there is common mistake, both/all the parties have entered into the contract upon the same misapprehension, ie. they have each relied on that mistake when entering into the contract. In the case of a common mistake going 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 render the contract void and it will be as though the contract never existed:

  • Mistake in relation to the existence of the subject matter: where the subject matter of the contract does not exist, or ceases to exist.
  • Mistake in relation to title: where the contract is to transfer property from one person to another, but the other already owns the property and neither party was aware of this.
  • Mistake in relation to performing the contract: if the obligations specified within a contract are impossible to perform.

Mistake as to quality

If the mistake is in relation to the quality of the subject matter of the contract, 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 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.

However, the contract may be void if there is a mistake in relation to quality if the quality of the goods was fundamental to the contract.

Unilateral mistake

A unilateral mistake occurs where only one party is mistaken as to the terms or subject matter. Often, this can lead to an unfair advantage for one of the parties. For a unilateral mistake to render the contract void, the mistake must relate to the fundamental 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 – unless the term as to quality is fundamental to the contract.

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 mistake

A mutual mistake is a common misunderstanding between the parties entering into a contract as to the intentions of the other party or a material fact in relation to the contract. A mutual mistake will render the contract voidable: if the mistake goes to the heart of the heart of the contract, the contract is void. If the mutual mistake relates to the quality of the subject matter the contract is unlikely to be held to be void. If, in light of the parties’ words and conduct, there is only one possible interpretation of what was agreed – the contract will still be valid.

Where there is a dispute as to what the agreement relates, an objective test will be applied: ie. what would a reasonable person believe the contract means.

Mistakes as to identity

If there is a mutual mistake relating to the identity of the subject matter, the contract will be void.

A contract will become void at common law where a mistake was made as to the identity of the other party with whom the contract is made; and the identity of that person is central to the formation of the contract.

This is often difficult to prove because when a contract is negotiated and entered into, the parties will usually meet in person. There is, therefore, a presumption that the parties intended to do business with the person in their presence – making it very difficult for the contract to be deemed void.