When we agree to enter into a contract, we do so after gaining information regarding the agreement. If we’re satisfied with what we have been presented with, we agree to be legally bound.
However, in some circumstances, the information the contract was based on is no longer true. In this case, both parties have been deceived or let down. This is known as a common mistake.
When a common mistake occurs, there’s a few things to take into consideration before you proceed with a course of action. Keep reading to learn more.
What Is Common Mistake In Contract Law?
A common mistake is where both parties have made a fault or error in an essential fact regarding the contract. According to Australian court judgments, there are two scenarios where a common mistake will occur:
- Where both parties were relying on an objective fact
- The quality of something the contract was based on is distinctly different to what both parties had in mind
An error will not be considered a common mistake if it resulted from the carelessness or deception of one of the parties to the contract.
What Is A Mistake Of Fact?
A mistake of fact is one of the ways a common mistake can occur. This is when the parties have taken an untrue statement to be a fact and created a contract based on it.
Paul agrees to sell Nadia an original copy of a classic novel. They both agree on a price and time for the exchange. A few days before the sale, Paul is informed the book is, in fact, not an original copy, but rather, a second edition.
As Nadia was set to purchase the book due on the basis of it being an original copy and Paul had been deceived about the origins of his novel, this can likely be considered a common mistake.
What Happens If There Is A Mistake In A Contract?
If there is a mistake in the contract, the contract can be declared void or voidable in equity. However, courts may not jump to this resolution lightly. Instead, they may attempt to find an alternative way to rectify the matters.
Types Of Mistake In Contract Law
Aside from common mistakes, there are a number of mistakes in contracts that can occur. They can all be summarised into three main categories:
- Common mistake
- Unilateral mistake
- Mutual mistake
We explain these in more depth below – keep reading to learn more!
What Is Mutual Mistake In Contract Law?
A mutual mistake is when the parties to a contract have misinterpreted the other party, resulting in a misunderstanding regarding the terms of the contract.
This can be an error made regarding a sale or offer, where both parties have something different in mind to each other, and are often unaware of what the other is thinking.
Steven runs a hardware store that is currently open in two separate locations. Hannah is searching for a job and Steven offers her a position at his store.
Hannah believes the offer is for the first location, which is much closer to where she lives. However, Steven was actually talking about the second location. Upon discovering this, Hannah lets Steven know she cannot take the position after all.
Hannah and Steven’s situation is likely to be considered a mutual mistake, as both parties had a misunderstanding.
What Is A Unilateral Mistake?
A unilateral mistake is where one party makes a mistake regarding the facts of the contract, but the other party does not. This is more common than the other types of mistakes in contract law.
Joey is looking to purchase a bottle of wine that is exactly 20 years old. The oldest wine Malcolm has is 18 years old, however, Joey calculates incorrectly and decides to purchase the 18 year old wine from Malcolm. Aware of his intention to purchase an older wine, Malcolm stays quiet and allows the sale to proceed.
As having the correct information on the age of the wine was fundamental to the purchase and could have been prevented by Malcom, it can be considered a unilateral mistake.
Furthermore, omissions such as Malcolm’s in this scenario can also amount to a breach of the Australian Consumer Law with respect to misleading and deceptive conduct, so it’s always wise to be transparent when entering into contracts.
Can A Contract Be Void For Mistake?
If a mistake has occurred that is central to the contract, without which the contract would never have existed to begin with, then the answer here is yes. Courts do have the power to render the contract void- making it no longer enforceable.
In order for courts to declare the contract void, it will need to be proven that it was a mistake where both parties were unaware of the error (such as a common or mutual mistake) and that the mistake was fundamental to the contract.
A contract cannot be declared void for a mistake that is insignificant or minor, as the rest of the contract may still be valid.
What Are The Consequences Of A Mistake In Contract?
The consequences of a mistake in a contract will depend on the mistake itself. As we mentioned above, a mistake can lead to the contract no longer existing after becoming void. This is why it’s extremely important to have a contract reviewed by a legal professional.
In other instances where one party is not completely innocent regarding the mistake (such as a unilateral mistake), the action taken by the aggrieved party can be more severe than simply being able to walk away from the contract.
Where a breach of the Australian Consumer Law has occurred, the ACCC can step in to enforce the contract.
I Made A Common Mistake Before Signing A Contract – What Do I Do?
It’s always important to have a contract reviewed by a professional so they can pick up on any errors that may end up costing the contract all together.
If you have noticed a mistake on the contract prior to entering into it, you can always choose to renegotiate the contract and have it redrafted, or you can opt out of it completely (as there is no legal obligation to be bound by it yet).
I Made A Common Mistake After Signing A Contract – What Do I Do?
If a common mistake has been found after a contract has been signed and the parties cannot mutually reach an agreement on how to proceed, then the courts will need to be involved.
As we mentioned earlier, courts can declare the contract void or seek to remedy the situation in another way.
What Is Non Est Factum?
Non est factum applies when a party to a contract did not have the capacity to understand what they were agreeing to when they signed the contract.
This means that they did not grasp the basic nature of the agreement. Non est factum translates to ‘not my deed’ from Latin. When it is found to apply, the party claiming cannot be bound by the contract.
Mistakes can occur commonly in contracts. However, they can be prevented with the right legal help.
A mistake can cost you an agreement or worse, so it’s always best to take steps that can aid in making sure the situation doesn’t arise. To summarise what we’ve discussed:
- There are three main types of mistakes in contracts: common, mutual and unilateral
- A common mistake usually occurs when both parties have been mislead about a key fact regarding the contract
- A mutual mistake is where both parties were unaware of the intention of the other party causing a miscommunication
- A unilateral mistake occurs where one party is aware of the mistake but doesn’t inform the other party
- If the mistake is significant enough, courts can declare the contract void
- Non est factum applies when the person signing the contract was not able to grasp the nature of the document
- Getting your contracts reviewed by a legal professional is the best way to avoid mistakes
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