Summary
- A mistake in a contract can affect its validity, potentially making it void, voidable or capable of being corrected depending on the circumstances.
- Mistakes may be common (both parties wrong), mutual (different misunderstandings) or unilateral (one party mistaken).
- Courts may allow remedies such as rectification or rescission, especially where the mistake relates to a fundamental fact.
- This guide explains mistakes in contracts for business owners in Australia, outlining legal consequences and remedies, prepared by LegalVision, a commercial law firm that specialises in advising clients on commercial contracts.
- It provides a practical explanation of types of mistakes, when a contract may be unenforceable and how errors can be corrected.
Tips for Businesses
Review contracts carefully before signing to avoid errors. If a mistake occurs, act quickly and seek legal advice. Minor errors may be corrected by agreement, but serious mistakes can invalidate the contract. Ensure any corrections are clearly documented and agreed by all parties.
A mistake in a contract occurs where one or both parties enter into an agreement based on an incorrect assumption about a key fact or term. While some mistakes may make a contract void or voidable, others may simply be corrected or have no legal effect depending on their significance. This article explains the consequences of finding a mistake in a contract and what you can do to void a contract.
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How Do Courts Typically Deal With Mistakes?
The validity of a contract relies on both parties consenting to the agreement and being willing to be bound by the contractual terms.
If you discover a mistake in a contract, one consequence may be that the contract can become voidable. This means the court determines the contract does not exist based on this mistake. Alternatively, it can rule that the parties never lawfully entered into the contract.
Voiding a contract because it contains a mistake is only one of several options for dealing with an error in a contract. Other remedies may be available depending on your contract’s specific circumstances.
What is a Common Mistake?
A common mistake is when both parties are factually mistaken about the subject matter of the agreement. Where the mistake is significant and involves an error as to a fundamental fact, it may result in the court voiding the entire agreement.
Assume two individuals are engaging in the sale of a painting by a famous artist. Both believe the artwork to be genuine. However, they later discover that the artwork is a counterfeit of significantly less value. This is a common mistake, as both parties were mistaken about the premise of the contract. In this case, a court may void the entire agreement.
If the contract contains a small error relating to the subject matter, it is less likely the court will rule that the contract is void. Instead, the court will probably ‘read the contract down’, meaning that the parts that do not contain the mutual mistake are still valid. Alternatively, the parties may agree to amend the agreement to correct the mistake.
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What is a Unilateral Mistake?
A unilateral mistake occurs when only one party is mistaken.
Assume two individuals are engaging in the sale of land. The seller of the land mistakenly set the price at $10,000 when they intended to sell the land at $100,000. This is a unilateral mistake, as only the seller made an error in the contract. Unlike in a common mistake, the buyer was not also mistaken in this case.
There are several issues to consider regarding unilateral mistakes. First of all, the general rule is that if one of the contracting parties is, or should be, aware of a mistake or mistaken belief, they must do something about the mistake as soon as they can. They cannot simply choose to ignore the mistake or plead ignorance.
Mistaken Identity
Mistaken identity is another type of mistake to be aware of. For example, if somebody is fraudulent in representing who they are, and you are mistaken about their identity, this may constitute misrepresentation and void the contract.
If the other party then claims that there is a mistake in identity (one that would make the contract void), they must argue that the parties did not intend for the terms of the contract to be binding. If this party can prove the other party made a unilateral mistake and did nothing to rectify it, the contract may be void and unenforceable.
A mistake can also occur when all the parties are together simultaneously in the same place. When parties enter a contract face to face, they contract with one another and not with any other party. However, the contract may become void if the person’s identity is fundamental to the agreement. This occurs when you can show that the other person agreed fraudulently. For example, they can pretend to be someone else to induce you into the contract. Alternatively, they may represent themselves as being authorised to agree on behalf of a company when they are not permitted to do so.
Mistake of Presumption
You may have recently entered into a contract that does not reflect what you and the other contracting party discussed.
For example, if you agree with a shop owner. They inform you that a document is a receipt, and you sign it. However, they are aware that the document is, in fact, a contract. This would be an example of a document not reflecting what you and the other party discussed.
In this situation, the contract can be voided if you can prove that it was:
- profoundly different to what you and the other party discussed;
- entered into because of some notable disadvantage such as disability, language barrier, age or health; or
- entered into fraudulently by the other party as a way of inducing you into the agreement.
Rectification as a Remedy for Contractual Mistakes
Rectification is an equitable remedy allowing courts to amend written contract terms to reflect the parties’ true intentions. It is useful when the written contract does not accurately represent the agreed terms.
Consider our earlier land sale example: If both parties can prove they agreed on a $100,000 price, but the contract mistakenly states $10,000, the court may order rectification.
To succeed, the claimant must prove:
- a common intention existed before the written contract;
- this intention continued until the contract execution;
- the written document contains an error; and
- clear evidence supports the claim.
Rectification only applies to mistakes in recording agreed terms, not misunderstandings about the contract’s effects. Courts grant it cautiously to maintain contractual certainty. Prompt legal advice is crucial if you believe rectification may be appropriate in your situation.
Key Takeaways
If you have a contract that contains a mistake or one you do not believe is fair, a court may be able to void your contract. However, if the mistake is insignificant, the parts of the contract that do not contain a mistake may still be enforceable. In these cases, you may be able to agree with the other party to amend your agreement to correct the mistake.
If you need assistance drafting or reviewing your contracts, LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced contract lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
A common mistake occurs when both parties are mistaken about a fundamental aspect of the contract, while a unilateral mistake happens when only one party is mistaken. Common mistakes are more likely to result in a void contract, whereas unilateral mistakes are more challenging to recover from.
Yes, a contract can be voided due to mistaken identity, especially if the person’s identity is fundamental to the agreement or if one party fraudulently misrepresents their identity or authority to enter into the contract.
Yes, you can usually correct minor mistakes, such as typographical errors, without voiding the contract. Courts often allow corrections if the mistake does not affect the core agreement.
You may seek remedies such as rescission or rectification, depending on the circumstances. These remedies aim to either cancel the contract or correct the mistake.
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