Contract law is very broad and feeds into almost every other area of law in some way. One important area of contract law involves the consequences of entering into a contract that has a mistake. What is the most appropriate course of action and what options are available to parties when this occurs? What impact, if any, will a mistake have on the validity of the contract? The available remedies will always depend on the type of mistake. This article will explain the consequences of a mistake in a contract. It will also explain the circumstances in which a contract will become void or unenforceable based on this mistake.

How Are Mistakes Typically Dealt With?

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 becomes void ab initio. This means that the court takes the contract as not existing, 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 a mistake in a contract. This option is only available when the mistake is one of fact, or a “common mistake”. If the mistake is more insignificant, the contract may still be enforceable.

What is a Common Mistake?

A common mistake occurs when both parties are factually mistaken about the subject matter of the agreement. This kind of mistake may mean a court can void the entire agreement.

If, however, 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 a mistake are still valid.

What is a Unilateral Mistake?

A unilateral mistake occurs when one party is aware, made aware, or ought to be aware, of a mistake in the agreement. This can happen in several ways.

First of all, if one of the contracting parties is, or should be, aware of a mistake, they must do something about the mistake as soon as they can. They cannot simply choose to ignore the mistake or plead ignorance.

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 is able to 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 in the same place and at the same time. When parties enter into a contract face to face, they contract with one another and not with any other party. However, if the identity of the person is fundamental to the agreement, the contract may become void. This occurs when you can show that the other person entered into the agreement fraudulently. They could have done this by pretending to be someone else in order to induce you to enter into the contract.

A Mistake of Presumption

You may have recently entered into a contract that does not reflect what you and the other contracting party discussed. In this situation, the contract can be made void if you are able to prove the contract was:

  • profoundly different to what you and the other party had discussed; and
  • entered into because of some special disadvantage (disability, language barrier, age or health); or
  • entered into fraudulently by the other party as a way of inducing you into the agreement.

Key Takeaways

If you have a contract 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. If you need assistance reviewing your contract and assessing your options, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Lachlan McKnight
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