Reading time: 6 minutes

Contract law is very broad. It can consist of both written contracts and verbal contracts, and contracts interact with many other areas of law. 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. Depending on the specific circumstances of your contract, other remedies may be available.

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.

Assume two individuals are engaging in the sale of a painting by a famous artist. Both believe the artwork to be genuine. However, it is later discovered that the artwork is a counterfeit of significantly less value. This is a common mistake, as both parties were mistaken as to the premise of the contract.

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 the mutual mistake are still valid.

What is a Unilateral Mistake?

A unilateral mistake, on the other hand, will occur when only one party is mistaken.

Assume two individuals are engaging in the sale of land. The seller of the land mistakenly sets the price at $10,000, when in fact, their intent was to sell the land at $100,000. This is a unilateral mistake, as only the seller made an error in the contract. The buyer was not also mistaken in this case, unlike in a common mistake.

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.

If the buyer in the example above was aware of the mistake that the seller had made, and did nothing to inform the seller once becoming aware, there may be a remedy to the seller. However, note that it is often harder to recover if you made a unilateral mistake in a contract. This is to protect the interests of the innocent party, in this case the buyer, even if the mistaken party suffers from the mistake.

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 as to their identity, this may constitute misrepresentation and will 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 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.

Directors' Duties Complete Guide

If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.

Download Now

A 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, say that you and a shop owner are entering into a contract. They inform you that a document is a receipt, and you sign it. However, they knew that the document was 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 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.

For instance, if somebody in a position of power over you (your doctor or solicitor, for example) significantly misrepresents the nature of a contract to you, or you are in a position where you are incapable of understanding a contract, these are reasons why a contract may be set aside.

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. 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.

Frequently Asked Questions

I signed a contract that contains a mistake. Does this invalidate the contract?

It depends on the type of mistake, and the circumstances around that mistake. For example, if the mistake is inconsequential or does not concern the main purpose of the contract, it is unlikely that a court will invalidate the contract.

What occurs when a contract is void?

When a contract is void, the court will assume that the contract never existed.

Webinars

Key Considerations When Buying a Business

Thursday 11 November | 11:00 - 11:45am

Online
Learn which questions to ask when buying a business to avoid legal and operational pitfalls, so you can hit the ground running. Join our free webinar.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer