The area of contract law is so broad that it feeds into almost every area of law in one way or another. One important area of contract law that needs to be understood is 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 the parties when this occurs? What impact, if any, will a mistake have on the validity of the contract? Given we are all only human, mistakes are inevitable in contracts. The available remedies to the parties will always depend on the type of mistake that has been made. The following article will explain the consequences of a mistake in a contract, and explain in what circumstances a contract will become void or unenforceable based on this mistake.

How mistakes are typically dealt with

The validity of the contract relies on, amongst other things, both parties consenting to the agreement and being willing to be bound by the contractual terms.

If a mistake is discovered in a contract, one consequence may be that the contract becomes void ab initio. This means that the contract is taken to have never existed based on this mistake, or was never lawfully entered into by the parties. Nullifying 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 particular mistake is one of fact. If the mistake is more insignificant, then 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 warrant a Court voiding the entire agreement. If, however, the contract contains a negligible error relating to the subject matter, it is less likely that the contract will be made void, and more likely that the Court will read down the contract to the extent of the mistake.

What is a unilateral mistake?

As you might imagine, a unilateral mistake occurs when one party is aware, made aware, or ought to be aware, of a mistake in the agreement. There are several circumstances under which a unilateral mistake occurs. First of all, if one of the contracting parties is, or should be, aware of a mistake, then they must do something about the mistake as soon as is practicable. They cannot simple 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), then they must argue against the presumption that both parties intended to be bound by the terms of the contract. If this party is able to prove in Court that the other party has made a unilateral mistake and done nothing to rectify this, the contract may be void and unenforceable.

Another possible scenario where a mistake can occur is when all the parties are together in the same place and at the same time. There is a presumption that when parties contract face to face, the parties are contracting with one another and not with any other party. Under common law, however, if the identity of the person is fundamental to the subject matter of the agreement, the contract may become void. This occurs when it can be shown that the person entered the agreement fraudulently by pretending to be someone else to induce the other party to enter the contract.

A mistake of presumption

If you have recently entered into a contract that does not reflect what you and the other contracting party had discussed, 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, health); or
  • Entered into fraudulently by the other party as a way of inducing you into the agreement.

Conclusion

If you have entered into an agreement that you do not believe was fairly entered into, you may be entitled to have your contract set aside by a court. It is worth having a contract lawyer review the agreement to give you advice on what options are available and what your best approach may be. For assistance in drafting or reviewing a contract, contact LegalVision on 1300 544 755 and get a free quote from one of our team of contract lawyers.

Lachlan McKnight

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