Cecily Zamora
Mistakes in contract law occur when one or both parties hold a false belief about key facts, terms, or identity. These can be categorised as unilateral, mutual, or common mistakes. A unilateral mistake occurs when one party is mistaken about the contract terms or subject matter, while a mutual mistake occurs when both parties are mistaken about the same material fact within the contract. A common mistake occurs when both parties hold the same mistaken belief about the facts. Mistakes of law occur when a party enters into a contract without understanding or knowing about the relevant law, while mistakes of fact occur when a party enters into a contract with a mistaken understanding of an important fact. These mistakes can have significant consequences, potentially rendering a contract void or voidable, and it is essential to seek legal advice to navigate this complex area of law.
| Characteristics | Values |
|---|---|
| Type of Mistake | Unilateral, Mutual, Common, Mistake of Law, Mistake of Fact |
| Unilateral Mistake | One party is mistaken about the subject matter or terms of the contract |
| Mutual Mistake | Both parties are mistaken about the same material fact within the contract |
| Common Mistake | Both parties hold the same mistaken belief about the facts |
| Mistake of Law | A party enters a contract without knowledge of the law in the country |
| Mistake of Fact | Both parties enter an agreement under a mistaken belief about a fact essential to the agreement |
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Mutual mistake
For a mutual mistake to render a contract void, the item the parties are mistaken about must be material. This means that the mistake must concern a material aspect of the contract, such as its essential purpose. In such cases, the question of the assumption of risk arises, and this risk may be determined contractually or according to custom.
It is important to distinguish mutual mistake from mutual assent, which occurs when both parties believe there is a "meeting of the minds", only to discover later that they were each mistaken about the other party's intended meaning. In such a situation, no contract is formed since mutual assent is required in the formation stage of a contract.
To invoke the doctrine of mutual mistake, a party must present proof that the agreement does not represent a "meeting of the minds" in some material respect. The mutual mistake must be substantial and must exist at the time the contract is entered into. The moving party must overcome a heavy presumption and prove, by clear and convincing evidence, that the agreement did not express the intentions of either party.
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Common mistake
In contract law, a common mistake occurs when both contracting parties hold the same mistaken belief about the facts. This is distinct from a mutual mistake, where both parties are mistaken but about different parts of the contract.
The House of Lords case of Bell v Lever Brothers Ltd established that a common mistake can void a contract only if the mistake is sufficiently fundamental to change the identity of the subject matter from what was contracted, making the performance of the contract impossible. For example, in Strickland v Turner (1852), there was a contract for the annuity of a person’s life, but the person was already dead. This was a fundamental mistake as it was impossible to fulfil the contract.
In contrast, a mistake as to the quality of the subject matter is generally not considered a sufficiently fundamental mistake. For example, if a person purchased what they believed to be a famous footballer's boots, but it was later revealed that they were not, this would be a mistake as to the quality of the subject matter. However, this would not be a fundamental enough mistake to void the contract as it would still be possible to complete it.
A common mistake is different from a unilateral mistake, which occurs when only one party is mistaken about the subject matter or terms of the contract. Unilateral mistakes do not usually make a contract void, but they can be fixed through contract reformation or by cancelling the contract.
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Unilateral mistake
In most cases, a unilateral mistake does not make a contract void. Traditionally, this is caveat emptor (let the buyer beware), and under common law, it is caveat venditor (let the seller beware). However, a contract might be voidable due to a unilateral mistake if any of the following conditions are met:
- One party relied on a statement by the other about a material fact that the second party knew or should have known was mistaken by the first party.
- A clerical error that did not result in gross negligence.
- For mechanical calculations, a party may be able to set aside the contract provided that the other party does not try to take advantage of the mistake, or 'snatch up' the offer (involving a bargain that one did not intend to make, betrayed by an error in arithmetic, etc.).
There are two ways to fix a unilateral mistake in contracts: contract reformation and contract cancellation. Contract reformation involves changing the written agreement to reflect the parties' original understanding. This is only granted if one party was not aware that the writing did not conform to the actual agreement. Contract cancellation, also known as contract rescission, is where the contract is completely cancelled and the parties are restored to their positions before the contract was entered into. Rescission is only available if the non-mistaken party knew or should have known about the unilateral mistake.
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Mistake of law
A mistake of law is a valid defence for a breach of contract. It occurs when a person signs a contract without understanding or knowing about a law, or when they are given a false definition of a law by an official person or document.
A mistake of law can be distinguished from a mistake of fact. A mistake of fact occurs when both parties enter into an agreement under a mistake as to a matter of fact essential to the agreement. This mistake renders the agreement voidable. However, an erroneous opinion as to the value of the thing that forms the subject matter of the agreement is not deemed a mistake of fact. For example, if a woman sells a stone under the belief that it is a topaz, this would not be considered a mistake of fact.
A mutual mistake, a type of mistake of fact, occurs when both parties to a contract are mistaken about the same material fact within their contract. This material fact must be central to the purpose of the contract. For instance, in the case of Strickland v Turner (1852) 7 Ex 208, there was a contract for the annuity of a person's life, but the person was already dead. This was considered a fundamental mistake. On the other hand, a unilateral mistake occurs when only one party is mistaken about the subject matter or the terms contained in the contract agreement. This type of mistake is generally more common than mutual mistakes.
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Mistake of fact
There are two types of mistake of fact: unilateral mistake and mutual mistake. A unilateral mistake occurs when only one party is mistaken about the subject matter or terms of the contract. This is the more common type of mistake and can occur during negotiation, potentially affecting the contract's outcome. Unilateral mistakes can be fixed through contract reformation, allowing both parties to fully understand the terms, or by cancelling the contract altogether.
A mutual mistake, on the other hand, occurs when both parties hold the same mistaken belief about the facts or terms of the contract. This type of mistake renders the contract voidable, meaning the contract may be voided or changed when the true information comes to light. For a mutual mistake to void a contract, the mistaken fact must be material, meaning it is central to the purpose of the contract. An example of a mutual mistake would be a construction contract where the parties were unaware of the presence of bedrock just beneath the soil, significantly impacting the cost and duration of the project.
It is important to note that not all mistakes will result in a void contract. For example, an erroneous opinion about the value of the subject matter, such as mistaking a stone for a topaz, would not be deemed a mistake of fact. Additionally, a court may still find a contract binding if the words and actions of the parties point to a single, clear interpretation of their agreement, even if a mistake was made.
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Frequently asked questions
A mistake in contract law occurs when one or both parties enter into a contract based on a false belief about key facts, terms, or identity.
Common law has identified three different types of mistakes in contract law: the unilateral mistake, the mutual mistake, and the common mistake.
A mutual mistake occurs when both parties to a contract are mistaken about the same material fact within their contract. In other words, both parties have an erroneous belief.
A unilateral mistake occurs when only one party is mistaken about the subject matter or the terms contained in the contract agreement.
