Mistakes in Contract Law
In business, contracts form the basis of transactions and relationships. Their accuracy and clarity are crucial to ensure the smooth and straightforward functioning of a business at all levels. So, when a mistake becomes apparent it can have far reaching effects, causing frustration and extensive inconvenience for all involved.
In contract law, parties that sign a contract agree, in law, to be bound to the terms of that contract. It is the responsibility of each party to the contract to satisfy themselves of the meaning of the proposed terms before entering into the contract. If an agreement is made that is based on a shared misunderstanding of a fact, or a mistake, it is possible that the contract could be unworkable or rendered void. Mistakes can be a cause of dispute in contract law, particularly where an error or change of circumstances becomes clear after the contract is signed.
Where losses are incurred as a result of a contract becoming unworkable it may be possible to make a claim, even though the fault may not lie with either of the parties who have signed the contract. If you are facing a dispute over the terms of a contract as a result of a mistake, it is highly recommended to take expert legal advice at the earliest possible opportunity.
Contract law can be incredibly complex, so if you are facing a loss or a dispute as a result of a mistake or frustration, speak to us. Our contract law solicitors can offer advice on a dispute or claim at any stage, offering guidance on the best course of action to take for the best outcome for your business.
What is mistake in contract law?
There are various ways that either or both parties to a contract may make a mistake. Each case needs to be considered on its individual merit to ascertain what has happened and what are the most effective steps to take towards a resolution – where a resolution is possible.
There are three types of mistake that are recognised in law:
- common mistake
- mutual mistake
- unilateral mistake.
What is common mistake?
A common mistake occurs when both parties to a contract share a mistake; for example, where both parties believe something that is untrue, or intended one thing but the terms of the contract record another. A common mistake may render performance of their contractual obligations impossible.
When this happens, the contract may be rectified to record the real intentions of the parties. However, if that is not possible a court may decide that the contract is void as a result, cancelling the contract or making it as though it had never existed. Alternatively, if the mistake is not sufficiently serious, and there is no remedy available, the contract may be left to stand as it is. It is unusual for a contract to be voided as a result of a common mistake. It is more likely that a court will rule that no contract existed, or that a contract does exist, and it can be rectified, or that one party is in breach of the terms.
There are a number of conditions that must apply in order for a common mistake to have been made:
- common intention: there must be a common assumption up until the point that the terms of the written contract are agreed. The parties must maintain a common intention which is not recorded in the written agreement, meaning that the agreement does not reflect an accurate record of the terms agreed.
- allocated risk: a common mistake cannot be said to have occurred where the contract allocates the risk of a missing event by mistake.
- state of affairs: where a state of affairs is found not to exist, the fault cannot be attributable to either party.
- impossibility: where the state of affairs is found not to exist, this makes adhering to the terms of the contract impossible.
What is mutual mistake?
A mutual mistake can be said to have occurred when both parties are operating under a misunderstanding about different things, or in other words, at cross-purposes with each other. When a mistake is mutual it may mean that the consent given is negated, and the agreement will either be void, or regarded as never having existed at all as a result. There was never a meeting of minds between the parties to form a contract.
This is different from a common mistake where the error of both is about the same thing. A court will assess whether a mistake is mutual or common by asking each party what they each understood to have been.
What is a unilateral mistake?
A unilateral mistake occurs when only one of the two parties to a contract is mistaken and the other party is aware of the mistake and takes advantage of this. When this occurs, the contract is not binding, because there cannot be a binding contract where one party is unaware of the mistake – it is not a true or fair agreement. If an error of judgment as to the quality of the subject matter of the contract is the issue, then unilateral mistake does not apply.
What remedies are available?
The method of resolving a dispute of this nature depends on the exact circumstances of the case. It can be complex and expert legal advice is strongly recommended. Broadly speaking, there are two main types of remedy available when a mistake is made in contract law. These are:
- Rescission: where the contract is void, or rescinded, and the parties are restored back to their pre-contractual positions.
- Rectification: the written agreement can be amended so that it accurately reflects the intended agreement made by both parties, with the mistake removed. This remedy is only possible in relation to written agreements.
Rectification may lead to either party who has suffered a loss being able to recover what they are entitled to.
Why choose us?
Mistakes can happen in a range of different ways when forming an agreement and knowing how they can be rectified can be challenging. Some cases are relatively straightforward to remedy, whereas others can take more unravelling.
At Lupton Fawcett, we understand the frustrations that come with a contract law dispute; they can be notoriously complicated to navigate without expert knowledge. Our experienced litigation solicitors will be able to offer advice to you about whether a contract remains valid or should be considered void, and how to rectify the situation appropriately under the circumstances.
If you are in a contractual dispute, whether you are seeking to bring or defend a case for mistake or frustration, our legal experts can help. We will get to know you and your business so that we can offer you a bespoke service, giving you the full benefit of our resources and specialists to ensure you get the best resolutions available.
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