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If you run a business, you will likely enter into contracts often. On some occasions, you may enter into a contract based on a mistaken belief. You may have certain rights to end the contract if you have done so. Alternatively, you may not have to complete what you agreed. This depends on the type of mistake you and the other party made. Navigating this area of law can be tricky because of the specific rules in the UK. This article will explain the concept of ‘mistake’ in contract law.
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What is a Mistake in Contract Law?
In contract law, a ‘mistake’ is a wrong belief held by one of the two parties before you enter into a contract. It is worth keeping in mind that this definition of ‘mistake’ is technical and carries a specific legal meaning. This mistake may be about the:
- identity of the other party;
- subject matter of the contract (for example, if you thought you were purchasing free-range eggs but you were actually getting caged hen eggs);
- terms of the contract (for example, if you thought you were paying in monthly instalments but you are instead paying in weekly instalments); and
- nature of the contract.
Over time, English common law has refined the rules on mistake. Each negotiating party has an obligation to the other under English law to refrain from deceiving them into signing a contract. In most cases, it is not legally necessary to talk during discussions, but you must be careful not to give false information. A contract could be voidable even in the case of an innocent mistake. A voidable contract means it is unenforceable.
A misled party may choose to either set aside the agreement or pursue damages, or occasionally both. The specific rules, therefore, will vary depending on the exact factual situation. At the same time, there are different rules on the type of mistake. For example, there is a difference between mutual and unilateral mistakes.
Different Types of Mistakes in Contract Law
As mentioned, the rules on mistake will vary depending on who made the mistake and how. For example, you may have a:
- common mistake;
- mutual mistake; or
- unilateral mistake.
1. Common Mistake
One of the types of mistake is a ‘common mistake’. A common mistake is where both parties are mistaken about the same thing. The shared mistake must be about something that is a serious aspect of the contract – it cannot be about something not sufficiently serious.
In this type of situation, a court might decide that a contract was not created at all. Equally, it may also decide that a contract had been created but that your contract is void. This is called a ‘voidable contract‘.
2. Mutual Mistake
A mutual mistake is when both parties are mistaken about different things within the contract. This is sometimes referred to as when parties are at ‘cross-purposes’ with one another. Sometimes, this can be where the parties have misinterpreted the contract terms. A contract is unlikely to be declared void if both parties make a mistake regarding the content of the agreement. If there is only one interpretation of what was agreed upon based on the words and actions of the parties, the contract will still be enforceable.
In this type of situation, a court might find that there is only one interpretation of the contract which would have been reasonable. If this is the case, you will still have a binding contract. However, if this is not possible, a court may find that you have a voidable contract, which means that your agreement may not amount to a legally enforceable contract.
3. Unilateral Mistake
A unilateral mistake is when one party is mistaken, and the other party should have known about that mistake.
However, if one party makes a mistake about the facts of the contract, the situation is different. For example, if a person thought he was buying a vase from 1750, but the vase is from 1790, and the seller knows this, the contract might not bind the buyer. This only applies if the seller is aware of the buyer’s mistake.
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Potential Remedies
In situations where a mistake has been made, there are remedies available. If successful in proving the mistake, the courts may find the agreement void.
The remedy for mistakes include:
- rescission – this puts the parties in their pre-contractual positions. This remedy is the one that makes the contract void; or
- rectification – this is where the written agreement is corrected to reflect the actual agreement reached by the parties.
For a court to grant rectification, the party seeking rectification must be able to prove that the agreement does not reflect the parties’ intentions. Overall, the remedies depend on the facts between the parties of the contract.
It is best to contact a lawyer who will work with the parties to reach an agreement to resolve the situation. If the matter escalates, it will be for the court to decide whether to uphold the agreement. Generally, courts prefer to keep the contract and adjust the obligations through express or implied contract terms.
Speaking to a qualified lawyer about your contracts and their enforceability before you use them is also important. A lawyer can review your contract to ensure its suitability for your unique business.
Key Takeaways
If you have entered into a contract based on a mistake about a person’s identity, a term of the contract, or a fact about the product you bought, you can use the law of ‘mistake’. The law of mistake has been developed through the common law.
For more information, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
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