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Mistakes in Your Contract: What Effect Do They Have?

Mistakes happen. In an ideal world, everything would go as planned and you would make no mistakes. However, in the real world mistakes are quite common. You could make mistakes while starting a business or mistakes while running a business. You could make end of financial year mistakes or non-disclosure agreement mistakes. And it is not just you: even governments can make mistakes with legislation. It should come as no surprise then, that you could make mistakes in your contract.

What do mistakes in contracts look like?

From a legal perspective, a contract is an agreement where the parties have consented to being legally bound. Mistakes in contracts can occur in the communication of the agreement or in the recording of the agreement.

Additionally, contract law recognises several different types of mistakes. These include:

  1. Common mistakes: where the parties to the contract share a mistaken belief about the agreement. This can happen when there is a mistake about some aspect of the property, like the quality, authenticity, or existence of a product, or where there is an error in the recorded agreement.
  2. Mutual mistakes: where the parties to the contract have mistaken beliefs about different aspects of the agreement. This can occur when there are conflicting misunderstandings about the property in the contract.
  3. Unilateral mistakes: where only one party has a mistaken impression about the agreement. This can happen when one party actively deceives the other party from the outset, or when one party becomes aware of a mistake and does nothing to rectify it.

It is best practice to negotiate an agreement with the other party about how to rectify the mistake when a mistake is found. However, when that is not possible, the courts generally resolve the dispute in one of three ways:

  1. They decide that the contract is void or voidable.
  2. They enforce the contract with the mistake corrected.
  3. The contract is enforceable with the mistake as is.

When is a contract void or voidable?

Since a fundamental mistake with the agreement could impair the consent to be legally bound, these mistakes can make a contract void or voidable.

A void contract is treated as if it never existed. Mistakes that can make a contract void include:

  • A common mistake, where the property that both parties believe existed at the time of the contract, in fact did not exist.
  • A mutual mistake, where the conflicting understanding is so severe that the courts cannot find an agreement.
  • A unilateral mistake, where a party had a mistaken belief about the effect of the agreement, was unable to understand the written document, and was not careless.

With voidable contracts, the innocent party can choose to make the contract void or continue with the contract. Naturally, voidable contracts usually involve a unilateral mistake. A contract may be voidable where one party to a written contract is aware that the other party has a serious misunderstanding about a fundamental term of the contract and actively attempts to prevent the mistaken party from discovering their mistake.

When is a mistake corrected?

Courts can correct less fundamental mistakes before enforcing the contract.

Sometimes, courts will rectify the contract. This is more common in cases of common mistake. Where there is proof that both parties had a certain agreement, but the written contract does not reflect that agreement due to a typographical error, the court may correct that error. Court may also rectify in some cases of unilateral mistake if the mistaken party can prove that the other party was aware about their mistake and did nothing to correct the mistake.

Courts may also correct a mistake through construction. Correcting through construction involves reading the contract as a whole and deciding that an understanding in line with the intentions of the parties is the proper understanding of the problematic parts of the contract.

When is a mistake enforceable?

Contracts are usually enforceable as is. Therefore, the default position of courts is that the contract is enforceable with the mistake.

If none of the other options apply, the court may find that you should bear the cost of the mistake in your contract.

So what should I do?

Outcomes of contractual disputes depend heavily on the actual contract and the specific circumstances surrounding the formation of the contract. If you have a problem with a mistake in your contract, it is best to consult a contract lawyer who can advise you on your chances on the arguments above. However, it would be best to avoid making mistakes in the first place. The best way to reduce your chances of making mistakes is to involve a contract lawyer from the beginning.

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