Contract by (Unilateral) Mistake

by | Court Disputes

Courts can set aside contracts on a number of grounds: the terms may be illegal, a party may have entered into the deal through fraud or misrepresentation, and so on.  Sometimes the Court will intervene where there has been a mutual, fundamental mistake or misunderstanding.  In some circumstances the Court can also correct Contracts.

But what of the cases where B makes a mistake and A doesn’t? Is that simply bad luck for B?

Generally, it is bad luck. Under the common law and principles of Equity, the Courts will only interfere with a contract based on one party’s mistake if the other party is in some way culpable for that mistake.

For example: A agrees to sell to B, for an agreed price, his painting by Claude Monet. But B thinks A is agreeing to sell, for the agreed price, A’s painting by Édouard Manet (based on the example postulated in “Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies” by Meagher Heydon & Leeming, 4th edition (2002) Butterworths).

The Court will only ‘correct’ B’s mistake if it can be satisfactorily proved that:

  • A knew all along that B thought the deal related to the Manet rather than the Monet; or
  • A is deemed to have known or should have known of B’s mistake.

The second allegation may be easier to demonstrate. For example, B may have said something about the style, subject, date, or worth of the painting that must have told A that B expected to acquire the Manet instead of the Monet.

However, if B simply made an error that A has not known about, brought about or unfairly exploited, the Court will probably say to B: “Congratulations. You’ve bought yourself a Monet”.

Many of the “mistake” cases, highlight the importance of thorough due diligence investigations and sound legal advice before signing a contract.

For further information please contact Peter on 8362 6400 or email Peter Jakobsen.  Join our mailing list to receive updates and advice on current issues.

  • Peter Jakobsen

    About the author: Peter Jakobsen

    Peter has a wealth of experience in many areas of the law but practises primarily in the areas of civil and commercial litigation including employment matters, negligence, defamation, leasing and contractual disputes and debt collection.

    Peter is a skilled and clever advocate that brings all of his intelligence and significant Court room experience to each and every matter to achieve excellent results for his clients.

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