Updated: Aug 20, 2021

Generally speaking, when two persons enter into a contract it is taken for granted that they know what they are doing. The law will therefore not interfere, and if one party fails to perform his part he will be liable for breach of contract. Mistakes nevertheless do happen. They may be mutual or unilateral; they may be mistakes of fact or of law. If there is mutual mistake fundamental to the contract, whether about the existence or the nature of its subject matter, or about some other matter material to the contract, the contract will be void ab initio, for it does not represent the intention of either party and the court will not enforce it. This will not apply where the mistake is superficial, where the parties are getting substantially what they bargained for – though there may be grounds for an action for damages.

Where the mistake is unilateral the position is rather difficult. Where there has been misrepresentation on the part of one party, whether fraudulent or innocent. particular rules apply. Where there has been no misrepresentation the doctrine of caveat emptor will probably apply. However, even where no representations have been made, there are situations where unilateral mistakes can invalidate contracts. For instance, it one party is mistaken on something material to the contract, whether the person with whom he is contracting, or a term in the contract, or the nature of the document, and if the fact that he is mistaken is known to the other party (who need not have contributed to the mistake himself), the contract will not be enforced.

Mistakes of law are usually irrelevant as everybody is expected to know the law: ‘Ignorantia juris neminem excusat’. However, money paid where there is a mistake of law can sometimes be recovered if it would be inequitable for the other party to retain it, e.g. if the payee knew of the mistake.

Reference: The Penguin Business Dictionary , 3rd edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.