Study Notes on Mistake in Contract Law

Mistake is a narrow legal doctrine in contract law. It is not synonymous with the general dictionary meaning which is broader.
Courts tend to be biased against finding mistakes in contracts, leading to a cautious approach in their application.
Therefore, one should not overapply the concept of mistake or seek it too eagerly, as the courts' inclination is to enforce contracts rather than void them due to mistakes.

The most common type of mistake encountered is a mutual mistake, which occurs when both parties to a contract are mistaken about an essential term or a fundamental assumption underlying the contract.
The result of a mutual mistake is that the contract becomes void.

A mutual mistake may also arise when both parties are mistaken concerning a fundamental assumption underlying the contract.
Example Scenario: If both parties agree to buy a car that has, unbeknownst to them, already been destroyed, the contract is void because it’s based on a non-existent subject matter.
The requirement is that the mistake must concern a serious aspect of the contract, essentially shifting the subject matter significantly away from what was intended.

Mistakes involving quality, color, or value do not lead to a legal mistake or void the contract. Such mistakes are not sufficient to annul a contract.
Generally, the legal landscape surrounding mistakes favors the enforcement of contracts, and thus, instances of contracts being declared void due to mistakes are rare.

A mistake arising on the part of one party is even harder to substantiate unless it was caused by the other party, for instance, through misrepresentation.

The term “non s factum” literally translates to “it’s not my document.”
This applies when one party contends they did not understand the document they signed, typically used in unique circumstances.
Example Case: A blind and illiterate uncle was tricked into signing a mortgage document by his nephew under the pretext of signing a reference letter. When the bank sought to repossess the uncle’s farm, he claimed non s factum, stating he had no knowledge of what he was signing.
However, this doctrine is interpreted very narrowly and rarely successful; after decades of practice, the speaker has never witnessed a finding of non s factum being applied successfully.

If parties enter a written contract and find that there are incorrect terms (e.g., typo errors), issues arise regarding the enforcement of those terms.
Example Scenario: If an employee negotiates a salary of $55,000 but the written contract mistakenly states $60,000 due to clerical error:
- The employee might argue that the correct amount should be enforced, leading to contention over the document.
In such instances, if it can be demonstrated that a typographical or clerical error occurred and the incorrect terms do not reflect the true agreement:
- The court may rectify the written agreement to accurately reflect the parties’ original intentions.
- This process, known as rectification, aims to amend the document to align with what the parties actually agreed upon.

Caution is strongly advised in interpreting the doctrine of mistake within contract law. The legal interpretation is strict, and courts rarely favor a finding of mistake. Each party must ensure clarity in their terms to avoid potential voiding of contracts due to misunderstandings.