First Principles of Business Law

5. Mistake

5.1. Obtaining consent in circumstances of error

Mistake (or error) exists when a person believes or thinks something that is not true. A party who has entered into a legal transaction because of a mistake may not wish to be bound once they discover the truth. While it should not be too easy to avoid a legal transaction on grounds of mistake, a mistaken belief might in fact deprive the transaction of some essential requirement of validity.  If so, the transaction is void ab initio. In other circumstances, the mistake might justify treating the transaction as voidable at the request of the mistaken party.  As an alternative, a court may simply refuse to enforce an agreement entered into because of a mistake. 

In seeking appropriate outcomes, the law distinguishes between different types of mistake and applies different rules to each one. There are three basic situations to consider.

• Mutual mistake - where both parties are mistaken but about different things.
• Common mistake - where both parties are mistaken about the same thing.
• Unlateral mistake - where only one of the parties is mistaken.

These three possibilities are explained in this section.