How to rectify a mistake

WHAT happens when a contract is signed but one or both parties to a contract realise that they have made a mistake?

The contract is signed, but what if there is a mistake or the contract does not reflect the true intentions of the parties or is based on a misunderstanding?

Are the parties stuck with the contract and does it matter that there is a clause which says the contract is the entire agreement and understanding?

Firstly, there are three types of mistake:

n Common mistake: Where both parties share a mistaken belief. For example, they contract to sell a car but they do not know that the car has been written off and cannot be sold;

n Mutual mistake: Where the parties are at cross purposes. For example, the “Ex Peerless” case where the parties agreed to buy goods from ship called the “Ex Peerless” but there were two ships by that name. At the time of the contract each party was thinking about a different “Ex Peerless”;

n Unilateral mistake: Where one party makes a mistake and the other party knows this. For example, if one party offered �3,000 for a ring worth �1.00 that party would be mistaken as to what he was buying.

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“Mistake” can be a useful remedy.

A contract based on a mistake may be treated it as if it never existed or be correctly interpreted or rectified to reflect the parties’ true intentions.

The recent case of Surgicraft Limited v Paradigm Biodevices Inc [2010] (“Surgicraft”) provides a useful example.

Surgicraft terminated its contract with Paradigm, who expected to receive a termination payment, but the contract did not provide for one.

Paradigm pleaded mistake, but Surgicraft denied this and attempted to rely on the “entire agreement clauses” in its contract which said: “This Agreement constitutes the entire understanding between the parties with respect to the subject matter of this Agreement and supersedes all prior agreements, negotiations and discussions between the parties relating to it.”

Also “The signing of this Agreement implies acceptance of all clauses stated herein”. Surgicraft argued that those clauses prevented a finding of mistake because Paradigm had agreed that the contract was the “entire agreement” and all previous understandings had been superseded.

In fact it was found that the entire agreement clauses were irrelevant. All they meant was “all the terms are in the document“ not “all the terms are in the document even if they say the wrong thing”. Accordingly, the contract was rectified to include a termination payment. For further information or assistance in relation this or other commercial matters contact Victoria Judge (01473 298181;