Mistake Issues
The law limits the recognition of mistakes that can invalidate a contract, as contracts are intended to allocate risks and bind parties to their agreements. Mistakes generally do not excuse performance unless they are fundamental, such as relating to the existence or essential nature of the subject matter, and both parties share the same erroneous assumption. Contracts that prove unwise or unprofitable in hindsight are not voidable for this reason. Where performance is impossible from the outset, mistake, rather than frustration, may apply.
A fundamental mistake must involve an unexpected, exceptional circumstance that existed at the time of the contract, making the agreement radically different from what the parties intended. Mistakes of quality are insufficient unless they go to the very root of the agreement. Traditional distinctions excluded mistakes of law, but this has evolved to recognise recovery for such mistakes under specific circumstances.
Mistakes of identity can render a contract void if one party’s identity was critical to the agreement and misrepresented. This is significant in cases involving fraud, where goods sold to an innocent third party may or may not pass good title depending on whether the contract is void (no title passes) or voidable (title passes until avoided). Courts increasingly favour the voidable approach to balance fairness between innocent parties.
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