Thursday, 29 December 2011

0 Contract Law: Doctrine of Mistake

Contract is a legal agreement between two parties to a certain thing in exchange of benefits. Contract is considered to be valid under certain circumstances such as it is agreed upon by both the parties voluntarily, the parties are competent to each other and there is a reasonable consideration involved in it. However, just as said above, a contract may be considered void or legally non-binding, if it does not fulfill the criteria of a valid contract.
Doctrine of mistake is a legal term used that voids a contract due to the misunderstanding in the parties involved in the contract. If any of the parties erroneously believe that certain facts are true, then the contract is considered void in many situations.

In addition to above reasons, a contract may be considered as void, if it is mistaken by either parties or by both the parties. The two major concerns of a mistake in contract are whether the mistake is operative and the effect it has on the parties and contract as a whole. Nevertheless, there are a very small proportion of mistakes allowed in the contract law, which falls under the category of cognizable mistakes and form operative mistakes.

Common mistakes are the mistakes, wherein both the parties in a contract share the same mistake. Both the contracting parties may enter into a contract with a mistaken belief, such as a seller and buyer entering into a sales transaction of goods, when the goods have been stolen or destroyed. However, as per the doctrine of law, a person cannot be held liable just on the basis of being in the chain of information and passing it further, that initially was taken with true faith.

Mutual mistake is the second type of mistakes in a contract. These types of mistakes may be confused with shared mistakes. Similar to common mistakes, in a mutual mistake also both the parties are involved. To consider a mutual mistake as void, the item that the contracting parties are mistaken about should be 'material'. In these mistakes, the parties believe 'meeting of minds' to have occurred, whereas one party is mistaken about the different meaning of other party.

Unilateral mistakes are the most common types of mistakes in a contract. In such a mistake, a party is completely mistaken about the contract term, whereas the other party is not mistaken at all. Legal consequences or voidable contract are invited, if the non-mistaken party knows about the other party being mistaken. One of the several types of lawyers, a contract lawyer, will contest compensation in the court for the mistakes done by contracting parties.

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