Contractual Mistakes

To err is human, to forgive divine


Recently Farmer Freddy was in a flap over GST on land transactions. When he signed an agreement to sell his run-off, he didn't consider whether he was registered for GST on the payments basis or the invoice basis ( article).  Well, Freddy is buying some land from his neighbour Ned now. He knows he needs to be more careful when he signs the contract this time.

Ned shows Freddy around the block, which is fenced. They agreed a price and Freddy leaves Ned to prepare the written agreement. Freddy checks the GST details carefully. It looks right so he signs the agreement.

A few days later, the phone rings. "The contract's just arrived. I must say, you look to be paying Ned top dollar for that land" says his lawyer. "What does he know that I don't?"

"What do you mean? I had a good look around the land with him and it looks like a good deal to me" replies Freddy.

It turns out that the fence line doesn't mark the boundary of the land.

Ned failed to tell Freddy that as part of a recent subdivision, he had cut some land off that block but he hadn't moved the fence line.

"HELP!!!" cries Freddy. "What can I do?"

Contractual mistakes

Even though Freddy has signed the contract, he may be able to seek relief under the Contractual Mistakes Act. Under this act, if your decision to enter a contract is influenced by a serious mistake that the other party knows about, and which leads to a substantially unfair deal, the court can remedy the situation.

Freddy will have to show that Ned actually knew of Freddy's mistake. Since Ned had recently subdivided the land, but had not moved the fence line (and failed to tell Freddy the fence wasn't the boundary), this should be reasonably straightforward.

So, it is likely the court would either cancel the contract, or order Ned to pay Freddy some compensation.

Rectification

But imagine that Ned had two blocks of land to sell. Ned and Freddy agreed that Freddy would buy Hudson Block but the contract Ned gave Freddy to sign was for the much less valuable Hall Block (the contract referred only to the legal description of the land - e.g. Section 1, Deposited Plan 12345.)

In this case, because Freddy's mistake is about what the contract means, he probably can't rely on the Contractual Mistakes Act to fix his mistake.

Does that mean that Freddy has to accept Ned's skullduggery and be cheated out of his hard-earned money? Fortunately not. The courts would probably rely on its common law power to rectify (rewrite) the contract so that it reflected what Freddy and Ned actually agreed.

"That was close," thinks Freddy, as he retires to the couch to cross Ned's name off his Christmas card list.

 

The content of this document is necessarily general and readers should seek specific advice on particular matters and not rely solely on this document.
If you would like further information on any of the topics in this document, please contact your usual Auld Brewer Mazengarb & McEwen adviser.
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