Mutual Consent in Contracts: The Disruptive Impact of Mistake

1. Introduction

Contracts are founded on the principle of mutual consent, ensuring that both parties willingly and knowingly enter into an agreement. However, when consent is flawed due to a mistake, the validity and enforceability of the contract may be compromised. A mistake is considered a defect of consent, potentially leading to contract nullification or modification. This article explores the concept of mistake in contracts, its types, relevant provisions under Egyptian civil law, its treatment in FIDIC 1999, its impact on contract termination, and methods for mitigating its risks.

2. Definition of Mistake in Contracts

A mistake in contract law refers to an erroneous belief held by one or both parties at the time of contract formation regarding a fundamental fact. It affects the party’s decision to enter into the contract and, in certain cases, may provide grounds for contract annulment.

Mutual consent (or consensus ad idem) is a fundamental requirement for the formation of a valid contract. If consent is vitiated due to a mistake, the contract may be considered void or voidable, depending on the nature and effect of the mistake.

3. Types of Mistakes in Contracts

Mistakes in contract law are generally classified into unilateral mistake, mutual mistake, and common mistake, each with distinct legal consequences:

3.1. Unilateral Mistake

A unilateral mistake occurs when only one party is mistaken about a material fact. Generally, a contract remains binding unless:

• The non-mistaken party knew or should have known about the mistake and took advantage of it.
• The mistake is so fundamental that enforcing the contract would be unjust.

Example: A contractor submits a bid for a construction project, mistakenly omitting a critical cost element. If the employer was aware of the error but proceeded with the contract, the contractor may have grounds to challenge the contract under certain legal systems.

3.2. Mutual Mistake

A mutual mistake arises when both parties are mistaken about a key fact essential to the agreement. In such cases, there is no true meeting of minds, and the contract may be void.

Example: A construction company contracts to purchase a specific type of cement that, unknown to both parties, has already been discontinued. Since both parties were mistaken about the availability of the material, the contract may be deemed void.

3.3. Common Mistake

A common mistake occurs when both parties share the same erroneous belief about an existing fact that fundamentally affects the contract. Unlike a mutual mistake, a common mistake typically involves a fact that existed at the time of contract formation but was unknown to both parties.

Example: A contractor and a supplier agree on the sale of a construction machine, but unknown to both, the machine was destroyed before the contract was signed. The contract is void due to the impossibility of performance.

4. Relevant Provisions in Egyptian Civil Law

The Egyptian Civil Code addresses mistake as a defect of consent in contractual agreements. The key provisions include:

• Article 120: If one of the contracting parties makes a fundamental mistake, they may request annulment of the contract if the other party made the same mistake, was aware of it, or could have easily detected it.
• Article 121: A mistake is considered fundamental if it is so serious that the mistaken party would not have entered into the contract had they known the truth. It is particularly fundamental if it concerns:
• Article 122: A contract may be annulled due to a mistake in law if it meets the conditions of a mistake in fact as stated in the previous articles unless otherwise provided by law.
• Article 123: Mere errors in calculation or clerical mistakes do not affect the validity of the contract, but they must be corrected.
• Article 124: A party who makes a mistake cannot invoke it in bad faith, and they remain bound by the contract if the other party is willing to perform the contract as originally intended.

5. Mistake in FIDIC 1999

FIDIC 1999 standard contracts do not explicitly address mistake as a contractual defect but deal with the impact of errors in contract formation and execution through various clauses:

• Clause 1.5 (Priority of Documents): If discrepancies or errors arise in contract documents, the Engineer has the authority to clarify and correct them.
• Clause 3.1 (Engineer’s Duties and Authority): The Engineer plays a key role in rectifying errors in contract interpretation, ensuring that misunderstandings do not lead to contractual disputes.
• Clause 12 (Measurement and Evaluation): If a party mistakenly calculates quantities, the contract allows for remeasurement to adjust the scope accordingly.
• Clause 17 (Risk and Responsibility): Unforeseen errors may be treated as risk-related matters, depending on the nature of the mistake and the affected party.

While FIDIC contracts emphasize risk allocation and clarity, they do not specifically grant the right to annul a contract due to mistake. Instead, disputes arising from errors are generally addressed through variation orders, remeasurement, or dispute resolution mechanisms.

6. Effect of Mistake on Contract Termination

The consequences of a mistake on contract termination depend on the type and severity of the mistake:

• Void Contracts: If a mistake is so fundamental that mutual consent was never achieved, the contract is void ab initio (from the outset).
• Voidable Contracts: If the mistake is substantial but does not completely nullify consent, the contract may be voidable at the request of the mistaken party.
• Remedies Instead of Termination: In cases where the mistake does not render the contract void, courts may order rectification or compensation instead of annulment.

Example: A contractor mistakenly believes that a contract price includes VAT, but the employer intended it to be exclusive of VAT. If the error is material and affects the economic balance of the contract, the court may allow price adjustment rather than contract termination.

7. Methods to Prevent and Mitigate Mistakes in Contracts

1. Precise Drafting and Review: Ensure that contracts are drafted with clear language and reviewed by legal experts.
2. Clarifications and Pre-Contract Negotiations: Engage in thorough discussions to confirm mutual understanding before signing.
3. Due Diligence: Verify contract terms, specifications, and legal implications before commitment.
4. FIDIC-Based Risk Management: Apply contractual provisions that allow for corrections, variations, and dispute resolution.
5. Use of Disclaimers and Limitation Clauses: Clearly define liability for errors and include risk-mitigation clauses.

8. Conclusion

Mistakes in contracts can have significant legal and financial consequences, affecting enforceability and performance. Egyptian law provides clear provisions for contract annulment based on mistake, while FIDIC 1999 relies on corrective mechanisms rather than outright contract termination. To mitigate the risks associated with mistakes, parties should prioritize clear drafting, comprehensive negotiations, and contractual safeguards.