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Cancellation of Contract in View of Unilateral Mistake – The Court`s Considerations

In C.C. 701/03 Mansur v. Israel Land Administration, the District Court accepted plaintiff`s claim and established that a contract entered into between him and the defendant, based on a mistake of the latter, is valid and enforceable.

Plaintiff won a tender published by the defendant for the purchase of a plot of land, based on a booklet published by the defendant, which specified the price of the plot. Plaintiff fulfilled all of his duties pursuant to the booklet and paid the amount specified therein. Shortly thereafter, the defendant notified plaintiff that due to a human error, the price of the plot, as published in the booklet, was miscalculated and that plaintiff must pay an additional amount.

Article 14(b) of the Contracts Law (General Part), 1973 ("the Contracts Law") applies in case of a unilateral mistake, namely in case a party enters into a contract due to a mistake, where it can be assumed that in the absence of the mistake he would not have entered into the contract, while the other party did not know and ought not to have known about the mistake. Article 14(b) provides that in such case, the court may cancel the contract, if it finds it justified to do so. If indeed the court cancels the contract, it may impose on the party who made the mistake payment of the damage sustained by the other party.

The court followed well established precedents of the Supreme Court, according to which The Contracts Law provides that the court must exercise its discretion by considering the interests of both parties to the contract. The court should cancel the contract only if convinced, that in the absence of cancellation, the mistaken party would sustain a significantly higher damage than the other party. The court must weigh the respective justice which must be done between the parties to the contract and consider each in accordance with its circumstances.

In the particular case before it, the court took into consideration the behaviour of the mistaken party after it discovered the mistake, and the fact that it delayed its notice regarding the mistake to the other party and thus caused it to incur substantial costs. Despite the fact that the defendant was a public entity, entrusted to maintain public interests and ensure that lands owned by the State would be sold for fair consideration, the court found that plaintiff would sustain the greater loss, in case the contract would not be upheld.

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