(1) If a party is entitled to avoid the contract for mistake but the other party declares itself willing to perform or performs the contract as it was understood by the party entitled to avoidance, the contract is considered to have been concluded as the latter party understood it. The other party must make such a declaration or render such performance promptly after having been informed of the manner in which the party entitled to avoidance had understood the contract and before that party has reasonably acted in reliance on a notice of avoidance.
(2) After such a declaration or performance the right to avoidance is lost and any earlier notice of avoidance is ineffective.
1. Performance of the contract as understood by the mistaken party
According to this Article a mistaken party may be prevented from avoiding the contract if the other party declares itself willing to perform or actually performs the contract as it was understood by the mistaken party. The interest of the other party in so doing may lie in the benefit to be derived from the contract, even in its adapted form.
Such regard for the interests of the other party is only justified in the case of mistake and not in other cases of defective consent (threat and fraud) where it would be extremely difficult to expect the parties to keep the contract alive.
2. Decision to be made promptly
The other party has to declare its decision to perform or actually to perform the contract in its adapted form promptly after having been informed of the manner in which the mistaken party had understood the contract. How the other party is to receive the information about the erroneous understanding of the terms of the contract will depend on the circumstances of the case.
3. Loss of right to avoid
Paragraph (2) expressly states that after the other party’s declaration or performance the right of the mistaken party to avoid the contract is lost and that any earlier notice of avoidance becomes ineffective.
Conversely, the other party is no longer entitled to adapt the contract if the mistaken party has not only given notice of avoidance but has also reasonably acted in reliance on that notice.
The adaptation of the contract by the other party does not preclude the mistaken party from claiming damages in accordance with Article 3.2.16 if it has suffered loss which is not compensated by the adaptation of the contract.