Contracts; Mistake
Restatement of Contracts 2d §151 defines mistake as “a belief that is not in accord with the facts.”
Mistakes are separated into four basic categories: Unilateral Mistakes (Mechanical Errors), Mistakes in Transcription; Reformation, Mutual Mistake (Shared Mistaken Assumptions or Common Mistake), and Nondisclosure. The latter three will be discussed in more detail below.
Unilateral Mistakes (Mechanical Error)
A unilateral mistake is the most common type of mistake that arises under contract law. Unilateral mistakes occur when one of the contracting parties errs in one of the terms of a contract, for example writing 12 instead of 65. Unilateral Mistakes can be easily thought of in the context of a mechanical mistake. Mechanical mistakes are “physical or intellectual blunders that result from transient errors in the mechanics of of an actor’s internal machinery.” Basic Contract Law 8d, Fuller.
Unilateral mistakes are remedied through rescission, or termination of the contract. However, as a general rule there is no remedy for unilateral mistakes. The most common exceptions to the rule occurs when enforcement of the contract would be unconscionable or when one party has reason to know of the mistake, exemplified in Donovan v. RRL Corp., 27 P.3d 702, (2001).
Mistakes in Transcription
A mistake in transcription occurs when the parties have agreed to X, but Y is incorrectly transcribed in at least one version of the contract. Mistakes in transcription can be remedied through reformation, however courts will require the parties to prove, beyond a reasonable doubt, the true agreement to which the contract in question is to be reformed.
- “[T]o obtain reformation on the basis that the [contract] does not represent the actual conveyance intended by the parties, the plaintiffs have the burden of establishing that there existed, previously to the [contract], a valid agreement representing a standard to which the erroneous writing can be reformed, so as to express the true transaction between the parties. To fulfill this burden the plaintiffs are required to produce proof sufficient to establish their claim beyond a reasonable doubt.” Deneergaard v. Dillingham, 187 A.2d 494 (1963).
Note the higher burden of proof, beyond a reasonable doubt, which is usually required in criminal courts. In civil courts, the standard of proof is typically through a preponderance of the evidence. The higher standard is probably because courts do not like to become involved with the formation of contracts, without very good evidence and compelling evidence.*
Mutual Mistake (Shared Mistaken Assumptions or Common Mistake)
As the name implies, a mutual mistake is a mistake made by both parties at the formation of a contract. Mutual mistakes differ from unilateral mistakes in that they do not involve the “blunders that result from transient errors in a party’s mental or physical machinery and further differ from mistranscriptions, because they do not turn on whether a writing is erroneous.” Basic Contract Law 8d, Fuller.
An example of a mutual mistake is where two parties enter into a contract to purchase Blackacre, based on the assumption that the property is zoned for industrial use. If Blackacre is not zoned accordingly, the offeree should be allowed to rescind the contract.
As a general rule, contracts entered into with a mutual mistake of material fact will be rescinded. Examples of material facts include the subject matter of the sale, the sale price, or some other collateral fact materially inducing the agreement. Courts must determine whether or not the error affects the substance or root of the consideration.
Exceptions occur when courts determine there is no mutual mistake which arise in situations with conscious uncertainty. This exception can be distinguished by reading Wood and Sherwood CASES side by side. In Sherwood, the parties were mistaken as to the fertility of a cow. In Wood, the parties were mistaken about a rock.
Related posts:
- Contract Law: Revocation of an Offer Offers can only be revoked by an offeror. An offer...
- Contract Law: What is an Offer? "An offer is the manifestation of willingness to enter into...
- Contract Law: Legal Duty Rule The legal duty rule, also referred to as the preexisting...
- Contract Law: Termination of an Offer An offer is said to be terminated in the following...
- Contract Law: Consideration For a contract to be valid and enforceable, there must...
I recently came accross your blog and have been reading along. I thought I would leave my first comment. Nice blog. I will keep visiting this blog very often.