In contract law, a mistake of fact occurs when one or both parties in a contract have mistaken a term that is essential to the meaning of the contract. For example, suppose that the contract states that a shipment of "plates" is to be delivered. Here, the contract is referring to paper plates, but if one party believes it to be ceramic plates, it could be a mistake of fact. In many cases, a mistake of fact can result in the contract being voided.
Mistake of fact is different from a mistake of law. A mistake of law occurs where one party is mistaken as to the application of a contract law.
Yes, mistakes of fact are usually divided into two different categories: mutual mistake and unilateral mistakes. A mutual mistake occurs when both parties are mistaken about the same term. A unilateral mistake occurs when only one party is mistaken about an essential contract term. Depending on the facts, these different types of mistakes can lead to different consequences for the contract.
For mutual mistakes of fact, the usual remedy is that the courts declare the contract void. The parties are not bound to its terms and neither party has to perform the duties listed in the agreement.
For unilateral mistakes, the remedy is:
- Rescission (cancellation of the contract) if the non-mistaken party knows about the mistake, or should have reason to know about the mistake. This is to prevent the non-mistaken party from taking advantage over the other party.
- Reformation (rewriting some or all of the contract) is available if the non-mistaken party did not know about the other’s mistake. This allows the parties to rewrite the terms according to the intention of their original understanding.
In some cases, a monetary damages award can result if there were losses suffered by a mistake of fact. However, in most cases the plaintiff must choose between a damages award and an equitable remedy such as rescission or reformation.
Mistakes of fact in a contract can drastically change the outcome of a transaction. You may wish to hire a contract lawyer if you’re facing any legal issues involving a mistake of fact. Your lawyer can provide you with legal advice to determine what type of remedy is most appropriate for your claim. It’s also a good idea to contact a lawyer early on before any disputes occur, so they can help with the negotiation and drafting of the contract as well.