Mistake of Fact in Contract Law

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 What Is A Breach Of Contract?

A breach of contract is what occurs when one party to a valid contract fails to fulfill their part of the agreement. An example of this would be how the terms of a contract are what instructs the parties in terms of what they must do, and how they should do it, in order to maintain their promise. If one party does not do what the contract instructs that they do, the non-breaching party will be allowed to take legal action and can file a lawsuit against the breaching party in court.

A breach of contract may occur as either a partial breach, or a complete breach. Additionally, the court will consider whether the breach was a substantial breach, or only a minor breach. This will help the court determine what type of damages that the breaching party will be required to pay.

There are three main ways in which a party can be held liable for breach of contract:

  • An Anticipatory Breach: Often referred to as anticipatory repudiation, this type of breach occurs when the breaching party informs the non-breaching party that they will not be fulfilling the terms of their contract. Once the other party has been notified of this, they can sue for breach of contract;
  • A Minor Breach: A minor breach of contract is the result of when one party fails to perform a small detail of the contract. Under such circumstances, the entire contract has not been violated, and as such can still be substantially performed. This can also occur when there is a technical error contained within the contract, such as a wrong date, price, or typo within the terms of the contract; and/or
  • A Material or Fundamental Breach: These are the most common types of breaches that are cited as the basis of a breach of contract action. They occur when the breach is so substantial that it essentially cancels the contract, due to the fact that it renders performance by either party impossible.

Some other ways in which a contract can be breached include:

  • When the contract is fraudulent;
  • If the contract was formed illegally is unconscionable; and/or
  • When there is a mistake of fact present in the contract terms, which will be further discussed at length below.

The parties may have included conditions that are unique to their particular contract, which will specify when a party’s actions can be considered a breach. Additionally, state laws and the type of contract that it is (meaning whether it is a lease agreement, sales contract, government contract, etc.) may define other ways in which a contract can be breached.

What Is A Mistake Of Fact In Contract Law?

In contract law, a mistake of fact is what occurs when one or both parties involved in a contract have mistaken a term that is essential to the meaning of the contract. An example of this would be if the contract states that a shipment of “plates” is to be delivered. Here, the contract is referring to paper plates.

However, if one party believes it to be ceramic plates, it could be a mistake of fact. There are many cases in which a mistake of fact can result in the contract being voided. It is important to note that a mistake of fact is different from a mistake of law in that a mistake of law occurs where one party is mistaken regarding the application of a contract law.

Mistakes of fact are generally divided into two different categories: mutual mistake, and unilateral mistakes. A mutual mistake occurs when both parties are mistaken about the same term, while a unilateral mistake occurs when only one party is mistaken about an essential contract term. Depending on the facts of the circumstances, these different types of mistakes can result in different consequences for the contract.

A “mutual mistake” defense is raised by someone who is trying to avoid their obligation under a contract. This defense states that both parties to the contract relied on a mistaken assumption when entering the contract, which makes it void.

A mistaken assumption is a fact that both you and the other party believed to be true at the time that the contract was signed. However, due to the circumstances, this fact is no longer true. As a result, you can no longer perform the contract as you originally intended. An example of this would be contracting to dig a hole in someone’s backyard, and discovering later that just below ground level exists solid rock, making it impossible to dig the hole as contracted.

A “unilateral mistake” is a mistaken belief that is held by only one of the parties, and is not shared by the other party to the contract. Simply put, a unilateral mistake occurs when only one of the parties misinterprets the subject matter or meaning of the terms that are contained in the contract agreement. Generally speaking, unilateral mistakes are much more common than other kinds of contract mistakes, such as a mutual mistake.

Unilateral mistakes involve only one party being mistaken, while the other is not. As such, because only one party holds a mistaken belief, the other party has an unfair advantage in the bargaining power that they hold during the contract formation stage.

A unilateral mistake can be associated with any of the terms or provisions that are contained in a contract. Most unilateral mistakes involve a party wrongly assuming the definition of a phrase or word that is included in the parties’ contract.

An example of this would be how in a contract for the sale of screws, one party may incorrectly believe that the word “screw” refers to a specific brand of screws such as Phillips-head screws, when in fact the term refers to any standard type of screw. If only one party holds this mistaken belief, but the other party is clear on the meaning of “screw,” it could result in a unilateral mistake dispute.

However, if both parties believed that the word “screw” actually meant “nails,” this would be an example of a mutual mistake. As was previously mentioned, unilateral mistakes generally involve prices, quantities, dates, and errors associated with the description of goods or services that are included in the contract.

Are There Any Legal Remedies For Mistake Of Fact In Contract Law?

For mutual mistakes of fact, the most common remedy would be that the courts declare the contract void. As such, the parties are not bound to its terms, and neither party is obligated to perform the duties that are listed in the agreement.

For unilateral mistakes, the legal remedy is generally one of the following:

  • Rescission: Cancellation of the contract if the non-mistaken party is aware of the mistake, or should have reason to know about the mistake. This is intended to prevent the non-mistaken party from taking advantage of the other party; or
  • Reformation: Rewriting some or all of the contract is available if the non-mistaken party did not know about the other’s mistake. Reformation allows the parties to rewrite the terms according to the intention of their original understanding.

In some cases, a monetary damages award may be awarded if there were significant losses suffered by a mistake of fact. However, the plaintiff must generally choose between a damages award and an equitable remedy, such as rescission or reformation; meaning, they cannot receive both remedies.

Do I Need A Lawyer For Help With Mistakes Of Fact In Contract Law?

You should hire a contract lawyer if you are facing any legal issues involving a mistake of fact. Your lawyer can determine what type of remedy is most appropriate for your claim, as well as what your legal rights and options are according to your state’s specific contract laws.

It is also advised that you contact a lawyer early on before any disputes occur, as they can help with the negotiation and drafting of the contract as well.

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