A “mutual mistake” defense is raised by someone trying to evade their duty under a contract. The defense states that both parties to the contract relied on a mistaken assumption when entering the contract, thereby making it invalid.
What Is a Mistaken Assumption?
A mistaken assumption is a fact that both you and the other party thought to be true when the contract was signed. Yet, due to whatever circumstance, this fact is no longer true. As a result, you can no longer perform the contract as you originally planned. An example might be contracting to dig a hole in someone’s backyard and discovering later that just below ground level exists solid rock.
How Does Mutual Mistake Lead to Revocation of a Contract?
Not all cases of mutual mistakes are decisive enough to warrant revoking a contract.
When determining whether a mutual mistake can apply in your case, several factors must first be examined:
- The mistake must go against a basic assumption of the contract: The mistake is a primary reason why both you and the other party entered the contract in the first place. An example of this would be a professional football team that signs a starting quarterback, whom a physician later determines can only kick field goals from now on. The basic assumption here is the team and player’s belief that the player would play quarterback while signing the contract.
- The mistake must have a material effect on performance: The mistake must significantly change what you have to do under the contract, almost to the point where it’s entirely different. An example of this would be contracting to clean someone’s pool, then uncovering that the pool water has produced toxic chlorine levels over time. As a result, you cannot clean the pool without first decontaminating it.
- You cannot use a mutual mistake defense if you assume the risk of the mistake: If you knew there was a strong chance or probability of a mistake when the contract was signed, you might have assumed the risk of that mistake. You, therefore, cannot use a mutual mistake defense. An example of this would be if you entered a contract to build a house straight above the San Andreas Fault.
Other ways of assuming the risk of mistake include:
- Signing a contract despite your limited field of knowledge: For instance, contracting to construct a treehouse with no previous building experience and later uncovering the tree is infested with termites. You could not use the mutual mistake to revoke your contractual obligation to construct the treehouse in this circumstance.
- The court assigns your assumption of risk: In some circumstances, a court itself may decide who assumes the risk of mistake. This involves looking into what is “reasonable” by analyzing who you and the other party are, what you both do, and any industry customs that may apply to your case. For example, a court is more likely to assign any construction risks to the corporate developer in a housing contract than the individual family buying the home.
What Is a Contract?
A contract may be defined as an agreement between two parties, creating legal responsibilities for each side to perform specific acts. Once the agreement is formalized, each party becomes legally bound to fulfill their contractual obligations, such as making a payment or providing goods.
For any contract to be enforceable under the law, each party needs to exchange something of value known as “consideration” (in most circumstances, this is payment for goods or services by the buyer and then provision of the goods or services by the seller). Consideration in a contract helps ensure a bargain is involved, not just a mere gift being given.
Contracts provide the parties involved with miscellaneous contract rights. When forming a contract, the sides will usually negotiate for various terms and provisions in their favor. For example, they may negotiate the quality of materials used, delivery date, payment amounts, and other contractual rights. Offer and acceptance of a contract are also necessary matters.
Forming a contract can often be difficult, even for seemingly insignificant transactions.
Common clauses in a contract may include:
- Payment amounts;
- When payment must be delivered;
- The kinds of goods or services being sold;
- When the goods or services must be delivered or performed;
- Whether the contract can be assigned to another party
- Remedies in the event of a breach
Therefore, exceptional care should be taken when forming a contract, particularly during the contract drafting and review stages. This can help stop a contract dispute or a contract violation in the future.
Oral contracts can be legally binding contracts, depending on the way they were created and the subject matter of the contract. Nevertheless, as a general rule of thumb, it’s always better to formalize a contract in writing to be referenced in the future. Oral contract requirements may differ from state to state and according to the subject matter of the agreement.
Each party has a general duty to read a contract so they comprehend its terms and their responsibilities. When it comes to negotiating, forming, drafting, and reviewing a contract, the guidance and services of a contract attorney can be beneficial.
How Can a Contract be Broken?
After signing and agreeing to fulfill their contractual duties, contracts may be broken or “breached” by either party. This can ensue in many ways, such as failing to meet the terms or violating them. A breach of contract or contract violation may require legal action to make the non-breaching party whole if the breach has caused them any losses.
Some common ways a breach of contract can occur may include:
- Non-payment for goods or services delivered;
- Failure to deliver goods or services;
- Delivering services or goods that are of substandard quality;
- Delivering the wrong goods or services;
- Not paying the entire amount for goods or services;
- Paying the wrong party or delivering to the wrong party;
- Miscellaneous other breaches of duties.
A breach of contract can either be minor or material. A minor breach is relatively insignificant and allows the rest of the contract to be completed. In contrast, material breaches are more severe and make it difficult or impossible to complete the contract terms.
Some other issues involved in a breach of contract situation may include:
- Lack of consideration in the contract
- Disputes over the length of the contract offer period
- A mistake of fact in the contract performance (for instance, if a company delivers dinner “plates” as opposed to brake “plates”)
- No substantial performance of the contract terms;
- Issues related to contract interpretation;
- One of the parties was minor or could not form a contract agreement legally;
- Breaches caused by the existence of fraud in the contract;
- Breaches related to the assigning of duties in a contract (some duties cannot be assigned to other parties to be performed);
- Instances where a contract term is vague, ambiguous, or has multiple meanings;
- The contract was unconscionable (i.e., so one-sided that it would be considered unfair to one party); it may also be used as a defense to breach of contract;
- Non-disclosure violations in a contract.
There may be various other ways to breach a contract. These may hinge on several factors, including state contract laws and the exact terms contained in an agreement. Since each party is free to negotiate terms in the contract, breaches can also appear differently.
How Can an Attorney Help Me?
Mutual mistake involves looking at some abstract legal factors. It’s hard for most people to pinpoint what a “basic assumption” is, let alone who should “reasonably” assume the risk. The examples above represent extremely clear-cut cases of mutual mistakes that rarely occur in real-world practice.
Therefore, it is best to consult an experienced contracts lawyer to determine whether a defense of mutual mistake works for you. An experienced contract lawyer can determine the strength of a mutual mistake defense and whether it’s a viable option.