A "mutual mistake" defense is raised by someone trying to avoid their obligation under a contract. The defense states that both parties to the contract relied on a mistaken assumption when entering the contract, thereby making it void.
A mistaken assumption is a fact that both you and the other party believed to be true at the time the contract was signed. However, due to whatever circumstance, this fact is no longer true. As a result, you can no longer perform the contract as you originally intended. For example, contracting to dig a hole in someone’s backyard, and discovering later that just below ground level exists solid rock.
Not all cases of Mutual Mistake are strong enough to warrant revoking a contract. When determining whether Mutual Mistake can apply in your case, a number of factors that must first be examined:
- The mistake must go against a basic assumption of the contract – In other words, 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 doctor later determines can only kick field goals from now on. The basic assumption here is the team and player’s belief, while signing the contract, that the player would play quarterback.
- 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 an entirely different agreement. An example of this would be contracting to clean someone’s pool, then discovering that the pool water has produced toxic levels of chlorine 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 mistake at the time the contract was signed, you may 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 construct a house directly above the San Andreas Fault. Other ways of assuming the risk of mistake include:
- Signing a contract despite your limited field of knowledge – For example, contracting to build a tree house with no prior building experience, and later discovering the tree is infested with termites. In this case, you could not use Mutual Mistake to revoke your contractual obligation to construct the tree house.
- Court assigns you assumption of risk – In some cases, a court itself may determine who assumes the risk of mistake. This involves looking into what is “reasonable” by examining who you and the other party are, what you both do, and any industry customs that may be applicable to your case. For example, in a housing contract, a court is more likely to assign any construction risks to the corporate developer, rather than the individual family purchasing the home.
Mutual Mistake involves looking at number of abstract legal factors. It’s hard for most people to really pinpoint what a “basic assumption” is, let alone who should “reasonably” assume the risk. The examples given above represent extremely clear cut cases of mutual mistake 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.