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Mutual mistake

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Contract law Edit

A mutual mistake occurs when the parties to a contract are both mistaken about the same material fact within their contract "or be made by one party and known to the other party . . . .”[1] As such, there is no consensus ad idem, and this overlaps with the objective theory of contract, and there is no offer and acceptance. Hence the contract is voidable by the affected party.[2]

When there is a material mistake about a material aspect of the contract, the essential purpose of the contract, there is the question of the assumption of risk. Who has the risk contractually? Who bears the risk by custom? Restatement (Second) of Contracts §154 deals with this scenario.

A mutual mistake on a collateral (non-material) fact will not afford the right of rescission. A collateral mistake is one that "does not go to the heart" of the contract.

References Edit

  1. Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 756, 610 N.E.2d 912 (1993)(full-text) (internal citations omitted).
  2. See LaFleur v. C.C. Pierce Co., Inc., 398 Mass. 254, 257-58, 496 N.E.2d 827 (1986)(full-text). See also Restatement (Second) of Contracts §152 (1981) (“Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in §154.”).


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