🤔
Contracts • Defenses to Enforcement and Formation
K#075
Legal Definition
A contract may be *voidable* if both parties are mistaken about existing facts and: (1) the mistake concerns a basic assumption of the contract; (2) the mistake has a material effect on the agreed-upon exchange; and (3) the party seeking to void the contract did not assume the risk of the mistake.
Plain English Explanation
Identifying a mutual mistake can be tricky. You're basically looking for a scenario where both parties are mistaken about the subject matter of the contract (or something nearly as important as the subject matter). For example, if Bob finds a shiny stone in the street and believes it to be a diamond and then tries to sell it to Sam, who also thinks its a diamond, both Bob and Sam are mutually mistaken about what it is they are bargaining over. If one of them finds out the truth, the law will allow them to back out of the contract.
Hypothetical
Hypo 1: Bob finds a shiny stone in the street and believes it is a diamond. Bob shows Sam the stone, and Sam also believes it is a diamond. Sam offers Bob $1,000 for the stone. Bob accepts. Amy, a jeweler, is listening nearby. Amy looks at the stone and says, "Just so you know, that is actually a cubic zirconia and is only worth about $50." Result: Here, you have a mutual mistake of fact between Bob and Sam, which would allow Sam to rescind the agreement to purchase the stone for $1,000.
Hypo 2: Bob finds a shiny stone in the street and has no idea what it is. He kinda thinks it may be a diamond. Bob shows Sam the stone. Sam has no clue what it is either, but it is shiny, and it may be a diamond. Sam offers Bob $1,000 for the stone. Bob accepts. Amy, a jeweler, is listening nearby. Amy looks at the stone and says, "Just so you know, that is actually a cubic zirconia and is only worth $50." Result: Here, there was a mutual mistake of fact, however, Sam assumed the risk that the stone may not actually be a diamond. Why? Because it was clear that they were both doubtful as to what the stone was, and either of them could have taken the time to go figure it out before entering into the contract. Instead of being certain of what it was they were bargaining over before they paid for it, Sam took a risk and paid money based on his hunch, which turned out to be wrong. He doesn't get to back out now.
Hypo 2: Bob finds a shiny stone in the street and has no idea what it is. He kinda thinks it may be a diamond. Bob shows Sam the stone. Sam has no clue what it is either, but it is shiny, and it may be a diamond. Sam offers Bob $1,000 for the stone. Bob accepts. Amy, a jeweler, is listening nearby. Amy looks at the stone and says, "Just so you know, that is actually a cubic zirconia and is only worth $50." Result: Here, there was a mutual mistake of fact, however, Sam assumed the risk that the stone may not actually be a diamond. Why? Because it was clear that they were both doubtful as to what the stone was, and either of them could have taken the time to go figure it out before entering into the contract. Instead of being certain of what it was they were bargaining over before they paid for it, Sam took a risk and paid money based on his hunch, which turned out to be wrong. He doesn't get to back out now.
Visual Aids
Related Concepts
What are the 12 defenses to enforcement and formation?
What are the 4 methods of satisfying the Statute of Frauds?
What are the requirements for a judicial admission to satisfy the Statute of Frauds?
What are the requirements for performance to satisfy the Statute of Frauds in a sale of ordinary goods?
What are the requirements for performance to satisfy the Statute of Frauds in a sale of specially manufactured goods?
What are the requirements for performance to satisfy the Statute of Frauds in a service contract?
What are the requirements for performance to satisfy the Statute of Frauds in a transfer of real estate?
What constitutes a service contract not capable of performance within a year?
What constitutes a valid transfer of interest in real estate?
What constitutes lack of capacity?
What is a merchant's confirmatory memo?
What is a person without capacity legally obligated to pay for?
What is a suretyship contract?
What is the effect of ambiguous words in an agreement?
What is the effect of a unilateral mistake of fact on the formation of a contract?
What is the effect of duress on the formation of a contract?
What is the effect of misrepresentation on the formation of a contract?
What is the effect of non-disclosure on the formation of a contract?
"What is the effect of provisions in contracts requiring written modifications?"
What is the effect on an agreement if its purpose is illegal?
What is the effect on an agreement if its subject matter or consideration being illegal?
What is the result of a covenant not to compete that lacks reasonable need or time and place limits?
What is the result of an exculpatory agreement that exempts intentional or reckless conduct from liability?
What is the Statute of Frauds?
What is unconscionability and its effect on the formation of a contract?
What is undue influence and its effect on the formation of a contract?
What rights does a contracting minor have upon reaching the age of majority?
What types of contracts fall within the Statute of Frauds?
