Also known as:bear the risk of the mistake · bearing the risk of the mistake · bore the risk of the mistake · allocation of risk of mistake · Restatement § 154
Written by attorneys · grounded in primary & secondary sources — see below
An allocation of responsibility for an erroneous belief about a basic assumption underlying a contract that prevents the adversely affected party from avoiding the agreement. The allocation arises by express agreement of the parties, by the adversely affected party's conscious ignorance of limited knowledge at formation, or by a court's reasonable assignment based on the circumstances.
Sources & Authorities
How it applies
Common Examples
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Buyer Skips Independent Validation
Sun Orbit contracted with Star Space for a vacuum test chamber after both reviewed the same engineering drawings projecting the required performance level. After delivery the chamber failed to reach the specified vacuum because of a long-documented design limitation. Sun Orbit had examined the specifications yet declined to hire an independent engineer to confirm them before signing. Because Sun Orbit proceeded without verification despite known technical risks in the field, it bears the risk of the mistake and cannot rescind the contract.
Developer Ignores Standard Checks
Summit Development agreed to buy Dylan's warehouse after both parties examined a city zoning map showing residential classification. The purchase agreement contained an as-is clause and no zoning contingency. Summit, an experienced developer that normally verifies zoning through official records, chose not to do so here. Summit therefore bears the risk of the mistake and cannot rescind when the map proves erroneous.
Select any source to read its text and confirm it supports the definition.
Restatements
Study Supplements
Parties Allocate Cost Escalation Risk
Alcoa contracted with Essex to supply aluminum at a fixed price tied to a particular cost index. Both parties assumed the index would continue to track Alcoa's actual production costs. When the index diverged sharply because of unforeseen market changes, Alcoa sought relief. Because the contract allocated the risk of index inaccuracy to Alcoa, it bears the risk of the mistake and remains bound.
Aluminum Company of America v. Essex Group, Inc.499 F. Supp. 53 (W.D. Pa. 1980)
Common questions
Frequently Asked
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When does a party bear the risk of mistake under the Restatement approach?+
A party bears the risk when the contract expressly allocates it, when the party is consciously ignorant of limited knowledge yet proceeds anyway, or when a court reasonably assigns the risk based on the circumstances of formation.
Supporting sources
Does an as-is clause automatically mean the buyer bears the risk of a zoning mistake?+
An as-is clause together with the buyer's failure to perform its usual verification supports a finding that the buyer bears the risk, but the clause alone does not decide the issue without examining the buyer's knowledge and conduct at formation.
Supporting sources
How does conscious ignorance affect risk allocation in a mutual-mistake claim?+
When a party knows its information is limited yet chooses to contract without further inquiry, that conscious ignorance places the risk of the mistake on that party even if the mistake is mutual.
Supporting sources
Can a party avoid a contract for unilateral mistake if it bears the risk?+
No. Even if enforcement would be unconscionable or the other party had reason to know of the mistake, the adversely affected party cannot avoid the contract when it bears the risk under section 154.
Supporting sources
499 F. Supp. 53 (W.D. Pa. 1980)Contracts
…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 § 296. (2) In determining whether this mistake has a material affect on the agreed exchange of performances, account is taken of any relief by way of…
ContractsDefenses to enforceability · Mistake and misunderstandingUBEFoundational