Also known as: mutual mistake
Written by attorneys · grounded in primary & secondary sources — see below
A doctrine that renders a contract voidable when both parties share a mistaken belief about a basic assumption underlying the agreement that materially affects the exchange of performances. The adversely affected party may avoid the contract unless that party bears the risk of the mistake. The doctrine also supplies an exception to the merger rule in real property transactions and supports reformation of writings that fail to express the parties' true agreement.
Select any source to read its text and confirm it supports the definition.
Majestic Construction sold a parcel to Mirage Hotels under a contract requiring removal of debris and grant of a trail easement. At closing Mirage accepted a deed silent on those obligations. After discovering the shared assumption that the obligations would survive was incorrect, Mirage invoked mutual mistake to avoid merger and enforce the original promises.
Metro Bank contracted with Magnolia Foods to supply produce at a fixed price based on the shared belief that a key supplier contract remained in force. When both parties later learned the supplier contract had expired before signing, Magnolia refused performance. The mutual mistake about the basic assumption allowed Magnolia to avoid the agreement.
Maria Morales sold land to Miles Montgomery under a contract promising to build a boundary fence after closing. The deed contained no reference to the fence. Because both parties shared the mistaken belief that the fence promise would remain enforceable, the court treated the promise as collateral and permitted enforcement despite merger.
Mohan Malhotra and Michael Miller signed a purchase agreement that mistakenly listed a six-month earnings warranty instead of the intended seven-month period. Both parties overlooked the error at signing. The court reformed the writing to reflect the true agreement because the mutual mistake concerned the contents of the document.
Aluminum Company of America contracted with Essex Group using a price index both parties believed would track production costs. When the index failed to capture major cost increases, the shared mistaken assumption about the formula's suitability permitted the court to reform the price term rather than rescind the entire contract.
Walker sold a cow to Sherwood under the shared belief that the animal was infertile and suitable only for beef. After discovering the cow was pregnant, Walker avoided the contract. The mutual mistake went to the substance of the thing bargained for and rendered the agreement voidable.
A contract is voidable when both parties share a mistaken belief about a basic assumption on which the contract was made and the mistake has a material effect on the agreed exchange of performances. The adversely affected party may avoid the contract unless that party bears the risk of the mistake.
Mutual mistake supplies an exception to merger. When the buyer accepts a deed at closing, contract promises generally merge into the deed and are discharged, but a shared mistaken belief that certain obligations would survive allows the buyer to enforce those promises after closing.
…between them for all purposes of use as there is between an ox and a cow that is capable of breeding and giving milk. If the mutual mistake had simply related to the fact whether she was with calf or not for one season, then it might have been a good sale; but the mistake affected the character of the animal for all time, and…
…After defining “mistake” as “a belief not in accord with the facts,” § 293,[^maj-2] the Restatement declares: § 294. WHEN
…intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake
…it attempted to accept the bid, and knowledge by one party that the other is acting under mistake
…from the defendants that the ties were located in a place where there was imminent danger from fire. Third. That there was a mutual mistake
The court may reform the writing to express the true agreement at the request of a party. Reformation is unavailable to the extent it would unfairly affect the rights of third parties such as good faith purchasers for value.
A party bears the risk when it is aware at the time of contracting that its knowledge is limited yet treats that knowledge as sufficient. Conscious ignorance of this kind prevents avoidance even if the mistake is mutual.
Yes. When both parties adopt a pricing formula under a shared erroneous assumption that it will track costs, and the formula later proves grossly inaccurate, a court may reform the price term to restore the parties' original expectations instead of terminating the contract.