Also known as: mutual mistakes of material facts · mutual mistake · mutual mistake of fact
Written by attorneys — see sources below.
A doctrine under which a contract is voidable by the adversely affected party when both parties at the time of contracting share a belief about an existing fact that is not in accord with reality and that belief concerns a basic assumption materially affecting the agreed exchange of performances.
Maria Morales sold land to Michael Miller under a contract describing the parcel by an old survey that both believed included an adjacent strip. At closing Miller accepted a deed silent on the strip. After closing a new survey revealed the strip belonged to a neighbor. Miller sued for rescission. The mutual mistake about the boundary allowed the claim to proceed despite merger of the contract into the deed.
Michelle Murphy sold an office building to Miguel Mendoza. Both parties believed the purchase agreement's promise to install fiber after closing would survive the deed. The deed contained no such term. After closing Murphy refused to install the network. Mendoza sought enforcement. The mutual mistake about whether the promise merged permitted the claim to avoid discharge under merger doctrine.
Mina Mehta sold a cow to Ming Ma. Both believed the animal was infertile and priced it for beef. The cow was in fact pregnant and far more valuable as a breeder. Ma discovered the pregnancy after purchase and sought rescission. The shared mistake about the cow's fertility went to the substance of the bargain and rendered the contract voidable.
In May 1886, T. C. Sherwood, a banker living in Plymouth in Wayne County, Michigan, sought to purchase cattle from Hiram Walker & Sons. The defendants resided in Detroit, conducted business at Walkerville, Ontario, and maintained a farm at Greenfield in Wayne County where they kept blooded polled Angus cattle that they believed were barren. On May 5, 1886, Sherwood visited the Greenfield farm after the defendants informed him they had a few head there that were probably barren and would not breed. A few days later Sherwood negotiated with one of the defendants for the purchase of the cow known as Rose 2d of Aberlone. On May 15, 1886, the parties reached final agreement by telephone that Sherwood would pay five and one-half cents per pound live weight less fifty pounds shrinkage. That same day the defendants sent Sherwood a letter confirming the sale and enclosing an order directing George Graham to deliver the cow at King’s cattle-yard, send a halter, and have her weighed. On May 19, 1886, Sherwood wrote Graham that he would collect the cow the following morning and instructed that she not be watered. On May 20 the defendants learned from Graham that the cow appeared to be with calf, telegraphed Sherwood that they could not sell her, and instructed Graham not to deliver. On May 21 Sherwood presented the order and letter to Graham, who refused delivery; Sherwood then tendered eighty dollars to Hiram Walker, who refused both the money and the cow. Sherwood commenced a replevin action in justice’s court and obtained judgment. The defendants appealed to the circuit court of Wayne County, where a jury returned a verdict for the plaintiff. After securing possession under the writ, Sherwood caused the cow to be weighed at 1,420 pounds at a location other than King’s cattle-yard. The cow gave birth to a calf in October 1886. At the time of the transaction both parties believed the cow was barren; she had cost the defendants $850 and, if capable of breeding, would have been worth between $750 and $1,000.
Millennium Media contracted to supply aluminum to Maxwell Manufacturing under a long-term agreement using a Wholesale Price Index formula both parties assumed would track production costs. Unforeseen electricity cost spikes caused the formula to underprice performance by millions. Maxwell sought reformation. The mutual mistake about the formula's suitability justified equitable relief reforming the price term.
In 1966 Essex Group, Inc., a manufacturer of electrical wire products, decided to expand its aluminum wire production and began negotiations with Aluminum Company of America (ALCOA) for a long-term supply of aluminum. By December 26, 1967, the parties entered into the Molten Metal Agreement under which Essex would supply alumina to ALCOA, which would smelt it into molten aluminum at its Warrick, Indiana facility for Essex to pick up. The agreement was to run until the end of 1983, with Essex having an option to extend it to 1988. Essex also entered into a separate Alumina Purchase Agreement with Alcoa of Australia Proprietary Ltd. for the supply of alumina. The price under the Molten Metal Agreement was calculated using a formula with three components. A demand charge was indexed to the Engineering News Record Construction Cost Index. A non-labor production cost component was indexed to the Wholesale Price Index-Industrial Commodities (WPI-IC). A labor production cost component was indexed to ALCOA's average hourly labor costs at Warrick. The initial price was fifteen cents per pound, subject to an overall cap at sixty-five percent of a specified market price for aluminum. ALCOA consulted economist Alan Greenspan in developing the indexing system, and both parties examined the historical performance of the indices before agreeing to them. The parties also executed a Side Letter Agreement addressing concerns under the Robinson-Patman Act, providing that if the agreement were construed as a sale of goods, either party could terminate it. From 1968 through the early 1970s, the price formula produced returns to ALCOA within the expected range of one to seven cents per pound net. Beginning in 1973, following actions by OPEC to increase oil prices and unanticipated pollution control costs, ALCOA's electricity costs at Warrick rose much more rapidly than the WPI-IC. As a result, ALCOA began incurring substantial out-of-pocket losses on the contract, projected to exceed sixty million dollars over the remaining term if unchanged. In June 1979, ALCOA notified Essex that it would reduce deliveries by fifteen percent, and Essex disputed ALCOA's authority to do so under the contract terms. On July 21, 1975, representatives of ALCOA and Essex, including Krome George and Paul O'Malley, met and discussed possible revision of the pricing formula, but the parties dispute whether an oral agreement to modify the contract was reached. In 1977 and 1978, electrical generating plant failures and a coal strike caused interruptions in ALCOA's smelting operations, leading to reduced deliveries to Essex that ALCOA attributed to causes beyond its control. ALCOA filed this action in the United States District Court for the Western District of Pennsylvania seeking reformation of the contract, a declaratory judgment regarding an alleged oral modification and termination rights, while Essex counterclaimed for damages and specific enforcement of the original delivery obligations. The case proceeded to a non-jury trial on liability issues, during which evidence was presented including tables showing the divergence between the WPI-IC and ALCOA's actual non-labor costs, testimony from company officials, and records of contract negotiations and performance. Jurisdiction is based on diversity of citizenship with the amount in controversy exceeding the jurisdictional threshold, and the parties agreed that Indiana law governs the contract.
Matrix Technologies and Marathon Logistics signed a services contract both believed contained only a bilateral arbitration clause. Drafting error inserted a class-action waiver neither noticed. After a dispute arose Marathon sought to pursue a class claim. The mutual mistake about the clause's contents supported reformation to match the parties' actual agreement.
A mistake exists when a party's belief about an existing fact does not match reality. Both the museum and Nora believed the painting was an original by the famous artist, but expert analysis later showed a student created it. Their shared incorrect belief therefore qualified as a mistake because it was not in accord with the facts at the time of contracting.
Supporting sources
…holding, and I think the circuit judge was right in his construction of the contract between the parties. It is claimed that a mutual mistake of a material fact was made by the parties when the contract of sale was made. There was no warranty in the case of the quality of the animal. When a mistaken fact is relied upon as ground for rescinding,…
…of the parties with respect to the use of the WPI have been completely and totally frustrated, that both ALCOA and Essex made a mutual mistake of fact
…intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake
…the alleged contract. Texaco further asserts that the alleged contract was not valid and enforceable, because it was based on a mutual mistake, because it would violate SEC Rule 10b-13 and the statute of frauds, and because it would be a breach by Gordon Getty and by the Getty Oil directors of their fiduciary duties; thus, Texaco…
…it attempted to accept the bid, and knowledge by one party that the other is acting under mistake is treated as equivalent to
No. Mistake doctrine focuses solely on whether the shared belief aligns with reality. Nora and Sam both relied on an outdated survey showing a boundary strip as part of the property when a new survey proved it belonged to a neighbor. Their innocent shared misunderstanding still constituted mutual mistake even without any deception.
Supporting sources
Reformation is available when both parties intended a particular term but the writing fails to express that intention because of a drafting error both overlooked. Green Broadcast and Republic Digital both believed their syndication agreement granted non-exclusive rights, yet an exclusivity clause remained through inadvertence. The mutual mistake about the writing's contents justified reformation to reflect the actual bargain.
Mutual mistake concerns a shared erroneous belief about an existing fact. Misunderstanding arises when each party attaches a different meaning to a term and knows the other does so. Internal emails showed Mountain Learning and the City of Roswell each knew the other gave materially different meanings to intensive yet signed anyway, producing no contract on that term rather than a voidable agreement under mistake doctrine.