Mistakes to Avoid in Contract Law

Introduction:

Crafting a contract is a complex task. It involves using specific wording, up-to-date knowledge of common laws, and material facts. One small slip and one or both parties might end up with a misrepresentation of the terms in a contract.

These misunderstandings are referred to as a mistake in contract law. We are going to explore what types of mistakes are common in Florida contract law and how they are resolved according to the doctrine of mistake.

What is a Mistake in Contract Law?

A mistake in contract law is when one or both parties have a false belief about a contract. A mistake might be a misunderstanding about terms, laws, or information relevant to a binding contract.

If a party can prove their false belief has legitimate mistake grounds, the contract would become void. A court may also rule that a new contract is negotiated through mutual assent or reparations are made for the mistake, depending on the specific mistake case.

Mistakes in contract law fall within three main categories: mutual mistakes, common mistakes, and unilateral mistakes. These three types of mistakes will be discussed in more detail along with specific examples of each mistake.

Mistake of Law vs Mistake of Fact

There are two main categories of mistakes that occur in contract law: mistake of law and mistake of fact. It is important to know that both of these are valid contract defenses.

When a person signs a contract without understanding or knowing about a law, it is considered a mistake of law.

When a person signs a written contract without fully understanding or having a mistaken understanding of an important fact that is essential to the contract, it is called a mistake of fact.

What is Mistake of Law?

A mistake of law is a false understanding or interpretation of a law which affects the contract being signed. This mistake occurs when a party is given a false definition of a law by an official person or document.

In most cases, a mistake of law is not accepted as a reason to void a contract. Proving that an innocent party was misled in the contract process can be difficult and rarely stands up in court.

The only times a mistake of law can be used are:

• If the law is not publicly published for you to confirm

• You entered a contract using a law that no longer is effective

• You entered a contract because of a court decision

• You entered a contract under a false impression of a law given by a non-mistaken official

Mistake of Law Example

One example of a mistake of law would be a criminal who enters a contract because an executive official gave him false information about the law. When the criminal realizes his mistake, he can void the contract because of a mistake of law.

What is Mistake of Fact?

A mistake of fact is more commonly used as a reason to void or contract rescission. It occurs when the contracting parties involved enter the contract unknowingly using false information or different meanings. When the real information comes to light, the contract can be voided or changed.

The two forms of mistakes of fact are mutual mistakes and unilateral mistakes. A mutual mistake occurs when both parties have an erroneous belief while a unilateral mistake only involves the misunderstanding of one party.

Mistake of Fact Example

A person may hire a contractor to paint a house – expecting the contractor to paint both the house portion and garage since both are considered part of the main house on paper. The contractor may arrive and only paint the main portion of the house – not knowing the garage is considered part of the house. He can claim a mistake of fact since he did not know all the facts of the contract which led to a false idea of the terms.

What are the Types of Contractual Mistakes?

There are three types of mistakes in contract law: unilateral mistakes, mutual mistakes, and common mistakes.

Let’s explore each of these mistakes in more detail.

What is a Unilateral Mistake in Contract Law? (Our Definition)

Our unilateral mistake definition: A unilateral mistake is a mistaken belief made by one party in a contract.

If only one person is making a mistake of law or mistake of fact, the mistake is a unilateral mistake. This type of mistake is the most common of the three mistakes.

A unilateral mistake could void a contract when the other party has an unconscionable advantage in a contract because they fully understand the terms outlined in the document.

Unilateral mistake contract law provides two ways to fix a unilateral mistake in contracts. Either it can be fixed by contract reformation so that both parties fully understand the terms or both parties can cancel the contract altogether.

Unilateral Mistake Example

One example of unilateral mistake contracts would be contracts that use terms with double meaning. If a contract used the term “adult” without specifying an age, a party member who might be from a foreign country may enter the contract thinking of a different age than the original author intended. An adult’s age can range anywhere from 15 to 21 depending on where you are in the world.

What is a Mutual Mistake in Contract Law – AKA Bilateral Mistake? (Our Definition)

Our mutual mistake definition: A mutual mistake is a mistake with cross-purposes made by both parties in a contract.

If both parties enter into an agreement but are equally mistaken about the same contract terms, it is considered a mutual mistake. The most famous case of mutual mistake is Raffles v Wichelhaus which demonstrated the rule of the Peerless.

As a general rule, what makes a mutual mistake different from a common mistake – which will be covered next – is that the mistakes contradict each other directly.

Mutual mistake contract law cases usually end in voiding the contract so that it can be renegotiated in a way where both parties agree on the terms and conditions of the contract.

Mutual Mistake Example

An example of mutual mistake contracts are contracts with obscure language that leads both parties to come to different conclusions. Like in the case of a beef farmer who sells a store fresh beef. If the type of beef is not specified in the contract, the farmer might provide chuck meat while the store was expecting rib meat.

What is a Common Mistake in Contract Law? (Our Definition)

Our common mistake definition: A common mistake is the same mistake made by both parties that has a significant impact on the outcome of a contract.

A common mistake is like a mutual mistake in that both parties are mistaken. What differentiates a common mistake is that it is both parties' mistake.

If a contract states something different than the parties are doing, issues may arise later. To protect themselves and their businesses, both parties should renegotiate a contract so that it aligns with their mutual understanding of the contract terms.

Common Mistake Example

An example of a common mistake would be if two parties enter a contract where one person agrees to transport goods for the other person for a specified cost. Later the two parties might realize the price of gas was higher than they both negotiated – raising the transportation cost. They could claim a common mistake and renegotiate the contract using the new gas prices.

Need Help with Mutual, Common, or Unilateral Contract Cases?

Unless you attended law school, contract law can often feel overwhelming. Lawyers are ready to step in and help craft contracts that avoid each kind of mistake in contract law, so you don’t have to struggle through a long legal process of negotiation or rescission. 

The attorneys at Cueto Law Group know how to look for terms of the contract that might lead to unilateral, mutual, or common mistakes causing a contract void.

Talk to an attorney today at Cueto Law Group for legal advice for drafting your next contract.

Contact us now!

FAQs

What is the Legal Effect of a Mutual Mistake of Value?

A mistake of value is when one or both parties make a basic assumption about how much an item or service is worth which ends up being a mistake. This can cause a party to underpay or overpay the other party for the services. The party that lost money due to the mistake can use legal means to receive compensation for the loss once the mistake has been identified.

Why Is It Important to Distinguish Between Unilateral and Mutual Mistakes?

Whether both parties are mistaken or just one will determine if a contract is voidable. A unilateral mistake gives one party an unfair advantage over the other, while mutual mistakes put both parties at a mutual disadvantage.

Can a Mistake of Fact Be Unilateral?

A mistake of fact can be both unilateral and mutual – depending on whether one or both parties misunderstood the information presented in the contract.

What is the Effect of One Party Being Mistaken About the Subject Matter of a Contract?

If one party is mistaken on the subject matter of a contract, they are put at an unfair advantage. The second party has the backing of a legal contract supporting his or her actions while the mistaken person might be working for less than they are worth or putting in time for a service that was not requested.

If the mistaken party can prove there was a mistake in the contract, he or she might still receive some type of compensation for the time and services given, despite the breach of contract. Otherwise, the most a mistaken party could hope for is making a contract voidable.

A focal point of my practice involves advising clients on the terms and conditions that absolutely must be included in a business agreement. Having drafted hundreds of commercial contracts over the years, I narrowed down what I perceive to be the five most important terms to include in a contract.

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