Restatement (Second) of Contracts · Section § 152
Overview of mutual mistake in contract formation under the Restatement of Contracts.
Source: Restatement Restatement (Second) of Contracts § § 152
A contract is voidable by a party if they are adversely affected by a mutual mistake of fact that is materially related to the contract.
If both parties to a contract are mistaken about a basic fact that is essential to the agreement, the contract can be canceled by the party who is negatively impacted by that mistake. This principle allows for fairness in situations where an error by both parties undermines the foundation of the contract.
Mutual mistake must pertain to a fact that is vital to the contract's subject matter.
The adversely affected party has the right to rescind the contract if both parties are in error.
Illustration 1
If both the seller and buyer believe a painting is an original but it is a replica, the buyer can rescind the contract due to mutual mistake.
Illustration 2
If two parties agree to the sale of a car but both mistakenly believe it is in working condition when it is not, the misagreement allows rescission.
This case illustrates mutual mistake as both parties believed they were referring to the same ship, although they were not, thus allowing for contract rescission.
Here, a mutual mistake about the nature of a cow's fertility led the court to conclude the contract was voidable.
Understanding § 152 is crucial for parties entering into contracts, as it highlights situations where contracts can be invalidated due to mutual misunderstandings. This section encourages due diligence and clear communication between contracting parties to avoid the pitfalls of mutual mistake.