On an MBE question where mistake is the issue, we are either dealing with a unilateral mistake or a mutual mistake.
Unilateral Mistake
A unilateral mistake occurs when only one party is mistaken about a term (or terms) of the contract. Unilateral mistake is generally not a defense, and the mistaken party will be obligated to perform.
However, if the nonmistaken party knew or had reason to know about the mistake, the mistaken party may void the contract.
Example 1: I plan to offer my lawnmower to my neighbor for $450. However, I accidentally write $350 in my written offer. My neighbor, unaware of my mistake, accepts the offer. My neighbor and I are both aware that this type of lawnmower, in its current condition, is worth between $300 and $400. What will the outcome be? There will be a valid, enforceable contract for $350. This is a unilateral mistake (I mistakenly offered the wrong price). My neighbor did not know about the mistake, and he also had no reason to know about the mistake since the actual value of the lawnmower is similar to the price I offered.
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Example 2: My elderly neighbor finds a box of baseball cards her attic and believes they are worth very little. She offers to sell the box to me for $10. However, I know the baseball card depicted above, valued at $25,000, is included in the box. I promptly accept her offer. My neighbor’s friend informs her of the value of the card and she refuses to go through with the sale. I sue my neighbor for breach of contract. Am I likely to prevail? NO. I was aware that the box contained an extremely valuable card, and it’s pretty obvious that I knew my neighbor was mistaken about the true value of what she was offering me. Even if I didn’t know this, I clearly should have known. Any reasonable person would have known that my neighbor had no idea what she was actually selling. Therefore even though this is a unilateral mistake my neighbor will be allowed to void the contract.
Mutual Mistake
A mutual mistake occurs when both parties are mistaken about a basic assumption of the contract. Mutual mistake generally is a defense, and the party adversely affected will be allowed to void the contract.
Example: I offer to sell my neighbor my framed picture of Hulk Hogan for $100, and he accepts the offer. I previously owned both a signed picture and an unsigned picture of Hulk Hogan, but I sold the signed picture to another buyer three months ago. My neighbor is unaware that I sold the signed picture, and the signed picture is the one he believes he is receiving. I believe my neighbor understands that he is buying the unsigned picture. My neighbor refuses to go through with the deal after realizing that he would be purchasing the unsigned picture. I sue him for breach of contract. Am I likely to prevail? NO. My neighbor and I were both mutually mistaken about a basic assumption of the contract (which picture I would be selling to him) and neither of us had reason to know about the other’s mistake. As such, my neighbor will be allowed to void the contract.
What To Understand
- When you encounter a contracts question dealing with the issue of mistake on the MBE, determine whether the facts are telling you that only one party is mistaken (unilateral mistake) or both parties are mistaken (mutual mistake).
- If only one party is mistaken and the other party did not know or have reason to know about the mistake, there will generally be a valid, enforceable contract. Mistake will not be a defense here.
- If only one party is mistaken and the other party did know or have reason to know about the mistake, mistake is a valid defense and the mistaken party can void the contract.
- If both parties are mistaken (mutual mistake) about a basic assumption of the contract, mistake generally is a defense and the adversely affected party will be allowed to void the contract.