Question

Why is relief usually not granted for unilateral mistakes? When is relief granted for them? If there is a mutual mistake, what does the party seeking relief have to show to avoid the contract?

Answer 1

A unilateral mistake occurs when only one party is mistaken as to the subject matter or the terms contained in the contract agreement. If a unilateral mistake occurs during the contract process then it affects the outcome of the contract.

Relief is usually not granted for unilateral mistakes because one party has made a mistake about the subject matter. It is unfair that one party understands the contract while the other does not therefore the court issues either of the 2 remedies that is

1) Rescission

2) Reformation.

Contract rescission is where the contract is completely cancelled and the parties restored to their position before the contract was entered into. It is only available if the non-mistaken party knows or should have known about the unilateral mistake. Contract reformation is where the written agreement is changed to reflect the parties original understanding. It is granted only if one party was not aware that the writing does not conform to the actual agreement.

If both parties have same mistaken belief then it is called mutual mistake. The  contract is void in mutual mistake if both parties mistakenly believe that the contract can be performed when in fact, it is impossible to perform it. Example :- Smith promises Jones over lunch to sell Jones an antique car located in Smith’s garage. The car had been destroyed by fire an hour before the agreement and Smith had not learned of this. Since this fact was unknown to both parties, there is a mutual mistake  as to the possibility of performing the contract. So, the agreement is therefore void in this case.

To avoid the contract on account of mutual mistake there are 2 requirements which are

1) Basic assumption

2) Material Effect

3) Risk

The mistake must concern the basic assumption on which the contract was made. The mistake must have a material effect on the agreed exchange of performance. The agreed exchange of performance means that there is a significant difference between the value the parties thought they were exchanging compared with what they would exchange if the contract were performed The contract does not make it clear which party is to bear the risk of a certain type of mistake so the court allocates the risk in the manner that it is reasonable in the circumstances.