LAW 505-002 – Contracts I

Mistake


Restatement Second of Contracts § 151

Mistake Defined

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A mistake is a belief that is not in accord with the facts.

Restatement Second of Contracts § 152

When Mistake of Both Parties Makes a Contract Voidable

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  1. Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in [R2C § 154].
  2. In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.

A mistake must be about the nature of the good exchanged, not merely the value.

Only the party disadvantaged by the mistake can raise the defense.

Restatement Second of Contracts § 153

When Mistake of One Party Makes a Contract Voidable

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Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in [R2C § 154], and

  1. the effect of the mistake is such that enforcement of the contract would be unconscionable, or
  2. the other party had reason to know of the mistake or his fault caused the mistake.

Restatement Second of Contracts § 154

When a Party Bears the Risk of a Mistake

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A party bears the risk of a mistake when

  1. the risk is allocated to him by agreement of the parties, or
  2. he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
  3. the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

Restatement Second of Contracts § 157

Effect of Fault of Party Seeking Relief

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A mistaken party's fault in failing to know or discover the facts before making the contract does not bar him from avoidance or reformation under the rules stated in this Chapter, unless his fault amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.