Bilateral Mistake: Business Law
A bilateral mistake occurs when both parties involved in a contract are mistaken about a fundamental fact pertinent to the agreement. Also known as a mutual mistake, this type of error affects the core aspects of the contract, often leading to discrepancies between the consensual expectations of the parties and the actual contract terms.
Examples of Bilateral Mistake
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Sale of Goods: Two parties enter into a contract for the sale of goods, believing the item is a genuine artifact. Later, it is discovered that the item is a replica. Both parties were mistaken about the nature of the item.
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Real Estate Deal: A buyer and a seller both believe a parcel of land is 2 acres based on a faulty survey. When a new survey is conducted, it shows the land is only 1.5 acres. Both the buyer and seller were under the same incorrect assumption regarding the land size.
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Service Agreement: An employer and an employee sign a contract under the belief that certain benefits, such as health insurance, are included in the employment terms. However, the contract, as written, does not include such benefits due to a drafting oversight. Both parties were mistaken about the contract’s content.
Frequently Asked Questions (FAQs)
Q1: What distinguishes a bilateral mistake from a unilateral mistake?
A:* A bilateral mistake involves both parties being mistaken about a fundamental fact, whereas a unilateral mistake involves just one party being mistaken. Bilateral mistakes are more likely to render a contract voidable because the error impacts the agreement’s basis.
Q2: Can a contract be enforceable if both parties are under a bilateral mistake?
A: Depending on the situation and the importance of the mistaken fact, a contract can be voided. If the mistake significantly alters the agreement’s value or substance, parties can seek to have the contract rescinded.
Q3: What is a ‘material fact’ in the context of bilateral mistakes?
A: A material fact is one that is essential to the agreement; its accuracy or inaccuracy affects the core of the contract and the parties’ decision-making process.
Q4: What remedies are available for a bilateral mistake?
A: Remedies might include rescission of the contract (canceling it as if it never existed) or reformation (modifying the contract to reflect what the parties intended).
Q5: Are bilateral mistakes common in business contracts?
A: While not exceedingly common, bilateral mistakes can occur, particularly in complex agreements or in cases where critical information is miscommunicated or misunderstood by all parties involved.
Related Terms with Definitions
- Unilateral Mistake: A mistake in the contract made by only one of the parties.
- Voidable Contract: A valid contract that can be annulled or voided at the election of one of the parties.
- Material Fact: A fact that is fundamental or essential to the contract terms and the reason for the agreement.
- Rescission: A remedy where the contract is terminated and the parties are restored to their original positions pre-contract.
- Reformation: The adjustment or rectification of the contract to reflect the true intentions of the parties.
Online References
- Investopedia on Mutual Mistake
- Legal Information Institute (LII) on Mistake
- American Bar Association on Contractual Mistakes
Suggested Books for Further Studies
- “Contracts: Cases and Doctrine” by Randy E. Barnett and Nathan B. Oman
- “Principles of Contract Law” by Robert A. Hillman
- “Contract Law: Selected Source Materials Annotated, 2021 Edition” by Steven J. Burton
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