Apr 2014

Mutual Mistake in Contracts

When Both Sides Are Responsible for Drafting Errors

As the old saying goes, nobody’s perfect. Being human means making mistakes. In everyday life, you can often fix errors with a quick explanation or sincere apology. In contracts, however, mistakes usually have serious – and costly – consequences.

The law divides contractual mistakes into two classes: unilateral and mutual. Unilateral mistakes are one-sided, which means that only one party is at fault. By contrast, mutual mistakes are just that: mutual.

Requirements for a Mutual Mistake

For a court to decide that two contracting parties are mutually responsible for a drafting mistake, several things must happen. The mistake must be fact-based, such as a mix-up that calls for 100 sheets of drywall instead of ten. This is different from a so-called “legal mistake”, which usually involves parties who are simply ignorant about what the law says. Additionally, both parties must share responsibility for the mistake. Finally, it must impact the contract in a material way.

Examples of Mutual Mistake

No matter what kind of contract you draft, chances are it will contain errors here and there. In fact, attorneys often include paragraphs that attempt to address these inevitable mistakes. From spelling errors to ambiguity regarding types of materials, quantities, and discrepancies, mutual mistakes are often overlooked by the parties until an issue arises in the middle of a project.

Rescission and Reformation: Remedies for Mutual Mistake

When contractual mistakes are discovered, there are a couple ways to fix them and compensate the parties for any damages they incurred due to the error. In some cases, the court rescinds the contract. Rescission voids a contract and makes it as though the parties never made a written agreement in the first place. The court can also reform the contract, which involves removing the problem section and replacing it with language that accurately reflects the agreement of both sides.

Unsurprisingly, mutual mistakes are rarely as straightforward as correcting a misspelled word or changing a quantity of materials. In most cases, they result in significant loss of revenue for both parties. Although many parties manage to iron out their differences without resorting to litigation, some cases are too complicated to tackle on your own.

To avoid making expensive errors in your agreements, never try drafting a contract on your own. Although indulging in a do-it-yourself contract might save you a few dollars up front, it can cost you thousands down the road. Always work with an experienced business and contract attorney when preparing a contractual agreement. Call the Law Office of Randy L. Smith today at 417-841-2775 to talk about your case.

This website has been prepared by The Law Office of Randy L. Smith, LLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.