Contracts. An affirmative defense to a breach of contract claim or an affirmative claim for equitable relief to void a contract based on the allegation that both parties to the contract were mistaken as to the terms or subject matter of the contract at the time they made the contract.
To succeed, the party moving to set aside the contract based on mutual mistake must prove:
- That both parties to the contract were mistaken about a basic assumption on which the contract was made;
- That the mistake materially affected the agreement; and
- That the adversely affected party does not bear the risk of the mistake.
Reference Desk
General:
California Civil Code § 1577.
Mistake of fact is a mistake, not caused by the neglect of a legal duty on the part of the person making the mistake, and consisting in:
1. An unconscious ignorance or forgetfulness of a fact past or present, material to the contract; or,
2. Belief in the present existence of a thing material to the contract, which does not exist, or in the past existence of such a thing, which has not existed.
California Civil Code § 1689.
(a) A contract may be rescinded if all the parties thereto consent.
(b) A party to a contract may rescind the contract in the following cases:
(1) If the consent of the party rescinding, or of any party jointly contracting with him, was given by mistake, or obtained through duress, menace, fraud, or undue influence, exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party.
(2) If the consideration for the obligation of the rescinding party fails, in whole or in part, through the fault of the party as to whom he rescinds.
(3) If the consideration for the obligation of the rescinding party becomes entirely void from any cause.
(4) If the consideration for the obligation of the rescinding party, before it is rendered to him, fails in a material respect from any cause.
(5) If the contract is unlawful for causes which do not appear in its terms or conditions, and the parties are not equally at fault.
(6) If the public interest will be prejudiced by permitting the contract to stand.
(7) Under the circumstances provided for in Sections 39, 1533, 1566, 1785, 1789, 1930 and 2314 of this code, Section 2470 of the Corporations Code, Sections 331, 338, 359, 447, 1904 and 2030 of the Insurance Code or any other statute providing for rescission.
Materiality
Edwards v. Lang, 198 Cal. App. 2d 5 (1961).
“A mistake of fact may be urged as a defense to an action upon a contract only if the mistake is material to the contract.”
Wood v. Kalbaugh, 39 Cal. App. 3d 926 (1974).
“It is settled that to warrant a unilateral rescission of a contract because of mutual mistake, the mistake must relate to basic or material fact, not a collateral matter. ”
Crocker-Anglo Nat’l Bank v. Kuchman, 224 Cal. App. 2d 490, 496 (1964).
“A ‘mistake’ within the meaning of subdivision (b) (1) of section 1689 of the Civil Code can be either one of fact or of law. ‘Generally a mistake of fact occurs when a person understands the facts to be other than they are. . . .’ When both parties understand the facts other than they are, the mistake necessarily is mutual and thus becomes a basis for rescission.”
Thrifty Payless, Inc. v. The American at Brand, LLC, 218 Cal. App. 4th 1230 (2013).
“Where, through mistake, the contract does not reflect the mutual intention of the parties, “such intention is to be regarded, and the erroneous parts of the writing disregarded.” (Civ. Code, § 1640.) In the case of mutual mistake, the contract may be reformed to conform to the intent of the parties. In determining whether [there has been] a mutual mistake …, [the] court may consider parol evidence,” and such evidence may be introduced in the face of an integration clause. Extrinsic evidence is necessary because the court must divine the true intentions of the contracting parties and determine whether the written agreement accurately represents those intentions. Ordinary negligence does not bar a claim for mutual mistake because there is an element of carelessness in nearly every case of mistake. Only gross negligence or preposterous or irrational conduct will bar mutual mistake. Mistake must be pleaded with some particularity so that there is a clear recitation of facts showing how, when and why the mistake occurred.”