In general, a mistake is an error or misconception. This definition also applies in the legal world, but the type of mistake and the circumstances surrounding it decide what legal implications, if any, the mistake will have.
In contract law, a mistake usually refers to a situation where the parties did not mean the same thing when they agreed to a term or provision. It is different from a misunderstanding, which is due to an ambiguity in the terms where two interpretations are reasonable, whereas a mistake is based on having an incorrect belief about a basic assumption the contract is based on, rather than just being a term that could be interpreted in multiple ways or have multiple meanings. For example, a situation where a rare coin is a fake, but both parties believe it to be genuine qualifies as a mistake.
There are essentially two types of mistakes in Contract Law: mutual mistakes and unilateral mistakes. Both types of mistakes may make the contract invalid or voidable. In order to use the defense of mutual material mistake, as illustrated in Restatement Second of Contracts § 152, a party must prove that:
- There was a material mistake, meaning that it must concern one or more basic assumptions on which the contract was made;
- The party was adversely-affected by the mistake;
- The mistake was mutual, meaning both parties had the same mistaken belief; and
- The adversely-affected party does not bear the risk of the mistake (i.e. there is no assumption of risk) under the rule stated in Restatement Second of Contracts § 154.
In order to use the defense of a unilateral mistake in order to make a contract voidable, as illustrated in Restatement Second of Contracts § 153, a party must prove the same requirements as the mutual material mistake defense (aside of course from the fact that the mistake was mutual) plus an additional requirement that can be satisfied in three ways:
- The effect of the mistake is such that enforcement of the contract would be unconscionable, OR
- The other party knew or had reason to know of the mistake OR
- The fault of the other party caused the mistake.
A mistake also might have legal implications in the field of criminal law. In criminal law, a mistake can serve as a defense that claims either a misconception of the law or a mistake of some fact. The defense of a mistake of law almost never succeeds; one exception is when a criminal defendant relies on a misstatement of the law in a statute, judicial opinion, or official statement from an executive officer. Mistakes of fact can work as a defense more often, especially if they are reasonable.
[Last updated in July of 2023 by the Wex Definitions Team]