Bilateral Mistake: Everything You Need to Know
Bilateral mistakes can be problematic because both parties have a misunderstanding of the contract and its terms. 3 min read
A bilateral mistake is often known as a mutual legal mistake. It occurs when both parties are falsely operating on information that is inaccurate. Bilateral mistakes can be problematic because both parties have a misunderstanding of the contract and its terms. When each party is not aware of the specific terms of the contract, it can be difficult and even impossible to fulfill the requirements of the contract.
Types of Legal Mistakes
There are two types of potential mistakes that can be involved in legal contracts.
- Mistake of law
- Mistake of fact
Mistake of Law
A mistake of law occurs when both parties are mistaken on the legal implications of a contract based on their current location, either at home or on foreign lands. There are also two different types of mistake of laws that can occur within a contract:
- Mistake of home law: This occurs when each party is mistaken in terms of the laws of where they currently live. In a mistake of home law, the contract terms must be met and legal consequences are likely. A mistake of home law will usually not hold up in court because it is under the assumption that each party should be knowledgeable of the specific laws of where they reside.
- Mistake of foreign law: This occurs when each party is mistaken of foreign laws. Although the contract terms must be met, it is possible that the contract could be forgiven in Indian courts. The idea is that parties cannot realistically know every single law in foreign areas.
Mistake of Fact
A mistake of fact occurs when one, or both parties, believe they understand the facts of the contract, yet at least one party is acting under false information. These mistakes of fact can either be bilateral or unilateral.
- Bilateral mistake of fact: When both parties are misinformed as to the specific terms of the contract. This is often referred to as mutual or common mistakes. A bilateral mistake can usually be voided by both parties of the contract because both parties are acting under false information.
- Unilateral mistake of fact: When only one party is mistaken on the terms of the contract. A unilateral mistake of fact is often not reason enough to set aside a contract, but it can result in a voidable contract. Whether or not it is voided will depend on the specific type of mistake and whether the other party agrees to void it.
Types of Bilateral Mistakes
There are two types of bilateral mistakes that can occur: subject matter mistakes and a possibility of performance mistakes.
Subject matter mistakes occur when both parties make a mistake regarding the subject matter of the contract. This will generally lead to a contract that is voided. Common mistake types include the following:
- Existence of subject matter: This occurs when both parties agree to terms that no longer exist. This could come from a lack of shipping, loss of inventory, or any other cause that limits the existence of the specific contract terms.
- Mistake of identity: This occurs when each party has different subject matter identity expectations.
- Mistake of quantity: This occurs when each party is mistaken as to the quantity involved in a specific contract term.
- Mistake of quality: This occurs when each party has different expectations of the quality of a product.
- Mistake of title: This occurs when one party falsely expects the other to have ownership in order to complete the terms of the agreement.
- Mistake of price: This occurs when each party is mistaken as to the price of the subject matter.
A possibility of performance mistake occurs when one party is mistaken as to the capability of the other to complete specific terms of the contract. This type of contract is voided based on the inability to complete the tasks. Possibility of performance mistakes can arise from an inability to complete contract terms based on either legal or physical reasons.
It is always possible that there are exceptions involved with unilateral mistakes. These are a few of the most common types of exceptions:
- Mistake of identity: If the mistake is one-sided in terms of identity, the contract can be voided.
- Nature of contract mistake: If just one party is mistaken as to the nature of the contract, then the contract is eligible to be voided.
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