A meeting of the minds needs to occur to form a contract. Also known as mutual assent, a meeting of the minds requires the two parties entering into a contract to discuss their responsibilities and then agree to those basic duties.

Meeting of the Minds: What Is It?

A meeting of the minds happens when two parties enter an agreement and each party understands the commitments they are making. A meeting of the minds is related to contract law and is a crucial step in the formation of a contract. However, because of the illusory nature of this concept, it has never been used as a firm requirement for forming a contract.

It's important to understand how the legal understanding of meeting of the minds has developed and how this concept can affect issues such as lack of capacity. You can prove a meeting of the minds with the terms of your contract as long as you don't make references to any statements not expressly stated in the contract.

If a mistake is made when the contract is written and the contract requires the parties to fulfill a commitment that they did not expect, then a meeting of the minds has not taken place.

For example, imagine that your business needs to resupply its inventory, so you get in touch with a supplier in your area. You tell the supplier you want to buy their available stock. The supplier misunderstands what you are asking for and assumes you intend to buy out their entire business. No meeting of the minds has occurred because you and the supplier have different purposes.  

Legal Principles and Meeting of the Minds

A meeting of the minds needs to take place for there to be a legally binding contract. While this may seem like a fairly straightforward concept, there have been countless disputes where the phrase was completely misunderstood. Because of the development of contract law, courts have needed to decide how to consider differing policies related to this issue.

The main goal of the court is to consider the intent of the parties bound by the contract. However, this can be difficult when the intent of one party is unknown. Obviously, proving intent can be extremely difficult, particularly because lying about intent is so easy. While courts do not want to make contracts meaningless, they also want the reasonable expectations of innocent parties to have an effect.

Because many of the legal principles of meeting of the minds are counterintuitive, it's common for people to wonder when a misunderstanding allows one party to leave a contract. When trying to determine intent, courts will generally consider two factors:

  1. The meaning of the words in the contract.
  2. Testimony from the parties if the meaning of the words are unclear.

The court will examine the typical usage of a term and if it could be understood by a reasonable person to determine if ambiguity exists in a contract. If there is ambiguity, unusual phrasing, or common words or phrases used abnormally, the court will allow the parties to orally explain their intent. This oral explanation is known as parole evidence.

Courts will also respect integration clauses in contracts. These clauses state that all the words used in the contract have no outside meaning. In these cases, it can be very hard to prove that a contract term is ambiguous. Claiming that the clause was not explained or that the plaintiff did not read the clause will usually not be enough to prove a claim of ambiguity.

Typically, judges will only take intent into account when it is directly communicated to the other party. When two parties entering a contract are discussing intent, it is best to do so in writing. In some cases, people can use a unilateral mistake defense to void a contract. This defense allows a contract to be voided if one party can prove they made mistakes that were caused by the other party or that the other party was aware of those mistakes.

However, it can be hard to use this defense if the following occurs:

  • There is an ambiguous contract term.
  • One of the parties completely misunderstands a term and this misunderstanding does not come up while the contract was being negotiated.
  • The contract is still signed by both parties.

Fortunately, contracts will not be legally binding if each party knew that the other interpreted the contract differently.

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