In the case of mutual mistake—both parties are wrong about the subject of the contract—relief may be granted.
The Restatement sets out three requirements for successfully arguing mutual mistake. 1 The party seeking to avoid the contract must prove that
- the mistake relates to a “basic assumption on which the contract was made,”
- the mistake has a material effect on the agreed exchange of performances,
- the party seeking relief does not bear the risk of the mistake.
Basic assumption is probably clear enough. In the famous “cow case,” the defendant sold the plaintiff a cow—Rose of Abalone—believed by both to be barren and thus of less value than a fertile cow (a promising young dairy cow in 2010 might sell for $1,800). 2 Just before the plaintiff was to take Rose from the defendant’s barn, the defendant discovered she was “large with calf”; he refused to go on with the contract. The court held this was a mutual mistake of fact—“a barren cow is substantially a different creature than a breeding one”—and ruled for the defendant. That she was infertile was “a basic assumption,” but—for example—that hay would be readily available to feed her inexpensively was not, and had hay been expensive, that would not have vitiated the contract.
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