Legal Definitions - bilateral mistake

A bilateral mistake, also known as a mutual mistake, occurs when both parties involved in a contract share the same fundamental misunderstanding about a significant fact that is central to their agreement. This shared error must relate to a material aspect of the contract, meaning it's a fact so important that it forms the basis of the agreement. If such a mistake exists, it can sometimes allow a court to void the contract, as there was no true "meeting of the minds" between the parties.

• Example 1: Misunderstanding the Subject Matter

  A collector, Sarah, agrees to buy a rare antique vase from a dealer, Mark, believing it to be a genuine Ming Dynasty artifact. Unbeknownst to both Sarah and Mark, the vase is actually a very convincing modern replica. Both parties entered into the contract under the mistaken belief that the vase was an authentic Ming Dynasty piece, which was a fundamental assumption underlying the sale. If this mistake is discovered, a court might void the contract because both parties made the same material error regarding the identity and value of the item being sold.

• Example 2: Error Regarding Property Boundaries

  David agrees to purchase a plot of land from Emily, intending to build a small guesthouse. Both David and Emily genuinely believe that a specific old oak tree marks the western boundary of the property, and they discuss the sale based on this understanding. After the contract is signed, a new survey reveals that the actual boundary is 50 feet east of the oak tree, significantly reducing the usable area of the plot. Both David and Emily shared the same incorrect belief about a crucial physical characteristic of the land being sold, which was a material fact influencing the purchase. This shared misunderstanding about the property's extent could constitute a bilateral mistake.

• Example 3: Mistake About a Business's Existence

  A software company, "Tech Solutions Inc.," enters into a contract to acquire "Innovate Labs LLC," a smaller tech startup, for its proprietary algorithm. Both companies believe that Innovate Labs LLC is a legally existing and operational entity with active intellectual property. However, unknown to both parties, Innovate Labs LLC had been dissolved by state authorities several months prior due to administrative oversight, and its intellectual property rights had lapsed. The contract was based on the fundamental, shared mistaken belief that Innovate Labs LLC was a viable, existing business with valuable assets. This mutual error about the very existence and legal status of the acquired entity could be grounds for voiding the acquisition contract.