Legal Definitions - mental reservation

A mental reservation occurs when one party to an agreement privately holds a different understanding or an unstated condition regarding a specific term of the contract, without communicating this private thought to the other party. This means that while they outwardly agree to the contract's language, their internal interpretation of that language differs significantly from what the other party reasonably believes was agreed upon.

Here are some examples to illustrate this concept:

• Example 1: Business Software Development

  Imagine a small business hires a software developer to create a new customer management system. The contract states that the initial prototype will be delivered "within 30 days." The business owner understands this to mean 30 calendar days from the contract signing. However, the software developer, due to their internal project scheduling, silently intends "30 business days" (excluding weekends and holidays) but never communicates this distinction to the business owner. The developer has a mental reservation about the precise meaning of "days" in the contract, which is not shared with the other party.

• Example 2: Residential Lease Agreement

  A tenant signs a lease for an apartment that includes a clause stating, "No alterations to the property are permitted." The landlord intends this to mean no changes whatsoever, including painting or hanging shelves. The tenant, however, privately believes this clause only prohibits major structural changes and plans to paint the living room a different color, assuming it's acceptable as long as they repaint it to the original color before moving out. The tenant's uncommunicated interpretation of "alterations" is a mental reservation.

• Example 3: Sale of Goods "As Is"

  A person buys a used antique clock from a private seller, and the sales agreement specifies the clock is sold "as is." The seller understands "as is" to mean the buyer accepts the clock in its current condition, with all existing defects, and that the seller makes no guarantees about its functionality. The buyer, however, secretly believes "as is" simply means no warranty for future breakdowns, but that the clock is currently in working order, despite not having tested it or discussed this expectation with the seller. The buyer's unstated assumption about the clock's current working condition, contrary to the common understanding of "as is," represents a mental reservation.