At some point in our lives, all of us enter into some kind of agreement – whether it be for a purchase or sale of a product or service – that we later want to get out of once we learn new, additional, or different facts about the facts underlying the agreement. It could be a summer rental that you now realize is next to a sewage facility, or a contract to provide services to a company you now realize is the arch rival of your biggest client. The danger, of course, in not performing on your contractual obligations is that you could face a breach of contract lawsuit.
But the question then becomes whether the fact that you misunderstood the facts when you made the contract – what we call a “mistake of fact” as a legal term of art in contract law – allows you to rescind the contract and avoid a successful breach of contract suit. Speak to a California breach of contract attorney for in-depth guidance on the particular contract you are facing, but here are a few questions to keep in mind.
Was the Mistake Unilateral or Mutual?
If you and the other party together made a mutual mistake about an aspect or object of the agreement, then it is always possible that you can work with the other party to renegotiate the contract. Of course, if the mistake at issue is something that benefits the other party to your detriment, the other party may not want to renegotiate.
Assuming that both parties are mistaken as to material fact relating to the contract, then courts may allow one party to rescind the contract, which means the court will treat the contract as not existing and thus there is no obligation. The key determination here is whether the fact is indeed “material” – in other words, a significant aspect of the contract.
But if the mistake was a unilateral mistake on your part, meaning only you made the mistake in entering into the contract, there are a few more questions to assess.
Did the Other Party Know of and Take Advantage of the Mistake?
Many contracts involve some inherent risk of mistake, as it would be inefficient for all parties to know all available facts related to the execution of the contract before they entered into it. Thus, California law limits the types of unilateral mistakes that will justify rescission of that contract to a relatively limited type of scenarios.
Generally, before a judge or jury will rescind a contract based on unilateral mistake, it will want to see the following types of factors sufficiently proved by a preponderance of the evidence:
- That the person seeking rescission did not act excessively carelessly in causing the mistake (one way of thinking about this was whether it would have been easy and expected for the plaintiff to avoid making the mistake);
- That the other party actually knew that the mistaken party was operating under the mistaken assumption (e.g. was the mistaken assumption communicated to the other party?);
- That the other party took advantage of the mistaken party’s mistake; and
- The party seeking rescission would not have entered into the contract had they known the truth.
Again, speak with an experienced breach of contract attorney about your particular circumstances.
Contact the Commercial Contract Attorneys at Wagenseller Law Firm
At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. Contact Wagenseller Law Firm today to schedule a consultation to discuss your commercial contract matter.