Mutual and Unilateral Mistake in Contract Law

MUCH of private law is devoted to the prevention of mistakes on the one hand and the amelioration of their consequences on the other. In contract law, however, the term "mistake" is applied specifically to situations where the parties' beliefs about the world are incorrect at the time of contracting. If writing contracts were costless, the parties would specify which of their beliefs were crucial to the agreement and condition performance on those beliefs, just as they would avoid all ambiguity in defining performance by including all details that might be relevant. Since reading and writing contracts is costly, courts sometimes fill gaps in incomplete contracts by supplying the omitted terms, asking what the parties would have specified ex ante had contract writing been costless. When beliefs are mistaken, the court might follow a similar rule, not by adding omitted terms (since the contract is unambiguous), but by modifying the contract to express the true intentions of the parties. Or, the court could reform the contractual obligations by voiding the contract, leaving the recontracting to the parties involved. Reforming or voiding contracts, however, goes beyond the gap-filling function in which courts customarily engage; it is an almost paternalistic change in the contract's express terms. Hence, contract law must be very careful how it treats "mistake." The law makes a distinction between incorrect beliefs at the time of