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There are many defenses to a breach of contract lawsuits in California. One of them is mistake. A mistake can be unilateral, made by only one party to the contract, or bilateral, made by both parties. Excellent and trusted legal counsel is needed at the contracting stage to avoid unilateral and bilateral mistakes. Here is some information and some case law.
What is a “Mistake” With Respect to California Contracts?
With respect to contracts, a “mistake” is when the contract does not reflect the mutual intention of the parties. This is codified at Cal. Civ. Code § 1640 which states that “[w]hen, through fraud, mistake, or accident, a written contract fails to express the real intention of the parties, such intention is to be regarded, and the erroneous parts of the writing disregarded.” See also Cal. Civ. Code §§ 1567, 1576-1579; Crocker-Anglo National Bank v. Kuchman, 224 Cal.App.2d 490 (1964) (a mistake of fact occurs when a person understands the facts to be other than they are).
When one party or another claims “mistake,” the courts will look to other evidence to determine the intent of the parties. The court will either void the contract entirely or reform/remake the contract so that the written contract is consistent with what the parties intended.
In order to succeed on claim of unilateral mistake, the party asserting the mistake must prove these facts:
- That there was a mistake
- That the mistake was with respect to something important — material — to the contract
- That the other party knew of the mistaken belief
- That the other party used that mistake to take advantage of the party that held the mistaken belief
- That the party holding the mistaken belief would not have entered into the contract had the true facts been known
The party claiming “mistake” cannot go blindly about making contracts without any sort of reasonable conduct. Thus, courts have held that a party cannot use “mistake” as a defense to breach of contract where that party was grossly negligent or where their conduct was “preposterous or irrational.” But, ordinary negligence will not bar a claim for mistake.
In order to succeed on a claim of bilateral/mutual mistake, the party must show:
- That there was a mistake by both parties
- That the mistake was with respect to something important (material) to the contract
- That the parties would not have entered into the contract had the true facts been known
Case Example of Contract Mistake
A case that illustrates the principals is Thrifty Payless, Inc. v. The Americana at Brand, LLC, 218 Cal. App. 4th 1230 (Cal. App. 2013). In that case, a Riteaid store signed a commercial lease for space in a shopping center and was told that its share of taxes, insurance, and certain common maintenance expenses would be 2.2% of their lease amount. However, the true amount was 5.67%. Riteaid refused to pay the higher amount and claimed both mutual and unilateral mistake of fact. The appellate court agreed and allowed Riteaid to go forward on both defenses.
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to draft your contracts properly to avoid mistakes, both mutual and unilateral. With all business contracts, it is essential for all parties to do their due diligence and investigate the essential elements of the bargain. San Diego Corporate Law focuses can provide legal services for any business-related matter. Contact Mr. Leonard by email or by calling (858) 483-9200.