Contracts and Sales Multistate Bar Practice Exam

What may be an outcome of a mutual mistake in forming a contract?

1. The contract may be voided

2. The contract is always enforceable

3. Only damages can be claimed

4. The parties must renegotiate the terms

The correct answer is: The contract may be voided

A mutual mistake occurs when both parties to a contract are mistaken about a material fact that is fundamental to the agreement. In such instances, when a mutual mistake is demonstrated, the typical legal resolution is that the contract may be voided. This is because the parties did not have a shared understanding of the essential elements of the agreement, making it impossible for them to perform their obligations as intended. Contracts are based on the mutual assent and understanding of all parties involved; when that foundation is compromised due to a mutual mistake, the law recognizes that the contract cannot be enforced as originally agreed. A mutual mistake can often lead to the conclusion that there was no true meeting of the minds, which is a crucial element for contract formation. Therefore, a court may grant relief by voiding the contract to restore the parties to their pre-contractual positions. The other options do not accurately describe the ramifications of a mutual mistake. Contracts are not always enforceable when a mutual mistake exists, nor are damages the only remedy. Likewise, while the parties could choose to renegotiate, it is not a requirement or outcome mandated by law when a mutual mistake is present.