Mistake as Grounds to Rescind a Contract
An issue in Illinois courts is whether a mistake, mutual or unilateral, between the parties of a contract can be grounds for rescission of an agreement. A mutual mistake occurs when an actual good-faith agreement is reached, but, due to error, the written reduction of the agreement violates the understanding of both parties. Cameron v. Bogusz, 305 Ill.App.3d 267, 272 (1st Dist. 1999). The reason for relief is that the misunderstanding precluded mutual assent to the terms of the contract. Illinois Jurisprudence, Commercial Law § 1:97.
The party asserting mutual mistake as grounds to rescind a contract must show that both parties were mistaken as to a material matter at the time the contract was entered into. Cameron, 305 Ill.App.3d at 272. Illinois courts require the plaintiff to prove the following elements for the court to grant rescission based on mutual mistake: (1) the mistake must have existed at the time the contract was entered into; (2) the mistake must have been mutual and common to all the parties; (3) the mistake must have involved a material matter; and (4) the mistake must have been such that the parties intended to say one thing but by the written instrument expressed another. Illinois Jurisprudence, Commercial Law § 1:97. To invalidate an agreement, a mistake must relate to a past or present fact material to the contract. United City of Yorkville v. Village of Sugar Grove, 376 Ill.App.3d 9, 24-25 (2d Dist. 2007). Illinois courts usually hold that predictions do not qualify as such present facts, and thus, mistaken predictions will not invalidate a contract. Id.
On the other hand, unilateral mistake, as a general rule, Illinois courts will not grant relief if only one party to a contract has made a mistake, especially where that party’s own negligence and lack of prudence caused the mistake. Illinois Jurisprudence, Commercial Law § 1:98. However, Illinois courts will allow a contract to be rescinded for unilateral mistake if: (1) the mistake relates to a material feature of the contract; (2) it occurred despite the exercise of reasonable care; (3) it is of such grave consequence that enforcement of that contract would be unconscionable; and (4) the other party can be returned to the same position it was in before the contract was entered into. Cameron, 305 Ill.App.3d at 274. The standard of care applied to the mistaken party where that party seeks to rescind the contract on the ground of unilateral mistake is whether a person of reasonable prudence would have acted in the same manner under the same circumstances. Illinois Jurisprudence, Commercial Law § 1:98.
Illinois courts will generally grant relief for unilateral errors that are clerical or mathematical. Illinois Jurisprudence, Commercial Law § 1:98. A contract fairly entered into cannot be rescinded on the ground of unilateral mistake merely because it is less profitable to one party than anticipated when he or she entered into it. Id. Nor can a party rescind a contract simply because of a mistaken opinion as to its legal effect. Id.
Unilateral mistakes in a party's assumptions as to cost to be incurred for performance of contract will not be cause for rescinding the contract. Bond Drug Co. of Illinois v. Amoco Oil Co., 274 Ill.App.3d 630, 635 (1st Dist. 1995). Illinois courts have held that each party assumes risk that its assumption as to cost of performance was wrong, and thus, the contract fairly entered into cannot be avoided or disregarded by one party upon discovery that the contract is less profitable than anticipated at the time of execution of the contract. Id.
Informational Purposes Only: The content of this writing was prepared by Tamari & Blumenthal, LLC for informational purposes only. The content of this writing is not intended to constitute and does not constitute legal advice. Reading the content of this writing or communicating with our office staff or attorneys by telephone, fax or e-mail does not make you a client of Tamari & Blumenthal, LLC. To become a client, you must sign and return our governing engagement agreement. Persons reading the content of this writing should not act upon this information without contacting and speaking with an attorney. Do not issue or provide us with confidential information until an attorney-client relationship has been formally established with our firm.
