The problems raised by mistake have been a source of persistent difficulty in contract law. In part this difficulty results from the complex nature of the underlying issues: Intuitively, there seems to be a serious tension between the concept that mistake may be a ground for relief in contractual transactions and such basic ideas of contract law as risk-shifting, the security of transactions, and rewards to knowledge, skill, and diligence. Much of the difficulty, however, results from the use of legal categories and doctrinal rules that are not sufficiently based on a functional analysis. Traditionally, contract law has recognized four categories of mistake, each with its own body of rules: mutual mistake, unilateral mistake, mistranscription, and misunderstanding. Many of the rules that govern these categories turn on elements that are either of limited functional significance or are easy to verbally manipulate. Even the names of the categories generally fail to describe mistakes according to their functional characteristics. The purpose of this Article is to develop the legal rules that should govern mistake in contract law on a functional basis. These rules are intended to be normative rather than descriptive, but by and large they are consistent with the results in existing cases and often explain the cases better than existing doctrine does. I begin by developing the considerations Of efficiency, social morality, and experience that bear most heavily in formulating the rules that should govern mistake in contract law. Next, these considerations are brought to bear on various kinds of mistake that are described on the basis of their character. Five types of mistake are considered: evaluative mistakes, mechanical errors, mistranscriptions, interpretive mistakes, and shared mistaken factual assumptions. Evaluative mistakes arise when an actor who was capable and well-informed at the time he made a contract comes to believe that his choice to make the contract was mistaken due to a change in either his preferences, his subjective valuation of the performances due under the contract, or the objective or market value of those performances. Mechanical errors are physical or intellectual blunders that result from transient errors in the mechanics of an actor's physical or mental machinery. Mistranscriptions are a special kind of mechanical error, in which the drafter of a written instrument that is intended to transcribe an oral contract mistakenly fails to transcribe the oral contract accurately. Interpretive mistakes are mistakes by one or both contracting parties about the most reasonable meaning of an expression the parties have employed, the meaning that the other party attaches to an expression, or both. A mistaken factual assumption is a mistake about the world that lies outside the mind of the party who holds the assumption. Such an assumption is shared if it is held by both parties, and unshared if it is held by only one party. In this Article, I consider shared mistaken factual assumptions. In a companion article, Disclosure in Contract Law, I consider unshared mistaken factual assumptions.
